The euro in a changing world

Philip R. Lane, Member of the Executive Board of the European Central Bank (ECB), delivered a keynote speech at the Danish Economic Society Conference, discussing the impact of global structural shifts on the euro-denominated monetary system.

He highlighted that the ECB’s 2025 assessment concludes that geopolitical, digital, demographic, environmental, and financial system changes will lead to more uncertain and volatile inflation, posing challenges for monetary policy. A resilient financial architecture, including progress on banking union and a digital euro, is essential to support effective policy responses.

Lane explained that structural changes act as common shocks across EU member states, emphasizing the role of the euro area as a monetary union that responds collectively to these shocks. Larger-scale monetary systems benefit from higher transaction denominated trade, infrastructure efficiency, and financial market integration, which are crucial for resilience and innovation.

The speech also addressed the euro’s international role, noting its position as the second-largest global currency and its increasing demand, especially during 2025. The euro’s share in foreign exchange reserves and recent bond issuance trends reflect its rising importance as an international asset.

He discussed proposals to expand euro safe assets, including issuing common bonds backed by EU fiscal capacity and the sovereign bond-backed securities (SBBS) initiative, which could enhance liquidity and risk management. These measures require strong fiscal discipline and governance reforms.

Finally, Lane emphasized the importance of adaptive monetary policy in an environment of heightened uncertainty. The ECB’s strategy focuses on maintaining price stability with a flexible, evidence-based approach that considers the origin and persistence of inflation deviations. The ECB’s analytical framework, supported by extensive macroeconomic modeling, is vital for effective policy decisions amid structural shifts.

More details can be found in the original speech on the ECB website.