Gabriel Makhlouf of the ECB: The Euro Isn’t Ready to Replace the US Dollar as the Global Financial Anchor

• Why Does Makhlouf Believe the Euro Can’t Challenge the Dollar Yet?
• What’s Missing from the Eurozone’s Toolkit?
• How Does the ECB Plan to Boost the Euro’s Global Role?
• Could Recent Currency Shifts Be Misleading?
• What Would It Take for the Euro to Rival the Dollar?
• FAQ: Your Euro vs. Dollar Questions Answered

Gabriel Makhlouf, a key figure at the European Central Bank (ECB), has dismissed claims that the euro is poised to dethrone the US dollar as the world’s dominant reserve currency. Speaking at an economic conference in France, Makhlouf highlighted Europe’s lack of structural and fiscal integration as the primary barrier. This article delves into his arguments, explores the euro’s limitations, and examines the ECB’s push for deeper EU integration. Buckle up—this isn’t just about currencies; it’s about the future of Europe’s economic sovereignty.

Why Does Makhlouf Believe the Euro Can’t Challenge the Dollar Yet?

Gabriel Makhlouf, who doubles as Ireland’s central bank governor, didn’t mince words at the Aix-en-Provence conference. He pointed out five critical gaps: (1) No unified fiscal authority, (2) missing "safe assets" like US Treasuries, (3) fragmented capital markets, (4) weak cross-border investment flows, and (5) political hesitancy. "Europe’s economic system isn’t fully formed," he admitted, comparing the eurozone to a half-built bridge. For instance, while the US issues debt under one federal umbrella, eurozone bonds remain nationally fragmented—a dealbreaker for global investors seeking stability. Data from TradingView shows the euro’s share in global reserves has stagnated at ~20%, far behind the dollar’s 58%.

What’s Missing from the Eurozone’s Toolkit?

Makhlouf’s diagnosis cuts deep. The euro lacks three US-style superpowers: (1) A central budget (the EU’s is just 1% of GDP vs. the US’s 20%), (2) a deep, liquid bond market (euro-denominated SAFE assets total €12T vs. $25T for US Treasuries, per CoinGlass), and (3) crisis-fighting tools like a unified deposit insurance. Remember the 2012 debt crisis? Without collective risk-sharing, the euro nearly unraveled. Now, with energy shocks and inflation, Makhlouf warns repeating past mistakes could relegate the euro to "perpetual runner-up" status.

How Does the ECB Plan to Boost the Euro’s Global Role?

The ECB isn’t sitting idle. Makhlouf outlined a four-pillar strategy: (1) Completing banking union (only 52% of eurozone deposits are cross-border insured), (2) creating a "Eurobond" market, (3) harmonizing insolvency laws, and (4) expanding the EU’s €800B recovery fund. "This is about sovereignty," he stressed, noting China’s yuan now surpasses the euro in some trade settlements. One BTCC analyst suggests digital euro prototypes could accelerate adoption—but only if paired with structural reforms.

Could Recent Currency Shifts Be Misleading?

Makhlouf cautioned against overinterpreting 2023’s dollar dips. Yes, BRICS nations traded in local currencies, and Saudi Arabia priced oil in yuan. But as the Fed hiked rates, capital stampeded back to dollar assets. "The euro isn’t the dollar’s understudy waiting in the wings," he quipped. Historical precedent? The Deutsche mark in the 1980s—strong but never dominant due to Germany’s smaller economy. Today, the eurozone’s GDP trails the US by $6T (IMF 2024). Moral: Size matters.

What Would It Take for the Euro to Rival the Dollar?

Five non-negotiables, per Makhlouf: (1) A eurozone treasury, (2) joint debt issuance, (3) pan-European deposit insurance, (4) unified capital markets, and (5) political consensus. For context, the US needed 150 years (1790–1940s) to achieve this via Hamilton’s debt plan and the New Deal. Europe’s timeline? "Not in my tenure," Makhlouf chuckled. Until then, the dollar’s "exorbitant privilege"—earning seigniorage while outsourcing inflation—remains unchallenged.

FAQ: Your Euro vs. Dollar Questions Answered

Why can’t the euro replace the dollar immediately?

The eurozone lacks unified fiscal policies and a DEEP safe-asset market comparable to US Treasuries, making it less attractive for global reserves.

What structural reforms does the ECB propose?

Key proposals include completing banking union, issuing common Eurobonds, and expanding the EU’s recovery fund to mimic US-style fiscal integration.

How does the euro’s reserve currency status compare historically?

Since its 1999 launch, the euro peaked at 28% of global reserves in 2009 but has since declined to ~20%, while the dollar maintains ~58% (IMF COFER 2024).

Could geopolitical shifts accelerate de-dollarization?

While BRICS initiatives gain attention, Makhlouf argues systemic factors—like liquidity and institutional depth—favor the dollar for decades.

What role might a digital euro play?

An ECB CBDC could streamline cross-border payments but wouldn’t address Core gaps like fiscal fragmentation without political reforms.