BRUSSELS — European banks and other finance firms should decrease their reliance on American tech companies for digital services, a top national supervisor has said. In an interview with POLITICO, Steven Maijoor, the Dutch central bank’s chair of supervision, said the “small number of suppliers” providing digital services to many European finance companies can pose a “concentration risk.” “If one of those suppliers is not able to supply, you can have major operational problems,” Maijoor said. The intervention comes as Europe’s politicians and industries grapple with the continent’s near-total dependence on U.S. technology for digital services ranging from cloud computing to software. The dominance of American companies has come into sharp focus following a decline in transatlantic relations under U.S. President Donald Trump. While the market for European tech services isn’t nearly as developed as in the U.S. — making it difficult for banks to switch — the continent “should start to try to develop this European environment” for financial stability and the sake of its economic success, Maijoor said. European banks being locked in to contracts with U.S. providers “will ultimately also affect their competitiveness,” Maijoor said. Dutch supervisors recently authored a report on the systemic risks posed by tech dependence in finance. Dutch lender Amsterdam Trade Bank collapsed in 2023 after its parent company was placed on the U.S. sanctions list and its American IT provider withdrew online data storage services, in one of the sharpest examples of the impact on companies that see their tech withdrawn. Similarly a 2024 outage of American cybersecurity company CrowdStrike highlighted the European finance sector’s vulnerabilities to operational risks from tech providers, the EU’s banking watchdog said in a post-mortem on the outage. In his intervention, Maijoor pointed to an EU law governing the operational reliability of banks — the Digital Operational Resilience Act (DORA) — as one factor that may be worsening the problem. Those rules govern finance firms’ outsourcing of IT functions such as cloud provision, and designate a list of “critical” tech service providers subject to extra oversight, including Amazon Web Services, Google Cloud, Microsoft and Oracle. DORA, and other EU financial regulation, may be “inadvertently nudging financial institutions towards the largest digital service suppliers,” which wouldn’t be European, Maijoor said. “If you simply look at quality, reliability, security … there’s a very big chance that you will end up with the largest digital service suppliers from outside Europe,” he said. The bloc could reassess the regulatory approach to beat the risks, Maijoor said. “DORA currently is an oversight approach, which is not as strong in terms of requirements and enforcement options as regular supervision,” he said. The Dutch supervisors are pushing for changes, writing that they are examining whether financial regulation and supervision in the EU creates barriers to choosing European IT providers, and that identified issues “may prompt policy initiatives in the European context.” They are asking EU governments and supervisors “to evaluate whether DORA sufficiently enhances resilience to geopolitical risks and, if not, to consider issuing further guidance,” adding they “see opportunities to strengthen DORA as needed,” including through more enforcement and more explicit requirements around managing geopolitical risks. Europe could also set up a cloud watchdog across industries to mitigate the risks of dependence on U.S. tech service providers, which are “also very important for other parts of the economy like energy and telecoms,” Maijoor said. “Wouldn’t there be a case for supervision more generally of these hyperscalers, cloud service providers, as they are so important for major parts of the economy?” The European Commission declined to respond.

The discussion surrounding the digital euro is strategically important to Europe. On Dec. 12, the EU finance ministers are aiming to agree on a general approach regarding the dossier. This sets out the European Council’s official position and thus represents a major political milestone for the European Council ahead of the trilogue negotiations. We want to be sure that, in this process, the project will be subject to critical analysis that is objective and nuanced and takes account of the long-term interests of Europe and its people. > We do not want the debate to fundamentally call the digital euro into question > but rather to refine the specific details in such a way that opportunities can > be seized. We regard the following points as particularly important: * maintaining European sovereignty at the customer interface; * avoiding a parallel infrastructure that inhibits innovation; and * safeguarding the stability of the financial markets by imposing clear holding limits. We do not want the debate to fundamentally call the digital euro into question but rather to refine the specific details in such a way that opportunities can be seized and, at the same time, risks can be avoided. Opportunities of the digital euro:  1. European resilience and sovereignty in payments processing: as a public-sector means of payment that is accepted across Europe, the digital euro can reduce reliance on non-European card systems and big-tech wallets, provided that a firmly European design is adopted and it is embedded in the existing structures of banks and savings banks and can thus be directly linked to customers’ existing accounts. 2. Supplement to cash and private-sector digital payments: as a central bank digital currency, the digital euro can offer an additional, state-backed payment option, especially when it is held in a digital wallet and can also be used for e-commerce use cases (a compromise proposed by the European Parliament’s main rapporteur for the digital euro, Fernando Navarrete). This would further strengthen people’s freedom of choice in the payment sphere. 3. Catalyst for innovation in the European market: if integrated into banking apps and designed in accordance with the compromises proposed by Navarrete (see point 2), the digital euro can promote innovation in retail payments, support new European payment ecosystems, and simplify cross-border payments. > The burden of investment and the risk resulting from introducing the digital > euro will be disproportionately borne by banks and savings banks. Risks of the current configuration: 1. Risk of creating a gateway for US providers: in the configuration currently planned, the digital euro provides US and other non-European tech and payment companies with access to the customer interface, customer data and payment infrastructure without any of the regulatory obligations and costs that only European providers face. This goes against the objective of digital sovereignty. 2. State parallel infrastructures weaken the market and innovation: the European Central Bank (ECB) is planning not just two new sets of infrastructure but also its own product for end customers (through an app). An administrative body has neither the market experience nor the customer access that banks and payment providers do. At the same time, the ECB is removing the tried-and-tested allocation of roles between the central bank and private sector. Furthermore, the Eurosystem’s digital euro project will tie up urgently required development capacity for many years and thereby further exacerbate Europe’s competitive disadvantage. The burden of investment and the risk resulting from introducing the digital euro will be disproportionately borne by banks and savings banks. In any case, the banks and savings banks have already developed a European market solution, Wero, which is currently coming onto the market. The digital euro needs to strengthen rather than weaken this European-led payment method. 3. Risks for financial stability and lending: without clear holding limits, there is a risk of uncontrolled transfers of deposits from banks and savings banks into holdings of digital euros. Deposits are the backbone of lending; large-scale outflows would weaken both the funding of the real economy – especially small and medium-sized enterprises – and the stability of the system. Holding limits must therefore be based on usual payment needs and be subject to binding regulations. -------------------------------------------------------------------------------- Disclaimer POLITICAL ADVERTISEMENT * The sponsor is Bundesverband der Deutschen Volksbanken und Raiffeisenbanken e.V. , Schellingstraße 4, 10785 Berlin, Germany * The ultimate controlling entity is Bundesverband der Deutschen Volksbanken und Raiffeisenbanken e.V. , Schellingstraße 4, 10785 Berlin, Germany More information here.

