Ideas on Europe Blog

By David Howarth (University of Luxembourg) and Lucia Quaglia (University of Bologna)

Financial market integration has been a core objective of European integration since the 1950s. Over several decades, the European Union (EU) has adopted hundreds of legislative acts aimed at removing barriers to cross-border finance and harmonising the regulation and supervision of capital markets. Yet progress has been uneven, contested, and repeatedly repackaged.

The most recent example is the transformation of the Capital Markets Union (CMU)—launched in 2015, relaunched in 2020, and rebranded as the Savings and Investments Union (SIU) in early 2025. Our recent article with JCMS examines key policy narratives—the causal stories policymakers use to justify and promote specific reforms— that have been used to promote CMU over time. We find it surprising that—despite the importance of financial market integration for EU economic growth—the Commission has strategically promoted the policy through a variety of narratives linked to policy goals that have greater support among member state governments and public opinion.

A technical project with broad ambitions

Financial market integration is, at its core, a technical policy area. It primarily concerns banks, non-bank financial firms (e.g., asset management), stock exchanges, clearing houses, and supervisors. For most citizens—and many politicians—it remains remote and opaque. Yet over time, EU institutions have increasingly presented financial integration as a solution to a wide range of broader economic and political challenges — notably, the digital and green transitions, and European competitiveness in relation to the United States and China.

This expanding ambition is also visible in the shift from CMU to SIU. What began as a project to deepen European capital markets has been reframed as a tool to support economic growth, finance the green and digital transitions, strengthen Europe’s geopolitical position, and mobilise household savings for long-term investment. Rather than abandoning a stalled project, EU policymakers have repeatedly changed the story told about it.

To explain this strategy, we adopt an actor-centred constructivist perspective, which highlights how purposeful actors deploy ideas strategically to build political support for a policy. In particular, we examine how EU supranational actors use policy narratives to widen support for a highly contested integration project.

Five narratives for one project

Drawing on a qualitative and quantitative analysis of 421 public speeches delivered between 2014 and 2024 by senior officials at the European Commission, the European Central Bank (ECB), and the three European Supervisory Authorities (ESAs), we identify five main policy narratives used to promote financial market integration.

First, CMU has been framed as a way to create new opportunities for European financial firms, enhancing their competitiveness and scale. Second, it has been presented as a mechanism to increase private funding for the real economy, especially for small and medium-sized enterprises. Third, EU officials have linked CMU to the green and digital transitions, portraying integrated capital markets as essential to financing climate action and technological innovation. More recently, a fourth narrative has gained prominence: financial integration as a response to geopolitical and geoeconomic challenges, notably Europe’s lagging competitiveness relative to the United States and China. Finally, a fifth narrative focuses on long-term investment and savings, emphasising the need to channel Europe’s high household savings into productive investment—an argument central to the rebranding of CMU as SIU.

These narratives overlap, but their relative importance has shifted over time, reflecting changing economic conditions and political priorities. The evolution of CMU narratives closely tracks broader shifts in EU policy priorities. In its early phase, CMU was tied to post-crisis economic recovery and investment, notably through the Juncker Plan. After 2020, it became increasingly linked to financing the green and digital transitions. Following the pandemic, Russia’s invasion of Ukraine, and growing global economic fragmentation, geopolitical narratives moved to the fore.

The latest rebranding as Savings and Investments Union builds on these earlier narratives while adding a new emphasis on retail savings. Influential reports by Enrico Letta and Mario Draghi have reinforced the argument that Europe must better mobilise household savings to support long-term investment and competitiveness. The shift also reflects an effort to make financial integration appear more relevant to citizens, not only as workers or consumers but as savers and investors.

Why progress towards CMU has been so difficult

The repeated reframing of CMU reflects the deeply contested political economy of financial market integration. CMU is not a single reform but a bundle of measures, including supervisory centralisation, tax harmonisation, insolvency law reform, market infrastructure consolidation, and the expansion of non-bank finance.

