Lagarde’s Call for a Stronger Euro
In May 2025, European Central Bank (ECB) President Christine Lagarde urged Europe’s leaders to seize what she termed a “global euro moment” because this is the opportunity for EU to elevate it’s international standing. Speaking in Berlin,the former Finance Minister and now the President of ECB, Lagarde, argued that growing alarm and uncertainty over global policies especially Donald Trump’s trade policies and the weakening of the U.S. dollar presented a rare opening for the euro to assert itself on the global stage because Euro has the potential to move beyond being only a regional currency. For Lagarde, this was not merely an economic opportunity but a defining test of Europe’s ability to act collectively which is only possible if EU leaders acted decisively.
Mario Draghi, during his administration in ECB had argued about more sweeping reforms to strengthen Europe’s financial institutions. Lagarde, built on these ideas, has over turned the focal point to the protectionist policies of the US, and has urged that now is the time for EU to push Euro to reinforce its international role. But over time, her vision became more opaque due to political divisions within EU. Her ambitions too soon lost its momentum due to the war in Ukraine, and domestic turbulence across Europe ultimately diverted the leaders attention from euro’s global ambitions to immediate crises.
Dollar Still the Benchmark
Despite Europe’s vision of internationalizing Euro, the dollar continues to dominate the global financial system and remains the backbone to international trade and finance. The monopoly of dollar stands still as nearly 60% of central bank reserves are held in U.S. dollars. It also serves as the core and primary currency for commodities trade, such as oil and gas. This global standing of dollar has given Washington the leverage to dominate global markets, impose sanctions and blockades and maintain financial stability according to their terms and policies, as Trump once stated blatantly, “Dollar is the king, and we are going to keep it that way.” This notion is very alarming for EU states and somehow their skepticism towards Trump has forced them not rely on dollars and seek better alternative, which is to advance and globalize Euro.
On the other hand, in the contemporary global system, euro only accounts for 20% of central bank reserves and international trade invoicing making it second most utilized currency. About 60 states, either use euro as their currency or pegs their currencies to euro. This reflects that the significance of euro is well beyond Eurozone. If we look back, in 2023, euro gained 13% against dollar, briefly reaching a four year high, signaling towards growing confidence of investors, yet these remarkable gains have not been translated into structural dominance and euro’s influence remains largely fragmented and regional. There is still a wide gap between dollar and euro’s global reach.
The Search for Safe Assets
A core obstacle to eurozone is the lack of deep and liquid market for safe euro-denominated assets as compared to U.S Treasuries. The U.S treasury is regarded as the safest and most liquid store of value by investors worldwide as the U.S treasury market is worth roughly around 30$ trillion. In contrast, the collective value of euro area government bonds is less than half that. Now within eurozone, German bonds are seen as safe, bur debt from Italy, Greece or the politically strained France has failed to inspire the same level of investors confidence, due to which the economic landscape of Europe and the ability of euro to be served as a global currency remains fragmented and uncertain.
Over the years, various ideas have been floated by the policymakers to address this gap, including eurobonds “blue bonds” or defence related joint borrowing. Yet, each of these ideas have run into strong resistance from fiscally conservative states like Germany and The Netherlands, because their leaders argues that pooling debt creates a moral hazard and are also reluctant to share liability with southern members viewed as overspending(because they see them as financially irresponsible). The COVID-19 briefly shifted this dynamic with the pandemic recovery fund of €800 billion termed as the “Next Generation EU” which was financed through joint debt in 2020. It was a silver lining that joint borrowing is possible in case of emergencies, yet the subsequent attempts to extend such mechanisms particularly in financing Europe’s defence buildup and urgent push for military modernization failed to win consensus.
Fragmented Capital Markets
Fragmentation is another bigger obstacle to Europe’s capital and banking market. Europe remains highly segregated in terms of its financial institutions within national lines, with differing rules on bankruptcy, securities regulations and taxation unlike the U.S that has maintained its unified financial system. Certain proposals have been issued by policymakers to create a capital market union, which would harmonize the rules and centralize oversight has been stalled for nearly a decade now. Certain EU states, like Luxembourg, Ireland and Malta are skeptical and fear losing their autonomy to EU level regulations as they have larger economic sectors.
Lagarde has often argued that it’s the fragmented financial system of Europe that’s holding euro back from reaching its potential in the international system. She has also proposed to strengthen the European Securities and Markets Authority (ESMA), and has even floated the idea of European SEC with national offices to ensure member states that heir national interests would still be represented. However, this idea remains highly controversial because smaller states like Luxembourg, Malta etc fears losing their autonomy over their financial institutions if too much authority shifts to Paris or Brussels. This financial tug of war has slowed down to reach the goal of a unified capital market, as larger states like Germany and France also plans on maintaining strong oversight over their financial institutions.
Without a unified market, EU can not compete with the liquidity and efficiency of U.S capital markets due to which EU’s appeal of globalizing euro remains weak and unachievable currently.
