Make no mistake. From its very inception the euro has been an attack vehicle against the dollar. This article at the Center for European Reform by Adam Tooze and Christian Odendahl explains the changes Europe and in particular Germany must make for the euro to rival the dollar.
If that actually happens we are in terrible, terrible trouble.
A ‘reserve currency’ is a quaint notion from days gone by. A reserve currency must be backed by something other than an IOU, and it must be convertible in theory, at least. When Nixon closed the gold window, the US stopped converting dollars into gold. The US defaulted on the dollar, and it ceased to be a pseudo reserve currency.
They have confused the dollar with the eurodollar. The eurodollar exists on off-shore accounting ledgers, only. For the euro to become the currency of choice, there will need to be a lot more euro’s on offshore ledgers. Large trade deficits are one way to do it, but I doubt they will take that route.
It has been argued that a country that has an international reserve currency, like the dollar, must run an accounts deficit in order to maintain the liquidity of international commerce. If it doesn’t, international commerce will shrink.
It works at the national level, too. The Federal Reserve was at least partly responsible for the Great Depression, because it removed money from the banking system when the crisis first began.
I don’t see the Germans agreeing to the foreign sector deficits necessary to make the euro a challenge to the dollar. I’m not sure they even understand the dynamics. They seem to take a highly moralistic view of finance.
Re Ben Wolf:
Yes, the Germans won’t agree to either Germany or the EU as a whole running deficits, and that is why the Euro cannot be replace the dollar as a reserve currency, although countries need some on hand for trade with the EU.