Each of these elements creates winners and losers across and within member states. Large economies may favour stronger EU-level supervision, while smaller states resist it. Countries with low corporate taxes oppose harmonisation, while others push for it. Banks often support securitisation reforms but resist measures that increase competition from non-bank intermediaries.

As a result, stable coalitions in favour of CMU have been hard to build. EU officials themselves have acknowledged that national vested interests have repeatedly stalled or diluted reforms. In this context, policy narratives become a key political tool. By linking financial market integration to widely supported objectives—such as climate policy, innovation, or strategic autonomy—EU institutions seek to expand the boundaries of the issue and attract new supporters beyond the financial sector.

The limits of narrative power

Our findings highlight both the strategic use and the limits of policy narratives. EU supranational actors clearly act as ideational entrepreneurs, flexibly reframing financial market integration to align with the priorities of the moment. This confirms the importance of ideational power for institutions that lack strong coercive tools. At the same time, repeated shifts in narrative have not delivered a decisive breakthrough in financial market integration. Despite more than a decade of reframing, CMU—and now SIU—remains incomplete. Narratives can attract attention and broaden debate, but they cannot eliminate underlying distributional conflicts.

The story of CMU and SIU thus illustrates a broader dynamic of European integration: when political consensus is elusive, projects persist not by succeeding, but by being continuously reinterpreted. Whether the latest narrative centred on savings and investment will finally unlock significant progress remains an open question.

David Howarth has been a Full Professor of Political Science at the University of Luxembourg since 2012 and was previously a Jean Monnet Chair at the University of Edinburgh. He researches on European economic governance / political economy topics and specifically financial regulation and Economic and Monetary Union. He is the author or co-author of six monographs, a textbook, over seventy peer-reviewed journal articles and dozens book chapters. He has also edited or co-edited fifteen journal special editions and six volumes on these topics including, most recently (with Judith Clifton and Daniel Fuentes), Regional Development Banks in the World Economy (OUP, 2021). His most recent monographs are Banking on Europe: How the European Commission became a semi-sovereign borrower (OUP, 2026, with Dermot Hodson et al.), Bank Politics (OUP, 2023, with Scott James) and The Political Economy of Banking Union (OUP, 2016, with Lucia Quaglia).

Lucia Quaglia (DPhil Sussex, MA Sussex) is Professor of Political Science at the University of Bologna. Previously, she was Professor at the University of York. She has published 9 books, 7 of which with Oxford University Press. Her most recent book is The Perils of Internal Regime Complexity in Shadow Banking, Oxford University Press. She has guest co-edited seven special issues of academic journals, including the Journal of European Public Policy, New Political Economy, Review of International Political Economy, Journal of Common Market Studies, and Journal of European Integration. She has published more than 60 articles in refereed academic journals in the fields of public policy, political economy, and EU studies. Together with Manuela Moschella and Aneta Spendzharova she has edited the textbook European Political Economy, Oxford University Press, 2024.

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I notice it’s been some six months since my last post here, which reflects on both the new pace of UK-EU relations and the lack of anything useful to add to the debate.

I did bestir myself to write about the return of finance-based framing back in November, as various people noticed this was a thing, but even that was a very brief matter (albeit one we might return to).

Even the recent number of press stories launched by Labour about the new for a closer relationship currently lack any great depth: the items that are being mentioned relate to stuff already on the reset agenda, which have themselves moved at a glacial pace. The failure of SAFE negotiations in November was undoubtedly a set-back and one that helped to move up the ERASMUS+ decision some weeks later, but this has deflected attention from the lack of quick movement elsewhere. Even the Spain-UK treaty on Gibraltar, agreed last June, is still to be put through ratification.

At best, this suggests that things might be moving forward, rather than are demonstrably doing so. Even if we make allowances for the likely cross-linkage of ETS, SPS and Youth Mobility, there risks being little to show come the next EU-UK summit, whose date is still to be fixed.

Ultimately, this reflects on the lack of urgency for either side. The EU has many other more pressing things to attend to right now, while British policy is caught up in the general funk about the government’s central strategic purpose. Moreover, none of the reset elements will actually make a huge difference to those involved, beyond helping to remove some points of friction and to rebuild trust.