HOW BELGIUM BECAME RUSSIA’S MOST VALUABLE ASSET Belgian Prime Minister Bart De Wever is unmoved in his opposition to a raid on Moscow’s funds held in a Brussels bank for a loan to Ukraine.  By TIM ROSS, GREGORIO SORGI, HANS VON DER BURCHARD and NICHOLAS VINOCUR in Brussels Illustration by Natália Delgado/POLITICO It became clear that something had gone wrong by the time the langoustines were served for lunch.  The European Union’s leaders arrived on Oct. 23 for a summit in rain-soaked Brussels to welcome Ukraine’s President Volodymyr Zelenskyy with a gift he sorely needed: a huge loan of some €140 billion backed by Russian assets frozen in a Belgian bank. It would be enough to keep his besieged country in the fight against Russia’s invading forces for at least the next two years.  The assorted prime ministers and presidents were so convinced by their plan for the loan that they were already arguing among themselves over how the money should be spent. France wanted Ukraine to buy weapons made in Europe. Finland, among others, argued that Zelenskyy should be free to procure whatever kit he needed from wherever he could find it.  But when the discussion broke up for lunch without agreement on raiding the Russian cash, reality dawned: Modest Belgium, a country of 12 million people, was not going to allow the so-called reparations loan to happen at all.  The fatal blow came from Bart De Wever. The bespectacled 54-year-old Belgian prime minister cuts an eccentric figure at the EU summit table, with his penchant for round-collared shirts, Roman history and witty one-liners. This time he was deadly serious, and dug in.  He told his peers that the risk of retaliation by the Russians for expropriating their sovereign assets was too great to contemplate. In the event that Moscow won a legal challenge against Belgium or Euroclear, the Brussels depository holding the assets, they would be on the hook to repay the entire amount, on their own. “That’s completely insane,” he said.  As afternoon stretched into evening, and dinner came and went, De Wever demanded the summit’s final conclusions be rewritten, repeatedly, to remove any mention of using Moscow’s assets to send cash to Kyiv.   Bart De Wever attends the European Council summit, in Brussels, Belgium, on Oct. 23, 2025. | Dursun Aydemir/Anadolu via Getty Images The Belgian blockade knocked the wind out of Ukraine’s European alliance at a critical moment. If the leaders had agreed to move ahead at speed with the loan plan at the October summit, it would have sent a powerful signal to Vladimir Putin about Ukraine’s long-term strength and Europe’s robust commitment to defend itself. Instead, Zelenskyy and Europe were weakened by the divisions when Donald Trump, still hoping for a Nobel Peace Prize, reopened his push for peace talks with Putin allies. The situation in Brussels remains stuck, even with the outcome of the almost-four-year-long war approaching a pivotal moment. Ukraine is sliding closer toward the financial precipice, Trump wants Zelenskyy to sign a lopsided deal with Putin — triggering alarm across Europe — and yet De Wever is still saying no. “The Russians must be having the best time,” said one EU official close to negotiations. The bloc’s leaders still aim to agree on a final plan for how to stop Ukraine running out of money when they meet for their next regular Brussels summit on Dec. 18.  But as the clock ticks down, one key problem remains: Can the EU’s most senior officials — European Commission President Ursula von der Leyen and António Costa, the president of the European Council — persuade De Wever to change his mind? So far the signs are not good. “I’m not impressed yet, let me put it that way,” De Wever said in televised remarks as the Commission released its draft legal texts on Wednesday. “We are not going to put risks involving hundreds of billions … on Belgian shoulders. Not today, not tomorrow, never.” In interviews, more than 20 officials, politicians and diplomats, many speaking privately to discuss sensitive matters, described to POLITICO how European attempts to fund the defense of Ukraine descended into disarray and paralysis, snagged on political dysfunction and personality clashes at the highest levels. The potential consequences for Europe — as Trump seeks to force a peace treaty on Ukraine — could hardly be more severe. SPOOKING THE HORSES  According to several of those close to the discussions, the reparations loan proposal started to hit trouble when tension began to build between De Wever and his neighbor, the new German chancellor, Friedrich Merz. A Flemish nationalist, De Wever came to power just this past February after months of tortuous coalition negotiations — a classic scenario in Belgian politics. Three weeks later, Germany voted in a national election to hand Merz, a center-right conservative, the leadership of Europe’s most powerful economy.  Like De Wever, Merz can be impulsive in a way that is liable to unsettle allies. “He shoots from the hip,” one Western diplomat said. On the night he won, he called on Europe to work for full “independence” from the United States and warned NATO it may soon be history.  Amid delays and continuing failure to agree on a way forward, bad-tempered briefings have been aimed at Bart De Wever, and increasingly at Ursula von der Leyen, too, in recent weeks. | Nicolas Tucat/Getty Images In September, the German chancellor stuck his neck out again. It was time, he said, for Europe to raid its bank vaults in order to exploit immobilized Russian assets to help Ukraine. With his outburst, Merz apparently spooked the Belgians, who were at the time in sensitive private talks with EU officials trying to iron out their worries. Several officials said Merz went rogue in putting the policy into the public domain so forcefully and so early — before De Wever had signed up.  Five days later, von der Leyen discussed it herself, though she was careful to try to reassure anyone who might have concerns: “There is no seizing of the assets.” Instead, she argued, the assets would just be used to provide a sort of advance payment from Moscow for war reparations it would inevitably owe. The money would only be returned to Russia in the unlikely event that the Kremlin agreed to compensate Kyiv for the destruction in Ukraine.  The idea gained rapid momentum. “It’s important to move forward in the process because it’s about making sure that there is funding to meet the budgetary and military needs for Ukraine, and it’s also a moral issue about making Russia pay for the damage that it has caused,” Jessica Rosencrantz, Sweden’s EU affairs minister, told POLITICO. “In that sense, using the frozen Russian assets is the logical and moral choice to make.” THE SPIDER’S WEB  Most of the work of a European Council summit is already done long before the bloc’s leaders arrive at the futuristic “space egg” Europa building for handshakes and photos. Ambassadors from the bloc’s 27 member countries gather to discuss what the summit will achieve — and to thrash out the precise wording of the plans — during the weeks leading up to each meeting.  Ahead of the October summit, Belgium’s ambassador to the EU, Peter Moors, had been sending signals to his colleagues that making progress on plans to use Russia’s frozen assets would be fine. The problem, according to four officials familiar with the matter, was that Moors wasn’t speaking directly to De Wever, and all the decisions about Russian assets rested with the prime minister.  While others inside the Belgian government knew that the prime minister was implacably opposed to ransacking Euroclear, one of his country’s most valuable and important financial institutions, the diplomat negotiating the summit deal a few hundred meters up the road apparently did not.  That meant nobody in the EU machinery really understood just how serious De Wever’s opposition was going to be until he arrived on summit day with steam coming out of his ears.  Moors is well respected among his peers and within the Belgian government. He is seen as effective, experienced and competent, having had a long career in diplomacy and politics. Before he took on the role of ambassador to the EU, he was known as the “spider in the web” of Belgian foreign policy.  Several officials said Friedrich Merz went rogue in putting the policy into the public domain so forcefully and so early — before Bart De Wever had signed up. | Tobias Schwartz/Getty Images The trouble, it seems, may have been political. He was the chief of staff to De Wever’s rival and predecessor as prime minister, Alexander De Croo, and comes from a party that lost power in last year’s election and now serves in opposition. It’s hardly uncommon in politics for such distinctions to affect who gets left out of the loop.  