It has become something of a habit: In February, French President Emmanuel Macron called for “future-oriented eurobonds” in an interview with six European newspapers, arguing that the European Union is “under-indebted compared with the United States and China.” Within hours, German Chancellor Friedrich Merz shot down the idea. “I don’t want [eurobonds], and even if I were in favor, I couldn’t,” Merz said, alluding to a German constitutional court ruling that, in 2022, set conditions and limits on EU debt issuance.
Berlin’s reflexive rebuttal highlights how the EU has many features of a great power, but it lacks a keystone to turn them into influence—the financial architecture to mobilize capital at scale and project power. This is not only about eurobonds. Europe’s finance challenge is also visible in budget choices, investment patterns, and infrastructure. Finance is not Europe’s only challenge. Yet it may well be the one that decides whether the EU remains a great power or slips to the middle-power league, weighing on the bloc’s ability to court new partners.
Key Contests
Shaping the outcomes of the key contests of the coming decade—like innovation, the energy transition, or the future of finance—will require huge financial resources and the capacity to deploy them. The US and China tick both boxes; Washington and Beijing are able to swiftly mobilize capital, either through markets or the state. The EU has no such ability to mobilize finance, weighing on the bloc’s ability to invest in critical sectors for long-term growth.
This situation reflects how Europeans could be suffering from a legacy trap: The EU still allocates money, deploys instruments, and approaches finance for the economy it used to have, not the one that will underpin power in the 2030s.
Take agriculture. The Common Agricultural Policy (CAP) is the EU’s largest budget line, absorbing one-third of the EU’s resources for a total of €387 billion in the current budget that runs from 2021 to 2027. In plain English, this means that the bloc spends more on subsidizing cows, sheep, and pigs than on supporting the companies that will determine its future economic prospects. Ironically, the EU’s latest plan to support startups illustrates the problem. At €1 billion (the private sector will give another €4 billion), the public-funded portion of the Scaleup Europe Fund represents just a fraction of the money that the bloc spends each year on farmers. CAP defenders frame the scheme as critical for food security. This is a fair point, but financing innovation will also be key to boost Europe’s future economic security.
The legacy trap is also obvious when looking at investment. In her State of the Union speech in September 2025, European Commission President Ursula von der Leyen singled out investment in the automotive sector as a priority. This is odd. In the United States, high-tech sectors like chips, artificial intelligence, and biotech capture around 80 percent of private R&D expenses; America’s largest R&D spenders are tech firms like Alphabet, Amazon, Apple, Meta, and Microsoft. On the other side of the Atlantic, those mid-tech industries that were driving innovation a few decades ago still finance the bulk of R&D; Europe’s largest R&D spenders include Volkswagen, Mercedes-Benz, and Bosch.
With such a legacy mindset, it’s no wonder that EU startups—often in the high-tech sector—struggle to attract venture-capital funding. European startups received just €66 billion in venture capital funding last year, or less than a quarter of what their US competitors got. In turn, EU startups often move to the US to scale up, depriving the bloc of would-be tech champions; just one EU firm (the Netherlands’ ASML, which controls the ultraviolet lithography process to produce the most advanced semiconductors) makes it to the list of the world’s 50 largest companies by market capitalization—in 19th place.
Finance forms the third pillar of the legacy trap. Many EU member states still like to see debt as a national issue, preventing the emergence of a safe, euro-denominated reserve asset. In turn, the euro’s share of global foreign-exchange reserves has barely budged over the past decade—remaining stuck at around 20 percent. Demand exists; in March a €9 billion 10-year bond issuance from the European Commission attracted bids for €118 billion, meaning it was oversubscribed 13 times. Instead, the issue is supply. The combined volume of German bunds and French sovereign bonds remains under €5 trillion, while EU-issued bonds will not reach €1 trillion in 2026— a far cry from the $31 trillion US Treasury market.
