Germany and Italy are pushing for sweeping new powers to block foreign stablecoin operators from the European Union unless their home countries meet EU regulatory standards — a move that could shut out some of the largest crypto firms from one of the world’s biggest financial markets, according to a document seen by Euronews.
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The two countries set out their position in a joint discussion paper circulated on March 27, ahead of a working party meeting on the bloc’s Market Integration and Supervision Package (MISP).
The document frames the proposal explicitly around EU “stability and sovereignty” — language that signals this is as much a geopolitical play as a financial regulation one.
A big ‘no’ to US stablecoins?
The proposal takes direct aim at so-called multi-issuer stablecoins — tokens issued simultaneously across multiple jurisdictions, with reserves split between them.
Stablecoins are cryptocurrencies designed to hold a fixed value, typically pegged to the dollar or euro, and backed by real money held in reserve so holders can cash out at any time.
“To ensure the stability and sovereignty of the EU financial system, it is imperative to establish a comprehensive and harmonized regulatory framework for global stablecoins from third-country multi-issuance schemes,” the document states.
While the document names no specific firms, the structure described clearly refers to the current models of major dollar-pegged stablecoin operators, most of which are domiciled outside the EU — and in the US.
Under the proposed framework, any such operator would be barred from offering tokens in the EU unless the European Commission has formally determined that their home country’s regulatory framework is equivalent to EU standards.
No equivalence decision, no market access. Given the US currently has no comparable framework, the proposal could effectively shut major dollar stablecoins out of the EU entirely.
The kill switch
The proposal would also hand regulators a hard kill switch.
Under the draft provisions, the European Banking Authority (EBA) would be required to ban a stablecoin outright if its reserve transfer mechanism fails, if the issuer seriously breaches its home-country rules or if there is evidence it is acting against EU token holders’ interests.
The risk with cross-border stablecoins is simple: a stablecoin issued jointly by a US firm and an EU firm has its backing reserves split between the two.
If EU holders all try to cash out at once, the EU-side pot may not be big enough to pay everyone back. The money exists — but it is sitting in a US bank account, potentially subject to American rules that could delay or block its transfer to Europe.
Germany and Italy want to make it a legal requirement that funds can always flow instantly from the non-EU side to cover any such shortfall — what the document calls ensuring “reserve of assets can be reallocated and effectively mobilized across borders to the Union without legal or operational barriers in case of localized liquidity shortfalls, including in times of crisis or financial stress”.
If that guarantee cannot be met — or if the issuer breaks its home-country rules or is found to be acting against EU holders’ interests — the European Banking Authority (EBA) would be required to pull the plug entirely, banning the stablecoin from operating in the EU.
Racing against the clock
The urgency behind the push comes from the European Systemic Risk Board (ESRB), the EU’s systemic risk watchdog, which has already flagged multi-issuer stablecoin structures as carrying inherent vulnerabilities and potential financial stability risks.
Its concern is that a stablecoin collapse or freeze could ripple through EU financial markets in the way a bank can run.
The ESRB called on European and national authorities to implement safeguards by end-2026, with further measures by end-2027.
Germany and Italy are arguing those recommendations must be embedded in the ongoing MISP negotiations before the window closes.
“Timing is key and we should act soon to address the financial stability and consumer protection risks posed by the multi-issuance scheme in the ongoing MISP negotiations,” the document states.
Tough oversight from day one
The proposal would also bring large stablecoin issuers under direct EBA supervision by classifying participation in a third-country multi-issuer scheme as an automatic trigger for “significant” status.
Under existing rules, significance is determined by size — number of users, transaction volumes.
Germany and Italy want to add a new automatic trigger: if you operate a cross-border split structure at all, you face the toughest level of scrutiny from the outset, regardless of size.
MiCAR, which came into force in 2024, already requires stablecoin issuers operating in the EU to hold reserves and meet governance standards.
But the Germany-Italy paper argues the current framework has gaps when it comes to cross-border schemes where the issuing entity sits outside EU jurisdiction — and that those gaps need closing before global stablecoin adoption accelerates further.
The working paper was submitted to the Working Party on Financial Services and Banking Union ahead of its 30 March meeting.
It does not represent an agreed EU position, but non-papers of this kind — particularly when backed by Europe’s two largest eurozone economies — carry significant weight in shaping legislative outcomes.