It’s Europe’s ‘global euro’s moment, says ECB’s Lagarde as dollar stumbles – Firstpost

Europe stands at a critical crossroads in the shifting landscape of global finance, according to European Central Bank President Christine Lagarde. In a detailed article published in the Financial Times, Lagarde emphasises a “profound shift in the global order,” where the foundations of open markets and multilateral rules are fracturing, and the long-standing dominance of the US dollar—the cornerstone of the international system—is no longer guaranteed.

“The rise of protectionism, zero-sum thinking and bilateral power plays are replacing the old order,” Lagarde warns. This growing uncertainty is already exacting a heavy toll on Europe’s economy, which is deeply integrated into global trade networks supporting some 30 million jobs. However, she emphasises that this disruption also offers Europe a unique opportunity to “take greater control of its own destiny” and to elevate the euro’s role on the world stage.

Currently, the euro is the world’s second most-used currency, representing about 20 per cent of global foreign exchange reserves, compared with the US dollar’s 58 per cent. Lagarde argues that increasing the euro’s global status would yield “tangible benefits,” including lower borrowing costs for European entities, reduced vulnerability to currency fluctuations, and protection from sanctions or coercive measures imposed by other powers.

Yet, she stresses that this rise will not happen automatically. “It must be earned,” she writes, noting that despite growing concerns about the dollar’s dominance, investors have so far preferred to increase their holdings of gold rather than shift to alternative currencies.

To realise the euro’s full potential, Lagarde identifies three foundational pillars that Europe must strengthen: geopolitical credibility, economic resilience, and legal and institutional integrity.

First, Europe’s geopolitical standing is crucial. The EU is the world’s largest trading bloc and the primary partner for 72 countries, accounting for nearly 40 per cent of global GDP. This trade dominance is reflected in the euro’s use as an invoicing currency, which currently stands at around 40 per cent. Lagarde calls on the EU to leverage this position by forging new trade agreements and rebuilding its hard power, which she believes will bolster confidence in the euro globally.

Second, economic strength underpins any international currency’s success. Lagarde points to Europe’s persistent structural challenges, including sluggish growth, fragmented capital markets, and a shortage of high-quality safe assets. While the EU’s aggregate fiscal position is relatively strong, with a debt-to-GDP ratio of 89 per cent compared to 124 per cent in the US, the supply of sovereign bonds rated AA or higher is less than 50 per cent of GDP—far below US levels. To address this, she urges completing the single market, reducing regulatory barriers, and building a robust capital markets union. Supporting strategic sectors such as green technologies and defence through coordinated EU-wide policies, including joint financing of public goods, could also increase the supply of safe assets.

Third, investor confidence depends on the strength and integrity of institutions backing the currency. Lagarde acknowledges that the EU’s complex structure can be difficult to understand from outside, but she insists that its inclusive decision-making processes guarantee checks and balances, stability, and policy certainty. Respect for the rule of law and the independence of institutions like the ECB are critical advantages that Europe should leverage. To enhance this further, she calls for institutional reforms, including limiting the use of single-member vetoes that block collective EU interests and expanding qualified majority voting in key areas to enable Europe to speak with one voice.

Lagarde concludes with a powerful reminder that global currency regimes have shifted before and can shift again. “This moment of change is an opportunity for Europe: it is a ‘global euro’ moment,” she writes. “To seize it and enhance the euro’s role in the international monetary system, we must act decisively as a united Europe taking greater control of its own destiny.”

Her message is clear: Europe must rise to the challenge, turning uncertainty into opportunity by strengthening its economic, geopolitical, and institutional foundations to secure the euro’s place as a truly global currency.