--- title: Germany and Italy Propose EU Kill Switch That Could Block Every US Stablecoin description: Germany and Italy want EU regulators to block foreign stablecoins unless their home country passes an equivalence test. What it means for USDC, Tether, and the $318 billion market. author: Darie Nani (Editor-in-Chief) date: 2026-04-02T13:55:54.795Z updated: 2026-04-02T13:55:54.805Z canonical: https://www.sovereignmagazine.com/article/eu-stablecoin-kill-switch-germany-italy-proposal image: https://cdn.nanimediahouse.com/eu-stablecoin-kill-switch-featured.webp categories: FinTech, Politics content_type: News region: Europe publication: Sovereign Magazine about: - type: Organization name: European Banking Authority description: The European Banking Authority is an independent EU authority responsible for banking regulation and supervision across the European Union. Under the proposed Germany-Italy stablecoin framework, the EBA would hold the power to ban non-compliant foreign stablecoins from operating in the EU. url: https://www.eba.europa.eu industry: Financial Regulation sameAs: - https://www.linkedin.com/company/european-banking-authority/ --- Germany and Italy have proposed giving EU regulators the power to ban any foreign stablecoin whose home country doesn't meet European regulatory standards. The joint discussion paper, circulated on 27 March ahead of a Council working party meeting on the Market Integration and Supervision Package (MISP), would create an equivalence-first framework for stablecoins operating across borders. The proposal doesn't name any companies. It doesn't need to. The structure it describes, tokens issued simultaneously in multiple jurisdictions with reserves split between them, maps directly onto the operating models of every major US dollar-pegged stablecoin. ## How the EU stablecoin kill switch would work Any stablecoin operator from outside the EU would need the European Commission to formally determine that their home country's regulatory framework is equivalent to EU standards before they could offer tokens in Europe. No equivalence decision, no market access. Second, operators running cross-border structures would be automatically classified as "significant" under MiCA, triggering the highest level of oversight from the European Banking Authority from day one, regardless of their actual size or user base. Third, the 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. That is the kill switch. The paper frames this explicitly around EU "stability and sovereignty." In plain terms: Germany and Italy don't want their financial system dependent on coins controlled from Washington. ## Why EU regulators fear a stablecoin bank run The European Systemic Risk Board, the EU's financial stability watchdog, published a report in October 2025 warning that multi-issuer stablecoin structures carry specific, practical vulnerabilities. A stablecoin issued jointly by a US firm and an EU firm has its reserves split between the two jurisdictions. If European holders all try to redeem at once, the EU-side pool may not be large enough to cover everyone. The money exists, but it sits in a US bank account, potentially subject to American rules that could delay or block its transfer. Assets held in one place, obligations owed in another, and a legal system that can freeze the transfer between them when things go wrong. It is reminiscent of the structural problem that brought down institutions in 2008. The difference is that stablecoins move faster than mortgages. A loss of confidence can drain a stablecoin's reserves in hours, not months. The ESRB called on European and national authorities to implement safeguards by the end of 2026, with further measures by the end of 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. Ninety-nine per cent of stablecoins in circulation are denominated in US dollars. The global stablecoin market has doubled since 2023 to roughly $318 billion. For the EU, that alone is reason enough to act. ## How US and EU stablecoin rules compare in 2026 The EU and the US are now building two separate stablecoin regimes, on different timelines, with different philosophies, and the companies caught between them are running out of room to serve both. [MiCA](https://www.sovereignmagazine.com/article/european-parliament-passes-landmark-crypto-regulation-mica-legislation-sets-new-standards-for-the-industry)'s stablecoin provisions became enforceable in June 2024. By March 2025, exchanges across the EU had begun delisting non-compliant tokens. Tether's USDT, the largest stablecoin by market cap at roughly $187 billion, was stripped from Coinbase Europe, Kraken, and Binance's EEA spot markets after its issuer declined to pursue MiCA compliance. The GENIUS Act, signed in July 2025, created the first federal framework for stablecoins, requiring 1:1 reserve backing, monthly attestations, and annual audits. But