Euro In Changing World

Keynote speech by Philip R. Lane, Member of the Executive Board of the ECB, at the Danish Economic Society Conference

I am grateful to the Danish Economic Society for the invitation to participate in this conference. In line with the overall theme of the event, I will speak today about the implications of a changing world for the euro-denominated monetary system.

In our 2025 assessment exercise that reviewed the monetary policy strategy of the ECB, the Governing Council concluded that:

"Ongoing structural shifts related to geopolitics, digitalisation, artificial intelligence, demography, the threat to environmental sustainability and changes in the international financial system suggest that the inflation environment will remain uncertain and potentially more volatile, with larger target deviations in both directions, posing challenges for the conduct of monetary policy. A more resilient financial architecture - supported by progress on the savings and investments union, the completion of banking union and the introduction of a digital euro - would also support the effectiveness of monetary policy in this evolving environment."

In addition to their implications for monetary policy, this set of structural factors will also re-shape labour markets, investment dynamics, productivity and the financial system. In what follows, I will focus my attention on how structural changes might affect the euro monetary system.

Monetary union: common shocks and scale economies

By and large, the structural changes facing Europe can be interpreted as common shocks. While each country might face some specific challenges, forces such as revisions to the global geopolitical equilibrium (including the global trading system), digitalisation, AI, demography, climate change and shifts in the international financial system have broadly similar implications across EU Member States.

Under such circumstances, a monetary union acts as an embedded coordination mechanism by enabling that a common monetary policy can respond effectively to the evolution of common trends and common shocks.

Moreover, the identified structural changes are arguably more easily handled in a larger-scale monetary system than under the hypothetical alternative of a collection of standalone national monetary systems. First, all else equal, a larger-scale monetary system means that a greater proportion of trade and financial transactions will be denominated in domestic currency - both among domestic counterparties and with external counterparties. In turn, this provides considerable insulation against shifts in the exchange rate or changes in foreign monetary systems. Chart 1 illustrates the high euro invoicing share in trade involving euro area member countries: there is a strong positive correlation between the importance of the euro area as an export destination and the invoicing share of the euro.^[1]