The digital euro is often presented as a remedy to concentration in private payments markets. Yet its proposed architecture forecloses competition through two mechanisms—a legally exclusive scheme for the digital euro itself, and four design features that would close competitive margins across the broader market for retail payments: mandatory merchant acceptance, mandatory payment service provider (PSP) participation, no scheme fees for PSPs, and free basic services for consumers.
Competition law would never tolerate a private payment scheme that combined legally exclusive operation with mandatory acceptance and distribution, and publicly subsidised zero pricing. But that is close to the architecture now contemplated for the digital euro. A public instrument intended to discipline market power may instead entrench it.
The Eurosystem's payments strategy presents the digital euro as a way to foster an 'integrated, competitive and innovative payments ecosystem'. The difficulty lies not in the objective, but in the structure of the intervention. Because the digital euro is designed at EU level, it avoids the competition scrutiny a similar Member State measure would face. The solution is self-imposed discipline.
Two foreclosure mechanisms
Payments markets operate across four distinct layers: money, settlement infrastructure, payment schemes, and consumer-facing applications. The ECB's role at the first two layers is straightforward: central banks' authority to issue money and operate settlement infrastructure is undisputed.
The scheme layer is different. This is where networks such as Visa, Mastercard, and the European Payments Initiative (EPI, operator of Wero) compete on rules, liability allocation, authentication standards, and merchant services. When the ECB moves into this layer, it does so not as one operator among many but as the legally exclusive operator of the digital euro scheme.
The proposed architecture forecloses competition through two mechanisms operating at this layer.
The first is a legally exclusive scheme for the digital euro itself. Article 5(2) of the draft Regulation assigns the ECB authority to adopt the measures, rules and standards governing the digital euro, and under that authority a single Scheme Rulebook is being drafted. No private operator may run a competing scheme for digital euro payment services. The ECB's monopoly over euro issuance does not require this: scheme operation is doctrinally separable from money issuance, as the routine processing of commercial bank deposits under multiple competing schemes demonstrates.
The second foreclosure mechanism, which affects the competitive market for retail payments more broadly, operates through four design features that close competitive margins simultaneously.
First, mandatory acceptance removes merchant choice. Private schemes earn acceptance by persuading merchants that the customer demand they bring justifies the cost. Mandatory acceptance bypasses that process; carve-outs for micro-enterprises do not reach merchants of meaningful scale.
Second, eliminating scheme fees removes PSP-side price competition. Scheme-layer costs are borne by the Eurosystem against its monetary income rather than recovered from scheme participants, creating cost conditions private operators cannot match. A PSP deciding where to invest innovation resources would naturally gravitate toward the publicly subsidised rail.
Third, mandatory PSP participation removes distribution choice. Credit institutions that belong to competing networks must also participate in the single digital euro scheme—at their own cost, given the absence of scheme fees. This forecloses the competitive process by which a PSP would choose which schemes to prioritise.
Fourth, free basic services eliminate the consumer pricing margin. A universally accepted instrument available at no cost weakens consumers' willingness to pay for alternatives, even differentiated ones.
The necessity gap: testing the digital euro against Article 106(2)
No competition law provision fits the digital euro perfectly. Article 102 TFEU, which prohibits abuse of a dominant position, is awkward where the foreclosing conditions are created legislatively rather than through unilateral conduct. Article 107 TFEU, the prohibition on State aid that distorts competition, raises contested questions about monetary financing and State resources that are set aside here for separate treatment.
Article 106(2) TFEU applies to Member State conduct and does not directly govern an EU legislative act. Nonetheless, it provides the closest conceptual benchmark, as it addresses the central tension in this case: how public undertakings pursuing legitimate public tasks should remain subject to competitive discipline. The architecture its necessity test imposes illuminates what proportionate design would require, and informs the deferential Article 5(4) TEU review that does apply to the digital euro. Two threshold questions—whether the ECB qualifies as an undertaking under Compass-Datenbank and whether the digital euro qualifies as a Service of General Economic Interest under BUPA's manifest-error standard—would likely be cleared.
The real issue would be necessity.
Article 106(2) permits restrictions on competition only to the extent indispensable to performing the public task (Corbeau; Almelo). The digital euro's objectives may be legitimate, but the two foreclosure mechanisms identified earlier are difficult to defend as indispensable. The digital euro could still perform its monetary-anchor function under less restrictive conditions.
