Digital euro sparks sovereignty battle between EU and ECB governments – POLITICO

While this may seem like a dry technical issue, the stakes are enormous. Politicians and technocrats are concerned that if the limit is set too high, citizens could withdraw huge sums from traditional banks during a crisis, threatening the stability of the entire banking system. Some are also concerned that any restriction could infringe on personal financial freedom by stoking fears of a “Big Brother” state, according to one diplomat who, like others mentioned in this article, was granted anonymity in order to speak freely about sensitive question.

The fight raises a fundamental question: where does the power of the central bank end and the power of EU member states begin? Thirty years after the ECB became the bloc’s main monetary guardian, the clash is forcing a reassessment of the delicate balance between policy and central banking.

For some, this is a necessary counteraction to the ECB’s overreach. But in Frankfurt, officials see it as political interference in an area that should be free of it. At its core, as one diplomat candidly put it, the dispute is less about technical issues and more about a “battle for power.”

Technocracy versus democracy

More than 100 central banks have explored the idea of ​​creating a national digital currency, which came to fruition after Facebook’s ill-fated attempt to launch global cryptocurrency Libra in 2019 sent shockwaves through the financial world.

Although many of these efforts have since failed, the ECB remains resolute, championing the digital euro as a revolutionary alternative to existing payment systems that it hopes will reduce Europe’s dependence on the dominant US and non-EU payment services that currently process about 70 percent of EU payments.

But the central bank’s relentless push has also spooked key member countries, which now view the project as dangerously technocratic. In Brussels, they are using their political influence to try to limit the Bank’s influence in ongoing negotiations on critical aspects of the design of the digital euro.