BRUSSELS (Sputnik) – More careful study of the German foreign minister’s idea of creating a European equivalent of the SWIFT system shows its infeasibility against the US economic power and dollar domination.
The US economic pressure effectively leaves the bloc helpless in its endeavors to shield EU companies from Washington’s reinstated sanctions and preserve ties with Tehran.
Heiko Maas outlined his ambitious proposal in an op-ed for the Handelsblatt newspaper published on Tuesday. According to the minister, it would protect European businesses from anti-Iran sanctions, reinstated by Washington in the light of its withdrawal from the nuclear deal.
Maas’ Provocative Proposal
The proposal immediately hit the headlines in the financial press, in Germany and the world, which was probably the purpose of Maas, whose declaration did trigger discussion.
SWIFT is based in the Belgian municipality of La Hulpe, close to Brussels, and is basically a messaging company under European law, through which all banking transfers of the world are funneled, day and night. The network is hyper-secure of course. SWIFT is the core of the core of the globalized financial world. All bank transfers go through its powerful computer system.
Sputnik immediately asked SWIFT to react. The reaction came from the PR agency of SWIFT, the Finsbury group, which confirmed that the system had taken note of the US decision to withdraw from the Iran nuclear deal and reinstate sanctions, and that it would be consulting with and seeking clarifications from both Washington and Brussels.
“In terms of a general response to the impending reintroduction of US sanctions, SWIFT notes the US decision to exit the JCPOA (the Iran nuclear agreement) and to revoke the US sanctions waivers related to financial messaging services. We understand from US Treasury guidance, that the financial messaging revocation will not come into effect until after 180 days, in November 2018. As there has been no related change to EU legislation we will naturally be consulting with and seeking clarification from both EU and US authorities,” the company said on behalf of SWIFT.
In other words, SWIFT basically answers “no comment.” The financial messaging system, however, was not the only one, which was caught off-guard by Maas’ proposal.
German Chancellor Angela Merkel, for instance, described her minister’s statement as an “expression of opinion,” that was not discussed with her. The chancellor also reiterated the importance of EU cooperation with Washington.
SWIFT or No SWIFT, Europeans Are Helpless Anyway
To assess the feasibility of the idea of creating an “independent SWIFT,” Sputnik spoke with an expert in the field, Professor Eric Dor from the School of Management (IESEG) of the University of Lille, France.
“The proposal of creating another SWIFT is not realistic at all. Heiko Maas probably does not have the expertise to understand that, but it reflects his frustration, the frustration of Europeans at their own helplessness to tackle the American sanctions decided by Washington on Iran,” Dor, the director of research at IESEG, said.
According to Dor, “SWIFT or no SWIFT, it does not change anything,” since it is only a messaging system. The main blow to big businesses is Washington’s secondary sanctions which will have an extraterritorial effect and will effectively ban companies from doing business with Iran from any future economic engagement with the United States.
“[The United States] force non-US persons to apply sanctions if they make deals or finance deals with Iran. The retaliatory actions by the United States are lethal weapons: no more access to the American banking system, the managers and shareholders of the company cannot travel to the US anymore, their assets in all territories under American jurisdiction are frozen, etc,” he clarified.
The professor stressed that “the most important is that the clearing of the overwhelming majority of financial transactions in dollars around the world” were carried out in the United States.
“The United States perfectly controls all transactions in US dollars … If ever China wanted to attack the USA, they could massively sell their American bonds. This would send the US dollar to the floor, raise the interest rates, but China would lose enormously too. Not feasible,” he pointed out.
Dor suggested that, despite being a large creditor of the United States, Europe would not be able to offer effective resistance, since banks were unlikely to run the risk of having their assets frozen by the United States.
“Creating a European SWIFT as Heiko Maas proposes is unrealistic. What are the banks that would accept to function through this system? Their board of management and shareholders would all be too scared to be forbidden to travel to the US and see their personal assets frozen in the US. It is the same for the present shareholders of SWIFT, under European law. Nobody would follow Minister Maas in this folly. Don’t forget JP Morgan or Goldman Sachs are on the board of SWIFT!” he argued.
Could Juncker Be Arrested When He Lands in NY?
A former director of BNP Paribas Fortis, who also worked for SWIFT as a consultant, shares the view that large companies would hardly dare defy the United States by going ahead with business with Tehran.
“Minister Maas has admitted since that he had made his declaration as ‘food for thought,’ after being disavowed by everybody. SWIFT clients are all the banks of the world … including the Iranian national bank and the main banks of Iran … at least until November 4th, when the second train of American sanctions will become reality. How could a SWIFT BIS [Bank for International Settlements] be created? And only for transactions between Iranian banks and European banks? Which ones? Who would be crazy enough to defy the US?” the expert who preferred to stay unnamed wondered.
The expert also seriously questioned the effectiveness of the European Union’s other attempts to shield its businesses from US sanctions, including the Blocking Statute.
“[The Blocking Statute] forbids European companies and banks engaged in a deal with Iran, to accept to apply the secondary US sanctions. Can you imagine Europe punishing Total or Siemens for leaving Iran now? Could the EU punish Deutsche Bank for refusing to finance a credit to a European food producer in Iran? Deutsche Bank is the largest foreign bank in the United States. They are not crazy!” he argued.
He also suggested that businesses would never run the risk of doing businesses with Tehran for the fear of being “arrested” in Washington over their disregard of the sanctions regime.
“Actually, this question should be put to the international lawyers, but what forbids the Americans of arresting [European Commission President] Jean-Claude Juncker himself when he lands in New York? He decided with his Commission to refuse the American sanctions. It would be diplomatic mayhem, but the present occupant of the White House could very well go as far as that, no?” he suggested.
New SWIFT Would Take Years, Unfeasible Amid Dollar’s Domination
Francis Panichelli, a banker at Fuchs Luxembourg, who also previously worked for a large Belgian bank, pointed to practical challenges related to the creation of an analogue of the SWIFT system, which would take years and require first-class professionals.
“On top of the diplomatic difficulties that can be imagined, creating a SWIFT BIS, even if it were a relatively small venture, is extremely difficult to organize. You need computer experts of a certain caliber to organize such a network and make it function, at the nanosecond. It would take years. SWIFT is already 30 years old. It is totally impossible to create another network next to it, so it shows how frustrated and disarmed Europeans are, confronted with the American will,” Panichelli said.
He also dismissed the very concept of the creation of an “independent SWIFT” as unfeasible, since the US dollar remains the main currency for transactions in such vital sectors, as oil industry and aeronautics.
“In my eyes, Iran will remain very isolated. Even China or Russia cannot help much. The dollar is the currency for transactions in the oil sector, it is the same for the world of aeronautics. Normally, the sale of pharmaceuticals is out of the field of sanctions, and the Americans have recognized it, but it is the only sector that would be free to continue working with Iran,” he concluded.
Iran keeps telling the European Union that they need to act now and find ways to continue supporting economic exchanges with the Islamic republic, if they want it to honor the nuclear deal, despite the US exit.
Europe, however, seems to be completely paralyzed, and the SWIFT issue shows how inextricable the problem is. The danger exists of course that Iran would resort to its policy of developing the atomic bomb, but it would inevitably meet the US response.