The European Central Bank (ECB) has renewed calls for deeper financial integration across the eurozone, arguing that stronger capital and banking markets are essential to expanding the global influence of the euro amid changing geopolitical and financial conditions.

ECB President Christine Lagarde made the call in the bank’s annual report on the international role of the euro, stressing that Europe must act decisively to strengthen its position in an increasingly fragmented global economy.

According to the report, global payment systems are undergoing significant changes, driven by technological innovations, shifting trade relationships, and growing geopolitical tensions. Lagarde warned that these developments could weaken the standing of traditional currencies if policymakers fail to adapt.

She stated that the euro area must create larger, more liquid, and more integrated financial markets to support the currency’s international ambitions. A more unified banking and capital market structure, she said, would provide the scale needed for the euro to compete more effectively on the global stage.

The report highlighted concerns about increasing fragmentation within the global financial system. While the euro remains the world’s second most-used reserve currency, it continues to trail the US dollar by a significant margin.

Data contained in the report showed that the euro accounted for about 20 percent of global foreign exchange reserves last year. By comparison, the US dollar represented approximately 57 percent of worldwide reserves, maintaining its dominant position in international finance.

The ECB noted that despite persistent global uncertainties, the euro demonstrated resilience during periods of market stress. The currency gained strength against the dollar on several occasions, including during episodes of heightened volatility linked to tariff-related announcements from the United States.

Officials said these developments indicated that investors increasingly viewed the euro as a relatively safe asset during periods of uncertainty. However, they acknowledged that such episodes alone were insufficient to significantly alter the global balance of reserve currencies.

The report also pointed to the growing importance of China’s renminbi in international trade and payments. Although the Chinese currency remains less widely used than the euro, its influence has expanded steadily in recent years.

Particular attention was drawn to activity within China’s Cross-Border Interbank Payment System (CIPS), which recorded a notable increase in transaction volumes during periods of geopolitical tension. According to the ECB, activity on the platform rose sharply following the outbreak of conflict in the Middle East, highlighting how alternative payment systems are gaining relevance in global commerce.

Lagarde said recent geopolitical developments underscore the need for Europe to strengthen the international standing of its currency. She maintained that changing global dynamics present opportunities for the euro to attract greater international use, provided policymakers implement the reforms necessary to support that goal.

The ECB president stressed that Europe possesses the economic strength and institutional framework required to elevate the euro’s status. However, she said achieving this objective would require coordinated action across member states, particularly in areas relating to financial market integration and investment flows.

The report identified deeper capital markets as a key pillar for future growth. Officials said more efficient and integrated markets would improve access to financing, increase investment opportunities, and enhance the attractiveness of euro-denominated assets for international investors.

Banking union reforms were also highlighted as an important component of efforts to strengthen the currency. The ECB believes that closer integration of financial institutions across the bloc would improve stability and support greater cross-border investment activity.

The euro has played a central role in international finance since its introduction, serving as a major reserve, trade, and investment currency. Nevertheless, policymakers have long sought to increase its influence and reduce Europe’s dependence on the dollar-dominated financial system.

As global economic and political conditions continue to evolve, ECB officials said Europe faces a critical opportunity to reinforce the role of its currency. They emphasized that strengthening financial integration and deepening capital markets would be essential steps toward achieving a more prominent position for the euro in the international monetary system.

The report concluded that the euro’s future global influence will depend largely on Europe’s ability to translate policy ambitions into practical reforms capable of enhancing market confidence and boosting the currency’s attractiveness worldwide.