Blog post by Federico Maria Ferrara, Tom Hudepohl, Pamina Karl, Tobias Linzert, Benoit Nguyen, Lia Vaz Cruz[1] |  The Eurosystem is shrinking its balance sheet, which makes more government bonds available for purchase. The ECB Blog looks at how markets are adjusting to this new situation with regard to bond price volatility, liquidity and the impact on repo markets.

Since mid-2022 the Eurosystem’s balance sheet declined by around €2,000 billion, or more than 22 per cent. The largest part of this decline is due to banks having repaid a substantial share of the loans taken from the Eurosystem via the targeted long-term refinancing operations. This has released many assets previously used as collateral back to the market, including government bonds. Moreover, the Eurosystem owns smaller amounts of bonds since it no longer reinvests maturing bonds under its asset purchase programme.
The reduction of the Eurosystem’s balance sheet and the fact that governments across the euro area have issued record amounts of debt have substantially increased the availability of bonds to the market. This has helped to bring the Eurosystem’s footprint in government bond markets closer to pre-pandemic levels (Chart 1).
But how have markets adjusted, and which other investors are stepping in to absorb the increasing amount of government bonds available to the market?

Chart 1
Size of euro area government bond market and the Eurosystem market footprint (EUR billions and %)

Sources: Eurosystem, CSDB.
Notes: The chart shows the evolution of the size of the euro area government bond market and splits it into the Eurosystem holdings (yellow) and mobilised collateral (green), and what is not held or mobilised as collateral with the Eurosystem (blue). The Eurosystem market footprint is a relative measure, computed as the share of the Eurosystem’s euro area government bond (EGB) holdings compared to nominal amount outstanding. Outright holdings are EGBs held by the Eurosystem via purchase programmes, adjusted with EGBs lent back via the securities lending against cash collateral facilities; mobilised collateral includes EGBs mobilised as collateral for open market operations. Last observation: 29 February 2024.
How to read the figures: In 2020 the euro area government bond market had a capitalisation of almost €8 trillion. At that time Eurosystem holdings and collateral had a value of more than €3.5 trillion, which accounted for 31.5 percent of the market.

Who stepped into the government bond market?
Chart 2 shows that various types of investors have stepped in and compensated for the Eurosystem’s reduced presence. While the Eurosystem has not actively sold bonds, it only partially replaced maturing bonds in its monetary policy portfolios[2]. Two sectors have clearly contributed the most to absorbing the new debt since the Eurosystem began to reduce its balance sheet: households and foreign investors.

Chart 2
Sectoral absorption of government securities in 2023 (%)

Sources: ECB, SHS.
Notes: The chart shows the flows into euro area government debt securities in 2023, split between a range of euro area investors (banks, households, etc.) and foreign investors. As an example, the last column for the euro area shows that foreign investors, followed by euro area households, had the largest inflows into euro area government securities in 2023, while the Eurosystem had the largest outflow (as it reduced its reinvestment amounts overall). The bars in each column add up to 100%. Last observation: 31 December 2023.

Historically, foreign investors were the largest holders of euro area government securities, accounting for 40% of holdings prior to the start of the Eurosystem’s asset purchase programme (Chart 3). When the Eurosystem expanded its balance sheet, however, they halved their share of euro area government bonds. As the Eurosystem ended reinvestments under the APP, they returned and absorbed a considerable amount of the net issuance of government bonds (Chart 2). Nevertheless, their share is still far smaller than it was a decade ago (Chart 3).
This return of foreign investors may not be surprising. The sector includes foreign investment funds and hedge funds, which traditionally show a high sensitivity to changes in yields, especially those of bonds issued by higher-rated euro area governments.

Chart 3
Selected holders of euro area government securities (%)

Sources: SHS, ECB.
Note: Last observation: 31 December 2023.

In contrast, the speed and intensity of purchases by the household sector is noteworthy. The share of government securities owned by households has returned to nearly 3.5%, close to the level prevailing before the Eurosystem launched its public sector purchase programme (PSPP) in 2015.
Several factors have made purchasing government bonds attractive for private households. Higher yields, together with governments offering dedicated retail-focused products, attracted investment from households, especially as many commercial banks were slow to pass-through higher policy rates to deposit rates. In addition, increased savings during the pandemic meant households had more money available to invest in bonds and bills.
Why did government bond markets react so smoothly?
The Eurosystem started to reduce its monetary policy bond portfolio in an environment of high government bond issuance and heightened market volatility as central banks around the world increased their policy rates to fight elevated inflation. In these conditions, the Eurosystem’s balance sheet reduction went very smoothly, with net issuance of bonds being absorbed by domestic and foreign investors.
The ability to buy or sell bonds has remained stable or even improved in recent months. This is visible from the relationship between volatility and liquidity in euro area government bond markets shown in Chart 4. Higher volatility is likely to decrease market liquidity as it increases risks to trade in the market. A clear sign of market dysfunction would be to see a deterioration of market liquidity that goes beyond what could be explained by an increase in market volatility. This is what happened in March 2020 at the beginning of the pandemic, when euro area bond markets faced severe disruptions as liquidity deteriorated dramatically and became disconnected from volatility (yellow dots). In contrast to that stress situation, recent data points (red dots) are in line with the usual relationship between bond market volatility and liquidity since 2015. This evidence is one indication that government bond markets have been functioning well during the recent period of balance sheet normalisation.