However, with Labour languishing in the polls, the EU might be forgiven for wondering whether it’s worth moving now on more relations, when a new British government might come along a tear those apart in three years’ time: witness the flourishing adoption of ECHR withdrawal on the right that continues to contain no concern about the impact on the TCA/WA.

This all said, it’s good not to be too downbeat about things. The rhetoric remains positive, negotiations do continue and British public opinion is still relatively benign on closer links.

As such, I’m going to try to be more active this year as we move through the reset, looking both at the specific elements and the wider relationship. As ever, I’m always very happy to produce graphics on particular things: just contact me and I’ll be on it.

In the meantime, here are some updates of the main trackers on WA/TCA meetings and the progress on the Strategic Partnership. As always, you can follow the links to the PDFs with clickable links to source documents.

PDF: https://bit.ly/UshGraphic85

PDF: https://bit.ly/UshGraphic125

PDF: https://bit.ly/UshGraphic141

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AI risk pyramid. Source: European Commission https://digital-strategy.ec.europa.eu/en/policies/regulatory-framework-ai

When the European Union‘s Artificial Intelligence Act finally entered into force on 1 August 2024, it was widely described as a landmark: the world’s first comprehensive framework for regulating AI. Throughout the policy-making process from early 2018 onwards, much of the debates focused on how the Act regulates – its risk categories and list of banned use-cases – and what these legislative choices do. This included commentary on its neglect of human rights, as well as concerns that it might stifle innovation. Sitting underneath these discussions, however, is a simpler question: what problem is the AI Act actually trying to solve?

That question is at the heart of my article, co-authored with Sarah R. Davies and published in Critical Policy Studies. As the EU now debates delays and possible revisions of the Act – or “rollbacks”, as more critical voices have put it – the question feels newly relevant. The recently proposed Digital Omnibus package may not just tweak the AI Act as a legal instrument. We may be witnessing the re-articulation of the very problem the legislation was designed to address.

In this post, I briefly introduce the argument of our article, reflect on why this way of reading the AI Act matters, and suggest why current discussions about revisiting the Act make the question ”What problems is the AI Act really solving?” even more salient.

Our article starts from the premise that policies do not merely respond to external issues. Instead, policies actively participate in producing the very problems they are designed to solve. Drawing on Carol Bacchi’s seven-step “What’s the Problem Represented to Be?” (WPR) approach, we therefore read the AI Act as a document that constructs a particular understanding of AI and its governance.

From this perspective, asking whether the AI Act is effective or proportionate is only half the story. The more fundamental question is how the Act frames AI as a policy problem in the first place. This, in turn, allows us also to interrogate what and who gets foregrounded, sidelined, or taken for granted in the process.

Using the WPR approach, we identify two dominant, yet ambivalent, problem representations of AI in the Act. On the one hand, AI is framed as a major economic and societal opportunity, essential for competitiveness and Europe’s (digital) future and something that Europe risks „missing out“ on. On the other hand, AI appears as a source of significant risk, particularly to European fundamental rights and democratic values. 

This dual framing is not a contradiction to be resolved; it is the organising logic of the Act. The cascading scale of risk – dividing systems into minimal, limited, high, and unacceptable risk categories – emerges directly from this way of problematising AI. The AI Act frames the policy problem as one of managing trade-offs: how to promote uptake while preserving trust, or how to govern a fast-moving technology without stifling it.

Seen this way, the AI Act is not just regulating technology. It stabilises a particular vision of AI as something that can, and should, be rendered governable through categorisation, technical requirements, and legal obligations. Other possible ways of characterising AI as a policy issue, as well as other possible responses, are, in the process, foreclosed. 

Importantly, the problem is also represented in a way that positions the European Union as the primary actor capable of solving it. One of our key arguments that follows is that the AI Act also plays a role in enacting a particular version of Europe and Europeanness. It constructs and institutionalises the notion of the EU as an exceptional, morally authoritative policy actor in global AI governance. In this sense, the AI Act is as much about Europe’s self-identification in a global technological landscape as it is about regulating specific AI systems.

