Do you know what underpins, and even drives, the global economy? It’s not the Federal Reserve Bank or any other central bank. It’s not the International Monetary Fund. It’s not a specific country. It’s not gold, oil or any other commodity. It’s not currency traders. It’s not even the almighty greenback.

What drives the economy is a force that cannot be seen—that is untouchable, intangible. It’s a phenomenon that can be shaped and molded; it’s fickle and susceptible to spur-of-the-moment change. In reality, the truth about what drives the global economy at the most fundamental level is alarming, sobering—even frightening.

The answer: confidence!

That’s right; our globe-girdling financial system—this interrelated, seemingly convoluted web of banks, industry, government, trade, stock markets—is underpinned and driven by an unseen force lodged within the unstable minds of men. The global economy is driven by the decisions of millions of individuals and groups of individuals. ceos, private investors, stockbrokers, industry leaders, manufacturers, government officials—the economies of the world are shaped and molded by these people. And what is motivating and influencing the decisions made by these individuals?

Perceptions. Feelings. Morals. Emotions. Convictions. Confidence.

Take the American dollar, for example. Its role on the world scene is hard to overestimate, and as the currency of choice for global trade and commerce since World War ii it has greased the global economy for decades. Why? Fundamentally, it’s because the world’s perception of the United States—that it is a superpower with a strong, consistent and stable economy—has caused individuals and nations alike to invest their confidence (and subsequently their money) in American power and stability.

The American dollar, like all other fiat currencies, has no intrinsic value of its own—it is not underpinned by anything of real, tangible value. Its value lies in the global demand for the dollar, which is motivated by the confidence that global consumers have in the U.S. economy. Thus, if the global perception of America and its economy changes, if individuals begin to lose confidence in America’s financial stability, serious dilemmas arise.

This is precisely what is occurring with regard to the world’s perception of America.

The Trumpet has reported extensively on the crumbling of America’s economic foundation—the unprecedentedly high budget and trade deficits, the housing market bubble, the massive Social Security and Medicare liabilities, the outrageous personal debt among Americans, the decline in manufacturing, the reliance on foreign powers to finance American spending. Now, alarmed and growing increasingly edgy by the critical condition of the American economy, the rest of the world is losing its confidence in the U.S. as a stable, consistent economic system.

As people the world over increasingly perceive America’s dire economic condition, they are searching for a more stable alternative in which to invest their confidence. Recent months have revealed the alternative economic power that the world is increasingly turning to: Europe.

After years of wallowing in stagnancy, many European economies and the overall European economy are now emerging as robust, credible, stable, opportunity-laden alternatives to America. In 2006, for the first time ever, Europe showed signs that it could become a global economic powerhouse. This trend looks set to continue, and as it does, watch for the merchants of the Earth to shift their confidence away from America and begin to invest it in Europe.

Within a few years, even months, the global economy will be orbiting around Europe! This trend can already be seen.

Last month, the Wall Street Journal, America’s chief financial newspaper, noted the growing influence of Europe’s economy. “Europe’s economy is firing on all cylinders after years of feeble growth, helping sustain global expansion as the U.S. economy slows and surprising many economists who doubted the Continent could muster enough demand to break its reliance on exports” (emphasis ours throughout). Ignited at first by rising exports, the Continent’s economic resurgence spilled over to impact other facets of the European economy, including investment, job creation and consumer spending.

An increasing number of financial gurus and investors are now seeing Europe as a safer long-term investment than America. “It’s looking increasingly like Europe hasn’t caught a cold from the U.S. sneezing,” commented economist Neville Hill from Credit Suisse in London. America’s economy is stumbling, but unlike in the past, this time it doesn’t seem to be dragging Europe down with it.

In November last year, the Organization for Economic Cooperation and Development (oecd) reported, “[T]he U.S. economy is running out of steam, but a European resurgence and the boom in Asia will prevent the world economy from derailing as it did after the stock market crash of 2000 ….” According to the oecd report, the comeback of the European economy in 2006 contributed to the “rebalancing” of global demand and output, “mitigating the impact of a U.S. slowdown” (International Herald Tribune,Nov. 28, 2006). America’s economy is stumbling while Europe’s is quickening its pace.

Where would you want to invest your confidence?

Much of the world is increasingly looking to the Europeans for economic stability and opportunity. America’s economic malaise is dramatically enhancing Europe’s reputation as a viable and attractive option.

The euro is a good thermometer of Europe’s success.

Five years old last week, the success of the euro—particularly on the international scene—has taken many by surprise. This young currency has emerged as the primary currency after the American dollar. The last quarter of 2006 was especially big for the euro. During this time the value of euro notes in circulation broke the €600 billion mark ($787 billion), nearly double the value of the then-national currencies in circulation in the last quarter of 2001. Reporting on this topic, the Financial Times stated, “The U.S. dollar bill’s standing as the world’s favorite form of cash is being usurped by the five-year-old euro” (Dec. 27, 2006). According to calculations performed by the Times, the value of euro notes in circulation in December 2006 exceeded the value of American dollars in circulation.

Remember—the euro is only five years old!

The growing strength of the euro can be attributed to a few key factors, including the weakening of the American dollar and declining confidence in the U.S. economy. But another important factor contributing to the rising demand of the euro is the growing confidence in the European economy by other nations. Banks and investors are not simply buying euros because the dollar is faltering—many are buying euros because they perceive that the European economy is rebounding strongly and becoming increasingly stable.

As the value of the dollar declines and demand for the euro increases, this global shift in confidence is stopping the mouths of the critics. In 2006 alone, the value of the euro rose 14 percent. When it was released five years ago, many critics said it could never share the field with the dollar, pound or yen. On its five-year anniversary, the value of the euro was near its all-time high, and it shows no signs of coming down. As short as it is, this impressive history is causing demand for the euro to grow—rapidly.

