The digital euro is a once-in-a-generation opportunity to restore people’s access to public money and to realise a sovereign payment system in the digital age. Trilogue negotiators should not squander it by designing it in a way that serves the banking sector first and the public second.
Martijn van der Linden
The European Parliament’s recent vote on the digital euro regulation marks an important step toward public money and a sovereign payment system for the digital age.
The vision is simple: give people the choice to hold and pay with the safest form of money – public central bank money – in digital form.
Intense bank lobbying has, however, significantly weakened this public interest vision in the last years.
The co-legislatures’ (Parliament, Council and Commission) legislative texts now strike different balances between money as a public good and the private interest in maintaining bank dominance in money and payments.
The risk: the negotiations tilt too far toward bank interests and people will not use it.
How the banking lobby shaped the legislative process
The Europe Central Bank (ECB) developed the digital euro as the natural extension of its mandate as sole issuer of cash.
But in taking the lead without a clear political mandate, the process was left vulnerable to the banking lobby.
When legislation became necessary, drafting fell to DG FISMA, the Commission directorate responsible for financial regulation – one with a long revolving-door history with private banks.
The commission’s 2023 proposal accepts that without digital public money the anchor of trust in the euro could erode, but at the same time shrinks the digital euro from money – a medium of exchange, store of value and unit of account, as cash is – to a mere means of payment.
Deposit-flight scare tactics from banking lobby?
This reflects the banking lobby’s core concern, that a digital public money would compete with its deposit-based business model.
But the banks disguise this commercial interest behind a financial stability risk argument: that deposits would flee the banking system.
This deposit-flight argument does not survive empirics: the digital euro pays no interest, so there is little reason people would switch to it on a large scale; Europeans can already park wealth in cash, gold, crypto, and securities; and if a bank faces real liquidity pressure, the ECB could always slow outflows or lend to healthy banks.
Moreover, the digital euro’s success depends entirely on its’ attractiveness to users, which necessarily entails a degree of competition with bank deposits.
A close reading of the co-legislatures texts shows that the council goes furthest in prioritising the banking interests, while the commission and parliament frame the design as a balancing act between public and private interests. Four design choices in the trilogue negotiations between the co-legislatures are crucial to the digital euro’s uptake and its success as a public good.
Holding limits
All three institutional texts now treat limits on how many euros a user can hold as a given, the negotiations will therefore mainly be about who sets them.
The council routes it through finance ministers – risky, given the banking sector’s strong lobby channels at national level.
The commission leaves calibration to the ECB, which is better insulated from national bank interests, but omits any further democratic involvement.
The parliament’s route is most defensible from a public interest point of view: a commission acts on an ECB recommendation, subject to parliament and council scrutiny, with a crucial fallback so the ECB sets limits itself if the process stalls.
However, ultimately, the goal should be a clear path toward phasing out limits altogether, so people are free to use the digital euro as they can use cash today. This has not been set in any of the three texts.
Public distribution of last resort
As a public good, the digital euro needs a genuinely public distributor of last resort, in case private entities are not able to distribute it.
The negotiations must ensure that the public access backstop is available to everyone: vulnerable groups but also anyone who does not wish to access the digital euro through a commercial bank.
Funding & defunding
To make the digital euro attractive to users, they must be able to fund a digital euro account from any bank account, not just one held with the same provider.
The parliament’s and commission’s proposal treat this as a free basic service. However, the council allows banks to refuse cross-provider funding and defunding links, meaning that anyone whose salary sits at a different bank faces unnecessary frictions or costs.
Privacy
Adoption likely depends on trust that spending is not watched and monetised.
Today, every payment through a bank is visible to that bank, which mines that data commercially.
The digital euro can do better, and two provisions must survive trilogue: the council’s legal bar on the ECB identifying users from settlement data, and the parliament’s rule that offline transaction data is not shared with the ECB or the user’s bank without an explicit opt-in.
The digital euro is a once-in-a-generation opportunity to restore people’s access to public money and to realise a sovereign payment system in the digital age. Trilogue negotiators should not squander it by designing it in a way that serves the banking sector first and the public second.
The task is simple: design a European public good that is attractive to the intended users.