At first glance, current discussions about revising the AI Act may look like implementation politics: delayed technical standards, pressures from industry and lobbyists, and geopolitical concerns about competition. If we return to the question of problem representation, however, these debates take on a different meaning. They point to a possible shift in what is understood to be the central problem that AI policy should address.

As we argue in our article, during the AI Act’s legislative process the dominant discourse centred on risk to fundamental rights alongside economic opportunity. Increasingly, however, public debate is framed in different terms: how to avoid over-regulation, maintain competitiveness, and keep pace with global AI development. The risk that now receives the most attention is not always harm to citizens or democratic institutions, but harm to innovation ecosystems and market position.

This does not mean that fundamental rights have completely disappeared from the conversation, but it does suggest that they may no longer be the primary lens through which the policy problem is articulated. From a WPR perspective, the question is not whether the AI Act is being weakened or strengthened. It is whether the problem the policy is meant to solve is being re-articulated.

If AI is increasingly represented as a competitiveness challenge rather than a rights challenge, then different policy solutions, which favour scalability and speed, follow suit. Seen in this light, current proposals to simplify the AI Act are interventions in an ongoing struggle over how AI should be understood as a matter of public concern and whose interests should take priority when trade-offs are made.

This is precisely why the question “what problem is the AI Act solving?” remains important. It reminds us that regulation and policy are never only about technicalities. If we take problem representation seriously, then revisiting the AI Act is equally about deciding which understandings of AI become stabilised in European governance going forward.

To conclude, the AI Act was never just a response to extraneous technological developments. From a critical policy perspective, it reads as an attempt to stabilise a particular way of thinking about AI and governance in Europe. As the constellation we saw in the AI Act is now being reconsidered, returning to the question of problem representation can help us unpack and trouble what is at stake. Whether the AI Act ultimately changes or not, it is worth remembering that the debates about AI governance are not only about how we regulate, but about what we think needs regulating, why, and for whom.

Bao-Chau Pham is a recent PhD graduate in Science and Technology Studies from the University of Vienna (Austria). In her dissertation, Bao-Chau explored imaginaries of artificial intelligence in European policy and media discourses. 

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Dear Colleagues,

As I reflect on my first full year as Chair, I am so proud of the work we have done and especially for the warm support I continue to enjoy. This supportive spirit was very much on display at our last annual conference in Liverpool, hosted by Liverpool John Moores University.

The programme, so expertly put together by our Events Working Group, track conveners and our UACES office staff highlighted different facets of Europe in interesting times. This conference facilitated conversations about the trajectories of European integration and transformation, governance, especially in the health and digital spheres, the importance of law and history to our understanding of the current moment and the utility of critical perspectives. Beyond the academic debates and discussions, the real world implications of our work and activities, especially how our field can respond to a rapidly changing global environment.

The local organising team went all out for us, and I want to extend heartfelt thanks to all of our Liverpool colleagues for their hard work and hospitality.

Aside from the main conference, the Graduate Forum Research Conference in Athens and the Doctoral Training Academy in Madrid were important reminders of how central PhD researchers and early-career colleagues are to the future of European Studies. I am pleased to note that this was yet another successful year and I am thankful to Sydney and the team for leading on our early career activities.

This has also been a year of change within UACES governance. We have said thank you and goodbye to colleagues whose terms on the Committee and in Officer roles have come to an end and welcomed new trustees who are already bringing fresh ideas and energy. I am grateful to everyone who gives their time and expertise to UACES governance, often quietly and on top of already heavy workloads.

Our journals, JCMS and Contemporary European Politics, continue to thrive, with strong rankings and a growing global readership that reflects the quality and breadth of scholarship produced by this community and of course the excellent work of the editors.

Looking ahead, there is much to be excited about. In 2026, we will build on the success of Liverpool as we prepare future Annual Conferences, including our 56th meeting in Prague hosted by Charles University. Prague promises to be a fantastic setting for conversations about how Europe is constructed, contested and reimagined in national discourses and I hope many of you will already be thinking about submitting those panel and paper proposals.