Legal exclusivity at the scheme layer admits a multi-scheme alternative: the Eurosystem could set minimum scheme-layer standards without reserving scheme operation to itself. Competing schemes for digital euro transactions could then operate under those standards, just as interbank payments are processed today by multiple competing networks.
The four competitive-margin features admit calibration alternatives within the existing private payments ecosystem. Interoperability requirements could expand reach without eliminating merchant choice. PSP distribution could be opt-in, leaving the choice of which schemes to prioritise where it normally sits—with the competitive process—rather than pre-empting it legislatively. Coupled with cost-recovery pricing, voluntary participation could avoid structurally undercutting private competitors. The ECB could continue pursuing its Treaty mandate to promote smooth payment systems primarily through infrastructure provision and regulation rather than through scheme operation.
A defender will say that a single scheme is necessary to ensure the singleness of money—that the digital euro is always accepted at par. But singleness is a property of the monetary unit, not of scheme rules. As central bank money, the digital euro maintains par value by definition; at-par interoperability across schemes is ensured by settlement in central bank money. Scheme rules govern how transactions are organised, not whether a digital euro retains its value when it changes hands. Nor does legal tender status justify a single scheme: legal tender obliges merchants to accept the digital euro, but says nothing about which scheme processes the transaction.
The existing European payments architecture reinforces this argument. SEPA Instant Credit Transfer (SCT Inst) already achieves cross-border interoperability without the ECB operating the scheme layer. Wero is built on SCT Inst and settles on TIPS—precisely the type of architecture that demonstrates less restrictive alternatives are viable.
A proponent may argue that EPI's troubled history shows why a public scheme is necessary, or that mandatory PSP participation is needed to prevent hold-out from undermining ubiquity. But EPI's difficulties and hold-out are both the result of coordination problems among private firms—a market failure that admits targeted solutions. The Instant Payments Regulation addresses coordination at the infrastructure level—requiring PSPs to enable instant credit transfers and forbidding surcharges relative to non-instant transfers—without compelling them to distribute any specific scheme.
That would be the proportionate response under Article 106(2): targeted interoperability and pricing obligations, not a publicly subsidised competitor whose distribution is itself legislatively guaranteed.
Why proportionality still matters
Article 106(2) does not directly govern the draft Digital Euro Regulation. The review of EU legislation instead follows the deferential 'manifestly inappropriate' standard normally applied to complex economic policymaking (Vodafone). But even deferential review is not a blank cheque. The EU institutions are not merely regulating the digital euro payments market from outside; they are designing a payment scheme the ECB itself will operate while determining the competitive conditions under which it will function. Article 119 TFEU's open-market-economy commitment and Article 3(3) TEU's competitive-social-market principle, while not free-standing standards of review, inform what counts as a proportionate means when the legislator's own design choices fix the competitive parameters of a market participant it controls.
The existence of less restrictive alternatives is therefore highly relevant. SCT Inst is the live demonstration. That does not necessarily make the digital euro unlawful, but it does weaken the argument that the proposed foreclosure risks are unavoidable.
Disciplining the designer: the case for self-restraint
The absence of an obvious external competition-law constraint is itself significant. Article 106(2) exists precisely because public undertakings combining market power with public mandates create special competitive risks. If a Member State designed a payment scheme with the digital euro's controversial features, competition scrutiny would likely follow. Since no equivalent discipline currently applies here, self-imposed discipline becomes essential.
The Commission would do well to supplement its impact assessment with a more explicit scheme-level necessity analysis. The Eurosystem could engage more directly with interoperability-based alternatives and with the existing SCT Inst architecture—something the ECB's design reports have not done. The draft ECON report suggests these concerns are beginning to surface, but they remain underdeveloped.
The question for the co-legislators is whether the proposed architecture is apt to deliver the integrated, competitive and innovative payments ecosystem the digital euro is meant to enable. A digital euro designed to restore competition should not depend on the very foreclosure logic competition law ordinarily condemns.
Jeff Alvares is Senior Counsel at the Central Bank of Brazil. The views expressed are his own and do not represent those of the Central Bank of Brazil or the Brazilian government.
Share:
With the support of