Chart 4
Relationship between liquidity and volatility in euro area government bond market

Source: ECB calculations.
Notes: Liquidity conditions proxied by a euro area weighted average composite indicator of liquidity in 10-year government bond markets and implied volatility based on euro-denominated 3-month Swaptions. Higher values of the composite liquidity indicator correspond to worse liquidity conditions. Blue dots indicate observations starting in January 2015. Yellow dots indicate observations from March 2020. Red dots indicate observations from March 2023 to February 2024. The light blue regression line is estimated based on all observations except those from March 2020. The yellow regression is estimated based on March 2020 observations. Last observation: 5 February 2024.

Several factors have supported the smooth functioning of financial markets.
First, the timely communication of the eventual reduction in the Eurosystem’s balance sheet made it easier for market actors, such as banks, insurers, and hedge funds, to plan and adapt. Decreasing the balance sheet in a predictable and gradual manner has supported orderly market conditions.
Second, suppliers of bonds have strategically adjusted their behaviour. Bond issuers – both governments and private companies – reacted to the new environment by initially shortening the maturities of their bonds, and some issued dedicated investment products for retail investors.
Finally, dealer banks have a critical role for secondary markets to remain liquid and efficient. Since the start of the Eurosystem’s balance sheet reduction, they mobilized sufficient space on their balance sheet that smoothly facilitated the buying and selling of bonds between investors in the secondary market.
Did more availability of governments bonds help in repo markets?
The increased availability of euro area government bonds had a positive effect on another crucial market segment: the repo market, where banks lend and borrow from each other against collateral. In 2022, repo market functioning was partly impaired due to the scarcity of high-quality securities that are used as collateral in secured money market trades. This had driven a wedge between repo rates and the ECB’s main policy rate, which contributed to delaying the transmission of monetary policy in the early stages of the tightening cycle.
The improved availability of collateral helped to significantly alleviate such shortages of assets and helped bring repo rates closer in line with our main policy rate. While at the end of 2022 almost 50% of all repo volumes were conducted more than 30 bps below the deposit facility rate (DFR), this share shrank drastically during 2023. Currently more than 50% of all repo volumes are within 10 bps of the DFR (Chart 5).
The overall improvement in repo market functioning has been conducive to the transmission of monetary policy to euro area money markets, as repo market rates have adjusted without delay to policy rate hikes in the later part of the hiking cycle.[3]

Chart 5
Share of euro area repo market trading below the DFR and Eurosystem market footprint (%)

Sources: MMSR, ECB, 20-day averages are displayed.
Notes: The Eurosystem’s footprint in the EGB market is measured as the share of the Eurosystem’s holdings of EGBs compared to the total nominal amount of EGBs outstanding (see chart 1). Specialness of repo market is displayed as share of volumes per rate bucket below the deposit facility rate (DFR). Last observation: 29 February 2024. How to read the figures: At the end of 2022, almost 50% of all repo volumes traded at a spread of more than 30 bps below the DFR. Since then, this scarcity premium has reduced drastically with more than 50% of repo volumes currently trading less than 10 bps below DFR.

Conclusion
The reduction of the Eurosystem balance sheet has taken place in a context of high government bond issuance, requiring private investors to step up their demand in bond markets. Supported by the predictable and gradual reduction of the Eurosystem’s footprint, investors, issuers and intermediaries adapted well to the new conditions, ensuring the smooth functioning of bond markets. Importantly, the increased availability of bonds contributed to improving market functioning in the repo market by alleviating collateral shortages. While the conditions for a continued smooth absorption are in place, market functioning must be monitored closely going forward.
 
The views expressed in each blog entry are those of the author(s) and do not necessarily represent the views of the European Central Bank and the Eurosystem.
For more information, please Check out The ECB Blog.

 
Footnotes:

We are grateful to Rita Besugo, Mihail Medvedi and Raúl Novelle Araujo for their contribution to this blog post.
For the asset purchase programme the Eurosystem started to reduce its holdings in March 2023, first by only partly reinvesting redemptions, and as of July 2023 by not reinvesting any redemptions. For the pandemic emergency purchase programme redemptions were fully reinvested in 2023 and until the end of the first half of 2024. The Governing Council announced its intention to reduce the reinvestments in the second half of 2024.
Accordingly, the need to provide bonds back to the market via the Eurosystem’s securities lending facility (especially against cash) has also declined.

