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 European Central Bank is preparing for its new digital version of the euro to take the payments market by storm — even though much of the public is unsure it wants anything to do with it. Internal ECB documents show the bank wants the digital euro system to be able to handle more than 50 billion transactions a year from the get-go, central bank officials told POLITICO. Such massive capacity suggests that ECB expects the digital currency to transform the retail payments market, pressuring a key revenue stream for current payment providers: If run at maximum capacity, the digital euro could snatch more than a third of the transactions currently done by payment cards. According to a presentation to the ECB’s governing council by the bank’s digital euro team last month, it needs a system that can handle 50.5 billion transactions annually, two officials said. While that is neither a target nor a forecast, it’s still a striking statement of confidence in the project’s potential. For context, payment cards were used in 84.6 billion transactions worth a total of €3.2 trillion across the eurozone last year, with card issuers and associated services providers taking a commission on most of them. Assuming annual growth of 10 percent as cash continues to lose ground, there could be close to 125 billion card transactions in 2028 — the year currently seen as the earliest possible launch date for the digital currency. At full capacity, the digital euro would thus have a market share of around 40 percent. A large part of payment fees currently goes to companies such as Visa and Mastercard and other fintech firms located outside Europe. The ECB wants the digital euro not just to stop such leakage, but to end Europe’s technological reliance on the infrastructure of U.S. payment giants more broadly, fearful of the shifting geopolitical environment. A whopping two-thirds of card transactions in the euro area are currently settled through international payment schemes and more than half of EU countries rely entirely on non-European solutions. The ECB has never publicly shared any estimates of what market share it expects the digital euro to take, but has always stressed that it has no plans to crowd out private-sector alternatives. The numbers in the presentation suggest the private sector may feel very squeezed. The ECB declined to comment. TAKING OVER, OR NO TAKERS? If the planning for broad and rapid adoption is accurate, consumers may see lower prices and Europe may bolster its strategic autonomy — but the region’s payments providers may see less reason to cheer. Industry bodies such as Payments Europe have warned the digital euro could wreck card-based revenue models, especially if its basic services are offered for free. Widespread use of the digital euro in transactions also suggests that consumers will opt to hold them in electronic wallets, draining deposits from the banking system. Bankers say that could limit the amount they have available to lend to households and business. “The impact on savings and retail banks of the digital euro taking a big chunk of card transactions will depend on the holding limits the ECB imposes, and [on] the underlying business model of the digital currency,” said Diederik Bruggink, senior director of payments, digital finance and innovation at the European Savings and Retail Banking Group. The higher the holding limits allowed for the digital euro and the lower the fees for payments between service providers, the worse it will be for banks, he explained. A large part of payment fees currently goes to companies such as Visa and Mastercard and other fintech firms located outside Europe. | Luong Thai Linh/EPA According to European Banking Authority estimates, fees and commissions account for around 30 percent of net operating income at the continent’s banks, and payment-related fees account for more than a quarter of that. The ECB has argued that the digital euro could offer fresh business opportunities for domestic service providers that are finding it increasingly difficult to compete with international card schemes and mobile payment solutions. Not only can banks serve as wallet providers and create other add-on services, but by embedding digital euro services, banks can retain customers who might otherwise migrate to Big Tech wallets, it argues. The question is whether the public can bring itself to care. After a slow start, recent surveys show awareness and interest may be taking off. A survey by consultants BearingPoint in February showed one-third of respondents across the eurozone would be willing to use the digital euro, a share that seems likely to rise with generational change. But a survey by Payments Europe showed that 56 percent of consumers today are unsure whether they ever would. While no decision on launching a central bank digital currency can be taken without legislation from the European Parliament, the project’s technical development continues to gather momentum. In the same presentation, the digital euro team argued that, should all legislative hurdles be cleared, the ECB governing council should approve close to €1.5 billion to bring the project to life.

