ECB's Lane outlines euro's resilience and global role amid structural shifts

Philip R. Lane, Member of the Executive Board of the European Central Bank, discussed the euro's role in a changing world at the Danish Economic Society Conference on January 9, 2026. He highlighted the euro area's resilience to structural shifts and its potential for an increasing global presence.

Monetary union as a bulwark against common shocks

Europe faces common structural changes, including geopolitics, digitalisation, artificial intelligence, demography, and climate change, which act as shared economic shocks.

A monetary union, such as the euro area, provides an inherent coordination mechanism, allowing a common monetary policy to effectively respond to these trends.

This larger-scale system offers significant insulation against exchange rate shifts, with a high proportion of trade and financial transactions denominated in euro.

Furthermore, the scale enables more efficient operation of market infrastructure and payment systems, reducing dependencies and fostering innovation like the digital euro and Pontes/Appia projects.

The euro area's financial system also benefits from enhanced efficiency, breadth, and liquidity, attracting foreign investors and facilitating supranational initiatives like Next Generation EU.

These benefits are safeguarded by a far more resilient financial architecture, built on reforms following the 2008-2013 crises, including increased banking capitalisation, joint supervision, macroprudential measures, and an expanded ECB policy toolkit.

Expanding the euro's global footprint and safe asset supply

The international monetary system may be shifting towards a less unipolar structure, with a more domestically oriented US economy potentially reducing the dollar's hedging effectiveness.

This could lead to a greater 'euro home bias' for euro area investors and a higher portfolio allocation to the euro globally, solidifying its position as the second-largest international currency.

To further enhance the euro's global role, Europe needs reforms to increase the supply of high-quality euro assets.

Currently, there is an undersupply of safe assets, with the German Bund being the de facto main euro-denominated safe asset but insufficient in stock.

Common bonds, backed by combined EU fiscal capacity, offer a solution, but their current stock is too small to foster necessary liquidity.

Options to expand this stock include financing European public goods through more common debt, as seen with the Next Generation EU programme, or re-examining proposals like the 'blue bond/red bond' reform, which would generate a larger stock of common bonds from existing national ones.

Such initiatives would boost liquidity and risk management services, supporting the euro's international appeal.