 
 
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On March 25th the Commission published a Flash Eurobarometer conducted at the regional level, showing that EU citizens look positively at the economic situation and the quality of life in their region.
Over eight out of ten Europeans (82%) say that the quality of life in their region is good. At the same time, 65% of Europeans say that the current situation of the economy of their region is good.
Europeans tend to think that the most important issues facing their region at the moment are the cost of living (31%), the economic situation and unemployment (26%), and health (26%). These are followed by housing (20%), the environment and climate change (19%), and the educational system (18%).
At the same time, they identify economy, social justice and jobs (29%) as one of the most important dimensions for the future of Europe, followed by climate change and the environment (24%), education, culture, youth and sport (24%), democracy, values and rights and rule of law (21%), health (21%), EU security and defence (20%) and migration (19%).
Trust in regional and local authorities remains high, as does trust in the EU. 58% of respondents tend to trust regional and local authorities and 38% tend not to trust them. The same proportions are observed when it comes to trust in the EU.
A majority of Europeans continue to show optimism. 66% of them are optimistic regarding the future of their region while 32% are pessimistic. At the same time, 55% are optimistic regarding the future of the EU while 42% are pessimistic.
The survey also shows that a majority of Europeans (47%) continue to have a positive image of the EU. while 21% have a negative image and 30% have a neutral image.
 
Background
The Flash Eurobarometer “Public Opinion in the EU Regions” is conducted every three years at the regional level and gives a granular picture of the opinion of European citizens. This edition was conducted between the 11th of January and the 15th of February 2024. 62,091 interviews were conducted by telephone across 194 regions.
 
 
For more Information, please check out the Flash Eurobarometer 539
 
 
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Speech by Alfred Kammer, Director – European Department, IMF  |  Thank you, Dean Muštra, for your opening remarks and Governor Vujčić for the invitation to attend this year’s Regional Governors’ Meeting in Split.
Today’s gathering comes two years after Russia’s invasion of Ukraine, a subsequent energy-price roller coaster, and the advent of a more fragmented global economy.
Against this backdrop Europe has done well, because governments acted fast and decisively.
Unemployment rates have remained low, inflation has declined sharply, and the EU announced a new accession effort—stemming the tide of fragmentation.
I will focus today on what comes next for Europe and in particular the Central, Eastern and Southeastern European or, in short, CESEE region:

What can businesses and those of you who are getting ready to join the labor market expect in the short term; and…
…what economic policies are needed to move CESEE and Europe onto the path of a lasting recovery over the medium term.

Global environment
Let me start with an overview of the global setting for this and next year.
The good news is that the global economy is growing faster compared to the difficult pandemic period, when global output contracted and only slowly recovered thereafter.
But—and here is the bad news—the global economy still lacks dynamism.
At around 3 percent, global growth is well below the historical average of 3.8 percent, which was recorded during 2000 to 2019 and, hence, provides little positive spillovers to Europe.
We expect the US economy to slow as its post-pandemic recovery runs its course.
Similarly, activity in China is cooling as weaknesses in the property sector are expected to persist.

For Europe––after suffering an exceptionally large energy price shock in 2022––we project a gradual recovery.
Compared to dire predictions of a recession at that time, this outcome would be a remarkable accomplishment.
Specifically, we expect growth in the euro area overall to rise from below 1 percent this year to 1.7 percent in 2025.
And in the CESEE region we expect the economies to grow close to 3 percent this year and 3.5 percent next year.
For Croatia which joined the euro area a year ago, growth is robust..
This positive development is the result of strong policies but also helped by a resilient tourism sector.

Our forecast constitutes what has been called a “soft landing.”
By this we mean that the decline of inflation in 2024-25 to previous levels is accompanied by only a mild growth slowdown.
This is not a common outcome as I will explain.
As of last month, inflation rates have fallen to approximately one-third of their peaks at end-2022. (Figure LHS).
The fact that the economic costs of the energy price shock and higher interest rates—which have been raised to slow down price increases—have so far been mild is quite remarkable.
As we have documented in a recent study, the drops in economic activity have typically been much larger during previous episodes of disinflation, as the red bar indicates.
But there are some reasons for concern.
Let me start by noting that the prospects of a soft landing are not equally strong across Europe.
The disinflation process has been uneven.
Core inflation, a measure of underlying price dynamics which excludes volatile food and energy price  components, is higher in emerging European economies than in advanced European economies.
In both country groupings, core inflation is coming down only slowly.
And even within CESEE, we are seeing differences.
For example, the decline of the inflation rate is progressing more slowly in Romania, Moldova, Montenegro, Hungary, and Serbia than elsewhere in the CESEE region.[1]
But the more general point here is that the forecast for a soft landing rests on strong assumptions.

One important factor especially in emerging European economies is that labor markets need to cool at just the right pace.

