https://www.esm.europa.eu/blog/euronomics-charting-new-course-europes-response-global-disruptions Today’s challenges pave the way for tomorrow’s opportunitiesGlobal political uncertainty and a shift from multilateralism to transactional power dynamics are now pervasive features in international relations. Policy disruptions are reframing international relations into a competitive game...

https://www.esm.europa.eu/blog/when-every-word-matters-importance-crisis-communication The power of wordsThe famous ‘whatever it takes’ speech by former European Central Bank president Mario Draghi[2] is a testament to how impactful crisis communication can be. Words are the first direct measure that citizens and financial markets react to in crises management. They are an essential...

https://www.esm.europa.eu/blog/enhancing-europes-resilience-against-rising-geopolitical-risks Developing a common understanding around geopolitical risks[1]The significance of geopolitical risks has resurged in recent years, notably through the impact of armed conflicts (Figure 1). While conflicts worldwide are a growing source of concern, Europe is now also confronted with a war at its...

https://www.esm.europa.eu/blog/pricing-resilience-european-safe-assets European governments adopted economic support packages totalling €1.29 trillion when the Covid-19 pandemic struck in early 2020, triggering a quantum leap in the issuance of European bonds. The first package, worth an estimated €540 billion, involved the European Stability Mechanism (ESM), the...

https://www.esm.europa.eu/blog/predicting-trouble-new-analytical-tool-monitor-bank-asset-quality From peaks to troughs: significant NPL reductions, but new risks emerging Non-performing loans have several negative effects on banks’ balance sheet. Banks consider a loan as “non-performing” when a borrower fails to honour the scheduled payments of principal or interest for a specified period. In...

https://www.esm.europa.eu/blog/hidden-web-how-loss-absorbing-bonds-connect-banks-and-investment-funds Well-established MREL bond market attracts investors, but risks are present Loss-absorbing bonds are attractive to investors, especially during periods of low interest rates, given their higher returns compared to other bank debt (Figure 1). This stems from their inherently higher riskiness because...

https://www.esm.europa.eu/blog/what-look-out-2025 1) A new world order with new priorities After the European elections in June, the newly appointed European Commission has set priorities that look quite different from those of the previous one. While the Covid response and the Green Deal were the main priorities for 2019–2024, the European Union...

https://www.esm.europa.eu/blog/electronic-trading-boost-esm-bond-market-resilience The increase in electronic trading Various electronic trading platforms offer automatic matching of buy and sell orders or operate as centralised exchanges. In asset classes like equities and commodities, most trading is now conducted on electronic exchanges or via high-frequency automated platforms...

https://www.esm.europa.eu/blog/europes-ai-leadership-key-priorities 1. AI may impact financial stability Current estimates of AI's impact on productivity and economic growth vary widely, but there is a general agreement that its benefits will be unevenly distributed across countries, industry sectors, and societies. The AI value chain—from raw materials for...

https://www.esm.europa.eu/blog/spillover-effects-debt-issuance-and-importance-fiscal-rules Ripple effects of one country’s debt issuance When one major ‘safe’ euro area country suddenly issues more debt, interest rates rise for all euro area countries. In a newly published paper, we provide evidence to show that the response of interest rates on sovereign bonds in secondary markets is...

https://www.esm.europa.eu/blog/labour-hoarding-euro-areas-achilles-heel The dynamics change between employment growth and economic activity Over the past few decades, economic activity and total employment grew in tandem, with economic activity expanding slightly faster. This trend has led to steady growth in labour productivity (see Figure 1) [1] as more goods could be...

https://www.esm.europa.eu/blog/euronomics-fragmentation-or-convergence-charting-euro-areas-economic-future Policy divergence risks a widening economic gap Fiscal space varies strongly across euro area member states, with higher debt usually associated with weaker fiscal positions (see Figure 1). For countries with higher debt, the fiscal adjustments required under the EU’s new fiscal framework can be...

https://www.esm.europa.eu/blog/geoeconomic-fragmentation-looms-over-euro-area-financial-stability Financial exposures to geopolitical risks have increased over time Geopolitical tensions have economic costs, causing, for example, both international trade and cross-border capital flows to suffer. This is geoeconomic fragmentation. A recent ESM discussion paper examines the implications for the...

https://www.esm.europa.eu/blog/innovation-channel-fiscal-consolidation When preparing their medium-term fiscal adjustment plans to implement the new set of EU fiscal rules, EU Member States are facing a trade-off between the need to consolidate and the need to improve competitiveness and deploy innovation-enhancing fiscal policies. Over the past decades, public R&D...

https://www.esm.europa.eu/blog/looking-beyond-profits-secure-financial-stability How does value materialise? Value should not be gauged solely in terms of the short-term viability of an enterprise. One should also look farther afield at its resilience to unexpected shocks and its long-term sustainability. Essential value beyond profit is therefore measured by various factors...

https://www.esm.europa.eu/blog/boosting-investor-appeal-euro-area-banks Market valuation is about more than regulation A significant valuation gap has persisted for decades between US and euro area banks, which only narrows during times of global crises (see Figure 1). [1] Most market participants attribute this disparity to the more stringent regulatory environment in...

https://www.esm.europa.eu/blog/renewable-energy-can-fuel-increased-energy-security What is energy security and why is it so important? Energy security, the uninterrupted availability of energy sources at an affordable price, is a key determinant of economic resilience. [1] It matters for corporates whose business models rely on stable input prices and for citizens whose wellbeing...

https://www.esm.europa.eu/blog/how-eba-and-esm-cooperate-strengthen-crisis-prevention-and-navigate-incomplete-banking-union Preserving a safe financial system while unlocking its full potential The European System of Financial Supervision, of which the EBA is an integral part, started operating on 1 January 2011. The following year saw the inception of the permanent crisis management mechanism, the ESM. About two years...

https://www.esm.europa.eu/blog/how-banking-union-and-capital-markets-union-can-help-europe-finance-climate-change-challenge Commitments, legislation, and policies are just the beginning In response to climate change risks, the European Union (EU) Member States plan for climate neutrality by 2050, in line with a commitment to global climate action under the Paris Agreement. [1] To reach that goal, the EU turned the carbon...

https://www.esm.europa.eu/blog/butterfly-effect-of-geopolitical-conflicts Shipping the main trade channel for Europe European trade in goods heavily relies on shipping, making up over 70% of both imports and exports in 2023 (see Figure 1). Key maritime routes have become vulnerable to geopolitical conflicts. For example, recent attacks on vessels transiting the Red Sea...