The European Commission’s proposal to regulate the digital euro (D€) has been on the table since June 28th, 2023 [1] The proposal has already been the subject of extensive discussions in the committees of the European Parliament (ECON & LIBE). Both committees and the ECB are proposing an extensive catalogue of amendments.
Table of Contents
The proposal is also being hotly debated in the Working Party of the European Council. The hope of some supporters (such as the German retailer association HDE [2] ) that the proposal could have been adopted during this legislative period of the EP has proven to be illusory. The creation of the legal framework for the D€ is one of the top priorities on the agenda of the new EU Parliament, which will be elected at the beginning of June. The legal framework is the prerequisite for the ECB’s decision to go ahead with the controversial project or (rather unlikely) to quietly abandon the idea with a loss of face. At least with the D€ legal framework, citizens can exercise their democratic rights with their ballot papers in the upcoming European elections.
Already pub counter talk?
The topic of “D€”, previously more of a topic for nerds, is slowly but surely gaining ground in the public debate. With regard to our monetary order and the existing payment systems, it is no exaggeration to describe the D€ as a systemic “game changer”. According to the ECB, without this digital variant, not only our common currency but even European sovereignty would be seriously jeopardised. Even if we leave the martial meta-level, the topic is also relevant at a deeper level. After all, the additional payment medium will affect every (at least smartphone-savvy) consumer in the future. According to the proposed regulation, most retailers will be forced to accept the new legal tender.
At the relevant online bookseller, there are already eight non-fiction books in German with “digital euro” in the title. The topic seems to have arrived. Even in the EU election programmes of German parties?
The silence of the (former) mainstream parties
In the German Bundestag and its Finance Committee, the CDU/CSU and AfD parties have so far come forward with extensive motions on the D€. [3] I am therefore surprised that the CDU/CSU – as well as the SPD – are silent on the subject of the D€ in their EU election programme. Instead: “We will keep the euro stable” (note: wasn’t this the ECB’s core task until now?) and “We are in favour of preserving cash” (p. 18).
The AfD “is against a digital euro issued centrally by the ECB, which would be a gateway for the creeping abolition of cash” (p. 21). The statement and justification are not surprising. At least an unmistakable positioning.
Constructive support
In the case of the FDP, the adjective “constructive” gives rise to a quietly critical undertone: “We constructively support the introduction of a digital euro as a supplement to the existing cash” (p. 17). It is clear that this party is currently appointing the finance minister, as this is followed by a specific insider demand: “As digital cash, the digital euro should be usable both offline and online.” However, the sentence is an exegetical challenge. According to the ECB’s current concept, only the offline version of the D€ as a bearer instrument with a certain degree of anonymity comes relatively close to “digital” cash. The online version of the D€ is almost identical to the banks’ scriptural money and is therefore a far cry from genuine digital cash. Does the FDP want an online version of the D€ holder instrument for non-face-to-face payments as well? Maybe I’m reading too much into this, because I like the concept. This would be a truly innovative payment instrument instead of a (superfluous?) copy of conventional bank products based on fiat money.
The next demand also gives pause for thought: “There must be no compulsion to use the digital euro.” In the Commission’s draft and in the ECB’s documents, the user is both the payer and the payee. So, no (far-reaching) obligation to accept the D€ on the merchant side, as the ECB and Commission are demanding? The FDP’s other requirements on the D€ are rather bold: full protection of citizens’ privacy and avoidance of additional risks for the financial system. The last requirement is presumably aimed at the shift of deposits to D€ accounts, which the banks fear.
ECB-supporting Greens
The following uncritically affirmative D€ statement from the Greens/Alliance 90 could have come from the ECB: “We support the introduction of the digital euro as a supplement to the book money of commercial banks and to cash, which will remain possible as a barrier-free means of payment. The digital euro promotes the digitalisation of the economy and gives consumers digital access to secure and stable central bank money. As a public good, it can make a valuable contribution to financial inclusion, the sovereignty of the EU and the stability of our payment system in the digital age.” (S. 18).
However, the Greens are also adopting the statement that the D€ is a “public good“, which is not correct, but has been repeatedly postulated by the ECB. The D€ could be described as “public money“, but not as a “public good“.[4] Every budding economist should know this after their bachelor’s degree at the latest. For non-economists: A quick look at Wikipedia is enough.
Market power of the BigTechs as payment systems?
The Left Party is also in favour of the introduction of the D€ – somewhat less state-supporting than the Greens – with the following demands: No holding limit for private individuals (note: €3,000 is under discussion), no interest (note: in line with the Commission’s demand) and anonymous payment for small amounts. Furthermore: “Only with a public alternative to the payment systems of the large internet companies can we counteract their enormous financial technology and data power and credibly enforce a European level of data protection.” (S. 36).