Labor markets cannot remain too strong as they may keep wage growth above long-term productivity growth and steady state inflation rates–thereby leading to protracted inflation and a loss of competitiveness.
But labor markets should also not cool so much that labor income would no longer be able to support robust private consumption.

Where are we in this respect?
As of end 2023, wages in the CESEE region were growing at above 10 percent year over year.
On the one hand, robust wage growth will help restore some of the purchasing power that households lost due to inflation.
By the end of last year, average household wages in real terms recovered enough to bring real wages back to at least their 2019 levels.
On the other hand, if wages are growing too fast, this might backfire and re-ignite inflation.
Our analysis shows that wage growth in the CESEE region at around 4-6 percent this year would balance the need to restore purchasing power and return inflation back to target levels.

Overall, given current levels of inflation and price and wage dynamics, our forecast suggests that achieving price stability targets will take one year longer in the CESEE region compared to advanced European economies.
In general, the underlying inflationary pressures in the region remain stronger than in advanced economies. Many central banks in the region should therefore maintain a tight monetary stance for longer than for example the ECB.
This does not necessarily mean that policy rates cannot fall. In countries where inflation expectations are dropping fast, nominal rates can be lowered without necessarily changing real rates and the policy stance.
The cost of erring on the side of too-loose monetary policy is significant when inflation is persistent. So, central banks should weigh negative news on inflation more when considering their next policy steps compared to positive news.
This bias is to avoid that upside inflation surprises materialize which could feed into expectations of sustained high inflation—a costly outcome for businesses, households and the economy as a whole.
Bringing inflation towards target also needs the support of fiscal policy.
The planned fiscal consolidations in 2024 and 2025 which roll back extraordinary support extended to households and corporations during the pandemic and the energy crisis are appropriate and will help fight inflation by containing demand.

Achieving a soft landing will not be easy, but it is critical, also because it will help policymakers getting ready for what will be an even more difficult task ahead: raising CESEE’s growth prospects in a durable manner.
Already prior to COVID, the speed of convergence of emerging European economies’ towards advanced European economies’ output-per-capita levels has slowed.
To put the lack of dynamism in perspective:

The growth slowdown in the CESEE region between the early and late 2010s implies that—at that reduced growth rate—CESEE countries would converge to average living standards in the EU (excluding CESEE member) by half a century later, by around 2100.

Four structural developments affecting convergence need attention. They are:

Demographic changes. Population aging is already reducing the labor force. In the CESEE region, pension and health care spending needs are estimated to grow by 5 percentage points of GDP by 2050.
High energy costs. Addressing this issue is intertwined with tackling the next challenge:
Climate change. Adaptation requires investment in infrastructure and clean technologies; the Next Generation EU (NGEU) funds are an important and substantial funding source. Implementation and uptake have been slow in the CESEE region and require attention.
Geoeconomic fragmentation is raising the costs of international trade and limits access to critical commodities. Trade restrictions have already increased sharply, by three-fold in 2022 compared to the pre-pandemic period (chart rhs) raising trade costs and dampening export earnings.

Addressing these challenges requires economic resources, and, to generate them, countries need to grow at a healthy clip.
Here, the CESEE region has its work cut out.

Growth prospects in advanced and emerging European economies have dimmed.
The latest 5-year forecast for Europe’s per-capita growth from last October (2023) is substantially below forecasts made just before the global financial crisis some 15 years ago.
These slower growth prospects are pervasive and apply to all parts of Europe: the euro area, central Europe, south-eastern Europe, the Baltics, and the CESEE region.
But Europe’s growth prospects have not only slowed relative to its own past, Europe has also fallen further behind other advanced economies.
When compared to the US, output per capita is in Europe about 30 percent lower on average after correcting for price and exchange rate changes that do not reflect changes in living standards.
The difference is even bigger for countries in the CESEE region at 45 percent
A decomposition of the gap in per-capita income into contributions from labor, capital, and productivity shows that that the main reason for Europe’s lower per capita GDP—accounting for about two-thirds—is substantially lower productivity.
Thus, the main goal for European policymakers should be to create conditions for faster productivity growth.

Here investment comes into play.
The level of productivity in a country is closely linked to the size of its capital stock.
And new machinery and upgrades in IT equipment and software are some examples how new technologies—embodied in capital goods—enter economic processes and increase productivity.
In the CESEE region, the per-capita level of capital is substantially below levels observed elsewhere in Europe (chart LHS).
What can policymakers do to facilitate more investment?
A recent survey of businesses by the European Investment Bank (RHS) identified several barriers to investment. Specifically:

First, firms are concerned about the availability of skilled labor. Continued support of education and universities remains key. But countries also need to improve active labor market policies—such as reskilling and vocational training for job searchers—to help fill skill gaps. At the EU level, common professional certifications would facilitate labor mobility.
Second, despite the fact that prices have come down considerably, firms remain concerned about high energy costs. Reforms of energy networks regulations but also investments are needed to improve the efficiency of energy production and distribution together with a shift to more renewable energy.
Finally, businesses are concerned about uncertainty about the future.