We continue to work on strengthen the infrastructure that underpins our scholarly community. In that spirit and with members of the committee, I undertook a review of how to continue support through Research Networks in a very constraining financial environment. In the new year, we will be relaunching this funding stream in a way that offers more flexible, sustainable backing for collaborative projects and better showcases the diversity of work across European Studies. Alongside this, we are looking at how to expand our awards programme to recognise the different ways in which colleagues at all career stages contribute to our field. Throughout, our priority remains to support research, teaching and impact that is intellectually ambitious, inclusive and outward facing.

None of this would be possible without you.

And to you a massive thank you.

As we approach the holiday season and the turn of the calendar year, I hope you are able to find some time for rest, joy and the people who matter to you.

I look forward to our many collaborations in the coming year.

With warm wishes,

Toni
Chair, UACES

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By Francesco Duina (Bates College, USA)

For decades, the EU has projected its internal legal frameworks onto the world. It has done so indirectly through the Brussels Effect, whereby countries and trading blocs in other parts of the world pre-emptively adopt EU internal standards in order to facilitate trade with the EU. And it has done so directly, by way of imposing its own standards through trade agreements. Given this, most observers of the EU have viewed it as an ‘exporter’ of norms – and this has represented perhaps its most important form of international power.

The possibility of the EU importing standards from other countries or blocs has been given little consideration. Instead, attention has consistently gone to the continued production of EU internal regulations which, once in place, have had significant external effects. The EU’s unabated propensity to regulate has sustained this interest: its various efforts to slow down or even reverse its regulatory output have come and gone, with little impact on the overall picture. Between 2019 and 2024 alone, for instance, the EU passed 13,000 legal acts. The EU has in turn relished the benefits associated with being the ‘first mover’ in new areas such as, say, digital markets and environmental policy: it knows that those who regulate first set the terms and that those who follow must at least consider them, especially if the first mover enjoys a huge internal market. These dynamics have turned the EU into a regulatory juggernaut committed to its internal standards and historically eager to have other countries and blocs adopt them.

A recent development in animal welfare policy represents, however, a noteworthy departure from this pattern. I explained how and why this happened in my recent JCMS article. The EU – widely viewed as already having a wide-reaching regulatory framework in this policy area – was about to announce four long-awaited proposals in late 2023 on transport, slaughter, labelling, and the housing of animals. The Commission had determined that its existing frameworks, developed over the previous 25 years or so, required modernization. Equally important, major polls, the European Citizens’ Initiative ‘End the Age Cage’ that was supported by 170 non-governmental organisations and nearly 1.5 million citizens across the EU, and various protests, electoral campaigns and other civil society initiatives had put pressure on the EU. More broadly, the measures were consistent with its wider effort to ‘green’ agricultural trade.

Crucially, and not surprisingly, the four proposals would have come with ‘conditionality’ expectations: the requirement that trade partners exporting products into the EU comply in their treatment of animals with the standards set in those laws. An announcement by the Commission on the proposals was expected by the end of December 2023. But starting in the summer of that year the momentum slowed. Then, in her State of the Union speech in September, Commission President Ursula von der Leyen signalled that something might go astray: there was no mention of animal welfare in her list of priorities. At the end of 2023, the Commission finally presented a proposal only on transport. The surprise turnaround caused significant consternation. The media publicised it, and NGOs and other interested parties voiced their objections (with, for instance, Eurogroup for Animals putting up posters in Brussels’ subway system) that continued well into late 2024.

What can explain this unexpected turn of events? Several factors surely played a role. These included powerful farmers’ protests against more agricultural regulation and unfair international competition, a diminished interest in the Commission’s Green Deal at a time when conservative populist parties seemed poised to do well in national and EU elections, and food security concerns fuelled by the war in Ukraine.

