Expanded ties with countries hurt by US tariffs could bolster euro's global role, ECB's Villeroy says

FRANKFURT (Reuters) -Europe must act fast to bolster the global role of the euro as the window of opportunity to do so may soon close, and the bloc should seek greater ties with nations most affected by U.S. tariffs to help it achieve that, the French central bank chief said.

Erratic U.S. economic policy has shaken investors' confidence in the dollar this year, but Europe has so far struggled to capitalise on the opportunity that presents, enacting changes far too slowly due to indecision, discord and bureaucracy.

Outlining a host of possible courses of action, Francois Villeroy de Galhau said time was of the essence and it was critical that Europe set a deadline, such as January 1, 2028, to enact changes.

"If we don’t react fast, we are at serious risk that the window of opportunity will close," Villeroy said in a speech in Luxembourg.

The currency could gain greater prominence if the bloc invoiced more of its foreign trade in euros, and there was an opportunity to do this with nations especially hurt by U.S. trade policy. 

"We could leverage EU negotiations with trade partners that have been hit hard by America’s new protectionist measures, for example, India, Switzerland, Indonesia," Villeroy said. 

To back up such trade, the ECB could expand further the availability of euro liquidity lines to non-euro zone central banks. 

This process could be further bolstered if the ECB were finally able to issue a digital currency and it expanded its Target wholesale payment system to accept currencies from countries such as India, Switzerland, the UK, Canada or Brazil, Villeroy said.

Another critical issue holding back the euro is the relative scarcity of a liquid safe asset. Europe could tackle that possibly by merging existing supranational debt and transforming existing sovereign debt into genuine European sovereign debt instruments, he suggested. 

Other steps to bolster the euro might include beefing up venture capital, creating a European supervisory framework for investment funds and creating a new, pan-European legal and regulatory regime that companies can opt into, replacing cumbersome and fragmented national regimes, he said.

(Reporting by Balazs Koranyi; Editing by Hugh Lawson)