Policymakers can respond to this uncertainty through credible institutions and responsible policymaking.  By delivering sound macro-fundamentals–– low inflation, sustainable public debt— through trustworthy institutions, policymakers can reduce uncertainty about the economic conditions for businesses and households alike.

Credible policies and strong governance are the bedrock for a strong economy.
Several studies have shown that trust in economic institutions plays a critical role in reassuring savers and investors alike of the stability of their economic well being.
During 2021-2023, we could see an erosion of trust in the CESEE region.
A large-scale survey of CESEE countries by the Austrian National Bank shows that the belief in the stability and trustworthiness of local currencies was shaken post-COVID (chart).
Here we have a word of warning.
Several central banks in the region have been under strain from political interference.
Let me be clear, central banks need to be able to fulfill their mandates on inflation.
For this, independence is essential. Interference erodes trust and makes policymaking more costly.
Weak institutions also open the door to poor governance and corruption.
There is resounding evidence that robust governance via resilient anti-corruption frameworks is a precondition for attracting investment into a country.[2]
The good news is that in 2023 trust indicators have improved across all surveyed countries.
By assuring a soft landing, central banks and government can regain this hard-earned trust which is an indispensable underpinning of a healthy business environment.

Another area that deserves the attention of policymakers is the promise of growth from technological progress.
The advances of artificial intelligence are captivating the world. Its applications could jumpstart productivity, boost global growth, and raise incomes around the world.
Yet, AI could also replace jobs and deepen inequality.
It will take some time before we know the impact.
And at this stage, it is difficult to foresee the economic effects, as AI will ripple through economies in complex ways.
Nonetheless we can and should start assessing which types of occupations AI will likely affect; which activities it will complement, and which ones it may replace.
Recent work by the IMF shows that close to 60 percent of all workers in the EU will likely be affected by AI in one way or another (chart). For the CESEE region, the share is close to 50 percent.
Among those affected, for about half of them AI will complement their work and raise their productivity. For the other half, AI will be less complementary and replace some tasks or activities.
In most scenarios, AI will likely worsen overall inequality.
It will be more advantageous to the higher-skilled and reduce the need for medium and low-skilled workers alike. This is a troubling prospect that policymakers should assess and respond to as needed.
The availability of social safety nets and retraining programs mentioned earlier are of even more importance from this perspective. They will help make the AI transition more inclusive and curb inequality.
To conclude.
If there is one key message to leave with you, it is that policies matter.
With the right policy mix, the CESEE economies can secure low inflation and increase the long-term growth trajectory.
At the macroeconomic level this means monetary policy should maintain a tightening bias and carefully assess the timing and speed of easing.
Planned fiscal consolidation is appropriate and should help with disinflation.
Achieving a soft landing is critical to prepare countries for an urgent but critical task, raising CESEE’s growth prospects in a durable manner.
Crosswinds from an aging population, uncertainty about energy costs, and geoeconomic fragmentation call for forceful growth-enhancing reforms.
A prime task is getting the business climate right to help boost investment and productivity.
New investments––and their embodied technology––will also support the energy and green transition.
Here, by strengthening governance and anti-corruption frameworks countries can durably improve conditions to attract investment domestically and from abroad.
Governments need to also facilitate the transition to a more efficient economy by ensuring that education systems equip students with the skills to harness new technologies including AI.
But they also need to develop re-training and upskilling programs as technological progress and AI will affect work more broadly.
Success in the region will require forward looking reforms now that will pay off later.
This is an investment worth making—and one that we at the IMF stand ready to support.
Thank you.

[1] CESEE countries which have either had the smallest decline in core inflation by January 2024 relative to the post-2022 peak core inflation rate or had core inflation rates at or above 8 percent y-y by January 2023.

[2] How Reform Can Aid Growth and Green Transition in Developing Economies. New approaches to governance, business regulation, and trade can boost output by 4 percent in two years and help countries curb emissions Christian Ebeke, Florence Jaumotte September 25, 2023
 

Compliments of the IMF.The post IMF | Executing a Soft Landing for a Lasting Recovery [in Europe] first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

At a time of increased geopolitical tensions, the EU has continued to successfully tackle the issues that concern Europeans most in 2023, whilst remaining on track to deliver on the political priorities. That is according to the new edition of the EU General Report, which was published today.
The report looks at how we have responded to emerging and existing global challenges, with our ongoing, steadfast support for Ukraine being the highlight. We have provided over €88 billion in financial, humanitarian and military assistance, offered protection to over 4 million people fleeing from Ukraine to the EU and are ready to open accession negotiations.
It also looks to the Middle East and how we have responded to the drastic deterioration in the humanitarian situation of Palestinians, quadrupling humanitarian aid to over €100 million in the last year.
At home, the report emphasises the work done in staying the course on key EU priorities

continuing our economic recovery from the pandemic
boosting competitiveness and manufacturing capacity for the technologies and products required to meet our ambitious climate targets
putting in place the legal framework to cut emissions by 55 % by 2030 (a key milestone on the path to climate neutrality)
making progress in ending the EU’s reliance on Russian fossil fuels, thanks to the REPowerEU Plan, and in reforming the design of the EU’s electricity market, to protect consumers against price shocks
working on a first comprehensive law on Artificial Intelligence as part of Europe’s digital transition
strengthening social dialogue and progressing on new rules to improve working conditions of people working through digital market platforms
reaching an important milestone in overhauling our migration system.

