The European Union appears to be feeling the pressure to fast-track its digital euro project as the Trump administration in the United States signals a warmer embrace of cryptocurrencies, particularly stablecoins.
With the European Central Bank (ECB) aiming to wrap up its testing phase for a central bank digital currency (CBDC) by October, a senior EU official has underscored the urgency of the initiative, citing potential threats to Europe’s monetary sovereignty and financial stability.
The ECB has been laying the groundwork for a digital euro for several years, entering the preparation phase in late 2023.
A final decision from EU lawmakers on whether to greenlight the CBDC is expected by year-end.
ECB President Christine Lagarde recently emphasized the pressing need to move forward, stating,
“I think it is critically important, and for the agnostics or the sceptics, it now seems more relevant and more imperative than ever before, both on the wholesale and on the retail level.”
Her remarks reflect a broader concern that Europe risks falling behind in the global race for digital finance innovation.
This sense of urgency comes amid a shifting landscape in the United States, where the Trump administration’s pro-crypto stance has raised eyebrows in Europe.
Pierre Gramegna, managing director of the European Stability Mechanism (ESM), warned that America’s pivot toward stablecoins—cryptocurrencies pegged to assets like the U.S. dollar—could embolden U.S. and foreign tech giants to roll out mass payment systems tied to dollar-denominated tokens.
“If this were to be successful,” Gramegna told reporters, “it could affect the euro area’s monetary sovereignty and financial stability.”
He argued that the ECB must act swiftly to make the digital euro a reality, framing it as a vital tool to safeguard Europe’s strategic autonomy in an increasingly digital financial world.
Gramegna’s concerns are not hypothetical. Tech giants like Meta have previously attempted to launch stablecoin-based payment systems, such as the ill-fated Diem project, which aimed to pair a digital currency with a wallet for global transactions. It’s also worth noting that at the time when Diem / Libra was introduced, most regulators had a more hostile approach towards such innovations and now they are far more receptive and cooperative.
Though Diem ultimately collapsed under regulatory pressure, a U.S. policy shift could reignite similar initiatives, potentially sidelining the euro in digital payment ecosystems. But it is still too early in the development of these new financial technologies to make such assertions.
However, the ECB’s push for a digital euro is not without its challenges.
A recent outage in the ECB’s Target 2 payment system has fueled skepticism among lawmakers about the bank’s ability to manage a CBDC.
Markus Ferber, a member of the European People’s Party, told Reuters,
“This instance is a blow to the ECB’s credibility. People will ask legitimate questions how the ECB will be able to run a digital euro when they cannot even keep their day-to-day operations running smoothly.”
The incident has intensified doubts at a critical juncture, threatening to derail momentum for the project.
Despite these hurdles, proponents like Gramegna remain steadfast.
His organization, the ESM, has thrown its weight behind the ECB, arguing that a digital euro is “more necessary than ever” to counter the risks posed by a U.S.-led stablecoin surge. However, it still remains unclear why stablecoins could pose the type of threat these policymakers think it will.
As global financial systems digitize, the EU faces a pivotal choice: accelerate its CBDC plans or potentially risk ceding influence to dollar-backed digital currencies. But the long-term impact of these innovations could be a lot different with many different forms of digital currencies competing for market share.