https://www.esm.europa.eu/blog/shock-proofing-esm-financial-stability-instruments New types of shocks call for regular reviews of existing tools Since the sovereign debt crisis of the 2010s, euro area resilience has been repeatedly tested by crises like the Covid-19 pandemic, and the Russian war in Ukraine and ensuing energy price shock. Each blow derailed any economic rebound...

https://www.esm.europa.eu/blog/stronger-together-safeguarding-financial-stability-fragmented-world Geoeconomic fragmentation on the rise… as are its risks Geoeconomic fragmentation, the reversal of progress towards global economic and financial integration due to political and military conflict as well as deliberate and strategic policy decisions, is on the rise. [2] This year’s RFA research...

https://www.esm.europa.eu/blog/five-themes-watch-multilateral-financial-institutions 1. Keeping momentum in the green transition With 2023 the hottest year on record, focus and momentum on the green transition is needed now more than ever. The Paris Agreement target to limit global warming to 1.5°C above pre-industrial levels looks increasingly ambitious. As the target year 2050 for...

https://www.esm.europa.eu/blog/climate-change-and-industrial-transformation-different-approaches-europe-and-united-states During the Covid-19 pandemic, the Next Generation EU (NGEU) programme was the EU’s initial response to the economic challenges of the pandemic. Later, the two NGEU support facilities responsible for funding investments – the Recovery and Resilience Facility and REPowerEU – became the principal...

https://www.esm.europa.eu/blog/how-harmonisation-europes-insolvency-laws-could-help-businesses The EU’s work-in-progress The EU's harmonisation efforts aim to create a more stable, predictable, and efficient insolvency framework. Although full harmonisation may yet seem intangible, a minimum level of harmonisation is imperative for Europe’s financial resilience. A unified cross-border...

https://www.esm.europa.eu/blog/euronomics-resilience-and-competitiveness-euro-area Euro area stands at fork in the road Despite demonstrated resilience to the more recent Covid-19 pandemic and energy crisis, productivity, and economic growth trail behind other major economies due to long-standing structural weaknesses and elevated exposure to global shocks. Such factors as ageing...

https://www.esm.europa.eu/blog/europes-common-financial-response-challenges-what-has-already-been-done Start where you are, use what you have, do what you can The European Union’s (EU) common challenges, such as the transition towards a green, sustainable and digitised economy, disruptive climate events, and increased defence spending needs, have motivated growing calls for additional joint European...

https://www.esm.europa.eu/blog/assessing-climate-risks-esm Relevance of climate risks for financial stability Climate change triggers weather shocks like heatwaves and floods, which can wreak havoc on places that are insufficiently prepared for the intensity and frequency of such events. Such physical risks can entail capital and productivity losses in...

https://www.esm.europa.eu/blog/how-capital-market-finance-can-boost-european-businesses SMEs essential to European economy, but tricky to finance SMEs account for 99% of all businesses in the European Union (EU), employ around 100 million people, and are an essential source of entrepreneurship and innovation, making them central to Europe’s economic development model.[1] Accordingly...

https://www.esm.europa.eu/blog/wanted-updated-understanding-bank-runs The 2023 banking turmoil revived questions about whether bank regulation and supervision can properly mitigate new risks emerging in a highly volatile environment. While many have focused on the role of digital technology in bringing about this situation in the US, policymakers and practitioners...

https://www.esm.europa.eu/blog/higher-interest-rates-attract-investors-euro-area-sovereign-debt-pose-challenges-public The recent increase in interest rates has changed the landscape of euro area government debt. While governments must pay higher borrowing rates to finance their deficits, higher bond yields attract investors. Looking at the origin of the new demand for government debt, we ask if this will endure and...

https://www.esm.europa.eu/blog/are-banks-profits-here-stay Banks benefit from unprecedented rate hikes In July 2022, the European Central Bank (ECB) hiked official monetary policy rates for the first time since 2011. The current hiking cycle, in addition to atypically starting with an interest rate in the negative area, is unprecedented in terms of speed...

https://www.esm.europa.eu/blog/mind-gap-how-european-risk-sharing-scheme-could-bolster-private-insurance-coverage-natural Recent flooding events in Europe, as well as reports that insurers globally are becoming reluctant to offer homeowners protection against natural catastrophe losses in certain regions, have fuelled discussions about the role of insurance coverage in limiting the economic and societal consequences of...

https://www.esm.europa.eu/blog/esms-holistic-approach-esg-and-sustainable-prosperity The environmental, social, and governance (ESG) market has rapidly evolved over the last few years, with a myriad of bond products emerging from the market due to an ever-growing demand for sustainable assets. By March, ESG-themed bond issuance topped €3 trillion worldwide, making it a powerful...

https://www.esm.europa.eu/blog/greece-investment-grade-again-why-it-matters-keep-it Greece has achieved an important milestone in its recovery from a painful debt crisis more than a decade ago. After 13 years, Greece regained investment grade in its credit rating from Standard & Poor’s Global Ratings (S&P). In this blog post, we show why this achievement matters to Greece and...

https://www.esm.europa.eu/blog/outside-box-world-economy-heads-soft-landing-amid-uncertainty-international-monetary-fundworld The world economy is on course for a soft landing next year after a bumpy journey. Markets are eyeing some risks and must navigate more uncertainty. That was the view at the International Monetary Fund (IMF)/World Bank annual meetings held last week in Morocco. Attracting dignitaries from around the...

https://www.esm.europa.eu/blog/more-resilient-euro-area-navigates-financial-imbalances-and-macroeconomic-instability The euro area economy enters the current cycle of higher interest rates with relatively moderate levels of financial imbalances. Policy-makers have applied the lessons learned during the global financial crisis and the ensuing policy measures. In this blog, we use a quantitative approach to examine...

https://www.esm.europa.eu/blog/euronomics-financial-buffers-and-risks-during-current-credit-tightening The euro area economy and the financial system have proven resilient amidst the energy price crisis and inflation. But economic growth is slowing, and the short-term costs of monetary policy tightening are becoming apparent with the increased constraint on both borrowing and lending. With future...

https://www.esm.europa.eu/blog/financial-reporting-tool-underpin-financial-stability-times-inflation The cost of borrowing was anchored at record lows for a decade. Families and many business sectors, such as the housing market, benefitted from cheap credit. Things rapidly changed last year. The effects are already felt and the financial reporting from companies across Europe started to cast a...

https://www.esm.europa.eu/blog/building-resilience-times-inflation-induced-inequality Energy prices in the euro area have receded from their peaks of last year, yet prices of other goods and services continue to rise. Headline inflation is declining, but core inflation remains stubbornly high. Fiscal policy has an important role to play in aligning with monetary policy to bring...