The report is available in all official languages of the EU as a fully illustrated book and an online version which is available below.
Find more information
The EU in 2023: General Report on the Activities of the European Union
The story of the von der Leyen Commission
 
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Blog post by Tobias Adrian and Marc Dobler |  Almost a year ago, Credit Suisse, a globally systemic bank with $540 billion in assets and the second-largest Swiss lender, founded in 1856, failed and was sold to UBS. In the United States, Silicon Valley Bank, Signature Bank and First Republic Bank failed at around the same time amid Federal Reserve interest rate hikes to contain inflation. With a combined $440 billion of assets, these were the second, third, and fourth biggest bank resolutions since the Federal Deposit Insurance Corporation was created during the Great Depression.

This banking turmoil represented the most significant test since the global financial crisis of ending too-big-to-fail—whereby a systemic bank can be resolved while preserving financial stability and protecting taxpayers.
So, what’s the verdict? In short, while significant progress has been made, further work is required.
On the one hand, as we note in a recent report, the actions of authorities last year successfully avoided deeper financial turmoil, and the financial soundness indicators for most institutions signal continued resilience. In addition, unlike many of the failures during the global financial crisis, this time significant losses were shared with the shareholders and some creditors of the failed banks.
However, taxpayers were once again on the hook as extensive public support was used to protect more than just the insured depositors of failed banks. Amid a massive creditor run, the Credit Suisse acquisition was backed by a government guarantee and liquidity nearly equal to a quarter of Swiss economic output. While the public support was ultimately recovered, it entailed very significant contingent fiscal risk, and created a larger, more systemic bank. Use of standing resolution powers to transfer ownership of Credit Suisse, after bailing in shareholders and creditors, rather than relying on emergency legislation to effect a merger would have seen Credit Suisse shareholders fully wiped out and potentially less public support extended. We expect to learn more in the coming days when a Swiss report on the too-big-to-fail regime is issued.
In the United States, in addition to easing collateral requirements for liquidity support, the authorities cited systemic concerns to invoke an exception allowing protection of all deposits in two of the failed banks. This significantly increased costs for the deposit insurer which will need to be recouped from the industry over time. Even very large and sophisticated depositors were protected—not just the insured.
What we’ve learned
Intrusive supervision and early intervention are critical. Credit Suisse depositors lost confidence after prolonged governance and risk management failures. In the US, the failed banks pursued risky business strategies with inadequate risk management. Supervisors in both cases should have acted faster and been more assertive and conclusive. Our recent review of supervisory approaches found that the ability and will to act remain critical—and can suffer from unclear mandates or inadequate legal powers, resources, and independence as well as powerful financial sector lobbies. Policymakers need to better empower banking supervisors to act early and with authority if needed.
Even smaller banks can be systemic. Supervisory and resolution authorities should ensure sufficient recovery and resolution planning for the sector. This should include banks that may not be systemic in all circumstances but could be in some. This was a key recommendation of our latest Financial Sector Assessment Program for the US.
Resolution regimes and planning need sufficient flexibility. Policymakers should ensure resolution rules and plans are flexible enough to balance financial stability risks and taxpayer interests. Government support may still be required in some circumstances—for example, to avoid a systemic financial crisis. IMF staff recommended the equivalent of a systemic risk exception for the euro area, for example. While authorities should continue pursuing plan A, they need the flexibility to depart and from, and for example combine different resolution tools, as necessitated by the specific circumstances at the time of failure.
Liquidity in resolution is crucial. Banks typically fail because creditors lose confidence, even before the balance sheet reflects potential losses. Rebuilding capital buffers in resolution may not be sufficient on its own to restore confidence. Authorities must make further progress on how quickly banks heading into resolution could receive liquidity support—including prepositioning of collateral and testing preparedness—while still protecting central bank balance sheets.
Authorities in many countries need to strengthen deposit insurance regimes—as we recommended to Switzerland. New technology like 24/7 payments, mobile banking, and social media have accelerated deposit runs. Last year’s failures followed rapid deposit withdrawals, and deposit insurers and other authorities should be ready and able to act more quickly than many currently can. The US banks that failed were outliers—with balance sheets that had grown very rapidly, funded by a high degree of uninsured deposits. Where wider coverage is being considered, it would need to be adequately funded. Particularly in countries with deposit insurance that is not backed by a sovereign with deep pockets, policymakers should be careful not to overextend deposit insurance coverage. If not backed by a commensurate rise in deposit insurance funding, depositors could quickly lose confidence.