But the pending ratification of the EU-Mercosur trade deal (twenty years in the making) also played a (late-stage) role. In particular, Commission officials worried – whether justifiably or not – that the proposals’ conditionality clauses for exporters to the EU would have risked upsetting the South American countries given their lower standards.  These concerns led those officials to conclude that only one of the four proposals could go ahead. The EU-Mercosur trade deal thus became the ‘nail in the coffin’ for animal welfare progress in the EU.

What is crucial to emphasize here is that this meant not only a derailment of internal EU policy but, in effect, a willingness to accept that the lower standards of trading partners should be a cause of that derailment. Put differently, rather than a rule ‘giver’ the EU became in essence a rule ‘taker.’ Close attention should therefore go to how, exactly, Commission officials reached their position.

My analysis highlights the confluence of three dynamics. The first were institutional: competition amongst three directorates-general, with Directorate General Trade prevailing in its push to conclude the deal over the preferences of Director General Health (which supported the proposals) and Director General AGRI (which demanded that, should the proposals be pursued, conditionality had to be imposed). The second set of dynamics were temporal: animal welfare came to be seen as the ‘last straw’ in terms of EU demands on Mercosur especially because the EU had just months before greatly frustrated the Mercosur countries with extensive demands on deforestation. The third were symbolic: the Commission had made increasingly vocal public commitments to conclude several major trade deals in the very near future.

The derailment of EU animal welfare policy thus offers us an opportunity to observe a sort of reversal of the EU’s ability to project its regulatory power. As such, it also prompts us to reflect on two broader points related to the nexus between EU trade policy and its regulatory power.

First, when it comes to trade, the EU may no longer be fundamentally concerned with the projection of regulatory power. We know that the Commission has already asserted, in part given its new Open Strategic Autonomy direction, the importance of geopolitical priorities as it pursues trade opportunities across the world. Regulatory power may become a victim of this new approach.

Second, there may be subject areas where the EU will struggle to impose its regulatory standards onto its trading partners, even if it wants to do so. There is in fact something particular about animal welfare that also applies to policy areas like the environment and labour standards. The target is not the physical standards of finished products that exporters wish to send to the EU. Instead, it is the processes associated with the production of those products. These are much harder to observe and measure, and ultimately make intrusive demands on the trading partners. The EU will therefore likely find it rather difficult to project its standards in those areas.

Francesco Duina is Charles A. Dana Professor of Sociology at Bates College (USA). His research focuses on the relationship between the economy, culture, and politics.  He co-edited Standardizing the World: EU Trade Policy and the Road to Convergence, published by Oxford University Press.

Website: https://www.bates.edu/faculty/profile/francesco-g-duina/

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By Sebastian Heidebrecht (Centre for European Integration Research, Department of Political Science, University of Vienna)

On 30 October 2025, the European Central Bank (ECB) announced the next preparatory phase and its readiness to introduce a digital euro in 2029. Unlike private forms of electronic money created by private banks, the digital euro will be a retail central bank digital currency (CBDC). As such, it will be directly available to citizens for everyday use. Unlike electronic money held in bank accounts, which is money created by the private banking system, the digital euro will be a direct liability of the central bank, like cash. Shortly before, on 23 October 2025, the European Council also signalledcontinuing support, highlighting the importance of the digital euro project for “a competitive and resilient European payment system” and “Europe’s strategic sovereignty and economic security”.

Down The Rabbit Hole? A Puzzling Policy Initiative

It seems the common currency is getting fit for the digital age, or are key European Union (EU) policymakers marching towards a digital Euroland? (Perceptive readers will note that I am referring to an earlier debate around the introduction of the analogue euro in the JCMS issues of June and September 1999.) A fictive wonderland, in which polarised politics, citizen concerns, and stakeholder interests do not play much role? It is essential to note that the issuance of the digital euro will depend on the success of an accompanying legislative package, which will, among other things, introduce the digital euro as a form of legal tender. Yet, CBDCs have long been met with considerable scepticism; inter alia, they are deemed “a solution in search of a problem”. Furthermore, the digital euro will require costly public infrastructure, marking a departure from the previous reliance on private actors and the general principle that state intervention should only occur in clear cases of market failure.