Digital Euro: A Delayed Innovation
Digital finance, an ear of a new global monetary competition has begun.China, taking a lead has already introduced this digital Yuan, while U.S tech companies are experimenting digital versions of dollars, known as stablecoins. However, Europe, is lagging behind in this run of digital currencies, due to disagreements among lawmakers and and banks. They argue that there is a lack of clear purpose for digital currencies, citing concerns over costs and a lingering risk that commercial banks will lose their value.
So far, EU spent years on discussion and over a dozen parliamentary hearings, but the project’s timeline might extend from 2026-29 with full implementation. Lagarde, has personally shown her frustration over the slow propagation of this project and has repeatedly warned that Europe can not afford to fall behind in digital innovation and technology. Nevertheless, political divisions and bureaucratic cautions has stalled the progress.
Yuan and Gold: The Competing Currencies
Around the globe, many central banks seeks better alternatives to reduce their reliance on dollar, but the euro has still not been the main winner in this game. However, gold has gained ground as a safer reserve asset. At the same time, China’s Yuan is climbing upwards to expand its global reach, specifically in Asia. Beijing has actively offered financial support to other central banks and swap agreements, which ultimately helped in achieving its objective: the renminbi gaining global influence slowly.
According to surveys of central banks, Yuan is seen as along term alternative as compared to euro or dollar. China’s proactive strategy for a global financial outreach highlights weaknesses in Europe’s policies. Europe has been cautious and did not offer similar swap arrangement or incentives, leading to euro risking losing ground even in regions where its influence could potentially grow.
Global Impact
A stable and stronger euro would have protected European economies from dollar shocks like U.S sanctions and exchange range volatility, making its economies less vulnerable, reducing dependency on U.S financial institutions and eventually would have given Europe a greater geopolitical autonomy, therefore its fair to say that the question of euro’s global standing is not merely symbolic. This reliance on U.S dollar has made Europe vulnerable. Therefore, expanding Euro’s role would give EU more leverage and strength in global diplomacy, finance and trade.
However, EU’s structural weaknesses remains clear. So far the bloc has been unable to generate safe assets, unify their capital markets or move forward with digital innovation and that’s where the core structural weaknesses lies.Domestically, euro is a major achievement, protecting over 350 million citizens from currency instability across 20 countries, but at the same time lacks the weight that the EU leaders aspire to have on global stage.
Stakeholder Positions
Germany & Northern States (Netherlands in particular) consistently opposes the notion of joint debt insurance, arguing that it would remain fiscal responsibility. They believe that debt sharing would eventually transfer the financial risks of highly indebted southern states to their own taxpayers, even if this is an obstacle in euro’s global outreach they would still not agree to it.
France has always been open to reforms that would ensure strengthening euro’s role globally, including deeper integration and creation of collective assets, however is still particularly cautious when it comes to defence and financial independence. For instance: French policymakers prefers national control over areas like defense funding and financial oversight, slowing down the progress of globalizing euro.
Smaller States (Luxembourg, Ireland, Malta) due to their larger financial sectors are wary to greater centralization. They are resistant towards transferring supervisory powers to EU bodies like ESMA, and that they might face stricter regulations etc, therefore local interested are being prioritized over global outreach.
Under Legarde, ECB has been the most active advocate for integration. Lgearde has pushed for a greater centralization of financial supervision, the development of digital euro and the creation of a safe euro denominated assets. Despite her leadership, political fragmentation within EU has halted the progress.
IMF & Analysts have warned that the EU financial system is too weak and segregated to support a truly global currency, pointing towards the lack of unified and liquid capital market, lack of having a common ground within EU regarding the future of euro, ultimately deterring investors.
Analysis:
This seems to be a political issue not an economic. The euro’s limitations are less about economic fundamentals and more about politics. Europe has potentially the scale, a large single market, deeper trade links, and a globally recognized central bank, but what it lacks is unity within. For instance, Germany’s fiscal caution, smaller states’ policies of protectionism, and general political hesitancy has ultimately prevented greater reforms.
Lagarde’s frustration is genuine and clear. She imagines the Europe be at crossroads, with opportunities slowly slipping away. The eurozone’s cautious and reactive approach contradicts sharply with the U.S. ability to act briskly and China’s bold experimentation with digital currency. In the fore coming future, if the Europe continued on this path, it will lag behind in shaping global financial system.
Beside that, most observers agree that the euro does not seem to possess potential to rival with dollar anytime soon, and at best it can maintain its role as the world’s second most used currency, valuable but not dominant. In order to move beyond that, Europe needs to create a unified pool of safe euro assets, completely financially integrate with a capital markets union and speed up the launch of its digital euro. Europe also needs to immediately expand their international outreach specifically in newly emerging markets.
Legarde’s “global euro moment” may well prove to be another missed opportunity in history of European integration if these crucial steps are not being acted upon, and euro will remain limited due to the same divisions that has held back Europe for decades.