The other complicating factor was Belgium’s political dysfunction. As De Wever himself put it, he had been locked in negotiations with his compatriots trying to agree a national budget for weeks with no deal in sight.  “I’ve been negotiating for weeks to find €10 billion,” De Wever said on the way into the EU summit. A scenario in which Belgium would have to repay Russia more than 10 times that amount would therefore be unthinkable, he added.  As the summit broke up with only a vague agreement for leaders to look again at financing Ukraine, officials were left scratching their heads and wondering what had gone wrong.  AMERICA FIRST   The question of what to do with hundreds of billions of dollars worth of Russian assets locked in Western accounts had been hanging over Ukraine’s allies since the funds were sanctioned at the start of the war in February 2022. Now, though, it’s not just the Europeans who have their eyes on the cash.  The American side has quietly but firmly let Brussels know they have their own plans for the funds. When EU Sanctions Envoy David O’Sullivan traveled to Washington during the summer, U.S. officials told him bluntly they wanted to hand the assets back to Russia once a peace deal was done, according to two senior diplomats.  Trump is increasingly impatient for Kyiv and Moscow to agree to a full peace treaty. True to their word, the Americans’ original 28-point blueprint for an agreement included proposals for unfreezing the Russian assets and using them for a joint Ukraine reconstruction effort, under which the U.S. would take 50 percent of the profits.  The concept provoked outrage in European capitals, where one shocked official suggested Trump’s peace envoy Steve Witkoff should see “a psychiatrist.” If nothing else, Trump’s desire for a speedy deal with Putin — and his apparent designs for the frozen assets — lit a fire under the EU’s negotiations with De Wever.  WASTED TIME   Many EU governments are sympathetic toward the Belgian leader. Officials and politicians know just how difficult it is for any government to contemplate a step like this one, which could theoretically open them up to punishingly expensive legal action. De Wever is worried the stability of the euro itself could be undermined if a raid on Euroclear forced investors to think again about placing their assets in European banks.  In recent weeks, von der Leyen’s most senior aide, Björn Seibert, among others, invested time in trying to understand Belgium’s objections and to find creative ways to overcome them. Moors and other ambassadors have discussed the issues endlessly, during their regular meetings with each other and the Commission.  But as the nights draw in, the mood is darkening. Amid delays and continuing failure to agree on a way forward, bad-tempered briefings have been aimed at De Wever, and increasingly also at von der Leyen in recent weeks. She has held off the decisive step of publishing the draft legal texts that would enable the assets to be used for the reparations loan. These documents are what all sides need to enact, alter or reject the plan. “We have wasted a lot of time,” Jonatan Vseviov, secretary-general of the Estonian foreign ministry, told POLITICO. “Our focus has been solely on the Commission president, asking her to present the proposal. Nobody else can table the proposal.” He said it would have been “better” if the Commission had produced the legal texts setting out the details of the loan earlier than Wednesday, when they were eventually released. “We have wasted a lot of time,” Jonatan Vseviov, secretary-general of the Estonian foreign ministry, told POLITICO. | Ali Balikci/Getty Images “We all have a responsibility” to speed up now, another diplomat said, while a third noted that even Belgium had been imploring the Commission to publish the legal plans in recent weeks. An EU official said everyone should calm down and noted that De Wever still needed to get off his ledge. Another diplomat said Belgium “cannot expect all their wishes to be granted in full.” WINTER IS HERE Merz is particularly agitated. He worries that it will be his country’s taxpayers who have to step in unless the assets loan goes ahead. “I see the need to do this as increasingly urgent,” the German leader told reporters on Friday. “Ukraine needs our support. Russian attacks are intensifying. Winter is approaching — or rather, we are already in winter.” De Wever, in the words of one diplomat, is still “pleading” for other options to remain in play. Two alternative ideas are in the air. The first would ask EU national governments to dig into their own coffers to send cash grants to Kyiv, a prospect most involved think is unrealistic given the parlous state of the budgets of many European nations.  The other idea is to fund a loan to Kyiv via joint EU borrowing, something frugal countries dislike because it would pile up debt to be repaid by future generations of taxpayers. “We are not keen on that,” one diplomat said. “The principle of saying Russia needs to pay for the damage is right.”  Some combination of these ideas might be inevitable, especially if the reparations loan is not finalized in time to meet Ukraine’s funding needs. In that case, a bridging loan will be required as an emergency “plan B”.  In a letter to von der Leyen on Nov. 27, De Wever underlined his opposition, describing the reparations loan proposal as “fundamentally wrong.”  “I am fully cognizant of the need to find ways to continue financial support to Ukraine,” De Wever wrote in his letter to von der Leyen. “My point has always been that there are alternative ways to put our money where our mouth is. When we talk about having skin in the game, we have to accept that it will be our skin in the game.”  “Who would advise the prime minister to write such a letter?” one exasperated diplomat said, dismayed at De Wever’s apparent insensitivity. “He talks about having ‘skin in the game.’ What about Ukraine?” RUSSIAN DRONES  Despite frustrating his allies, De Wever still has support from within his own government for the hard-line stance he’s taking. His position has been reinforced by Euroclear itself, which issued its own warnings. In a sign of how critical the subject is for Belgium, Euroclear’s bosses deal directly with De Wever’s office, bypassing the finance ministry.  Some also fear the threat to Belgium’s physical security. Mysterious drones disrupted air traffic at Brussels Airport last month and were spotted over Belgian military bases, suspected of spying on fighter jets and ammunition stores. The concern is that they may be part of Putin’s hybrid assault on Europe, and that Belgium would be at heightened risk if De Wever approved the use of Moscow’s assets.  Another major hurdle to progress on the loan is Hungary. Russia’s assets are only frozen because all the EU’s leaders — including Putin’s friend Viktor Orbán — have agreed every six months to extend the sanctions immobilizing the funds. Should Orbán change his mind, Russia could suddenly be free to lay claim to those assets again, putting Belgium in trouble.  In the end, the task may just be too big even for the Commission’s highly qualified lawyers. It’s far from certain that a legal fix even exists that could duck Hungary’s veto and Russian retaliation, keep Belgium happy, and avoid the need for European taxpayer money to be committed up front.  Mysterious drones disrupted air traffic at Brussels Airport last month and were spotted over Belgian military bases, suspected of spying on fighter jets and ammunition stores. | Nicolas Tucat/Getty Images As the next crunch European Council summit on Dec. 18 gets closer, European officials are feeling the pressure. “This is not an accounting exercise,” Estonia’s Vseviov said. “We are preparing the most consequential of all European Councils … We are trying to ensure that Europe gets a seat at the table where history is being made.” For the EU, one essential question remains — and it’s one that is always there, in every crisis that crosses the desks of the diplomats and officials working in Brussels: Can a union of 27 diverse, fractious, complex countries, each with its own domestic struggles, political rivalries and ambitious leaders, unite to meet the moment when it truly matters?  In the words of one diplomat, “It’s anyone’s guess.” Jacopo Barigazzi, Camille Gijs, Bjarke Smith-Meyer and Hanne Cokelaere contributed to this report.