An added legacy challenge is that the EU’s plans to build the digital money of the 2030s remain slow. The US route for digital money is stablecoins. Washington is doubling down on privately issued, dollar-pegged stablecoins as its digital money of the future; 99 percent of the roughly $317 billion available in stablecoins is dollar-pegged. China’s route is state-led. The digital yuan may not entirely live up to Beijing’s expectations, but it has the merit of existing, with a turnover of around €2 trillion since the currency’s creation in 2020. Meanwhile, Europe’s plans for a digital euro appear stuck in limbo amid intense bank lobbying against the project.
Windows Closing
All this could be dismissed as a slow-burn problem, were it not for the calendar. Three windows are closing in 2026.
First, the EU’s budget for 2028 to 2034 is under negotiation. Things are not encouraging on the innovation front. Proposed budget cuts are targeting the competitiveness, defense, and external action lines, while agricultural subsidies could remain mostly untouched.
Second, the AI rollout is leading to a one-time investment boom; the four largest US Big Tech firms—Amazon, Google, Meta, and Microsoft—will pour $725 billion into AI this year, while Beijing has penciled in a $295 billion state plan for the next five years. Meanwhile, Europe remains a marginal player in the global AI race (Mistral is hardly a genuine competitor to US and Chinese AI models).
Third, the US dollar’s status as a reserve currency rests on trust—and US President Donald Trump is fast eroding it amid tariff salvoes, a ballooning fiscal deficit, and pressure on the US Federal Reserve. Gold is benefiting from the trend, displacing treasuries as the largest reserve asset in 2025. This is a missed opportunity for the EU, for lack of supply of a euro-denominated safe asset.
A Trinity Scheme
This raises the question of what Europeans should do to evade the legacy trap. A trinity scheme comes to mind: shift budget resources, build common-debt instruments, and deploy digital-finance infrastructure globally.
Take the resources question first. The bloc should redirect a portion of the EU budget from agriculture to innovation financing (and in particular AI). Those five EU member states that jointly receive around 60 percent of CAP funding—France, Germany, Italy, Poland, and Spain—will not sign up for their own demotion, so compensation will be key. Such a measure could take the form of a transition fund for farmers, financed by a portion of the previous CAP envelope.
The second priority has to do with creating financial instruments—namely eurobonds. To pre-empt opposition from the “frugals” (EU member states that are traditionally against common European debt), one option could be to explore the Blue Bonds that former International Monetary Fund (IMF) chief economist Olivier Blanchard and Citadel hedge fund economist Ángel Ubide touted in spring 2025. Blue Bonds would convert a portion of existing sovereign debt from EU member states into senior eurobonds. These jointly-issued, low-risk securities would command low interest rates, making them an appealing option for cash-strapped member states. Crucially, EU capitals could opt in or out of the scheme—a feature that could help to alleviate opposition from frugal states.
Becoming a relevant player in digital finance should form the EU’s third priority. Instead of fighting with retail banks over the digital euro, the European Central Bank should focus its efforts on building the infrastructure for cross-border, digital payments between banks. The Pontes scheme, which will launch this year, is a useful first step; the mechanism will let banks settle blockchain trades in central bank money, but only within the eurozone. The EU’s global scheme—Appia—is still in the research phase, with no blueprint due before 2028. Brussels needs to fast-track it: China’s alternative mechanism (mBridge) is still small, but Beijing has a real chance to build cross-border standards for digital transactions if it garners a first-mover advantage.
The Macron-Merz standoff is not really about eurobonds. It is about giving the EU the ability to stand a fighting chance to remain a great power in the 2030s—a crucial feature to continue attracting partners. By then, three indicators could reveal Europe’s status. The first key performance indicator (KPI) could be a rise in the share of foreign-exchange reserves held in euro, say above 30 percent. The second would entail seeing several, say five, EU firms in the global top 50 market capitalizations. And the third would see Appia go live before mBridge has set global standards for digital money.
Inaction is a choice. The default outcome for Europe will be a relegation to the middle-power league, with the EU stuck writing the rulebook for a game it no longer plays—not least because regulation is the only lever that will always remain free.
Agathe Demarais a senior policy fellow for geoeconomics and technology at the European Council on Foreign Relations (ECFR).
