Written by Helena Markou
Europe is approaching stablecoins with a logic that is understandable in regulatory terms but increasingly dangerous in strategic ones. Policymakers worry that if euro-denominated stablecoins scale too quickly, they could pull deposits away from banks, complicate monetary transmission, and create new financial-stability risks. Yet the more Europe treats stablecoins primarily as a risk to be contained, the more likely it becomes that tokenised finance in Europe will run on someone else’s money. That is the paradox now coming into view: Europe may succeed in limiting domestic stablecoin exuberance while still losing influence over the currency layer of digital markets.
The latest signal came at the informal meeting of European Union finance ministers and central bank governors in Nicosia. A Reuters report says the European Central Bank warned against proposals designed to make euro stablecoins easier to grow, arguing that such moves could weaken bank lending and make interest-rate control harder. Central bankers pushed back against the idea that Europe should respond to U.S. dollar stablecoin momentum by giving euro stablecoin issuers easier access to central-bank support or lighter operating constraints.
From one angle, this response is entirely consistent with how European monetary authorities think. Stablecoins are not just another fintech product. If they become widely used as transaction balances, collateral, or settlement assets, they may begin to affect the plumbing of the financial system. In a bank-based economy such as Europe’s, anything that threatens the stability of deposits or the control of liquidity conditions is bound to trigger caution. Christine Lagarde has repeatedly shown a preference for tokenised commercial-bank deposits over privately issued stablecoins, reflecting a larger instinct to keep innovation close to the regulated banking perimeter.
But that instinct collides with another reality. Tokenised markets are already forming around programmable assets, cross-chain liquidity, tokenised securities, on-chain collateral, and payment uses that reward assets able to move cheaply and settle continuously. In that environment, the crucial question is not whether stablecoins exist, but whether euro-denominated instruments will become meaningfully usable inside the next generation of digital financial infrastructure.
This is where the Bruegel policy brief prepared for the Nicosia meeting becomes so important. The paper argues that the central danger is not classic currency substitution in the retail sense. Europeans are not suddenly going to abandon the euro as legal tender because they see more crypto wallets. The deeper risk is what Bruegel calls **“infrastructure dollarisation.”** In that scenario, dollar-denominated stablecoins become the default settlement asset for tokenised securities, decentralised collateral flows, and cross-platform liquidity, even in markets where the underlying assets remain European.
If the default programmable liquidity layer in digital finance becomes dollar-based, then Europe may keep the euro formally intact while losing operational centrality in the parts of finance that matter most for future growth. Tokenised bonds may still be euro-denominated. European institutions may still be regulated under EU law. But if settlement, margining, and collateral movement happen most fluidly through dollar stablecoins, then the architecture of liquidity begins to tilt away from Europe’s own monetary base.
Bruegel’s argument is powerful precisely because it does not deny the risks of stablecoins. Its complaint is that Europe may be pursuing that goal in a way that is strategically self-defeating. The brief notes that euro-denominated stablecoins account for just **0.3% of total supply**, while Europe-based stablecoin transactions still represented **38% of global transactions in the final quarter of 2025**. That is the contradiction in one line. Europe is already participating heavily in stablecoin usage, but it is doing so within a market overwhelmingly organized around dollars.
The policy architecture helps explain why. Bruegel argues that MiCA places euro stablecoins at a competitive disadvantage through rules that may be prudent in isolation but restrictive in combination. Among the paper’s most pointed criticisms is the requirement that **30% to 60% of reserve holdings** be maintained as bank deposits, depending on scale, and the prohibition on direct remuneration to stablecoin holders. The brief argues that these constraints make compliant euro stablecoins less economically viable and less attractive relative to dollar alternatives, especially in environments where network effects already favor instruments with deeper liquidity and wider platform integration.
This is not a theoretical concern anymore. The Reuters report notes that the **Qivalis** project has expanded to **37 institutions across 15 countries** and aims to launch a euro-denominated stablecoin later this year. It shows that Europe’s stablecoin future is no longer an abstract debate. Large institutions are already trying to build euro-native rails. The policy question is whether Europe will give them a framework that allows them to scale into relevance, or merely one that permits them to exist on paper while dollar systems win in practice.
The broader competitive context is also changing. A recent PANews weekly market and policy digest notes that the Bank of England plans to release a draft regime for systemic stablecoins next month and finalize it by year-end, while also encouraging tokenised deposits and retail-payment upgrades. The same digest reports that projects such as Qivalis and other local-currency initiatives are expanding across Europe. In other words, the strategic debate is no longer just between the ECB and U.S. dollar tokens, but among multiple jurisdictions trying to shape how tokenised money will work.
That is why Europe’s current posture looks increasingly incomplete. It is one thing to insist on prudential safeguards. It is another to assume prudence alone will preserve relevance. Financial systems are not governed only by regulation; they are also governed by adoption, interoperability, and network effects. The stablecoin that becomes most useful is the one others already use, and the settlement asset that becomes dominant is the one deeply integrated into exchanges, custodians, tokenised securities platforms, and programmable workflows. Once that dominance hardens, it becomes difficult to dislodge through later policy adjustments.
Europe therefore faces a choice more profound than whether to “allow” stablecoins. It can continue to treat euro stablecoins as a tolerated exception to bank-centered monetary design, or it can start treating them as a strategic component of European digital-market infrastructure. The first approach may feel safer. The second may be necessary if Europe wants the euro to matter in tokenised finance beyond rhetoric.
None of this means the ECB’s concerns should be dismissed. Stablecoins can amplify runs, shift deposits, and create new channels of instability if badly designed. But those dangers do not disappear simply because Europe declines to build a strong euro-denominated alternative. They may instead reappear as dependence on dollar-based liquidity instruments governed elsewhere, scaled elsewhere, and aligned with someone else’s industrial and monetary priorities.
That is the stablecoin paradox now confronting Europe. The continent has enough institutional demand to build euro-native token money, enough market activity to justify doing so, and enough strategic reason to worry about letting dollar rails dominate. What it does not yet have is policy confidence equal to the moment. If that mismatch persists, Europe may preserve formal monetary sovereignty while steadily outsourcing the operating system of tokenised finance. And in the long run, the currency that rules digital markets may not be the one with the strongest legal status, but the one that becomes the default unit of programmable settlement.