The White House is working over the August recess to build momentum for a key Federal Reserve nominee the administration wants in place next month. Stephen Miran, whom President Donald Trump tapped to temporarily serve on the Federal Reserve’s board, has been meeting with members of the Senate Banking Committee, which will need to green-light his nomination before the full Senate can vote on confirmation. Miran met Tuesday with Sen. Jim Banks (R-Ind.), a member of the panel, and had a call last week with Banking Committee Chair Tim Scott (R-S.C.). Miran is scheduled to have additional meetings with senators in the coming days, with invitations for one-on-ones extended to Republican members of the Banking panel. “The White House has been aggressively pushing Dr. Miran’s nomination to the Federal Reserve Board, setting the stage for his quick confirmation when the Senate returns in September,” said a White House official Tuesday. “With the President’s strong backing, there’s clear momentum to get this done.” Underscoring how big of a priority it has become for the Trump administration to seat Miran quickly, Banks said in a statement he returned to Washington Tuesday to meet with him, instead of waiting until after the Senate’s current weekslong break. “It’s so important that he is confirmed before the Federal Reserve’s September meeting,” said Banks. Installing Miran by this time would represent a lightning-fast confirmation process for the Senate, which is in recess until Sept. 2. Banks added that Miran has “done a great job as chairman of the Council of Economic Advisers to advance President Trump’s pro-working class agenda and I look forward to voting for his confirmation ASAP.” Miran, who currently serves as Trump’s chief economist, was tapped to temporarily fill the vacancy created on the bank’s rate-setting committee by the resignation of Gov. Adriana Kugler. If confirmed, he would hold the seat until Kugler’s term expires on Jan. 31, 2026. He’ll be coming up for consideration at a time when multiple Senate Republicans have publicly tried to sway Trump against firing Fed Chair Jerome Powell, warning that any perception of meddling in the agency’s independence would have severe consequences for the market. Trump, who has relentlessly criticized Powell and surveyed a group of Republicans last month on whether he should remove him, has nevertheless said repeatedly that he doesn’t intend to fire the Fed chief, whose leadership term ends in May. Still, Miran’s confirmation would give Trump a close political ally at the central bank, which is designed to be insulated from short-term political pressure — and questions about Miran’s links to Trump are all but guaranteed to come up as the Senate debates the nomination. Massachusetts Sen. Elizabeth Warren, the top Democrat on the Banking Committee, vowed to have “tough questions” for Miran “about whether he’d serve the American people as an independent voice at the Fed or merely serve Donald Trump.” Yet as long as Republicans on the panel stick together, they would be able to advance Miran’s nomination over opposition from Democrats. Republicans can lose three of their own members on the floor and still let Vice President JD Vance break a tie. Miran is likely preparing for the line of inquiry. Though he has previously called for overhauling the structure of the Federal Reserve, he told CNBC in an interview earlier this month that “I’ve always been clear that the independence of the Fed is of paramount importance.” Victoria Guida contributed to this report.

FRANKFURT — A fight over the top job at the central bank is pitting the two big beasts of Slovak politics against each other, setting the stage for turbulent months ahead. Prime Minister Robert Fico is trying to force out the current governor of the National Bank of Slovakia, Peter Kažimír, and install his current finance minister, Ladislav Kamenický, four people familiar with the matter told POLITICO. However, Kažimír, supported by President Peter Pellegrini and his ruling coalition Hlas party, is clinging to the position — despite a recent and controversial conviction for bribery. The struggle forms the backdrop to crucial negotiations this fall over how to reduce the second-worst budget deficit in the eurozone and avoid EU sanctions. It will be a key test of Fico’s political skills and Slovakia’s credibility in the financial markets. The task would be hard enough on its own, but is being complicated by a bitter personal feud between Kažimír and Fico. The prime minister considers Kažimír a “traitor” for having fragmented his Smer party five years ago together with Pellegrini. Kamenický and representatives for Smer did not reply to a request for comment. In a statement to POLITICO Kažimír stressed his ongoing commitment to his role, noting he was “fully dedicated to leading and developing the National Bank of Slovakia.” He added that his post offered him “a unique opportunity to strengthen trust in an