The European Central Bank is hatching a plan to boost the use of the euro around the world, hoping to turn the world’s faltering confidence in U.S. political and financial leadership to Europe’s advantage. Liquidity lines — agreements to lend at short notice to other central banks — have long been a standard part of the crisis-fighting toolkits of central banks, but the ECB is now thinking of repurposing them to further Europe’s political aims, four central bank officials told POLITICO. One aim of the plan is to absorb any shocks if the U.S. — which has backstopped the global financial system with dollars for decades — suddenly decides not to, or attaches unacceptable conditions to its support. The other goal is to underpin its foreign trade more actively and, ultimately, grab some of the benefits that the U.S. has historically enjoyed from controlling the world’s reserve currency. Officials were granted anonymity because the discussions are private. Bruegel fellow Francesco Papadia, who was previously director-general for the ECB’s market operations, told POLITICO that such efforts are sensible and reflect an increasing willingness among European authorities to see the euro used more widely around the world. WHAT’S A LIQUIDITY LINE? Central banks typically use two types of facilities to lend to each other: either by swapping one currency for another (swap lines) or by providing funds against collateral denominated in the lender’s currency (repo lines). The ECB currently maintains standing, unlimited swap lines with the U.S. Federal Reserve, the Bank of Canada, the Bank of England, the Swiss National Bank, and the Bank of Japan, as well as standing but capped lines with the Danish and Swedish central banks. It also operates a facility with the People’s Bank of China, capped in both volume and duration. Other central banks seeking euro liquidity must rely on repo lines known as EUREP, under which they can borrow limited amounts of euros for a limited period against high-quality euro-denominated collateral. At present, only Hungary, Romania, Albania, Andorra, San Marino, North Macedonia, Montenegro and Kosovo have such lines in place. But these active lines have sat untouched since Jan. 2, 2024 — and even at the height of the Covid crisis, their use peaked at a mere €3.6 billion. For the eurozone’s international partners, the knowledge that they can access the euro in times of stress is valuable in itself, helping to pre-empt self-fulfilling fears of financial instability. But some say that if structured generously enough, the facilities can also reduce concerns about exchange rate fluctuations or liquidity shortages. Such details may sound academic, but the availability of liquidity lines has real impacts on business: A Romanian carmaker whose bank has trouble securing euros may fail to make payments to a supplier in Germany, disrupting its production and raising its costs.  “The knowledge that foreign commercial banks can borrow in euros while being assured that they have access to euro liquidity [as a backstop] encourages the use of the euro,” one ECB rate-setter explained.  French central bank chief François Villeroy de Galhau suggested that Europe could at least take a leaf out of China’s book, noting that the Eurosystem “can make euro invoicing more attractive” by expanding the provision of euro liquidity lines. | Kirill Kudryavtsev/Getty Images “Liquidity lines, in particular EUREP, should be flexible, simple and easy to activate,” he argued. One option, he said, would be to extend them to more countries. Another could be to make EUREP a standing facility — removing any doubts about whether, and under what conditions, euro access would be granted. Papadia added that the ECB could also ease access to EUREP by cutting its cost, boosting available volumes or extending the timeframe for use. NOT JUST AN ACADEMIC QUESTION French central bank chief François Villeroy de Galhau suggested in a recent speech that Europe could at least take a leaf out of China’s book, noting that the Eurosystem “can make euro invoicing more attractive” by expanding the provision of euro liquidity lines. China has established around 40 swap lines with trading partners worldwide to underpin its burgeoning foreign trade, especially with poorer and less stable countries. By contrast, the ECB — a historically cautious animal — “is not marketing the euro to the same extent that the Chinese market the renminbi,” according to Papadia.  Another policymaker told POLITICO that while there is a broad consensus that liquidity lines should be made more widely available, the Governing Council had not yet hashed out the details. Austrian National Bank Governor Martin Kocher told POLITICO in a recent interview that there has been “no deeper discussion” on the Council, adding that he sees no reason to promote euro liquidity lines actively. “I’m not arguing that you should incentivize or create a demand. Rather, if there is demand, we should be prepared for it,” he said, acknowledging that “preparation is very important.” He noted that erratic U.S. policies could force the euro “to take on a stronger role in the international sphere” — both as a reserve currency and in transactions. According to a Reuters report earlier this month, similar concerns among central banks worldwide have sparked a debate over creating an alternative to Federal Reserve funding backstops by pooling their own dollar reserves. The ECB declined to comment for this article. RISK AVERSION AND OTHER OBSTACLES  However, swap lines in particular don’t come without risks. “The main risk is that the country would use a swap and then would not be able to return the drawn euros,” said Papadia. “And then you will be left with foreign currency you don’t really know what to do with.” That is exactly the kind of trap some economists warn the U.S. is stumbling into with its $20 billion swap line to Argentina. “The United States doesn’t really want Argentina’s currency,” the Council on Foreign Relations’ Brad Setser wrote in a blog post. “It expects to be repaid in dollars, so it would be a massive failure if the swap was never unwound and the U.S. Treasury was left holding a slug of pesos.” Austrian National Bank Governor Martin Kocher said there has been “no deeper discussion” on the Council, adding that he sees no reason to promote euro liquidity lines actively. | Heinz-Peter Bader/Getty Images Such thinking, another central bank official said, will incline the ECB to focus first on reforming the EUREP lines, which have always been its preferred tool. The trouble with that, however, is that EUREP use may be limited by a lack of safe assets denominated in euros to serve as collateral. Papadia noted that the Fed’s network of liquidity lines works because “the Fed has the U.S.  Treasury as a kind of partner in granting these swaps.” So long as Europe fails to create a joint debt instrument, this may put a natural cap on such lines.  Even with a safe asset, focusing on liquidity lines first could be putting the cart before the horse, said Gianluca Benigno, professor of economics at the University of Lausanne and former head of the New York Fed’s international research department. Europe’s diminishing geopolitical relevance means that the ECB is unlikely to see much demand — deliberately engineered or not — for its liquidity outside Europe without much broader changes, Benigno told POLITICO. Liquidity lines can be used to advance your goals if you already have power — but they can’t create it. For that, he argued, Europe first needs a clear political vision for its role in the global economy, alongside a Capital Markets Union and the creation of a common European safe asset — issues that only politicians can address.

