The overall economy, including the financial sector, is undergoing an unstoppable digital transformation. In February 2020, the European Commission decided to leverage this transformation to facilitate “a fair and competitive economy.” Shortly after, it became clear that the spread of the new coronavirus was foreshadowing one of the biggest economic challenges for Europe since the global financial crisis. The first economic impacts of the COVID-19 pandemic were reflected in a significant decline in GDP growth and an increase in unemployment rates. At the same time, however, the digital transformation has been accelerated as social distancing and lockdowns forced Europe to go “digital.” Consequently, Germany started re-evaluating its agenda for the upcoming EU Council Presidency in March 2020 and concluded that “[t]he COVID-19 pandemic has shown more clearly than ever that Europe must achieve sovereignty in the digital domain in order to remain capable of action on its own also in the future.”
Despite having been at the forefront of industrial innovation for decades, Germany was falling behind when it comes to innovations in the financial sector. Not only are several European neighbors more digitally advanced (e.g., e-commerce payments), but the recent downfall of the FinTech Wirecard additionally suggests that Germany is not yet a generation #borndigital. This may, however, change as the German government set digitalization as one of the key priorities for their legislative period. For example, the current coalition agreement aims to strengthen Germany’s position as one of the leading digitalization and FinTech locations. In addition, a comprehensive blockchain strategy and legal framework for the trade with cryptocurrencies and tokens on a European and international level should be developed and advocated. As a result, Germany published its blockchain strategy in September 2019, and, a few months later, crypto-assets were introduced as a financial instrument under the German Banking Act.
However, national measures alone are not sufficient to create an appropriate regulatory framework for digital financial services, as remarked by the German State Secretary Jörg Kukies. It is therefore not surprising that Germany put also the digital transformation of the financial sector on its EU Council Presidency’s agenda and moderated the related process to facilitate the work towards the Commission’s digital finance package, published in September 2020. Nevertheless, as Germany pays also attention to potential risks of digitalization—especially for the financial sector—it seems to use its EU Council Presidency also for pushing for a uniform and strict Europe-wide regulation in order to create a Digital Financial Markets Union. Thus, the two legislative proposals on crypto-assets (MiCAR) and digital operational resilience (DORA) are placed high on Germany’s agenda.
Even though Germany’s role during the EU Council Presidency is to act primarily as an honest and neutral broker, one can recognize that Germany’s agenda on uniform and strict regulations is pushed forward for stablecoins to preserve state sovereignty in monetary policy. During the informal ECOFIN meeting, German Finance Minister Olaf Scholz, together with his colleagues from France, Spain, Italy, and the Netherlands made a joint statement, outlining that stablecoins should not be allowed to operate in the European Union until the legal, regulatory, economic, and oversight challenges and risks have been adequately identified and addressed.
With the German presidency ending this December, the question arises whether the Portuguese presidency will continue this trend towards further digitalization. As the Trio Programmes are designed to ensure a smooth transition from one EU Council Presidency to the next by setting an 18-month agenda, it is expected that digital transformation in the financial sector will still be a widely discussed topic in 2021—in particular, as it intertwines with other legislative plans (e.g., New Consumer Agenda) at the European level. For now, one thing is certain—the digital transformation of the financial sector is here to stay.