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...

https://www.esm.europa.eu/blog/boosting-investor-appeal-euro-area-banks Market valuation is about more than regulationA 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 potentialThe 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 beginningIn 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 EuropeEuropean 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...

https://www.esm.europa.eu/blog/shock-proofing-esm-financial-stability-instruments New types of shocks call for regular reviews of existing toolsSince 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 risksGeoeconomic 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 transitionWith 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-progressThe 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 approach...

https://www.esm.europa.eu/blog/euronomics-resilience-and-competitiveness-euro-area Euro area stands at fork in the roadDespite 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 canThe 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 stabilityClimate 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...