The starter’s gun is about to fire on the race to succeed Christine Lagarde as European Central Bank president in 2027, and two heavyweight countries who have never held the position look likely to make the running: Spain and Germany. Madrid has been conspicuously silent on nominating a replacement for its current representative on the board, Luis de Guindos, who is preparing to leave the vice presidency in June. That has fueled speculation in markets and policy circles that the eurozone’s fourth-largest member is eyeing a bigger prize. The ECB is set for a major leadership reshuffle over the next two years, creating a rare opportunity for national governments to install trusted figures at the top of one of the EU’s most powerful institutions. De Guindos’ post is up for grabs in May next year, while the chief economist role, the presidency and the important markets division will all become vacant in 2027. While Germany, France and Italy have always held one of the six coveted Executive Board seats, Spain has endured a six-year gap without representation. Should it remain silent as the other board seats fill up, this would be a clear indication that Spain wants the top spot. The Spanish economy ministry declined to comment directly, but stressed that “Spain remains firmly committed to having a meaningful and influential presence in key European institutions, as it has consistently done.” Betting on the presidency is a gamble for Madrid, and the competition is fierce — not least because Germany, which has never held the top ECB post, may also want to seize the chance. For once, Spain has a strong candidate in Pablo Hernández de Cos, the former Bank of Spain governor who is now general manager at the Bank for International Settlements. Groomed by former ECB President Mario Draghi, de Cos restored the Bank of Spain’s reputation after a series of missteps before and during the financial crisis. His achievement was implicitly acknowledged by his appointment to two terms as chair of the Basel Committee for Banking Supervision (BCBS), the global standard-setter for bank regulation. But inevitably, the shadow of U.S. President Donald Trump looms over the issue. De Cos moving to the ECB could cost Europe the BIS leadership. Given Europe’s fading relevance to the global economy, Trump may persuade others that — with the IMF, BCBS and the Financial Stability Board already headed by Europeans — the Old Continent has more than its fair share of top jobs. While not powerful, the BIS is a highly prestigious institution commanding a unique overview of global financial flows. Two people familiar with the ECB’s thinking told POLITICO that its current top management is concerned about the risk of losing a slot that has traditionally been held by a European. GERMANY’S MOMENT Much will depend on Germany, which, like Spain, has never held the ECB presidency. The German government will form an opinion “in due course” but will refrain from speculation today, a spokesperson said. The country’s previous contenders — Axel Weber and Jens Weidmann — both fell victim to their unbending faith in conservative monetary orthodoxy in times of crisis. But today, after the worst bout of inflation in Europe for over half a century, the climate looks far more welcoming for a more hawkish leader. As the current Bundesbank president, Joachim Nagel would be the obvious choice. | Pool photo by Maxim Shemetov via Getty Images As the current Bundesbank president, Joachim Nagel would be the obvious choice. A more moderate voice than either Weber or Weidmann, Nagel may be more acceptable to other member states. However, Nagel — a member of the SPD junior coalition partner — has more than once stepped on the toes of German Chancellor Friedrich Merz — most recently by expressing support for joint European debt issuance to finance defense projects. Like de Cos, Nagel could also face competition within his own country. Lars-Hendrik Röller, formerly chief economic advisor to then-Chancellor Angela Merkel and still a heavyweight in Berlin policy circles, has floated Jörg Kukies, who was finance minister under Olaf Scholz. While also a social democrat, Kukies is clearly associated with the right wing of the party and has not recently opposed Merz in public. Kukies may well be an acceptable candidate for the chancellor, a person close to Merz told POLITICO. His impeccable English, PhD in finance from the University of Chicago and a spell leading Goldman Sachs’s German operations would also help his candidacy. But intriguingly, at a recent public event in Berlin, Bank of France Governor François Villeroy de Galhau appeared to suggest that Röller has also been touting a German woman — rather than Nagel — for the presidency. That woman could be the ECB’s current head of markets, Isabel Schnabel, who is said to be eyeing the post. Ordinarily, however, no one is allowed to serve more than one term on the Executive Board, meaning a legal loophole would need to be found to accommodate her. Given the presence of alternative candidates, and given that other member states may view her as excessively hawkish, one former board member said there’s no obvious reason why Germany should risk advancing her. In any case, Berlin may prefer to support a hawk from another country, to avoid pressure to give up the European Commission presidency early: Ursula von der Leyen’s term expires in 2029. GOING DUTCH? Enter Klaas Knot, who stepped down as president of the Dutch central bank in June after 14 years. Knot, like Draghi, a former chair of the Financial Stability Board, would bring deep institutional experience and monetary policy expertise. He also drew conspicuously supportive comments last month from Lagarde, who said he “has the intellect” as well as the stamina and the “rare” and “very necessary” ability to include people. Most of the obstacles in Knot’s way look surmountable: While he took a clearly hawkish line throughout the eurozone crisis, he became a far more nuanced team player during his second term. And while the Netherlands would still have a representative — Frank Elderson — on its board when the presidency comes up, a similar situation was dealt with easily enough in 2011, when Lorenzo Bini Smaghi left early to make room for Draghi. Knot’s only real problem is that he is currently out of the policy circus. “He will need to find a way to stay visible and relevant to bridge the time,” the former Executive Board member said. Knot is still tending potentially important connections: He is advising the European Stability Mechanism (the EU’s bailout fund) on strategic positioning, and the European Commission on central bank independence in potential accession countries. He also remains an avid public speaker — with no less than five engagements at the International Monetary Fund’s annual meeting last month.  But two years can be a long time in European politics. Carlo Boffa contributed reporting.

