BNP Paribas strategists highlight that despite weaker post-Covid productivity than the United States (US), the European Union retains stronger public finances and growing international use of the Euro (EUR). They note widening debt burdens in favor of Europe, the EU’s remaining fiscal room, potential renewed joint debt issuance, and the Euro’s rising role in international debt markets, especially for green and sustainable bonds.

Euro gains as reserves and funding

"As a result, the comparison, when viewed through the prism of public finances, falls largely in its favour: starting from a similar level in 2015 (around 65% of GDP), European and US public debt ratios have diverged significantly, standing at 83% and 124% of GDP respectively in 2025 (a gap of 40 percentage points). Although it does not explain everything, such a disparity in debt regimes inevitably has an impact in terms of comparative economic performance."

"For years, the United States was able to run large deficits by benefiting from the ‘exorbitant privilege’ of issuing debt in dollars, the world’s main reserve currency. But the exercise may be reaching its limits: in 2025, interest payments by US general government amounted to 4.7% of GDP – the highest ratio in 28 years – whilst they did not exceed 2% of GDP in the EU."

"Rarely have debt burdens diverged so widely on either side of the Atlantic, a situation that the markets - quicker to question the dollar’s safe-haven status when setbacks occur - are becoming aware of. The fact that the EU still has fiscal room for manoeuvre, and may even be able to use the lever of joint debt once again, is far from trivial in view of the ‘wall of investment’ that lies ahead (EUR 750 to 800 billion in additional annual expenditure to address the challenges of digitalisation, competitiveness and the green transition, according to the Draghi report)."

"Significant fact: the euro continues to gain ground as international reserve currency. In a recent report[8], the European Central Bank (ECB) highlights the strong growth in international debt issuance denominated in euros, including green and sustainable bonds."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)