Perhaps most importantly, the digital euro project, and particularly the retail version, also poses several potential challenges, including public opinion. Banks and traditional payment providers may resist it to defend their business models. Populist parties may also oppose it and defend analogue cash against what they may perceive as an elite-driven project originating from Brussels and Frankfurt. In times of tight public budgets and rising Euroscepticism, the drive by the ECB and the Commission to introduce the digital euro seems particularly surprising. Why are the EU institutions advancing this project?

Through the Looking Glass: Why EU Actors Promote the Project

In a recent JCMS article, I examine the move forward of the digital euro project. I demonstrate the importance of how digitalisation, intertwined with geopoliticisation, impacts the euro area. Of course, innovation in the world of finance has long been closely tied to technological advancements. ‘Fintech,’ or the use of digital technology to provide financial solutions, may thus be only the most recent innovation in a long list of financial innovations. Yet, big platform companies have entered the sector, offering payment services such as Apple Pay, Google Pay, and Amazon Pay. These may, due to lock-in and network effects, consolidate markets and create potential oligopolies or even a monopoly in certain sectors. Furthermore, states are using digital financial technology to weaponize interdependence, as demonstrated by Russia’s exclusion from the SWIFT international payment system in March 2022.

Against this backdrop, important developments in the late 2010s and early 2020s encouraged EU policymakers to advance the project.

First, in 2019, Meta (formerly Facebook) announced its intention to introduce its own cryptocurrency, sparking significant debate among public officials about potential threats from private and/or foreign financial innovations, and demonstrating the need to keep pace with financial innovation.

Secondly, policymakers reconsidered the problematic fragmentation of the EU payment sector along national lines, which results in a reliance on a few international card companies, such as Visa and Mastercard. This issue has long been recognised, with repeated but unsuccessful attempts to integrate the euro retail payment market. The latest attempt of a private-run and publicly promoted initiative failed in 2022, revealing the challenges of a market-based European solution.

Third, EU policymakers increasingly aim to ensure monetary sovereignty and the public role of money, thereby safeguarding EU strategic autonomy. One argument presents the European payment sector’s dependence on foreign infrastructure and a few foreign private companies as problematic, particularly in a period of growing international tension. Ever since the prospect of a second Trump presidency in January 2025 emerged, EU officials in the Commission and the ECB have increasingly framed the digital euro in geopolitical terms.

Waking Up: Political Challenges and EU Politics

Yet, concerns remain. Far-right politicians mobilise against the project, inter alia claiming to defend an imaginary “fortress cash”, demanding a “no to CDBC”, and advocating the usage of crypto alternatives instead. The private banking sector is also sceptical about the project. In terms of EU bureaucratic politics, one of the most controversial issues for policymakers and the institutions involved is whether, in line with the Commission’s proposal on the digital euro, holding limits and the prohibition of remuneration should be addressed in secondary legislation. The ECB opposes these measures, arguing that such restrictions in secondary legislation are contrary to its monetary policy competences and may be necessary in exceptional scenarios, such as a negative interest rate environment. Yet, legislators defend them based on their structural impact on the financial system, which, as an economic rather than monetary policy, would be an issue of political concern.

Against this backdrop, it will be interesting to see if the digital euro project can overcome political challenges in the legislative process. Perhaps most importantly, many of the project’s controversial design features will affect whether and how the digital euro will be accepted and used by citizens. Ultimately, this will be the main benchmark for assessing whether we will find ourselves in a digital wonderland, in which the digital euro exists only in central bank drawing boards, or worse, is implemented but not used by anyone, or if we wake up in a world where the familiar euro has found an actual digital reflection.

Sebastian is a Postdoctoral Researcher at the Centre for European Integration Research, housed in the University of Vienna’s Department of Political Science. His research looks at how actors, processes, and institutions shape the digital transformation of European economies and societies, with a particular focus on European Union policies. Website: https://eif.univie.ac.at/heidebrecht/index.php LinkedIn: www.linkedin.com/in/sebsebastian-heidebrecht-22194066

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