Gabriel Makhlouf of ECB Governance Council: The Euro Is Not Ready to Replace the US Dollar
- Why Can’t the Euro Replace the Dollar Yet?
- What Structural Reforms Does Europe Need?
- How Do Recent Currency Shifts Mislead Observers?
- Could the EU’s “Strategic Autonomy” Push Tip the Scales?
- FAQ: The Euro vs. Dollar Debate
In a candid address at an economic conference in Aix-en-Provence, Gabriel Makhlouf, member of the ECB’s Governing Council and Governor of Ireland’s Central Bank, dismissed claims of the euro overtaking the US dollar as the global financial anchor. Highlighting Europe’s incomplete fiscal and structural integration, Makhlouf emphasized the eurozone’s lack of unified tools like a central fiscal authority or a common SAFE asset akin to US Treasuries. While the euro remains the world’s second-most-traded currency, its reserve status is hampered by fragmentation. This article unpacks Makhlouf’s arguments, explores the euro’s limitations, and examines calls for deeper EU integration. ---
Why Can’t the Euro Replace the Dollar Yet?
Gabriel Makhlouf’s skepticism stems from five critical gaps in the eurozone’s architecture: 1. No Central Fiscal Authority : Unlike the US federal system, the eurozone lacks a unified budget or debt issuance mechanism. 2. Missing Safe Assets : European bonds (e.g., German Bunds) are national, not pooled like US Treasuries, reducing liquidity. 3. Fragmented Banking Union : Incomplete cross-border deposit insurance and capital markets hinder risk-sharing. 4. Political Hurdles : National veto powers stall reforms, as seen in debates over EU-wide taxation. 5. Dollar’s Incumbency : 60% of global reserves and 88% of forex trades involve USD (CoinGlass 2024 data). Makhlouf quipped, “The euro is like a bicycle without pedals—it moves, but not efficiently.”
---What Structural Reforms Does Europe Need?
Makhlouf urged bold ECB actions and EU-level reforms: - Common Debt Instruments : Proposals for “Eurobonds” persist but face German opposition. - Banking Union Completion : A 2023 ECB report noted only 40% progress on risk-sharing mechanisms. - Fiscal Shock Absorbers : Pandemic-era Recovery Fund (€750B) was a start but needs permanence. - Digital Euro : A CBDC could streamline cross-border payments, trials begin 2025. - Green Investment : Leveraging the euro’s role in sustainable finance (35% of global green bonds). “Without these, the euro dances to the dollar’s tune,” remarked a BTCC analyst.
---How Do Recent Currency Shifts Mislead Observers?
Makhlouf warned against overinterpreting 2024’s dollar dips: - BRICS De-Dollarization : Russia/China’s bilateral trades in yuan ROSE to 40%, but global USD use held at 58% (SWIFT). - Euro’s 20% Trade Share : Mostly regional (e.g., French-African CFA franc pegs). - Cryptocurrency Noise : Bitcoin’s 5% forex volume (TradingView) pales next to EUR/USD’s 28%. “A few central banks diversifying reserves isn’t a regime change,” he stressed.
---Could the EU’s “Strategic Autonomy” Push Tip the Scales?
Makhlouf framed global uncertainty as an opportunity: - Energy Independence : REPowerEU cut Russian gas imports from 40% to 12% in 2023. - Tech Sovereignty : €43B Chips Act aims to double EU semiconductor production by 2030. - Defense Integration : Joint procurement could save €30B/year (Bruegel Institute). Yet, as one trader joked, “The EU moves at the speed of a Belgian bureaucracy.”
---FAQ: The Euro vs. Dollar Debate
What’s the euro’s main advantage over the dollar?
Geopolitical neutrality—unlike the USD, it’s less weaponized for sanctions.
Has any currency ever dethroned the dollar?
Yes: the British pound held 60% of reserves in 1900 but collapsed post-WWII.
Does the ECB have a dollar backup plan?
Its €300B swap line with the Fed remains active as a lifeline.
