An opportunity to strengthen the euro’s international role: Benefits and key Reforms

In a recent opinion piece published in the Financial Times, Christine Lagarde, President of the European Central Bank (ECB), highlights the opportunity presented by the current context of geopolitical uncertainty to strengthen the euro’s international standing, outlining both the potential benefits and the necessary steps to achieve this goal.

• Key measures to enhance the euro’s international role: Elevating the euro’s global status, Lagarde argues, would yield clear benefits such as lower borrowing costs, greater protection from exchange rate volatility, and resilience against sanctions and external economic pressure. To unlock this potential, Europe needs to strengthen three core pillars:

1. Geopolitical Credibility
   Investors value stability and reliable alliances. Lagarde points out that such credibility can boost a currency’s share in global reserves by up to 30 percentage points. The EU’s ongoing pivot towards reinforcing its hard power (i.e. greater defence capability) should help bolster global confidence in the euro.
   
   
2. Economic Resilience
   Economic strength is the backbone of any international currency. To that end, Europe must take decisive steps by completing the single market, reducing regulatory burdens and building a robust capital markets union. Strategic industries, such as green technologies and defence, should be supported through co-ordinated EU-wide policies. Joint financing of public goods, like defence, could create more safe assets (outstanding sovereign bonds with at least a AA rating amount to just under 50% of GDP in the EU, versus over 100% in the US).
   
   
3. Legal and Institutional Integrity
   While the EU may seem complex externally, its structured governance provides checks, balances, and policy predictability. According to Lagarde,—respect for the rule of law and the independence of key institutions like the ECB are critical comparative advantages. However,  the article calls for institutional reform, proposing to replace the current unanimity rule —which allows a single Member State to block initiatives supported by the other 26— with qualified majority voting in key areas. This, she argues, would enable the EU to act more decisively and speak with a stronger, unified voice on global matters.