By Balazs Koranyi and Francois Murphy
VIENNA, Feb 9 (Reuters) – Europe must prepare to play a greater role in global finance given the dollar’s retreat and needs to strengthen its financial architecture for the euro to take on a larger market share, European Central Bank policymaker Martin Kocher said.
The ECB last week unveiled plans to widen access to its euro liquidity backstop in a bid to boost the currency’s global standing, and said it would give EU leaders a ‘checklist’ of tasks, hoping that long-debated financial reform finally gains greater urgency.
The ECB’s moves come as Europe’s increasingly turbulent relationship with the United States and greater economic competition from China are shaking the foundations of economic and defence policy, forcing leaders to rethink the EU’s role on a global stage.
EURO SEEN AS SAFE HAVEN
“We have been seeing a stronger role for the euro over some time,” Kocher, Austria’s central bank governor, said in an interview.
“We are seeing more interest in the euro by counterparts and I think that’s one of the reasons why we’re seeing some appreciation of the euro, why the euro is becoming more of a safe haven currency,” he said.
The euro is up 14% against the dollar from a year ago, partly on weakened trust in the U.S. given erratic trade policies, and partly on increased confidence in Europe on higher defence and infrastructure spending.
MAY BE FORCED INTO LARGER ROLE
Over half of global foreign exchange reserves are still kept in dollars but this has been on a steady decline for the past decade and a further retreat is expected, partly benefiting the euro, which has roughly a 20% market share.
Kocher said this global realignment could mean a greater stage for the euro and the bloc needs to be ready.
“It’s not an objective to play a larger role as the euro internationally, but we might be forced to do so,” he said. “It’s important to be well prepared.”
“That’s why we’re discussing international repos, swaps, or whatever instruments available in the toolbox for stabilizing the international financial system,” Kocher said. “It’s preparation and it’s part of the mandate to sustain financial stability.”
ECB President Christine Lagarde is expected to announce the details of the ECB’s revamped euro backstop facility, commonly known as repo lines, later this week.
Kocher added that the U.S. administration’s communication on the dollar does not point to any sort of reversal.
“There have been statements by the U.S. administration that they are not very concerned about depreciation of the dollar,” Kocher said. “If the U.S. is not concerned, it means they will not take any countermeasures for what has happened.”
POLICY STANCE COMPATIBLE WITH TARGET
On euro zone monetary policy, Kocher said he was comfortable with the ECB’s steady-hand policy and it would take a material change in the environment for the ECB to discuss adjusting its stance.
The ECB kept rates unchanged last week, keeping policy steady since June, and offered such a balanced outlook that investors see no rate change at all this year.
“I think the risks are balanced now,” Kocher said. “Both with regard to the inflation outlook, and with regard to the economic outlook.”
While the euro’s firming does dampen inflation, the exchange rate move took place in the first half of 2025, so it is fully incorporated into projections, and the outlook has been broadly steady since the ECB’s September projections.
He argued that the exchange rate would only worry him if inflation deviated from the target so much that it would lower longer-term expectations.
But this was a theoretical discussion for now and nothing is suggesting such a shift.
“I think we would need a change in the environment to actually change the policy stance,” he said. “At the moment, the policy stance is compatible and in line with our objective.”
(Editing by Toby Chopra)
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