Digital Euro: A Game-Changer for Europe’s Financial Competitiveness

Piero Cipollone, a member of the European Central Bank’s (ECB) Executive Board, has underscored the urgent need for a digital euro to strengthen Europe’s position in digital payments and financial innovation. He emphasized that failure to act could see Europe lag behind in the rapidly evolving global financial landscape.

Closing the USA-EU Productivity Gap with Digital Finance

“Europe must become a leader in digital payments and digital finance,” Cipollone stated. “As Mario Draghi pointed out, the productivity gap between the U.S. and the EU is largely due to differences in technology and financial sectors. If we exclude these two industries, the gap disappears.”

Cipollone highlighted that digital payments and finance are at the heart of this transformation. “To bridge this gap, Europe must focus on digital payment solutions and financial innovations. The rapid evolution of technology is both an opportunity and a risk. If we seize this moment, we can develop competitive European solutions. If not, we risk weakening our economic strength, resilience, and strategic autonomy.”

Modernizing the Euro for a Digital Future

Cipollone stressed the euro’s role as the world’s second most important currency, warning that its future relevance depends on modernization. “For the euro to remain globally significant, transactions and investments in euros must be seamless, secure, and efficient in an increasingly digital financial ecosystem.”

The ECB official also emphasized the importance of central bank money in maintaining financial stability. “Central bank money serves as the backbone of the payments system, ensuring safety and integration. However, Europe’s financial market remains fragmented along national lines, limiting the full potential of the single European market.”

Reducing Europe’s Dependence on Foreign Payment Solutions

Cipollone cautioned against Europe’s over-reliance on non-European payment providers, particularly in retail transactions. “Our dependency on foreign payment solutions undermines Europe’s strategic autonomy and slows productivity growth. We must ask ourselves—why doesn’t Europe have its own alternative to VISA or Mastercard?”

He believes a digital euro could help address this imbalance. “A digital euro—central bank-issued digital money for retail transactions—would drive efficiency, foster competition, and enhance innovation while strengthening Europe’s financial sovereignty.”

Avoiding Fragmentation in Wholesale Transactions

Cipollone also pointed out the risks of fragmentation in wholesale finance. “For transactions between financial institutions, we must avoid the mistakes made in the retail sector. New technologies offer a chance to build a truly integrated European capital market from the outset.”

The risks of relying on international payment providers are becoming increasingly clear. “Over two-thirds of card transactions in the euro area were processed through global payment schemes in the second half of 2023. Additionally, 13 out of 20 euro area countries rely entirely on non-European payment solutions.”

A Digital Euro: A Universal Payment Solution for Europe

Cipollone explained that a digital euro would offer a unified and widely accepted payment option across Europe. “One of the primary goals of central bank money is to provide a universally accepted and sovereign-backed payment method for retail transactions. However, in the digital space, this objective is not currently met.”

He also criticized the fragmentation of European payments. “Europe lacks a cohesive payment system at scale, making it difficult for domestic payment providers to compete. As a result, we are not only uncompetitive within our own market but also on a global level.”

Ensuring Europe’s Financial Independence

Cipollone warned that dependence on foreign financial infrastructure could weaken Europe’s strategic autonomy. “Given today’s geopolitical instability, relying on non-European companies for essential payment services is risky. This dependency could soon extend beyond traditional payment providers.”

He argued that the digital euro would empower consumers and businesses with a modern, ECB-backed digital payment solution. “The digital euro would offer a secure, seamless, and universally accepted digital payment option for in-store, online, and peer-to-peer transactions. It would be available both online and offline and free for basic use.”

Competitive Advantages for Merchants and Payment Providers

For businesses, a digital euro would provide direct access to European consumers and lower transaction costs. “By introducing an alternative payment solution, the digital euro would enhance competition and drive down fees more effectively than regulatory intervention.”

Cipollone also highlighted the challenges facing European payment providers. “European financial institutions struggle to compete with global payment giants. As mobile payments grow in popularity, banks risk losing market share—not just in fees but also in customer relationships and data.”

Supporting Payment Providers, Not Replacing Them

Contrary to concerns that a digital euro might replace private payment providers, Cipollone assured that it would complement the existing system. “The digital euro would maintain the role of private payment service providers, ensuring they continue to manage customer relationships and receive fair compensation.”

Additionally, he emphasized that a digital euro would drive innovation and integration within Europe’s financial ecosystem. “The digital euro would lower the cost for payment providers to scale across Europe while encouraging widespread adoption of new financial technologies.”

Call to Action: Europe Must Act Now

Cipollone urged policymakers to act swiftly in adopting a digital euro. “In today’s rapidly evolving financial landscape, Europe cannot afford to stand still. Delaying digital central bank money would undermine our competitiveness, resilience, and strategic independence—allowing others to benefit instead.”

He reaffirmed the ECB’s commitment to keeping the euro competitive in the digital age. “By modernizing central bank money, we can safeguard monetary sovereignty, eliminate market fragmentation, drive financial innovation, and enhance Europe’s financial autonomy and resilience.”

Final Thoughts: The Future of European Digital Payments

The push for a digital euro is not just about modernization—it is about securing Europe’s future in the global financial system. With rising competition and increasing reliance on non-European payment solutions, Europe must embrace digital finance to remain competitive. The digital euro offers a secure, efficient, and strategic solution to ensure Europe’s leadership in the financial sector for years to come.