Why the Digital Euro Could Be the EU’s Next Turning Point

The 2026 World Economic Forum delivered a harsh lesson for Europeans: In a world of growing geopolitical tension, dependence is vulnerability. Shifts in the foreign and economic policies of the United States, the European Union’s strongest transatlantic ally, have reinforced the need for Europe to reassess its autonomy in technology, defence and finance.

Europe can no longer afford to delay this debate. The Old Continent finds itself in a very complicated geopolitical position, surrounded by two major powers–Russia and the US– while also having to compete with an unstoppable China, which, through the Belt and Road Initiative, is taking a backseat approach to economic power.

Yet, for Europe to distance itself from the US is not an easy task, simply because of the number of financial, technological, commercial and diplomatic ties that have linked these countries since World War II.

Europe’s technological dependency

The tech context is increasingly concerning at the moment, with three major US companies dominating 65% of Europe’s cloud computing market. Moreover, US companies dominate the market for artificial intelligence models, semiconductors and search engines. Visa, Mastercard and PayPal facilitate a large chunk of transactions happening within the EU, while Google and Apple prevail in the mobile phone operating systems.

Although it is hard to fully develop its own tech sector, the EU can further deepen its single market and preserve the core of its monetary union: its precious currency, the euro, second in the world only to the dollar.

As Piero Cipollone, member of the Executive Board of the European Central Bank (ECB), clearly spelt out in December 2025, ‘The Single Euro Payments Area (SEPA) has integrated credit transfers and direct debits, but we still lack a European solution for everyday payments at the point of sale and in e-commerce that works throughout the euro area. As a result, we rely heavily on a few non-European card and wallet providers. This dependence puts our strategic autonomy at risk’.

This risk is further amplified as the nature of money changes. We are witnessing how money is moving rapidly towards tokenisation, Distributed Ledger Technologies (DLT), the infrastructure allowing to digitally store and update records across multiple nodes in a network, and, most critically, their application within the volatile cryptocurrency markets. If these innovations are left in the hands of undefined private entities, particularly those that threaten European autonomy, this evolution could lead to further credit risk and fragmentation, effectively moving the battlefield from tech platforms to the very currency we use.

The digital euro: Europe’s monetary response

This is where the EU has a rare opportunity. The ECB is working towards issuing a central bank digital euro, which will function as digital cash for everyday payments across the euro area. To use it, users must create a digital wallet with their bank to deposit money. Once the setup is done, users can engage in exchanging money between them or make payments at physical or online shops, functioning both offline and online.

Crucially, the digital euro will offer enhanced privacy: your personal data remains private, much like using physical cash. This infrastructure acts as a safety net, protecting against technical failures or cyberattacks.

Beyond individual security, the digital euro is a strategic tool to unify the fragmented European payment landscape. Currently, users often rely on non-European card and wallet providers for cross-border transactions. By mandating area-wide acceptance, the digital euro leverages network effects to create a seamless, non-profit infrastructure.

This system serves as a powerful symbol of monetary unity, decreasing the EU's strategic dependence on foreign actors. Ultimately, by restricting the monopoly power of dominant private firms, the digital euro will lower transaction costs for merchants and businesses.

Navigating the tokenised world: Digital euro vs. USD stablecoins

As pointed out by a panel of senior officials at the IMF and a group of chief economists at BNP Paribas, the digital currency would give the euro a chance to compete in a tokenised world. It would enable institutional euro users to benefit from tokenisation while permitting DLT finance without the hazards of stablecoins.

This comparison is vital to understanding how the EU can navigate in a tokenised world while avoiding the systemic vulnerabilities inherent in private crypto-assets. It is crucial to grasp that stablecoins, unlike digital currency, are crypto-tokens issued by private companies designed to be backed by traditional financial assets, such as US Treasury Bills. They aim to be a safer alternative to volatile cryptocurrencies, unlike Bitcoin.

However, it was later unmasked that despite their name, they are not "stable" and can lose their peg to the dollar. For instance, the collapse of Silicon Valley Bank in 2023 led stablecoins to lose their 1:1 ratio to their dollar counterpart, necessitating a federal rescue to avoid a complete slump.

Central bank digital currencies, on the other hand, are issued by central banks with a full sovereign guarantee. The digital euro would not face the same risks, as the ECB cannot experience a traditional bank run in the same way as commercial banks.

This safety is not just a technical preference, but a necessity for sovereignty. As of June 2025, Frankfurt has further cause for concern: the GENIUS Act, signed in Washington, supports the legalisation of privately issued stablecoins, with an unspoken intent to ‘dollarise’ economies. Critics in Europe argue that over time, ‘dollarisation’ could weaken the ECB’s monetary autonomy by increasing reliance on a foreign unit of account for payments and savings. Ultimately, this would significantly constrain the ECB’s ability to conduct monetary policy in the euro area.

A pivotal proof for the EU

The digital euro, as economist Philip Lane argued, could serve as a ‘safeguard of Europe’s monetary union’, a tool capable of circumventing non-European payment networks and dependence on private US stablecoins, while complementing the current cash system. Its pitch will be a pivotal proof for the EU’s monetary system. The issuance alone is calculated to cost €1.3 billion; from the 2029 base year, another €320 million per year is estimated, costs that the ECB would bear as it normally does when issuing cash notes.

The final vote for the digital euro legislation in the European Parliament is expected in May 2026, which will facilitate a pilot exercise starting in mid-2027 and a potential first issuance in 2029.

Developing a digital euro involves high financial and political costs, and the stakes are undeniably high. Yet it is also the only credible instrument Europe has to offer a secure, public form of digital money and limit growing reliance on non-European payment systems and dollar-denominated stablecoins. In this sense, the question is not whether the digital euro is risky, but whether the EU can afford not to pursue it.

If the EU fails to act now, will the future of money be shaped elsewhere?