Why hasn’t there been a stronger shift to the euro as the dollar weakens?

The dominance of the dollar is being increasingly questioned due to rising US debt, trade tensions, and geopolitical conflict, sparking discussions about the potential global prominence of the euro. European Central Bank President Christine Lagarde highlighted a significant shift in the global order, emphasizing the euro’s opportunity to gain international status.
The euro currently represents 20 percent of global foreign exchange reserves and invoices 40 percent of global trade, indicating its existing presence on the international stage. With escalating trade tensions and concerns about the politicization of the US Federal Reserve, countries are looking to diversify away from the dollar, potentially paving the way for the euro to emerge as a significant alternative.
Despite these favorable conditions for the euro, there has not been a widespread rush to adopt it. This raises questions about the timing and circumstances required for the euro to challenge the dollar’s dominance effectively. Establishing currency dominance involves various factors, with some being more accessible than others for the euro to attain.
One of the critical barriers for the euro’s expansion as a reserve currency is the limited supply of safe euro-denominated assets. Lagarde has identified the euro as underdeveloped in this aspect compared to the US Treasury market, which holds a dominant role in providing safe assets for the dollar. The eurozone government bond market, while sizable at eleven trillion euros, lacks the unity and scalability of the US Treasury market due to inherent differences in member states’ credit ratings and liquidity profiles.
Introducing joint debt issuance at the EU level could address this shortfall by creating a unified safe euro-area asset, lowering borrowing costs, and enhancing the bloc’s capacity to respond to crises. However, political resistance to debt mutualization and concerns about moral hazard and national fiscal sovereignty hinder progress in this direction. Additionally, the EU faces challenges similar to the United States regarding debt accumulation and structural imbalances.
The eurozone’s stability and growth pact limiting public debt to 60 percent of GDP has been breached by many member states, with the average debt-to-GDP ratio standing at 81 percent in 2025. While this figure remains lower than the US public debt ratio of 124 percent of GDP, the EU must ensure sound fiscal policies to support effective monetary policy transmission. Questioning whether the EU should follow the US model of issuing extensive debt to enhance the euro’s international standing has become a key consideration in the currency’s global aspirations.