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Trainees all over the EU will benefit from better quality traineeships thanks to new Commission proposals. They will improve and enforce working conditions for trainees, and ensure everyone can do a traineeship regardless of their socio-economic background or disability, by:

improving learning content
ensuring fair pay
helping trainees claim their labour rights
recommending access to adequate social protection
combatting regular jobs disguised as traineeships
creating channels to report malpractice and poor working conditions
promoting equal access to traineeship opportunities
allowing for hybrid and remote working
offering career guidance and mentorship
covering all types of traineeships

The EU’s current framework for traineeships already sets out 21 quality principles to ensure high-quality learning and working conditions. These include clear vacancy notices, written traineeship agreements, clearly defined learning objectives, and transparent information on remuneration and social protection. The new rules will reinforce this existing framework once adopted, as called for by the Conference on the Future of Europe and the European Parliament.
Traineeships are an important way to gain practical experience, learn new skills and find a job. For employers, traineeships attract, train and retain people for jobs. A recent Eurobarometer survey showed that 78% of young Europeans did at least one traineeship, with 68% finding a job afterwards. More than half of these internships were paid and 61% of respondents had full or partial access to social protection.
For more information
Traineeships in the EU
Press release: Commission takes action to improve the quality of traineeships in the EU
Eurobarometer survey on traineeships
European Year of Skills
European Youth Portal
Commission’s Blue Book traineeship programme
 
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Members of the OECD/G20 Inclusive Framework on BEPS (Inclusive Framework) continue to make steady progress in the implementation of the BEPS package to tackle international tax avoidance, as the OECD releases the latest peer review report assessing jurisdictions’ efforts to prevent tax treaty shopping and other forms of treaty abuse under Action 6 of the OECD/G20 BEPS Project. A revised peer review document forming the basis of the assessment of the BEPS Action 6 minimum standard was also released today.
The sixth peer review report on the implementation of the Action 6 minimum standard on treaty shopping, which includes data on tax treaties concluded by jurisdictions that were members of the Inclusive Framework on 31 May 2023, reveals that most agreements concluded between the members of the Inclusive Framework are either already compliant with the Action 6 minimum standard or will shortly come into compliance.
Consistent with previous years, the report (also available in French) confirms the importance of the BEPS Multilateral Instrument (BEPS MLI) as the tool used by the vast majority of jurisdictions in the implementation of the BEPS Action 6 minimum standard.
The BEPS MLI has continued to significantly expand the implementation of the minimum standard for the jurisdictions that have ratified it. The impact and coverage of the BEPS MLI continue to increase as additional jurisdictions sign and ratify it. To date, the BEPS MLI covers 102 jurisdictions and around 1 900 bilateral tax treaties.
As one of the four minimum standards, BEPS Action 6 identified treaty abuse, and in particular treaty shopping, as one of the principal sources of BEPS concerns. Treaty shopping typically involves the attempt by a person to access indirectly the benefits of a tax agreement between two jurisdictions without being a resident of one of those jurisdictions. To address this issue, all members of the Inclusive Framework have committed to implementing the Action 6 minimum standard and participate in a periodic peer review process to monitor its accurate implementation.
The 2024 revised peer review documents (available in French) also released today form the basis on which the peer review process will be undertaken as of 2024. The consolidated document includes the Terms of Reference which set out the criteria for assessing the implementation of the Action 6 minimum standard, and the Methodology which sets out the procedural mechanism by which the review will be conducted. In light of the successful implementation of the Action 6 minimum standard to date, the revised methodology now provides ongoing targeted assistance to those members of the Inclusive Framework that still need to implement the Action 6 minimum standard with a comprehensive peer review process to be carried out once every five years.
 
