08 September 2023

EURACTIV's Allenbch-Ammann: EU Parliament risks missing the point on Digital Euro

With next year’s European elections closing in and conspiracy theories about the Digital Euro flying through the ether, the European Parliament is taking an overly cautious stance, risking squandering the opportunity to build a promising piece of European infrastructure.

Attending the Digital Euro debate in the European Parliament’s economic committee on Monday (4 September) was a weird experience.

Facing the committee sat Fabio Panetta, a member of the European Central Bank (ECB) executive board, probably the most conservative of all EU institutions, given that its main three tasks are stability, stability, and stability.

But on the topic of the Digital Euro, the economic committee members interrogated him like he was a dodgy crypto entrepreneur trying to sell his latest digital casino chip.

Barring some questions that showed that the MEP had not read the European Commission’s legislative proposal or that they didn’t care, most of the points raised were sensible.

MEPs asked about what would happen to the banks if they lose the juicy profits from payment services, they asked about the costs faced by merchants if they have to accept digital euros, and they questioned the added value of the Digital Euro.

Don’t get me wrong, asking difficult questions is part of the job of any MEP, but there is a problem if all the criticism goes in one direction, in this case, towards less ambition.

Usually, the European Parliament’s role is to ask, “Why not more? Why aren’t you going all the way? Why aren’t you using the chance for a proper European solution?” This then leads to a Parliament position that is a bit more ambitious than the Commission proposal, which will then have to be defended against the less ambitious position of member states.

If no one in the Parliament is willing to stand up for a more ambitious Digital Euro, the ECB will appear like a maverick integrationist institution, a role it cannot play.

The consequence is not the relatively sensible if conservative proposal by the EU Commission or the similar design proposed by the ECB, but a Digital Euro that is so constrained by regulatory requirements that it is unusable, or as economy professor Dirk Niepelt put it in an interview with EURACTIV, “bound to fail.”

The Parliament does not need to accept the proposed design quietly. On the contrary, there are plenty of critical questions to be asked about the Digital Euro as it is offered by the EU Commission and the ECB from a more ambitious standpoint.

For example, why should the Digital Euro have holding limits? If this puts pressure on the banks to provide savers with a better deal, all the better!

Why do we need banks to organise the payment system if we can do it more efficiently with a public solution? After all, we also transitioned from relying on private ferrymen to cross rivers to building public bridges at some point. If technological progress means that the public can do it cheaper, faster and safer, then there’s no need for the private ferrymen.

Why should the ECB not be able to pay interest on digital euro accounts? Monetary policy has long been plagued by slow transmission, leading to overreaction in the fight against inflation.

Moreover, quantitative easing, the ECB’s policy to get the eurozone out of the crisis, was highly inefficient and probably increased inequality as a by-product. Direct influence on digital euro interest rates would allow for completely new ways of monetary policy.

Of course, these more ambitious Digital Euro designs come with risks, and whether they are better than the Commission’s and the ECB’s current designs is unclear.

At the very least, the European Parliament should not be in the business of saving the business model of the ferrymen. It should try to build the best possible bridge.

If nobody in the European Parliament stands up for a more ambitious Digital Euro, it will squander an opportunity to build a piece of public European infrastructure....

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