The dominant role of the Big Five (GAFAM: Alphabet/Google, Apple, Microsoft, Meta/Facebook and Amazon) as a payment system is a widespread narrative, even within the Commission. At least in the EU, the internet companies mentioned above either do not have their own payment systems or their market shares are categorised as “other” (such as Amazon Pay). Apple Pay is not a payment system, but a “pass-through wallet” [5] that contains third-party payment instruments. Google Pay has been cancelled as a payment system (not as a pass-through wallet) due to its failure, at least in the USA. But what is not, can of course still be.
In the European election programme of the Alliance Sahra Wagenknecht (BSW), a spin-off of the Left Party, there is a lot about the ECB’s monetary policy, but nothing about the D€. The aforementioned narrative of the “increasing market power in payment transactions” of “big tech companies and FinTechs” also appears here. It remains unclear how this market power “must be combated” (p. 7).
The “Freie Wähler” (Free Voters) party is critical of the D€. It will only give the green light if the D€ fulfils four requirements: No implementation as a cash substitute, a high level of data protection and anonymity, no “invitation to bank runs” and no use for social scoring systems (p. 50). However, I see a conflict of objectives with the first two goals mentioned. The offline version of the D€ is clearly designed as a cash substitute (only face-to-face, only small change payments). In contrast to the online version, however, only offline payments can be made with the D€ under a certain degree of anonymity.
The “Bündnis Deutschland” (Alliance Germany) (represented with one mandate in the current EU Parliament) is presumably saying “no” to the D€. This is speculation because they are positioning themselves against an electric euro (“e-euro”). The reason is a cost-benefit assessment: “…as the cost of introducing and monitoring the e-euro is disproportionate to the few advantages.” (S. 34). Even if no serious cost estimates are yet known, the D€ is likely to be a mega-project for the ECB and banks/payment service providers. However, I would have been interested in some information on the “few advantages“.
European Payment Processing Company
Last but not least, the Volt Deutschland party. There is obviously a great deal of interest in the topic of payment transactions here. The topic takes up a whole page (p. 16) in the election manifesto (well, to put it into perspective: 1 of 147 pages). Has a nerd crept in here as a spin doctor and the Volt election programme writers have only half understood him/her?
Quite conceivable: A few companies can dominate the market for “payments and digital financial services” and charge high “transaction fees”. To prevent this, “secure and low-cost options for payments” are to be introduced. “Low-cost card payments or instant transfers” are “useful features” that need to be “harmonised“. That sounds similar to me as a newspaper reader commenting on nuclear fission.
But here is an interesting and original proposal that I would not like to withhold: “Review the establishment of a European public company for payment processing. This would apply in the event that it is established that large American payment processors are exploiting their dominant market position to charge excessive fees.” By “payment processing” does Volt perhaps mean payment schemes? Is the statement “excessive fees” aimed at the so-called schemes and processing fees of the Mastercard & Visa card schemes?
If you philosophise a little longer into the proposal, the ECB would fulfil this requirement perfectly with the introduction of the D€: A European public authority that takes over the processing (clearing & settlement) of (online) D€ transactions for the distributors (banks and other PSPs) for zero price, also does not charge any “scheme fees” for the new payment system and invites the still unenthusiastic auxiliaries to fight under the motto “united against the dominance of American schemes”.
It is not surprising that Volt is in favour of the D€ in the following paragraph, namely “as a useful means of payment without having to rely on a bank account.” It is therefore logical that no upper limit is demanded for the holding of D€ by private individuals.
I did not find any statements on the D€ from the ÖDP or the Pirates. Even though the D€ is a potential unicorn, I did not search the party programme of the Animal Welfare Party.
Conclusion:
Apart from the CDU and SPD, most of the German parties currently represented in the EU Parliament have at least recognised the ECB’s preparations to introduce the D€ as an issue: Rejection, approval and yes-but votes. This bodes well for a broad discourse in the EU Parliament, where the framework for the D€ will soon be decided.
[1] https://finance.ec.europa.eu/publications/digital-euro-package_en.
[2] https://einzelhandel.de/presse/aktuellemeldungen/14467-digitaler-euro-hde-fordert-europaeisches-parlament-zum-handeln-auf
[3] https://paytechlaw.com/en/digital-euro-no-full-anonymity/
[4] A detailed justification from the perspective of economic science can be found in PaySys Report No. 4 (2023).
[5] https://paytechlaw.com/en/psr-psd-3-the-digital-purse-the-wallet/
