ECB’s Makhlouf Says Euro Not Ready to Challenge Dollar’s Role

Key Points

• Research suggests the euro is not ready to challenge the US dollar's dominant role in global finance, as stated by Gabriel Makhlouf, an ECB Governing Council member.

• The evidence leans toward Europe's economic system lacking the necessary integration, such as a unified fiscal capacity and a safe asset like US Treasuries.

• It seems likely that recent euro appreciation is due to investor concerns about the US, not the euro's strength.

Background

Gabriel Makhlouf, a member of the European Central Bank (ECB) Governing Council and Governor of the Central Bank of Ireland, recently shared insights on the euro's global financial role. His comments, made on July 5, 2025, at an economic conference in Aix-en-Provence, France, highlight the challenges the euro faces in competing with the US dollar.

Makhlouf's Statement

Makhlouf stated that the euro cannot quickly replace the dollar as the anchor of the world's financial system. He pointed out that Europe's economic system is still not fully formed, lacking key elements like a single fiscal capacity and a safe asset comparable to US Treasuries, which are essential for a currency to serve as a global reserve.

Recent Currency Movements

While the euro has recently appreciated against the dollar, Makhlouf attributed this to investor concerns about the rule of law in the US, rather than any inherent readiness of the euro to take on a dominant role.

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Comprehensive Report on ECB’s Makhlouf’s Statement on the Euro and Dollar

This report provides a detailed analysis of Gabriel Makhlouf’s statement on July 5, 2025, regarding the euro’s readiness to challenge the US dollar’s role as the anchor of the global financial system. It contextualizes his remarks within the broader framework of Eurozone economic integration and global currency dynamics, drawing on recent news articles, social media posts, and official statements to ensure a comprehensive overview for stakeholders interested in international finance and monetary policy.

Context of the Statement

The statement was made during an economic conference in Aix-en-Provence, France, a notable gathering for discussing economic and financial issues. Makhlouf, as both an ECB Governing Council member and the Governor of the Central Bank of Ireland, holds a significant position in shaping monetary policy and commenting on the euro’s global standing. His remarks come at a time when global financial systems are under scrutiny, with the US dollar maintaining its dominance as the primary reserve currency, used in over 60% of global foreign exchange reserves, while the euro, used by 20 countries, is the second most traded currency but lags in reserve status.

Recent currency movements have seen the euro appreciate against the dollar, driven by investor concerns about political and legal stability in the US, particularly around rule of law issues. This context is crucial for understanding Makhlouf’s assessment, as it suggests external factors, rather than internal eurozone strength, are influencing currency valuations.

Details of Makhlouf’s Statement

On July 5, 2025, Makhlouf explicitly stated that the euro is not ready to supplant the dollar as the anchor of the world’s financial system. He emphasized that “Europe’s economic system is still not formed,” highlighting structural deficiencies that hinder the euro’s global competitiveness. Key points from his statement include:

• Lack of Financial and Economic Integration: The eurozone lacks the level of integration seen in the US, particularly in fiscal policy. Unlike the US, which has a federal budget and centralized fiscal authority, the eurozone operates with 20 national budgets, lacking a unified fiscal capacity to respond to economic shocks or support the currency’s global role.

• Absence of a Safe Asset: Makhlouf noted the absence of a common safe asset comparable to US Treasuries, which are widely held by central banks and investors as a low-risk investment. This lack of a eurozone equivalent, such as Eurobonds with full backing, limits the euro’s appeal as a reserve currency.

• Recent Euro Appreciation: He clarified that the recent appreciation of the euro against the dollar is more attributable to investor concerns about the US, particularly around rule of law and political stability, rather than any inherent strength or readiness of the euro. This suggests that the euro’s gains are situational rather than structural.

Makhlouf also provided a long-term outlook, acknowledging that dollar dominance may decline over time due to global economic shifts, but stressed that the euro is currently unprepared to fill that role due to the aforementioned structural issues.

Supporting Data and Analysis

To illustrate the structural differences between the eurozone and the US, below is a table comparing key aspects relevant to currency dominance:

Aspect	Eurozone	United States
Fiscal Authority	Decentralized, 20 national budgets	Centralized federal budget
Safe Asset	No common safe asset (e.g., Eurobonds not fully backed)	US Treasuries, widely held as low-risk investment
Economic Integration	Partial, with varying national policies	High, with federal coordination
Reserve Currency Status	Second most traded, ~20% of global reserves	Dominant, ~60% of global foreign exchange reserves
Response to Shocks	Limited by lack of fiscal union	Strong, supported by federal fiscal tools

This table highlights the eurozone’s challenges in achieving the level of integration and stability that underpins the dollar’s dominance. The lack of a unified fiscal authority and safe asset are particularly significant barriers, as they affect investor confidence and the currency’s utility in international transactions and reserves.

Additional Context and Calls to Action

Makhlouf’s statement was not only an assessment but also a call to action. He urged the European Union to take steps to strengthen its economic sovereignty and autonomy, which could, over time, enhance the euro’s global standing. Specific recommendations included:

• Bolstering Security: Enhancing economic security to make the eurozone more resilient to global shocks.

• Reducing Internal Barriers: Lifting single market barriers to improve economic efficiency and integration.

• Expanding Joint-Financing Mechanisms: Increasing mechanisms like joint-financing for shared objectives, such as Eurobonds or common fiscal tools, to create a more cohesive economic bloc.

He also called for the ECB to take bold steps to increase the EU’s economic sovereignty, suggesting a proactive role in monetary policy to support these goals. These recommendations align with ongoing discussions within the EU about deepening economic integration, particularly in light of recent global economic uncertainties.

Public and Media Reaction

The statement has been widely reported, with articles from Bloomberg, Cryptopolitan, and Luxembourg Times providing consistent coverage. Social media posts on X (formerly Twitter) from accounts like @afvglobal and @The_Tradesman1 have summarized key points, reinforcing the message that the euro’s readiness is hindered by structural issues rather than immediate potential. These posts, viewed by dozens of users, indicate public interest and awareness, with no significant controversy noted, though the topic remains sensitive due to its implications for global economic power dynamics.

Conclusion

Gabriel Makhlouf’s statement on July 5, 2025, underscores the euro’s current inability to challenge the US dollar’s dominant role, citing a lack of financial and economic integration, absence of a safe asset, and reliance on external factors for recent currency gains. While he sees a potential long-term decline in dollar dominance, the euro’s readiness is constrained by structural deficiencies. His call for enhanced EU economic sovereignty and integration offers a pathway forward, but significant reforms would be needed to position the euro as a viable alternative in the global financial system.

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