https://www.esm.europa.eu/blog/navigating-quantitative-tightening-funding-europes-future-without-rekindling-sovereign-bank Europe faces a defining moment amid mounting pressuresRecent high-level reports[1] have highlighted the challenges of shifting demographics and geopolitical landscapes that Europe must navigate while also financing the digitisation and green transition. Beyond this, the European Commission estimates...

https://www.esm.europa.eu/blog/building-resilience-through-policy-role-social-safety-nets Inequality in times of crisisAs a crisis resolution mechanism, the ESM plays a crucial role when markets question the financial stability of the euro area or its members. During crises, financial markets can doubt government policies and their capacity to repay debts by pressing the governments to...

https://www.esm.europa.eu/blog/peers-progress-how-aiib-and-esm-are-growing-stronger-together Distinct mandates but shared strong foundationsThough the Asian Infrastructure Investment Bank (AIIB) and the European Stability Mechanism (ESM) differ in mandate, geographic focus, and shareholder composition, both are relatively young institutions that have quickly earned credibility in the global...

https://www.esm.europa.eu/blog/how-non-euro-countries-have-embraced-issuance-euro-denominated-bonds Outstanding bonds issued by sovereigns globally amounted to above €75 trillion at the end of 2024, with almost 37% denominated in USD and 14% in euro. Issuance in euro has shown remarkable progress since the launch of the common currency in 1999. Among the €10.5 trillion sovereign bonds denominated...

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/unlocking-capital-markets-everyone-union-common-good Moving from capital markets union to a savings and investments unionEurope is at a crossroads where substantial investments for the foreseeable future are required. Three high-level reports have recently taken stock of Europe’s challenges.[2] While their specific recommendations differ, they concur...

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 emergingNon-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 presentLoss-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 prioritiesAfter 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 tradingVarious 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 stabilityCurrent 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 issuanceWhen 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 activityOver 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 gapFiscal 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 timeGeopolitical 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 that...