In a startling announcement last October, former Federal Reserve Chairman Alan Greenspan warned that both private investors and central banks were beginning to dump dollars in favor of the euro. “We’re beginning to see some move from the dollar to the euro, both from the private sector … but also from monetary authorities and central banks,” Greenspan said at a conference sponsored by the Commercial Finance Association on October 26. As the value of the dollar slid last year and as banks and governments grew concerned about America’s long-term economic stability, more and more nations—including Russia, China, Japan, Sweden, the United Arab Emirates, Qatar, Syria and South Korea—began to talk about diversifying their holdings away from the dollar, which in many cases meant purchasing more euros.

“Indeed, there is the very real possibility that several countries could switch a proportion of their foreign currency reserves out of dollars over time to the euro,” said Howard Archer, chief European economist for Global Insight in London. Even in some non-EU states, the euro is being used alongside the local currency in trade and commerce. Associated Press explained recently that

at least a half-dozen other European mini-states and territories are using the currency as legal tender—without approval from the European Central Bank.The euro was introduced five years ago to provide economic cohesion among EU countries. But euros also are in circulation in dozens of countries and overseas territories ranging from the North Atlantic to the Pacific. In Europe, Montenegro, Vatican City and San Marino and the principalities of Andorra and Monaco have used the euro since its inception. And in the UN-occupied Serbian province Kosovo, the euro circulates alongside the Serbian dinar.

The euro’s success, as the AP article noted, doesn’t bode well for the American dollar: “[T]he rise of the euro has made inroads into the dollar’s international dominance.“ For a young currency that the European Central Bank has not deliberately promoted, the growing use of the euro in international markets and in foreign exchange is testimony to the mounting confidence of banks, investors and governments in the European economy. Global demand for the euro has been organic; it started at the grassroots level and is being driven by the world’s growing confidence in Europe.

The rise of the euro is proving a boon for America’s oil-rich enemies too. The strengthening euro has equipped Iran with the option of demanding its clients pay for oil in euros rather than American dollars. Iran already receives payment for more than half of its oil in euros. Now Venezuela, another top oil producer, is strongly considering selling its oil in euros. Russia, whose central bank has been replacing its dollars with massive amounts of euros since 2002, has also warned that it will begin to sell much of its oil and gas in euros. This move, according to the Telegraph, “set off a chain reaction in the private sector, leading to a fourfold increase in euro deposits in Russian banks [in 2003] and sending Russian citizens scrambling to change their stashes of greenbacks into euro notes.” By reducing their reliance on the dollar and investing in the strengthening euro, America’s enemies have a new weapon to use against the U.S.

A weakening dollar and strengthening euro is even making trade and commerce difficult for America’s allies. During the last half of 2006, nations that accepted payments for goods and services (such as oil) in dollars saw the value of their dollars decrease dramatically against the euro and other currencies.

The significance of the world diversifying away from the dollar by buying more euros cannot be overstated. It is one of the most powerful proofs that global confidence in the American economy is eroding, and global confidence in Europe is taking its place.

U.S. Congressman Ron Paul from Texas commented on the significance of the growing popularity of the euro on January 1:

There are now more euros in circulation worldwide than dollars. This alone is not necessarily troubling, as the dollar remains the world’s most important reserve currency. About 65 percent of foreign central bank exchange reserves are still held in dollars, versus only about 25 percent in euros. …Still, the rise of the euro internationally is another sign that the U.S. dollar is not what it used to be. There is increasing pressure on nations to buy and sell oil in euros, and anecdotal evidence suggests that drug dealers and money launderers now prefer euros to dollars. Historically, the underground cash economy has always sought the most stable and valuable paper currency to conduct business.More importantly, our greatest benefactors for the last 20 years—Asian central banks—have lost their appetite for holding U.S. dollars.

With 65 percent of central bank reserves comprised of American dollars, the dollar remains, at this point, the number-one currency of choice. But for the young, relatively unproven euro to comprise 25 percent of international currency reserves is impressive.

In a system where currencies are underpinned by perception and confidence, the fact that the world is turning away from the dollar and toward the euro is a trend with gargantuan ramifications. Europe is beginning to replace America as the place for banks, investors and governments to invest their confidence.

As 2007 unfolds, many financial analysts anticipate that the euro will strengthen further—particularly against the dollar and the yen. As this trend persists, consider the psychological changes it portends. In a global economic system underpinned by confidence, the willingness of individuals and nations to shift their confidence from the American economy to the European economy says that some dramatic changes are occurring on the world scene. If this trend persists, America’s easy days of plentiful money and low inflation will be over; interest rates will rise, consumer confidence will plummet, and so will the economy.

This may not occur next week or next month, but the evidence strongly shows that the world is growing cautious about continuing to invest its confidence in the increasingly fragile and plagued American economy, and that the strengthening euro and rapidly improving European economy is providing private and national investors with an alternative.

2006 was the year the world accelerated its diversification away from the dollar. Watch for this trend to persist in 2007.

This year, global confidence will continue to shift away from America and toward Europe. Over the coming months and years, the world will begin to orbit around a European axis. Like America after World War ii, when Europe inherits the confidence of global consumers it will become the center of global activity. It will grow wealthier and more influential, gaining more global power. Like America these last 60 years, when Europe becomes the economic pillar underpinning the global financial system, it will become the greatest and most dominant power on Earth.

To learn more about Europe’s future economic dominance, request the Philadelphia Trumpet. This monthly magazine will keep you apprised of world conditions and explain them in the context of Bible prophecy.