The European Stability Mechanism, based in Luxembourg, warned that the euro’s future as a global financial anchor depended on swift action by European policymakers. Writing in a blog post on 6 October 2025, Pierre Gramegna, managing director of the institution, argued that recent fractures in the United States’ global appeal created a “strategic inflection point” for the international monetary system, with the euro now in demand as a credible alternative.

Gramegna said the euro had strengthened almost 14% against the US dollar so far in 2025, reflecting both hedging flows and a reallocation of portfolios in search of institutional stability. Foreign investors poured €150bn into euro area sovereign debt in the second quarter, the largest quarterly inflow since 2008, with French, Italian and Spanish bonds particularly sought after. He added that euro-denominated issuance outside the euro area had also expanded this year, while surveys showed central banks were increasingly diversifying their reserves towards the euro.

Shifts in investor confidence in the US dollar

According to the ESM, investor concerns about US fiscal policy, political uncertainty and stretched equity valuations peaked in April. On 2 April, following a US tariff announcement, traditional safe-haven assets such as US Treasuries and the US dollar failed to provide meaningful diversification from equity declines, and at times all three fell simultaneously.

April marked what Gramegna described as a “sell America” moment, as foreign investors liquidated more than $80bn of US assets, reversing two years of inflows. Although foreign demand rebounded strongly in May, the Luxembourg-based body said the continued weakness of the dollar suggested concerns about its safe-haven status had not fully dissipated, with investors increasingly hedging exposures.

Policy priorities for Europe

Gramegna stressed that Europe needed to strengthen its economic and financial architecture if the euro was to benefit from the shift towards a more multipolar currency regime.

He noted three areas of reform were urgent: deepening the economic and monetary union, advancing a savings and investments union, and expanding the supply of euro-denominated safe assets. He argued that the recommendations of recent reports by Enrico Letta and Mario Draghi should be acted upon to boost long-term growth and competitiveness.

A digital euro backed by the European Central Bank was also described as a priority to ensure the euro remained usable in the evolving financial ecosystem, alongside support for euro-denominated stablecoins under the markets in crypto-assets regulation. Gramegna added that regulators must also prepare to confront the risks of widespread issuance of US dollar-denominated stablecoins, including liquidity pressures on banks and risks to monetary policy.

Trust as the foundation

Gramegna emphasised that trust and stability would remain central to reinforcing confidence in the euro. He said maintaining sound fiscal policies and ensuring financial stability, the core mandate of the Luxembourg-based institution, were vital to building credibility.

Looking ahead, Gramegna concluded that strengthening the euro’s international role would demand political will and strategic foresight, but the rewards in terms of stability and autonomy were significant.