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 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...

https://www.esm.europa.eu/blog/how-capital-market-finance-can-boost-european-businesses SMEs essential to European economy, but tricky to financeSMEs 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 hikesIn 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 and...

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...