In a speech in Paris, European Central Bank President Christine Lagarde argued that the international role of the euro should become a central policy question, as the euro area is increasingly exposed to spillovers from trade and geopolitics. She warned that episodes of safe-haven inflows can translate into sharp euro appreciation and higher costs for exporters, leaving Europe as an “innocent bystander” to shocks generated elsewhere. Lagarde said the euro area has some cushioning features, including deep foreign exchange markets and the fact that 52% of imports are invoiced in euro, but lacks sufficient capital market depth to absorb inflows in ways that support investment. She highlighted that the euro area’s combined AAA and AA-rated sovereign bond market totals EUR 6.6 trillion, around one-fifth the size of the US Treasury market, equity markets are less than half the size of those in the United States and have delivered returns five times lower since 2009, while more than EUR 11.5 trillion of household savings remain held as deposits. Against this backdrop, she pointed to completing the Single Market and building a genuine savings and investments union, reducing fragmentation across regulations, tax regimes and bankruptcy rules, broadening euro use in trade including via new trade agreements, and improving cross-border payments in euro through initiatives such as cross-currency settlements in TARGET Instant Payment Settlement and links to fast payment systems outside the EU, alongside the ECB’s liquidity lines as a backstop in stressed conditions. She also cited analysis that higher US tariffs could reduce euro area exports to the United States by around 9%, implying a 0.9% fall in overall exports or roughly EUR 66 billion, which could be offset by a 2% increase in intra-euro area trade.
European Central Bank 2025-10-07
European Central Bank President Lagarde calls for deeper capital markets and payment infrastructure to strengthen the euro’s global role
European Central Bank President Christine Lagarde, in a Paris speech, stressed that the euro's international role should be a central policy focus due to the euro area's vulnerability to trade and geopolitical spillovers. She highlighted the lack of capital market depth to absorb inflows effectively, despite some cushioning features like deep foreign exchange markets. Lagarde advocated for completing the Single Market, building a savings and investments union, reducing regulatory fragmentation, and enhancing euro use in trade and cross-border payments.