Opinion article by the Governor of Bank of Greece Yannis Stournaras to Economist on why the euro should take on a bigger role as the dollar’s dominance wanes
22/05/2025 - Articles & Interviews
“It is time to think beyond regional success”, says Yannis Stournaras to Economist
The Trump administration has injected a level of uncertainty into the international monetary system that global investors can no longer ignore. By eroding free trade, shaking global alliances, undermining the independence of the Federal Reserve and threatening to weaponise the dollar for political purposes, it has prompted the world to question whether the dollar is still a safe bet. This should be a wake-up call for the euro area.
For decades the dollar has ruled the international monetary system. It has been the default currency for global trade, a haven in times of crisis and the go-to reserve for central banks around the world. That dominance has given America enormous economic advantages. It can run trade deficits and fund the excess inflow of goods and services by printing dollars. The currency’s strength has ensured that these dollars are channelled back into us Treasuries, reducing the cost of funding American fiscal deficits.
Across the Atlantic, the euro was designed to be more than a regional currency. From its inception in the 1990s, its architects envisioned not only greater monetary stability and economic integration within Europe, but also a currency that could rival the dollar on the global stage.
On the first two counts, the single currency proved successful. The European Central Bank has established a credible monetary policy, even in the face of financial crises, the covid-19 shock and the war in Ukraine. By eliminating both the direct transaction costs of exchanging national currencies and exchange-rate risk among member states, the common currency has enhanced trade between the members of the euro area.
But the third ambition—the euro’s becoming a true heavyweight—remains unfulfilled. Despite two decades of progress, the currency’s global footprint continues to be limited. Its share of international reserves and trade-invoicing is only slightly higher than the combined weight of the legacy currencies it replaced a quarter of a century ago.
Historically, the dollar’s strength has rested not just on the size of America’s economy, but also on the predictability of its institutions, its commitment to open markets and the global acceptance of American leadership. Over the past eight decades the dollar has withstood wars, recessions and financial meltdowns largely because successive American administrations preserved these fundamental commitments.
What is new today is that this continuity has been broken, opening the opportunity for another currency to challenge the dollar’s global dominance. Investors around the world could be attracted to a stable, reliable alternative. The Chinese yuan’s potential as a global alternative has been held back by tight state control and capital restrictions. That presents the euro area with both an important opportunity and a serious challenge.
The euro cannot become an alternative to the dollar overnight. It must be supported by a stronger, more integrated and growth-oriented euro-area economy. The foundations are already in place. Euro-area leaders remain committed to stability, free markets, democracy and the rule of law. The euro is backed by a politically independent and credible central bank that is committed to sticking to its mandate for price stability.
Recent initiatives in eu economic policy signal a meaningful turn towards strategic resilience. The stimulus in Germany, following its historic decision to loosen its fiscal rules announced in March, could stoke economic growth that spills over across the monetary union. Europe’s rearmament initiative, if aligned with investment in cutting-edge technologies, has the potential to not only boost demand but also strengthen the continent’s long-term productivity. At the same time, a central-bank digital currency aims to foster innovations in payments, reducing dependence on foreign providers. In climate and energy, Europe remains committed to ambitious targets, which should leave it well placed to attract global green investment.
But for these steps to inspire global confidence in our currency, we must finish the job of completing our monetary union. This would mean finalising the eu’s banking union, advancing the capital-markets union and moving towards a “common fiscal capacity”, a shared system for managing public finances. We need to work harder to strengthen Europe’s competitiveness, by finding ways to boost productivity, innovation and investment while ditching cumbersome regulations.
The good news is that we have a blueprint. We are starting to follow through on the proposals drawn up by Enrico Letta and Mario Draghi, two former Italian prime ministers, to promote the single market and raise European productivity and competitiveness. We need to complete this job within a set timeframe, ideally two years.
The savings-and-investment union, unveiled by the European Commission in March, will be critical in improving the way that the financial system channels savings to productive investment, including to the ReArm Europe Plan. An accompanying eu plan aims to cut red tape and simplify rules for businesses in the hope of fuelling entrepreneurialism. And, crucially for the euro’s standing, Europe can build on the Next Generation eu financial instrument, established to aid the recovery from covid-19, to offer a “common safe asset”—broadly speaking, Europe’s closest thing to Treasuries.
Following through on these initiatives would put Europe in a much better position to attract global investors, bridging the gap with America by offering deeper, more liquid financial markets.
As global doubts about the dollar’s role grow, Europe must be ready to answer the call for a serious alternative. A stronger euro on the international stage would not only give investors more choice. It would help create a more stable, balanced and resilient global monetary order. And, for Europe, it would bolster strategic autonomy.
European leaders have shown before that they can act boldly in a crisis. It is time to rise to the occasion again. By doing so, they can help ensure that the euro goes from being a regional success to a standard the world can rely on.
Yannis Stournaras has been the Governor of the Bank of Greece since 2014. He was previously the country’s finance minister, from 2012 to 2014.