the rulemaking is still in progress. The US Treasury published proposed implementation rules on 1 April 2026, opening a 60-day comment period. The full system is not expected to be operational before November 2026. The Germany-Italy proposal would require an EU equivalence determination based on the regulatory framework in the issuer's home country. But the US framework is not yet in force. Even once it is, there is no guarantee the EU would consider it equivalent. Washington built the GENIUS Act to attract stablecoin issuers. Brussels built MiCA to control them. Those are different objectives, and the EU is unlikely to treat them as equivalent. The current US administration has been moving toward deregulation, not tighter oversight. It has shown little interest in [coordinating with Brussels](https://www.sovereignmagazine.com/article/eu-lawmakers-digital-markets-act-enforcement-us-pressure) on financial rules. The EU isn't waiting around to find out if that changes. ## Which stablecoins are MiCA compliant and who gets shut out Circle, the company behind USDC, was the first global stablecoin issuer to achieve MiCA compliance in July 2024. It holds an electronic money institution licence from France's ACPR and operates Circle Mint Europe for EU minting and redemption. USDC ended 2025 with $75 billion in circulation and Circle posted $2.7 billion in annual revenue. But even Circle could be caught by the new framework. Its split US/EU structure is exactly the kind of multi-issuer arrangement the proposal targets. Compliance with MiCA alone would no longer be enough. Circle would also need the US regulatory regime to pass the EU's equivalence test, something neither Circle nor any other company can control. Tether refused MiCA compliance, accepted delisting from EU exchanges, and pivoted entirely toward the US market. It hired KPMG for its first full financial statement audit, brought in PwC to prepare its internal systems, and launched USAT, a GENIUS Act-compliant dollar token for the American market. Tether made over $10 billion in profit in 2025 while holding $141 billion in US Treasury exposure. For Tether, the Germany-Italy proposal changes nothing. It already left. For Circle, it changes the calculus entirely. Doing the compliance work was supposed to be the competitive advantage. Now it might not be sufficient. ## What happens next with EU stablecoin regulation 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 when Germany and Italy agree on something financial, the rest of the bloc tends to follow. The broader MISP package, published by the European Commission in December 2025, runs to over 1,000 pages and amends 19 pieces of EU legislation. It is the most substantial capital markets integration effort since MiFID II. Trilogue negotiations are expected throughout 2026, with adoption likely between 2027 and 2029. The ESRB's recommended deadline for initial safeguards is the end of 2026. The US expects its rules to be operational around the same time. Whether those two frameworks end up compatible is anyone's guess and neither side is talking to the other about it. ## FAQ **Q: Are stablecoins banned in Europe?** Stablecoins are not banned in Europe, but only those issued by entities compliant with MiCA, the EU's Markets in Crypto-Assets Regulation, can be listed on EU exchanges. Since March 2025, non-compliant stablecoins including Tether's USDT have been delisted from major European platforms. MiCA also formally prohibits algorithmic and non-collateralised stablecoins. **Q: Is USDC allowed in Europe?** Yes. Circle's USDC is currently one of the only major stablecoins fully compliant with MiCA, the EU's crypto regulation framework. Circle holds an electronic money institution licence from France and operates a dedicated EU minting and redemption service. In April 2026, Germany and Italy proposed an additional equivalence framework that could add further requirements for any stablecoin whose issuer is based outside the EU. **Q: Why is USDT being delisted in Europe?** Tether, the company behind USDT, did not pursue MiCA compliance, which requires stablecoin issuers to hold an EU licence, maintain full reserve backing, and publish regular transparency reports. EU exchanges including Coinbase Europe, Kraken, and Binance began phased delistings of USDT from late 2024, with a final transition deadline of 1 July 2026. **Q: What are stablecoin reserve requirements in Europe?** Under MiCA, the EU's Markets in Crypto-Assets Regulation, stablecoin issuers must maintain full 1:1 backing with liquid assets, publish regular transparency reports, meet capital requirements, and undergo mandatory reserve audits. A joint German-Italian proposal from April 2026 would add a further requirement for issuers based outside the EU: reserves must be instantly transferable to the EU entity in a crisis, with no legal or operational barriers.