Hungary’s surging opposition is demanding Prime Minister Viktor Orbán explain a “bailout package” he hinted at securing from U.S. President Donald Trump.   Orbán, a longtime Trump ally, traveled to Washington last week to meet with the American leader. As he returned to Budapest, the populist-nationalist Hungarian premier told his delegation the U.S. had agreed to provide Budapest a “financial shield.” “Certain Brussels instruments that could be used against Hungary can now be considered ineffective … The notion […] that the Hungarian economy can be strangled from the financing side, can now be forgotten,” he said, according to local media, adding, “We have resolved this with the Americans.”  After 15 years in charge, Orbán faces potential defeat in next spring’s national election — and the specter of financial assistance from Washington closely echoes Trump’s recent blockbuster move to save another ideological ally, Javier Milei in Argentina. Orbán’s remarks, which allude to EU money due to Hungary but frozen because of concerns about backsliding on the rule of law, triggered questions Monday from Péter Magyar, leader of Hungary’s opposition, which is leading the ruling Fidesz party in the polls. “Why was such a ‘financial shield’ necessary? Is there a near-state bankruptcy situation? What would Viktor Orbán spend the trillions of forints in American loans on? Why is he indebting his fellow citizens instead of bringing home the 8 trillion forints in EU funds owed to Hungarians?” Magyar demanded in a post on social media. In a separate missive, he added, “Why did Orbán secretly negotiate a huge bailout package?”  EU ESTRANGEMENT Hungarian media outlet Válasz Online reported that Trump and Orbán may have committed to a currency swap between their countries’ central banks — similar to the $20 billion exchange-rate stabilization agreement Argentina inked with the U.S. last month — essentially, a bailout package for Budapest.  If so, it would be the second time Trump provided financial assistance for a right-wing ally ahead of a crucial election, after he approved the bailout package for Milei, the chainsaw-wielding libertarian president of Argentina. That intervention, organized by Treasury Secretary Scott Bessent, included direct U.S. purchases of Argentine pesos and a $20 billion currency-swap agreement giving Buenos Aires access to dollars. Bessent also announced plans to marshal an additional $20 billion in private financing, though that money has yet to appear. There are differences, too, though, which make any Washington-Budapest arrangement more difficult to understand. Hungary’s central bank does not have dollar swap arrangements with the U.S. Federal Reserve, nor does Hungary have a formal backstop — basically, an agreement to help financially in times of fiscal disaster — with the Fed.  By contrast, it does have a swap arrangement for euros with the European Central Bank, and it could also turn to the International Monetary Fund if the ECB were unable, or unwilling, to help. Spokespeople for the White House and U.S. Treasury didn’t immediately respond to a request for comment. Donald Trump’s relationships with Budapest and Buenos Aires reveal clear parallels. | Roberto Schmidt/Getty Images Much of this is currently academic because Hungary is, to put it mildly, in a far better economic position than Argentina — it doesn’t even need a bailout. Hungary, like many EU countries, has weak growth, but the main threats to its financial stability under Orbán’s leadership relate to the potential for estrangement from the EU. ARGENTINA PARALLELS The U.S.’s Argentina intervention was a success, politically, for Milei, whose party won a decisive victory on Oct. 27 in midterm elections allowing him to press ahead with his radical economic overhaul of the country. Trump celebrated the outcome, saying the effort had “made a lot of money for the United States.” Bessent likewise said the U.S. investment had “turned a profit.” But the administration has released no details about the full scope of U.S. involvement or the returns it claims to have earned. Trump’s rescue package has drawn political backlash in the U.S. from both Democrats and even some Republicans, who blasted the administration’s assistance for Argentina as a bailout for a political ally that may boost wealthy hedge funds while risking U.S. taxpayer dollars on a chronically bankrupt country. Bessent said the Argentina intervention was aimed at countering China’s growing clout across Latin America and, more broadly, reasserting American economic power in the Western Hemisphere, comparing the U.S. effort in Argentina to an “economic Monroe Doctrine.”  Trump’s relationships with Budapest and Buenos Aires reveal clear parallels, and an effort to prop up key partners in regions where many leaders are not naturally allied with the U.S. president’s MAGA agenda. The White House also sided with Orbán over the Hungarian leader’s refusal to stop purchasing Russian oil despite a European push to wean off Moscow’s exports, exempting Hungary from U.S. sanctions on Russian energy for one year following his meeting with Trump. Further financial backing from Washington could embolden Orbán, a frequent thorn in the EU’s side, to take even stronger anti-Brussels positions. Seb Starcevic reported from Brussels. Michael Stratford reported from Washington, D.C.

LONDON — Britain’s financial watchdogs have been on a crypto journey — with a little help from Donald Trump.  The Bank of England publishes its long-awaited rules for stablecoin Monday. Two years after the central bank’s Governor Andrew Bailey dismissed the virtual currency — a theoretically more stable form of crypto — as “not money,” its rulebook is now expected to get a cautious welcome from an industry that’s been lobbying hard for a rethink. It would mark quite a shift from the U.K. central bank. Stablecoins “are not robust and, as currently organized, do not meet the standards we expect of safe money in the financial system,” Bailey told a City of London audience in 2023.  Now his top officials herald a “fabulous opportunity.”  The Bank chief’s initial position — that he doesn’t see stablecoins as a substitute for commercial bank money — has put him at odds with the U.K. Treasury, which is on an all-consuming mission to get the sluggish British economy moving. Chancellor Rachel Reeves wants the U.K. “at the forefront of digital asset innovation.”  The United States crypto lobby, fresh from several wins stateside, spied an opportunity. Exploiting those divisions — and pointing to a more gung-ho approach from Trump’s U.S. — has allowed firms to push for a British regime that more closely aligns with their own.  Monday could be a very good day at the office.  TREADING CAREFULLY Stablecoins are a type of cryptocurrency pegged to a real asset, like the dollar, with the largest and best-known offering being Tether. They’re seen as a more palatable version of crypto, and are used by investors to buy other cryptocurrencies, or allow cross-border payments.  The pro-stablecoin camp says their development is necessary to improve payments and overseas transactions for businesses and consumers, particularly as cash usage declines and sending money abroad remains clunky and expensive. If done well, a stablecoin could maintain a reliable store of value and be a viable alternative to cash.  Stablecoins (USDT) are a type of cryptocurrency pegged to a real asset. | Silas Stein/picture alliance via Getty Images Those more cautious, including the BoE, warn there are risks for the wider financial system including undermining public confidence in money and payments if something goes wrong.  And stablecoins are not immune to things going wrong: In 2022, the Terra Luna token lost 99 percent of its value, along with its sister token TerraUSD, a stablecoin which went from being pegged to the dollar on a $1-1 TerraUSDbasis, to being valued at $0.4. Tether also fell during that time to $0.95.  Other central bankers seem to agree with Bailey’s early caution. The Bank for International Settlements, a central bank body, issued a stark warning on stablecoins in June, saying they “fall short” as a form of sound money.  There are also concerns such coins are used to skirt money-laundering laws, with anti-money laundering watchdog the Financial Action Task Force, warning that most on-chain illicit transactions involved stablecoins. The EU has tough regulation in place for digital assets. The bloc prioritizes tighter control over the market than the U.S., with stricter rules on capital and operations.  That’s in stark contrast to the U.S., which passed its own stablecoin regulation — the GENIUS act — earlier this year, which is much more industry-friendly. Donald Trump, whose family is building its own crypto empire, has described stablecoins as “perhaps the greatest revolution in financial technology since the birth of the Internet itself.”  That’s put post-Brexit Britain in a bind: align with the EU, the U.S., or go it alone?  “The U.K. is a bit caught,” a former Bank of England official who now works in digital assets said. They were granted anonymity, like others in this article, to speak freely. “It doesn’t have the luxury of completely creating a bespoke regime. It can do, but essentially, no one’s going to care.” AMERICAN PUSH For a Labour government intent on deregulating for growth, aligning with the U.S. was immediately a more attractive proposition.  