Europe accelerates digital euro and vetoes US tech companies

The European Central Bank (ECB), hand in hand with Christine Lagarde and the European Commission have put their foot on the accelerator to develop the digital euro, a project that, according to the official, seeks to reduce Europe's dependence on external actors at a time of growing geopolitical uncertainty.

The invasion of Ukraine and tension with the United States, especially under the presidency of Donald Trump, have given new impetus to this initiative that was born five years ago in Frankfurt with the creation of the High-Level Task Force on Digital Euro.

What was initially a technical analysis of the role of a digital currency to facilitate payments has evolved into a strategic commitment with clear objectives: to guarantee Europe's autonomy in its financial infrastructure and challenge the dominance of giants such as Visa, Mastercard and Apple.

The ECB has already defined the technical requirements of the digital euro and expects to have everything ready by October 2025, pending the European Parliament's approval of the necessary regulatory framework. Although legislative processes in Brussels tend to be slow, this time there is an obvious urgency.

As reported by El Confidencial, sources close to the project reveal that the ECB has shortlisted exclusively European technology providers, excluding large US technology companies - traditionally pillars of the banking sector - and companies from other regions of the world. This decision reflects Europe's desire to shield a key project from outside influences.

A geopolitical paradigm shift

The veto on non-European suppliers responds to a need for strategic independence. The sanctions imposed on Russia following the invasion of Ukraine, such as the exclusion of its banks from the Swift system, have highlighted the risks of relying on payment infrastructures controlled by third parties.

According to European institutions, the digital euro is not only a tool to modernize payments, but also a means to strengthen the continent's financial sovereignty. However, there are more than a few voices that consider that the project has the risk of serving as a control mechanism over citizens.

In addition, the project seeks to counteract the oligopoly of the large providers of means of payment, whose commission income - generated in Europe - largely ends up in the hands of US companies.

The ECB believes that European banks, with little bargaining power vis-à-vis Visa, Mastercard or Apple, could benefit from the digital euro. This would give them a greater ability to compete and retain on the continent the economic benefits derived from digital payments.

At the same time, the private sector is beginning to look favorably on the project, although resistance persists, especially among less technologically advanced institutions, such as the German savings banks, which face the challenge of greater investment in digitalization.

How will the digital euro work?

It will be used for payments between individuals, in stores and in the administration, but it will not be available for legal entities.

A monthly limit of 3,000 euros, still to be specified, is being considered to balance its use and avoid disruptive impacts on the financial system.

The ECB insists that the digital euro will not compete with traditional banking. For his part, José Luis Escrivá, governor of the Bank of Spain, recently stressed at a forum organized by El Español that "in no case" will it displace deposits.

Challenges and oppositions

Although the digital euro could reduce banks' revenues from payment terminals (POS) or cards, the ECB believes that this impact will be more than offset.

On the private side, initiatives such as the expansion of Bizum to Italy and Portugal or Central European alliances for immediate payments show an evolving ecosystem that the ECB applauds.

Globally, the digital euro joins a trend in which countries such as China, with its digital yuan in pilot phase, or the UK, with progress towards a digital pound.

However, the European project focuses only on the exclusivity of local suppliers.

There are critical voices about this process. In that sense, Santiago Abascal, from the Spanish party, VOX, pointed out in an interview that the intention of the ECB, by the hand of Christine Lagarde, "uses the language of the devil." Additionally, he also pointed out the potential danger of the project by saying that: "They seek the total control of society and that everyone will be blackmail-able."

In addition, according to La Gaceta, "the reduction of the limit for cash payments to 1,000 euros imposed by the Government of Pedro Sánchez, is one of the most restrictive measures in Europe."

Furthermore, it points out that: "under the pretext of combating the underground economy and tax fraud, these types of regulations have complicated access to cash, something that, for the advocates of its use, could intensify with the arrival of a digital currency backed by the ECB."

Similarly, some experts, such as Antonio Flores, an expert in Artificial Intelligence (AI), point out that, as the digital euro will be issued and supervised exclusively by the European Central Bank, it presents "hugely important implications." For starters, it will "make it traceable, euro by euro." This means that "not a single euro will escape the framework of the law and the treasuries of each state."

Also, by using the digital euro, "governments will know what each citizen does or doesn't do, where and when" points out the AI expert.

A project in progress

With the technical aspects already prepared by the ECB and a development proposal in the hands of the European Commission, the next step is parliamentary approval and the creation of a regulatory framework.