institution that is essential and irreplaceable for our country.” THE INCUMBENT Although Kažimír’s term as governor officially ended on June 1, he has kept his powers due to a 2016 law that says the sitting governor can remain in office until a successor is appointed. Fico wants him out, but Hlas — a party founded by Pellegrini, Kažimír and other dissidents from Smer in 2020 and which is now Smer’s coalition partner — continues to back Kažimír, calling him “the most qualified choice from a professional standpoint.” Hlas also claims that the current coalition agreement gives it the right to name the next governor, who also sits on the Governing Council of the European Central Bank. Fico is banking on the stigma of a bribery conviction, handed down to Kažimír just before his term ended, eventually forcing Hlas to drop its support for him. A judge found that while Kažimír was finance minister in 2016, he offered a bribe to a tax official to hasten the tax audits of companies owned by an acquaintance. The judge sentenced him to pay a €200,000 fine or serve a year in prison. Kažimír has always maintained his innocence and has called the charges politically motivated, noting in a recent op-ed that the judge had offered him immunity if he gave the authorities anything on Fico or Pellegrini to build a case against them. He is currently appealing to the Supreme Court, which is expected to rule within a year, according to six people POLITICO contacted who were granted anonymity to speak freely about sensitive legal and political issues. Prime Minister Robert Fico is trying to install his current finance minister, Ladislav Kamenický, as governor of the National Bank of Slovakia, Peter Kažimír. | Thierry Monasse/Getty Images The court ruling has caused some awkwardness for central bank employees, who dislike the optics of working for a convicted criminal, three people who personally know Kažimír said. But, they added, Kažimír’s reputation as “a good manager” who has worked hard to modernize the institution has also offset some of that stigma. “[Even] people who never voted for Smer and who are really embarrassed by the conviction would like him to stay, because as a governor he’s much better than Kamenický,” said one of them, a former member of parliament. OLD GRUDGES RUN DEEP The roots of the struggle date back seven years to a time when Fico’s third administration was falling apart following the murder of a journalist who had been investigating potential ties between the government and the ‘ndrangheta mafia from Calabria, a region in southwest Italy. Kažimír at the time enjoyed a reputation in European policy circles for the tough attitude he had shown as finance minister from 2012 to 2019 toward Greece’s requests for a bailout amid its sovereign debt crisis. In order to secure his future, Kažimír struck a gentleman’s agreement with then-National Bank Governor Jozef Makúch to give the latter a second term at the central bank on the condition Makúch would make way for Kažimír before the 2020 elections, which Smer was on course to lose, two former officials from the Slovak central bank told POLITICO. The position of governor is the highest-paid public-sector role in the country and until then had been reserved for technocrats. EU law also makes it virtually impossible for a government to remove the central bank governor. After Smer suffered a debacle in the 2020 Slovak parliamentary election, finishing second with 18.3 percent and being swept from government, a group of Smer parliamentarians followed Pellegrini in quitting the party to form Hlas. While Fico saw Kažimír’s fingerprints all over the rift, the former member of parliament told POLITICO Kažimír had not played an active role. “He was like the strategic [person] in the background. You know, the advisor.” The deadlock may endure for some time, however. With Smer still the largest party in the current parliament, Kažimír’s bid for reappointment is unlikely to win parliamentary approval. At the same time, Fico is unlikely to push for Kamenický to replace him until the budget for next year is adopted, four people familiar with the matter said. Smer has been polling behind opposition liberal party Progressive Slovakia for nearly a year, and will have to spread the pain of deficit reduction adroitly to stand any chance of extending its hold on power. Meanwhile, doubts abound concerning Kamenický’s fitness for the role — and not just related to his proximity to Fico. “He is not really interested in public finance or central banking. He prefers to paint,” said one of the former central bank officials in a nod to the minister’s passion for the visual arts. The two parties could conceivably strike a deal to help smooth budget negotiations, three of the people said. But such horse-trading has already trashed the bank’s reputation, one complained. “This was never the case in the past,” the former official said. “It’s the first time Slovakia experiences something like this.”