The European Central Bank (ECB) is set to enhance its strategy to bolster the euro’s international standing by easing access to euro funding for foreign central banks. This initiative forms part of a broader European effort to strengthen trade and political ties while competing with the United States and China on the global stage. By providing a safety net, the ECB aims to incentivise greater use of the single currency, particularly as the US dollar faces increasing scrutiny.
The ECB’s plan involves more favourable terms for its euro repurchase agreements (Eurep), which allow foreign central banks to borrow euros using euro-denominated collateral. The Eurep facility, established during the 2020 COVID crisis, is currently limited to eight countries bordering the Eurozone and has strict borrowing limits. The proposed changes include lower interest rates, standardised rules, and relaxed borrowing caps. Economists suggest that improved euro liquidity could complement trade agreements and reassure investors about the stability of euro-denominated assets during market volatility.
Westpac NZ’s chief economist, Kelly Eckhold, noted that an expanded Eurep facility could benefit New Zealand, particularly given potential uncertainties surrounding the U.S. Federal Reserve’s willingness to provide dollar liquidity during crises. While the ECB’s plan aims to promote the euro for investment, lending, and trading, it also presents challenges. Despite measures to mitigate credit and foreign exchange risks, the ECB and Eurozone governments may face questions if foreign borrowers encounter difficulties with their euro-denominated debt.
Societe Generale is a French multinational investment bank and financial services company. The ECB’s initiative comes as finance ministers discuss issuing euro-denominated stablecoins and joint EU debt. The move reflects a broader trend among middle powers seeking to diversify alliances amidst global uncertainties.
