Written by Helena Markou
Europe’s stablecoin debate is often presented as a familiar prudential argument. Central bankers worry that privately issued digital money could weaken bank funding, complicate monetary control, and create new channels of instability. Those concerns are real, and the latest warning appears to confirm how seriously they are still taken. A Reuters-syndicated report says the European Central Bank warned EU finance ministers that proposals to expand euro stablecoins could reduce bank lending and make interest-rate control more difficult. Yet that is only one side of the story. The question is what happens if Europe succeeds in restraining euro stablecoins just as tokenised finance keeps developing anyway.
That is where the contradiction becomes strategic. The ECB’s instinct is defensive: preserve the two-tier monetary system, avoid deposit disintermediation, and prevent private digital money from gaining too much autonomy. But Bruegel’s new policy brief on stablecoin risks in the European Union argues that an overly restrictive posture could produce the opposite of monetary safety. If Europe does not create the conditions for regulated euro-denominated stablecoins to become usable and liquid at scale, demand may not disappear. It may migrate offshore, into dollar-based instruments and infrastructures that Europe does not control.
Bruegel gives that risk a powerful name: **infrastructure dollarisation**. The phrase is useful because it shifts the debate away from the superficial question of whether Europeans will “use the dollar” in a retail sense. The deeper issue is whether tokenised securities, on-chain collateral systems, decentralised finance linkages, and cross-platform settlement conventions gradually begin to revolve around dollar stablecoins as the default programmable liquidity layer. In that world, the euro would remain legal tender and the official monetary anchor. But the operational core of digital finance could increasingly form around foreign private money.
That distinction is easy to miss because traditional monetary debates tend to focus on deposits, interest rates, and payment instruments that remain inside national or regional boundaries. Tokenised finance does not behave so politely. Once assets, settlement workflows, and margining systems operate across distributed platforms, liquidity tends to concentrate around the instrument that is most usable, most interoperable, and most widely accepted. Bruegel’s warning is that if dollar stablecoins become the default settlement asset for tokenised securities and cross-platform liquidity, Europe may discover too late that it preserved formal sovereignty while losing practical centrality.
That concern becomes more compelling when read against the current shape of MiCA. Bruegel argues that the EU’s rule set may be too restrictive in ways that undermine the viability of compliant euro stablecoins. Among its most pointed criticisms is the requirement that 30% to 60% of reserve holdings be held as deposits with financial institutions, a rule the paper says should be removed because it compresses issuer margins without a strong prudential justification. The paper also argues that Europe should consider allowing limited direct remuneration of stablecoins and structured access to central-bank reserves, not to weaken regulation, but to make euro-denominated digital money economically viable enough to compete.
This is the heart of the paradox. European policymakers fear that more successful euro stablecoins could weaken banks. Bruegel counters that weak euro stablecoins may simply leave the field open to stronger dollar stablecoins. In other words, the choice may not really be between a perfectly bank-centric digital future and a stablecoin-heavy one. It may be between a European digital-money layer that remains partially anchored in euro institutions and a market architecture that defaults to offshore dollar rails because those rails are simply more functional.
The politics of this are uncomfortable because they expose Europe’s tendency to prioritise containment over market design. The ECB’s concerns, as described in the Reuters-syndicated report, are fundamentally about preserving monetary transmission and the bank-based credit system. Those concerns are rational from the standpoint of central banking. But tokenised markets are not waiting for a philosophical settlement. They are being built through developer adoption, collateral conventions, platform standards, and liquidity habits. If those habits harden around dollar-denominated instruments before Europe offers a credible euro alternative, the cost of reversal could become very high.
Bruegel is especially convincing when it describes the mechanism of this drift. Liquidity attracts liquidity. Once a given instrument becomes the preferred medium for settlement, collateral, or margining, the rest of the ecosystem starts to align around it. Technical standards, governance practices, and interoperability patterns follow. That means infrastructure dollarisation would not necessarily arrive through a dramatic event. It could emerge quietly, through convenience. A tokenised bond platform chooses dollar stablecoins because that is where the liquidity is. A trading venue uses the same instruments because they already work across other venues. Market makers price around those conventions because everyone else does. Before long, Europe’s tokenised financial architecture would still be operating in Europe, but with its most important programmable money layer imported from elsewhere.
This is why the Bruegel paper insists that Europe should shift from **containment** to **embedding**. The goal, in its telling, should not be to unleash stablecoins without constraint. Nor should it be to suppress them until only banks matter. The better strategy is to ensure that regulated stablecoins and tokenised deposits are economically viable, interoperable, and anchored directly or indirectly to central-bank money. That is a much harder project than saying no. But it is also a more realistic one if policymakers want the euro to remain meaningful in tokenised finance rather than merely symbolic.
The proposals are operational.
It calls for better conditions for euro stablecoin liquidity, greater interoperability, structured access to central-bank reserves, and policy support for public-settlement connectivity through initiatives such as the ECB’s Appia project. The logic is straightforward. If tokenised securities markets require programmable settlement and delivery-versus-payment, market participants will use whatever money form actually works inside those environments. If central-bank money cannot interface effectively and euro stablecoins remain structurally weak, private foreign alternatives will fill the gap.
There is a temptation to treat this as a distant theoretical issue. That would be a mistake. Europe is already living through the early stages of competitive digital-money formation. Dollar stablecoins dominate global crypto liquidity. Tokenised markets are expanding. Institutional experiments in blockchain-based settlement are multiplying. What looks like a policy debate about prudential calibration could become a debate about whether Europe ceded the rails while defending the station.
The ECB is right to worry about bank lending and monetary control. But Bruegel is right to warn that in a multi-jurisdictional digital market, refusing to build a credible domestic alternative does not freeze the game. It merely concedes advantage to whoever already has the more liquid and programmable instrument. That is Europe’s stablecoin paradox. In trying to protect the euro from private digital money, policymakers may be increasing the likelihood that tokenised finance will settle on private dollar rails instead.
The real strategic question, then, is no longer whether Europe can keep stablecoins small. It is whether Europe wants the tokenised future to be built around an instrument it shapes, or around one it merely supervises from the outside. If the answer is the former, then euro stablecoins cannot be treated only as a threat. They have to be designed as part of the infrastructure.
