Best defense
For years, ECB officials have framed the launch of a digital euro as Europe’s most effective response to the threat posed by foreign digital currencies. The goal is to provide a trusted, euro-denominated alternative that would make it safer and easier for citizens and businesses to stay within the eurozone’s monetary framework. A digital euro would offer the advantages of digital currencies without the currency substitution risk.
Lagarde has redoubled her efforts to move the project forward, urging lawmakers to act swiftly. “A legislative framework to pave the way for the potential introduction of a digital euro should be put in place rapidly,” she told the European Parliament in June, calling it a “strategic priority” to address the risks posed by stablecoins.
According to one member, the Governing Council remains skeptical of stablecoins, echoing concerns voiced by the Bank for International Settlements that they fail to meet the standards of “sound money” and suffer from insufficient regulation.
Another colleague, however, acknowledged there may be a limited role for euro-linked stablecoins serving as a bridge between the two systems until the digital euro is launched, which could still take several years. Similarly, Schaaf noted that they “could serve legitimate market needs” and “could also reinforce the international role of the euro.”
There tends to be a broad divide between politically left- and right-leaning economists, with the latter generally more open towards supporting a technology that has been largely advanced by the private sector.
Economists Jens van ’t Klooster, Edoardo Martino, and Eric Monnet are convinced that mimicking the U.S. stablecoin model would be a strategic misstep. “This is neither realistic, given the incumbency advantage of the dollar, nor is euroization of third countries through risky stablecoins per se good for the EU,” they wrote in a recent paper for the Center for Economic Policy Research.
Instead, they urged Brussels to focus on positioning the euro as a globally trusted, safe asset — backed by sound institutions and regulation.
“The EU should stick to promoting the internationalization of the euro as a safe asset that can be held without constraint,” they argued. Third countries may then use the euro to offset the risk of stable coin-driven dollarization, raising long-term demand for the single currency.