ECB Official Says Euro Not Ready to Replace Dollar

Gabriel Makhlouf, a member of the European Central Bank's Governing Council, has expressed skepticism about the euro's readiness to replace the US dollar as the world's dominant currency. Speaking at an economic conference in Aix-en-Provence, France, Makhlouf emphasized that Europe still lacks the necessary structural and fiscal integration to support such a shift.

Makhlouf, who also serves as the Governor of the Central Bank of Ireland, pointed out that the eurozone is missing critical elements such as a unified fiscal authority or a common safe asset comparable to US Treasuries. He cautioned against interpreting recent currency movements as indications of a fundamental transition in global financial leadership, stating that the euro is not yet prepared to challenge the dollar's position.

The absence of a central fiscal mechanism equivalent to the United States' federal budget or debt issuance system limits the euro's appeal as a global reserve currency. Without a unified fiscal policy or a large, liquid market for safe euro-denominated assets, international investors and governments remain hesitant to fully shift their reserves or financial instruments away from the dollar.

Makhlouf called on the ECB to take bold steps to increase the European Union’s economic sovereignty. He encouraged EU leaders to view the current climate of global uncertainty as an opportunity to strengthen the currency. "These opportunities to actually increase the standing of the EU, to strengthen its sovereignty and autonomy matter, and they need to be taken," Makhlouf urged. He advocated for reducing internal barriers in the EU’s single market and expanding joint-financing mechanisms for common priorities.

Makhlouf's remarks align with those of other ECB officials who have recently highlighted the importance of completing the EU’s banking and capital markets union, enhancing cross-border investment, and building fiscal tools that match the scale and coordination of those in the US. The ECB Governing Council member's comments underscore the challenges Europe faces in achieving a more integrated financial system and the need for Europe to address these issues if it hopes to challenge the dollar's dominance in the global financial system.