Germany and Italy jointly develop a regulatory "switch": the European Union plans to implement a "one-click ban" on US-based stablecoins

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Germany and Italy propose an EU ‘kill switch’ for global stablecoins

Germany and Italy are proposing an EU regulatory framework for stablecoins to strengthen financial market safeguards, shifting the discussion from the technical level to the political level.

German Chancellor Merz and Italian Prime Minister Meloni

In the chess game of cryptocurrency regulation, the EU is preparing to make its toughest move.

A document disclosed by European News Channel shows that Germany and Italy are working together to push an ambitious regulatory proposal designed to grant EU regulatory authorities unprecedented power — a “hard kill switch” (Hard Kill Switch) targeting foreign stablecoins. This move marks a fundamental shift in the EU’s regulatory logic for crypto assets: from mere technical compliance to a geopolitical game of defending “financial sovereignty.”

This is not only a tightening of regulation, but also a “defensive counterattack” against the dollar-dominated global stablecoin system.

The point of the blade is clear: without “equivalence,” there is no access

Although this joint discussion document submitted by Germany and Italy on March 27 does not name names, its target is unmistakable — dollar stablecoin issuers that are registered in the United States but dominate globally (including within the EU), such as Circle and Paxos.

The core logic of the proposal is simple and ruthless: “Without an equivalence decision, there is no market access.”

Germany and Italy require that for any multi-issuer stablecoins operating in the EU, the regulatory standards of the issuer’s home country must be officially recognized by the European Commission as “equivalent” to those of the EU.

Given that the United States currently has no comprehensive federal-level crypto regulatory framework, this clause could effectively keep the major U.S. stablecoin issuers entirely out.

The document states clearly that this is to ensure the EU’s financial system’s “stability and sovereignty.” This means the EU is no longer content to passively accept the rules of the global crypto market; instead, it is trying to force external players to either “transform fundamentally” or “pack up and leave” by setting extremely high entry barriers.

A “power cut switch” that can be pulled at any time

The most intimidating part of the proposal is the mechanism known as the “hard kill switch.”

According to the draft, the European Banking Authority (EBA) would be granted enforcement powers to directly “pull the plug,” prohibiting stablecoins from operating in the EU in any of the following three circumstances:

• **Reserve transfer mechanism fails: ** When a crisis occurs, funds cannot flow from the non-EU side to the EU side to respond to a run on deposits.

• **Serious violations: ** The issuer severely violates its home-country rules.

• **Harm to interests: ** There is evidence that the issuer’s actions damage the interests of EU holders.

The original intent behind this mechanism is to guard against the “structural soft spots” of cross-border stablecoins: dispersed funds.

At present, many U.S. stablecoins’ reserves are spread across different jurisdictions. Once a panic run occurs within the EU, the EU-side reserves could be depleted in an instant, while funds across the ocean may not be able to be “pumped in” on time due to obstacles from U.S. law or administrative orders. The proposals from Germany and Italy require that, in law, it must be ensured that funds can “flow instantly,” otherwise there will be no chance for the coin to operate in Europe.

Racing against time: building walls before risks explode

The momentum behind this aggressive proposal comes from a red alert issued by the European Systemic Risk Board (ESRB). As the EU’s “night watchman” for financial stability, the ESRB warns that the multi-issuer stablecoin structure has inherent vulnerabilities, and that its collapse could trigger systemic “tsunamis” similar to bank runs.

The ESRB has provided a clear timetable: By the end of 2026, safeguards must be put in place; by the end of 2027, further action must be taken.

Germany and Italy clearly do not want to wait passively. They argue that these strict recommendations must be written into law before the window for the ongoing “Market Integration and Supervisory Framework” (MISP) negotiations closes. This is not just regulation — it is a race against potential financial risk.

Regulatory front-loading: from “regulate the big, let go of the small” to “presumption of guilt”

In addition to setting entry thresholds and the circuit-breaker mechanism, the proposal also seeks to reshape the logic of supervision.

Under existing rules, whether a stablecoin is “important” mainly depends on its user base and trading volume. But Germany and Italy propose a new automatic trigger: As long as you adopt a “cross-border split structure,” regardless of your size, you will face the strictest scrutiny from day one.

This means that for crypto projects attempting to evade regulation by any single jurisdiction through complex cross-border architectures, the EU’s door is gradually closing.

Market impact and trend insights

If Germany and Italy’s proposal is ultimately adopted, it will completely change the competitive landscape for global stablecoins:

1. The “European dilemma” for U.S. dollar stablecoins: Companies like Circle face difficult choices — either completely restructure their global liquidity framework and “localize” a large share of reserves in the EU, accepting significant losses in capital efficiency; or be forced to give up the European market, leading to the fragmentation of global liquidity.

2. A strategic window for euro stablecoins: This exclusionary regulatory wall is effectively clearing the field for domestic euro stablecoins (such as the Qivalis project being prepared by the European Banking Union). The EU is trying to create strategic space for the digital euro by limiting U.S. dollar stablecoins.

3. Accelerated regulatory fragmentation: The EU is taking a regulatory path that is sharply different from that of the United States. This “Atlantic divergence” will force crypto businesses to perform complex compliance arbitrage across the globe, increasing friction costs across the global financial system.

This regulatory offensive launched by Germany and Italy is not only a move to surround stablecoins; it is also a key show of resolve by the EU to defend its sovereignty in the digital finance era.

Source: European News Channel

Compiled by: 24-hour Observatory