Warnings came from the City of London, Britain’s financial powerhouse, that the government would need to embrace crypto and stablecoin for the U.K. to become a global player. Domestic financial services firms wrote to the government calling for it to align its regime with the U.S., talking up “once-in-a-generation opportunity” to establish the future rules for digital assets.   “Securities are getting tokenized,” said one former Treasury official, now working in the private sector. “Bank deposits are getting tokenized. If we don’t build a regime that is permissive enough [to make the U.K. attractive], then the City’s relevance will diminish as a consequence.”  For the pro-crypto brigade, the BoE has been the main hurdle in achieving a U.S.-style, free-market stablecoin rulebook. Reform UK leader Nigel Farage, whose party is currently leading in the polls, accused Bailey of behaving like a “dinosaur.  For the pro-crypto brigade, the BoE has been the main hurdle in achieving a U.S.-style, free-market stablecoin rulebook. | Niklas Helle’n/AFP via Getty Images “The Bank’s really got itself into a twist on this one. From what I understand from people who have been at the Bank, this is coming from the top,” said the former BoE employee quoted above.  “Andrew Bailey has made it publicly clear for some many months now that he is sceptical about the two new alternative forms of money, which is stablecoins and central bank digital currencies,” said a financial services firm CEO.  In recent weeks, however, Bailey and his colleagues have softened their rhetoric as well as indicating a relaxed policy is forthcoming.  Sarah Breeden, Bailey’s deputy governor for financial stability, has repeatedly said any limits on stablecoin will be temporary, and recent reports suggest there will be carve-outs for certain firms. Other BoE officials have also backed away from tougher rules on the assets which must be used to underpin the value of a stablecoin.  A second former BoE employee, who now works in the fintech industry, said Bailey was “under a huge amount of pressure, from the government and the industry. He is worried about looking like he is just anti-innovation.”  The BoE declined to comment. The Treasury did not respond to a request for comment. US interest  A state visit by Trump to the U.K. this fall appeared to help shift the debate.   In late September, the Trump administration and the British government agreed to explore ways to collaborate on digital asset rules.  Treasury Secretary Scott Bessent and Reeves announced that financial regulators and officials from the U.S. and U.K. would convene a “Transatlantic Taskforce for Markets of the Future.”  During Trump’s visit, Bessent held a financial services roundtable in London with key figures from industry. “There was a steady slate of crypto attendees there, and the discussion predominantly focused on stablecoins,” said the former Treasury official.  “Rachel Reeves met Scott Bessent and seems to have been told, actually, we’d like you to be much more supportive of … digital assets,” the financial services CEO added.   The U.K. Treasury has been “pretty proactive” in taking meetings with crypto firms and traditional finance firms interested in crypto, in the New York consulate and British embassy in Washington, added the former Treasury official.   The BoE too met with the crypto industry and U.S. politicians, with Breeden at the helm of discussions while she was in the U.S. in October for IMF-World Bank meetings, in an effort to better understand U.S. stablecoin rules.  Last month saw a major olive branch.  A Bailey-penned op-ed in the Financial Times saw the Bank chief recognize stablecoins’ “potential in driving innovation in payments systems both at home and across borders.”   Going further still, Breeden told a crypto conference just this month that synchronization between the U.S. and the U.K. on stablecoin marks a “fabulous opportunity.”  She has heavily indicated there will be more than a slight American influence when she announces the proposals on Nov. 10. “It’s a fabulous opportunity, to reengineer the financial system with these new technologies,” Breeden told the Nov. 5 crypto conference.  “I think a lot of people have observed that it was the U.S. crypto firms that really pushed the dial on getting political will, whereas British firms haven’t been able to secure that,” the former Treasury official said.

LONDON — The U.K. government is going all-out to get Brits putting their money in stocks and shares. The timing could definitely be better. Lead policymakers and City of London analysts are increasingly warning of an artificial intelligence-fueled correction in equities just as the U.K.’s top finance minister prepares a major new policy to push Britain’s savers into the stock market. Chancellor Rachel Reeves has made upping retail participation in stocks and shares a high priority, launching a campaign earlier this year to unite financial firms in an advertising blitz extolling the benefits of investing. At next month’s budget, she’s expected to push changes to the tax system that would encourage investors to swap their steady, tax-free cash savings products for a stocks and shares ISA. With AI stocks soaring, it’s caused some raised eyebrows in the City. AI stocks in the U.S. account for roughly 44 percent of the S&P 500 market capitalization, and Nvidia just became the first company in history to become worth $5 trillion. The meteoric rise in has led some experts to warn there’s only one way out: The bubble will burst. “It would, unfortunately, be poetic timing if a major correction arrives just as the government is trying to get more people into investing,” said Chris Beauchamp, chief market analyst at IG. ATLANTIC INFLUENCE This week, City broker Panmure Liberum found that 38 percent of the U.S. stock market’s value is based in a “speculative component” that AI companies will continue to build out data centers and spend billions more on chips — by no means a sure bet. “While this capital spending could deliver substantial productivity gains that might eventually spread to the broader market, there is still no clear evidence that this is happening and is difficult to forecast the size of an eventual impact,” said Panmure analyst Susana Cruz in a research note. The “Magnificent Seven” group of tech giant composed around 20 percent of the S&P 500 at the end of 2022, but now make up more than a third of it, having tripled in size over just three years. The American index’s price-to-book ratio (meaning a company’s market cap compared to assets and liabilities) is at an all-time high, with 19 of the 20 valuation metrics tracked by Bank of America more expensive than the historical average. Despite the vast valuations, an infamous MIT study published earlier this year found that 95 percent of companies using generative AI were getting zero return. In early October, the Bank of England’s committee which monitors risks to financial stability warned of a “sudden correction” in markets, saying that “equity valuations appear stretched” as valuation metrics reached levels comparable to the peak of the dotcom bubble that unfolded in the early millennium, when the Nasdaq fell 77 percent from its peak, wiping trillions of the stock market. It took 15 years for the index to recover. The U.K. central bank’s warning came a month after global body, the Bank for International Settlements, issued a similar caution. Kristalina Georgieva, head of the International Monetary Fund, has also drawn comparisons with the dotcom bubble. Even Jamie Dimon, chief executive of U.S. banking giant JP Morgan, has said he’s seriously worried about a market correction. Over most periods investment beats cash, as long as individuals are willing to lock their money away for several years. Savers could have doubled their money over the last decade by putting their cash in the stock market rather than keeping it in a savings account, according to Schroders. Nvidia is up 13 percent this month alone — rather than an index fund which tracks hundreds of stocks, they stand to lose a lot of money if things go sour. | Jung Yeon-Je/Getty Images “No one can time the market, definitely not a bulky institution like the government,” Oliver Tipping, analyst at investment bank Peel Hunt, said. “Big picture, the government is right to try to stimulate more retail investment.” But if an individual decides to put their hard-earned savings into stocks they perceive as doing particularly well — Nvidia, for example, is up 13 percent this month alone — rather than an index fund which tracks hundreds of stocks, they stand to lose a lot of money if things go sour. “If you think about your average Joe, they’re not going to go into a safe index fund, they’ll put all of their money in Nvidia or Facebook and could get in at the wrong time,” one financial analyst, granted anonymity to speak freely, said.  