Euro's Global Role Grew in 2025, Led by Green Bonds, but Fragmentation Risks Loom

A standout finding was the euro’s performance in sustainable finance. For the first time, the euro surpassed the US dollar to become the leading currency in the global market for green and sustainable international bonds in 2025 . Additionally, international debt issuance denominated in euros hit a record high, reflecting strong demand from a broadening base of global issuers .

Lagarde's Warning: No Room for Complacency and the Need for Reform

Despite these positive data points, Lagarde's central message was cautionary. In her foreword to the report, she stated that "there is no room for complacency, as fragmentation is growing in the international monetary system" . She pointed to a world where multilateral cooperation is being replaced by zero-sum thinking and bilateral power plays, with a clear shift from openness to protectionism .

Lagarde has been consistent in her call for Europe to bolster its economic foundations. She argued that the answer to the current shift in global trade policies "should be more, not less, trade integration" . To make the euro a truly global currency, she stressed that Europe must urgently press ahead with deepening its internal market by completing the Capital Markets Union and the Banking Union . A deeper and more complete Economic and Monetary Union (EMU) is seen by the Eurosystem as pivotal to supporting the euro's international resilience .

Her arguments expose the structural shortcomings that hold the euro back. The combined market of AAA and AA-rated sovereign bonds in the euro area is just one-fifth the size of the US Treasury bond market. European equity markets are less than half the size of those in the United States and have generated returns five times lower since 2009 . These figures highlight why creating a genuine Savings and Investments Union, transforming fragmented national markets into "pan-European" funds, is a core objective .

The Implications of Dollar Weakness: A Conditional Opportunity

The ECB's assessment was published against a backdrop of a depreciating US dollar. ECB President Lagarde noted that the dollar has depreciated "measurably against the euro" starting in March 2025, a development that has sparked debate about the euro's potential to challenge the greenback's supremacy .

In a speech in Berlin in May 2025, Lagarde acknowledged that the "changing landscape could open the door for the euro to play a greater international role," especially given the uncertainty surrounding the dollar's traditional role as the cornerstone of the international monetary system . This sentiment was echoed in an ECB blog post, which described the moment as a potential "global euro" moment for Europe to "take greater control of its own destiny" .

However, the ECB firmly conditions this opportunity on Europe's ability to deliver. Lagarde emphasized that a currency does not gain reserve status by default; it must earn it through geopolitical credibility, legal and institutional integrity, and economic resilience . Without deep reforms to boost productivity, competitiveness, and financial integration, the euro will remain an "innocent bystander," suffering shocks created elsewhere without the standing to provide a genuine alternative to the dollar . The path forward is clear but politically demanding: to transform the euro from being an "in-between" currency into a full international one, Europe must first get its own house in order .