Many market participants have built long positions on euro-denominated assets, expecting a positive outcome from the German stimulus plan and Rearm Europe projects. However, betting on a stronger euro may be optimistic considering the poor track record of these government plans, the rising fiscal challenges of France and other nations, the elevated debt and enormous unfunded liabilities, as well as the imminent implementation of a central bank digital currency. There are undoubted fiscal and deficit problems in the United States, but the relative position against the euro is undeniably stronger considering all the previously mentioned factors.
The European Central Bank (ECB) has accelerated its plan for a digital euro and recently hired the top global tech companies to create the architecture. However, European banks are rightly concerned, as a central bank digital currency poses significant privacy risks as well as a grave erosion of the capacity of the banking sector to lend and perform adequately.
Central bank digital currencies (CBDCs) can be a dangerous tool for their potential risks to privacy, financial stability, and the concentration of monetary power. In the United States, the Trump administration has issued an executive order banning the use of these instruments, labelling them as “monetary tyranny”.
A CBDC is not the same as electronic money. A digital euro would give unprecedented surveillance capabilities to the central bank. Unlike current electronic payments, a central bank digital currency (CBDC) gives monetary authorities full and direct access to every transaction and savings account, eliminating financial privacy for citizens. This could allow for monitoring, controlling, or even penalising financial behaviours that central authorities may consider undesirable. Furthermore, a CBDC would eliminate the current limits in the financial system that prevent excessive money printing. Bypassing commercial banks and credit mechanisms allows central banks to instantly increase the money supply and finance government spending, eroding traditional budget controls. Removing commercial banks from the monetary system’s transmission mechanism destabilises credit creation and increases the risk of crowding out the private sector.
The main arguments in favour of a digital euro, such as efficiency and enhanced monetary policy transmission, do not withstand scrutiny. None of those benefits require a centralised currency, much less a central bank-controlled monetary monopoly. If those were the real objectives, policymakers would encourage more decentralisation and competition instead of more central planning. The goal is more state control and rapid monetary financing of government spending, not real improvements for consumers or savers.
A CBDC is the evidence that the central bank does not want to strengthen the currency by making it attractive for investors but to impose its use.
In October 2025, the ECB signed framework agreements with ten of the largest technology companies to provide the primary operational and infrastructural components for the planned digital euro, valued at over €1.1 billion. They include companies like Giesecke+Devrient (which makes offline payment solutions), Feedzai (which uses AI to find fraud), Almaviva and Fabrick (which make mobile wallet apps), and Senacor FCS (which makes it safe to share payment information). The framework agreements set the eurozone up for a possible launch of the digital euro by 2029. They cover software development, security, and fraud management.
The ECB says that these agreements are only for planning and that the currency won’t be issued until laws are passed and the next phases of the project are approved. The technology providers will help design and test several technical requirements, such as real-time fraud monitoring and offline use. None of these elements are reducing the widespread concern about privacy, control and erosion of the credit mechanisms as they exist.
European commercial banks are distressed that a digital euro could hurt their main business models, and they are right. Lawmakers in the European Parliament are worried that a retail digital euro could force people to move a lot of money from commercial banks to central bank accounts, which would hurt the sector’s private sector credit origination. The central bank would have access to all citizens’ financial data, raising privacy concerns, even if they “promise” not to use it.
Banks say that a digital euro that is legally deemed free of risk would take funds out of the private financial system, making it harder for financial institutions to lend and prioritising credit to governments over loans to families and businesses. Furthermore, compliance and infrastructure costs are enormous, regulations are unclear and vague, and privacy protections are, at best, undefined.
A CBDC could let central banks watch almost all transactions and financial decisions by citizens, taking away the privacy that comes with cash and giving the government the power to investigate, limit, or even punish users’ financial activities. Central banks can also quickly increase the money supply with a direct digital euro, without the usual limits that come from demand for credit in the banking sector. This eliminates essential limits to inflation and makes monetary policy directly subordinate to political expenditure priorities.
The CBDC will inevitably push commercial banks into a marginal role, creating a dangerous concentration of financial power in the hands of policymakers and technocrats.
The central bank’s independence and the laws guaranteeing privacy provide vague answers to all these concerns. However, centralisation is always a threat, and those laws and their alleged independence are widely questioned when the central bank has consistently bowed down to political pressure to use expansionary monetary tools for government financing. The digital euro is likely to become another tool for rapid, unrestricted fiscal expansion and the subsequent loss of the purchasing power of the currency as the limits offered by banking intermediation are eliminated.
If governments want more efficiency, technology, and a stronger currency that is globally valued, they should encourage decentralisation and competition, not the opposite.
Contracts between the ECB and major tech companies are laying the technical groundwork for a digital euro. Regrettably, privacy and independence receive no priority. The digital euro has serious systemic, economic, and ethical issues and can be used by governments with unsustainable spending and debt problems to debase the currency and use it to finance bloated government projects. European banks are concerned and rightly so. The risk of excessively loosening monetary policy and resulting in complete monetary financing of government spending is significant.
A digital euro is surveillance disguised as money, and governments will do all they can to use it as a tool for direct monetary financing of deficits. If you believe that the same policymakers and governments that have done nothing to control debt accumulation and excessive spending are going to defend the purchasing power of the currency, you are dreaming.