Yet even an index fund, like a global equities tracker, is made up of close to 20 percent of the “Magnificent Seven” companies, due to the massive size of the American stock market compared to the rest of the world. While these funds have suffered significant drops in the past — U.S. President Donald Trump’s threat of tariffs in April caused a drop of 10 percent in a week — they have then recovered over a period of months or years. That’s good news for investors willing to wait for the market to correct any possible downturn — but if retail investors panic and withdraw their funds at the first sign of a loss, they could end up with less money than they put in, possibly wiping out emergency savings. “There is clearly a risk here that government is pushing people to invest when maybe they don’t have enough of a cash buffer in order to do that, that you’re going to be setting up problems for the long term, and it’ll be interesting to see who’s on the hook for paying that compensation,” said Debbie Enver, head of external affairs at the Building Societies Association. ONCE BITTEN, TWICE SHY City analysts also express concern that investors entering the stock market for the first time could be forever turned off from shifting their cash over to equities if an immediate correction is nigh. Only 8 percent of wealth held by U.K. adults is in stocks and funds, four times lower than in the U.S., according to data from asset manager Aberdeen. “There is no doubt that the government would find it much harder to drive retail investment in a period of financial turbulence,” added Chris Rudden, head of investment consultants at Moneyfarm. “Appetite to invest is linked to strong recent market performance. If there was to be a bubble that bursts in the coming few months, then it could make their job impossible.” IG’s Beauchamp argued that the government would need to pursue a broader education plan “to help people through the inevitable pullback” and prevent them from avoiding the stock market permanently. “How you do that without scaring people witless is a Herculean task,” he added. Laith Khalaf, head of investment analysis at AJ Bell, suggested investment platforms could encourage regular incremental savings in the stock market, known as dollar cost averaging, rather than throwing one lump sum in, which he said “mitigates the risk of a big market downdraft.” One solution that appears to be under consideration by Reeves as part of the autumn budget is to introduce a minimum U.K. stock shareholding in ISAs — which she could argue would protect British savers from a U.S. downturn and pump more money into local companies. This too is not without risk. The FTSE 100 derives nearly 30 percent of its revenue from the U.S., according to the London Stock Exchange, and U.K. markets are generally incredibly sensitive to macroeconomic shifts across the Atlantic. The FTSE 100 derives nearly 30 percent of its revenue from the U.S., according to the London Stock Exchange. | Jeff Moore/Getty Images Meanwhile, if an AI-induced stock bubble isn’t enough cause for concern, worries of trouble in the private credit sector exploded this month after the collapse of sub-prime auto lender Tricolor and car parts supplier First Brands left some U.S. banks with significant losses, causing a spillover onto public markets. BoE governor Bailey recently drew similarities between risks in the asset class and the 2008 global financial crisis, saying it was an “open question” if the event was “a canary in the coal mine” for a market meltdown. If one domino falls, they all could — and that would leave Britain’s chancellor in a real bind.

BRUSSELS — Global finance regulators’ failure to impose sufficient rules on cryptocurrency could threaten the world’s financial stability, global risk body the Financial Stability Board has warned. Reviewing the rollout of a global framework for crypto rules, the FSB said there are “significant gaps and inconsistencies” in implementing the rules, which could “pose risks to financial stability and to the development of a resilient digital asset ecosystem.” On the regulation of stablecoins, which are virtual currencies pegged to real-world assets, the FSB said regulation is “lagging.” Because of the international, decentralized nature of financial technologies like crypto, having gaps in global rules is an issue as providers can go wherever the rules are the most lax, which “complicates oversight,” the review said. It added that global cooperation on regulating the currencies is “fragmented, inconsistent, and insufficient” to address their global nature. The FSB also flagged gaps in oversight of crypto service providers, saying supervision of “potentially higher risk activities, such as borrowing, lending, and margin trading, is often lacking” and enforcement can “lag behind regulatory development.” The review recommended that governments implement the global crypto framework fully. It also said they should “conduct an assessment of the scale and nature of cross-border crypto-asset activities into and out of their jurisdictions” at the “appropriate time.” Earlier this week, FSB chair Andrew Bailey warned G20 finance ministers and central bank governors that stablecoins are a potential area of vulnerability for the financial system.

Andrew Bailey is governor of the Bank of England and chair of the Financial Stability Board. As the G20 finance track meets in Washington amid a challenging global environment, it’s important to remember that multilateral institutions play a vital role in helping navigate troubled waters. But these institutions must be agile enough to refresh their approach to respond to the changing environment. Geopolitical tensions add to financial market vulnerabilities. Incomplete and inconsistent implementation of critical reforms across jurisdictions further exacerbates these vulnerabilities, and affects the financial system’s ability to withstand future shocks. Against this backdrop, multilateral institutions help foster the cooperation and coordination needed to find a way through these challenges and ensure global financial stability. The Financial Stability Board (FSB), which I chair, is one such example. Created by the G20 in response to the global financial crisis, the FSB advances global cooperation on financial regulation to improve the global financial system’s resilience and create the conditions necessary for sustainable economic growth. That objective matters for everyone — from Milan to Mumbai, Sapporo to Salvador. The reforms put in place by the FSB and other standard-setting bodies since 2009 have helped contain the fallout from more recent crises, including the Covid-19 pandemic, Russia’s illegal full-scale invasion of Ukraine and the swift resolution of the 2023 banking turmoil. The need for such global standards and cooperation is as clear today as it was 15 years ago — not just to prevent crises but because, ultimately, a resilient system allows for the efficient allocation of capital and supports G20 member economies in boosting growth. To maintain financial stability, however, policy development alone is not enough. We need the timely and consistent implementation of agreed reforms across jurisdictions. At the request of the G20 South African presidency, former Vice Chair of the Federal Reserve and former FSB Chair Randal Quarles has been asked to lead a review of reform implementations since the board’s creation, and his interim report will be submitted to the G20 next week. It shows that while we have seen intensified cooperation since the global financial crisis and made significant progress in areas like over-the-counter derivatives, full, timely and consistent implementation across the broad range of reforms hasn’t been achieved yet. But why does this matter? The FSB works hard to achieve consensus, and recommendations are adopted only when there is broad agreement among its members. Similarly, when the G20 endorses these recommendations, it reflects their collective perspective. Choosing not to implement weakens this consensus-building that is valuable for the global financial system. It also contributes to fragmentation, which weakens the resilience of markets by reducing their size and stability. This, in turn, increases the costs of cross-border activity, creates an uneven playing field and limits opportunities for risk management and diversification. This is true across the FSB’s work — from enhancing cross-border payments to managing cyber risk and establishing effective resolution regimes. Put another way, consistent implementation is the foundation of cross-border banking and capital markets, which can deliver better services to businesses and households. But in addition to implementation, we also need enhanced cooperation. As the financial system evolves, so too must our ambition for monitoring and responding to risks. Understanding risks and threats to the financial system is at the heart of the FSB’s mission, enabling us to identify vulnerabilities and respond with targeted evidence-based action. Whether it is the rise of private finance, the implications of geopolitical tensions, the impact of climate-related events or the increasing role of stablecoins, our ability to detect and address emerging threats is crucial. To this end, the FSB is committed to enhancing its surveillance capabilities too. Robust tools and data are essential for understanding vulnerabilities across the financial system, and for ensuring potential problems are addressed before they materialize. Jurisdictions can’t achieve financial stability alone. An interconnected system requires both global cooperation and engagement, as well as steadfast follow-through on agreed reforms. The FSB works in support of that fact, strengthening the financial system to create the conditions for sustained growth. In a world where global cooperation can feel increasingly under threat, the reality is we need more multilateralism — not less.