Germany’s shift to a conservative-led government is expected to slow down ongoing talks to set up an EU Central Bank Digital Currency. The center-right Christian Democrats, which will most likely lead the next government, are reluctant to accept the digital currency. But much will depend on which political party obtains the finance minister position, as Social Democrats or Greens could show more openness.
Central bank watchers have been waiting a long time for the arrival of the digital euro. Germany's election results may keep them waiting.The already complicated negotiations between national governments and the European Parliament could become more difficult following yesterday's elections in Germany, which saw the center-right Christian Democratic Union, combined with its sister party the Christian Social Union, win the most seats in the parliament. It is expected to try to form a coalition with the center-left Social Democrats, who came in third and perhaps also the Greens who came in fourth. The second-place far-right AfD are considered too toxic to join with a mainstream party to form a government.
Negotiations on the digital euro started in June 2023, when the European Commission issued a legal proposal to set up the currency (see here).
But talks have since slowed. The proposal raises a number of technical and political questions regarding the precise design and fee structure of the digital euro, as well as holding limits and the protection of personal data.
Despite numerous discussions, talks have failed to make progress in the EU institutions. The legislature failed to agree on a position before the European elections in June 2024, which has meant restarting discussions from scratch (see here).
National governments have also held numerous discussions on contentious issues. Poland, which chairs members states' work until the end of June, was hoping to get closer to an agreement.
But EU policymakers now believe it is more realistic to aim for an agreement in the second half of the year, according to a German diplomatic note distributed to German lawmakers in January, and seen by MLex.
— German reluctance —
Berlin has always led the plan's skeptics among national governments.
"The country is very attached to cash," Judith Arnal, an Associate Senior Research Fellow with the Center of European Policy Studies, told MLex.
Its credit institutions also remain cautious, the diplomatic note says.
Nevertheless, each political party has a different — and more nuanced — position.
The center-left Social Democrats and the Greens do not mention the issue in their official election programs, but had both welcomed the proposal in 2023.
The conservative Christian Democratic Union isn't convinced. Its electoral program says the party is "open to the introduction of a digital euro," but only if "it offers real added value, complements cash, does not affect financial stability, protects consumer privacy and is free to use."
This will likely translate into a more cautious approach to negotiations at the EU level, which could slow progress.
— Coalition —
The digital euro will either become a critical element in coalition negotiations and find its way into a coalition agreement. This would define the position Berlin will adopt over the next year. Or it will remain under the radar during the negotiations, meaning the next finance minister will have the leeway to decide how to move ahead according to the stance of his or her party.
The finance minister role is powerful, but it's not unusual for this to be given to minor coalition partners. Christian Lindner, of the pro-business FDP, held the role in the previous government, despite his party coming only fourth in the 2021 elections.
Lindner was nevertheless fired from his position by outgoing Chancellor Olaf Scholz in 2024, prompting the government's collapse and the elections.
— Sense of urgency —
Supporters of the digital euro say that the project is more urgent than ever.
US President Donald Trump has promised to deregulate cryptocurrencies, which has fueled an unprecedented rise in their value (see here). That has EU policymakers worrying that the bloc would become even more dependent on the US.
"If people in Europe start to use stablecoins to pay, given that most of them are American and dollar-based, they will be transferring their deposits from Europe to the United States," ECB board member Piero Cipollone, and a fierce advocate of the digital euro, told Reuters earlier this month.
More recently, Joachim Nagel, head of Germany’s central bank, came out in support of the proposal despite having previously expressed more nuanced positions on some aspects of the file, such as the holding limit.
The German diplomatic note said that developments in the US "could possibly provide new impetus for the treatment of this dossier." It said "the EU could counteract this with its own digital currency in order to prevent the payment system from falling partially under US control."
The document nevertheless ends with a more cautious note: "Whether this is realistic, however, remains to be seen."
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