More on the BEPS Action 6 peer review and monitoring process
 
 
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The European Commission has published a Communication on managing climate risks in Europe on March 13th. It sets out how the EU and its Member States can better anticipate, understand, and address growing climate risks. It further presents how they can prepare and implement policies that save lives, cut costs, and protect prosperity across the EU.
The Communication responds to the first ever European Climate Risk Assessment (EUCRA), a scientific report by the European Environment Agency. Together, they are a call to action for all levels of government, as well as the private sector and civil society. They set out clearly how all major sectors and policy areas are exposed to climate-related risks, how severe and urgent the risks are, and how important it is to have clarity on who has the responsibility to address the risks.
2023 was the hottest year on record. According to the February report by the Copernicus Climate Change Service, the global average temperature for the preceding 12 months had surpassed the threshold of 1.5 degrees set in the Paris Agreement. As the EU is taking comprehensive action to reduce its emissions and limit climate change, we must also take action to adapt to already unavoidable changes, and to protect people and prosperity. According to the Eurobarometer survey, 77% of Europeans see climate change as a very serious problem, and more than one in three Europeans (37%) already feel personally exposed to climate risks.
Today’s Communication shows how the EU can effectively get ahead of the risks and build greater climate resilience. The Commission is proposing a series of actions and will work with other EU Institutions, Member States, regional and local authorities, citizens and businesses to follow up on these suggestions.
Equipping European society for greater climate resilience
The Commission Communication underscores how action to improve climate resilience is essential for maintaining societal functions and protecting people, economic competitiveness and the health of the EU’s economies and companies. It is also imperative for a just and fair transition. Investing upfront in reducing our vulnerability to climate risk will incur much lower costs than the sizable sums required to recover from climate impacts like droughts, floods, forest fires, diseases, crop failures or heat waves. By conservative estimates, these damages could otherwise reduce EU GDP by about 7% by the end of the century. Investments in climate-resilient buildings, transport and energy networks could also create significant business opportunities and benefit more widely the European economy, generating highly skilled jobs, and affordable clean energy.
To help the EU and its Member States to manage climate risks, the Communication identifies four main categories of action:

Improved governance: The Commission calls on Member States to ensure that the risks and responsibilities are better understood, informed by best evidence and dialogue. Identifying the ‘risk owners’ is a critical first step. The Commission calls for closer cooperation on climate resilience between national, regional and local levels to ensure that knowledge and resources are made available where they are most effective. Climate resilience is increasingly addressed across all sectoral policies, but shortcomings persist in planning and implementation at national level. The Communication notes that Member States have taken the first steps to include climate resilience in their National Energy and Climate Plans (NECPs).
Better tools for empowering risk owners: Policymakers, businesses, and investors need to better understand the interlinkages between climate risks, investment, and long-term financing strategies. This can provide the right market signals to help bridge the current resilience and protection gaps. The Commission will improve existing tools to help regional and local authorities better prepare through robust and solid data. The Commission and the European Environment Agency (EEA) will provide access to key granular and localised data, products, applications, indicators and services. To help with emergencies, in 2025 the Galileo Emergency Warning Satellite Service (EWSS) will become available to communicate alert information to people, businesses and public authorities even when terrestrial alert systems are down. Major data gaps will be reduced thanks to the proposed Forest Monitoring Law and Soil Monitoring Law, which will improve early warning tools for wildfires and other disasters and contribute to more accurate risk assessments. More broadly, the Commission will promote the use of available monitoring, forecasting and warning systems.
Harnessing structural policies: structural policies in Member States can be efficiently used to manage climate risks. Three structural policy areas hold particular promise for managing climate risks across sectors: better spatial planning in the Member States; embedding climate risks in planning and maintaining critical infrastructure; linking EU-level solidarity mechanisms, like the UCPM, the EU Solidarity Fund, and Cohesion policy structural investments, with adequate national resilience measures. The civil protection systems and assets must be future-proofed, through investing in EU and Member State disaster risk management, response capacities and expertise that can be rapidly deployed across borders. This should fully integrate climate risks in the disaster risk management processes.
Right preconditions for financing climate resilience: Mobilising sufficient finance for climate resilience, both public and private will be crucial. The Commission stands ready support Member States to improve and mainstream climate-risk budgeting in national budgetary processes. To ensure that EU spending is resilient to climate change, the Commission will integrate climate adaptation considerations in the implementation of EU programmes and activities as part of the ‘do no significant harm’ principle. The Commission will convene a temporary Reflection Group on mobilising Climate Resilience Financing. The Reflection Group will bring together key industrial players and representatives of public and private financial institutions to reflect on how to facilitate climate resilience finance. The Commission calls on Member States to take account of climate risks when including environmental sustainability criteria in competitive public procurement tenders, for instance through the Net-Zero Industry Act.

From a sectoral perspective, the Commission puts forward concrete suggestions for action in six main impact clusters: natural ecosystems, water, health, food, infrastructure and built environment, and the economy. The implementation of existing EU legislation is an important precursor to successfully managing risks in many of these areas, and key measures are outlined in the Communication.
While the Communication focusses on managing climate risks within the European Union, the EU is also active at the international level in addressing climate risks, and a large share of our international climate finance goes to adaptation measures. The Commission will continue to share experience, knowledge, and tools on climate risk management internationally and include climate risk management in bilateral and multilateral discussions.
Background
A historically high acceleration in climate disruption in 2023, saw global warming reaching 1.48°C above pre-industrial levels, and ocean temperatures and Antarctic Ocean ice loss breaking records by a wide margin. Surface air temperature has risen even more sharply in Europe, with the latest five-year average at 2.2°C above the pre-industrial era. Europe is warming twice as fast as the rest of the world.
To avoid the worst outcomes of climate change and protect lives, health, the economy and ecosystems, emissions need to be reduced. While the EU is taking action to cut greenhouse gas emissions, climate impacts are already with us, and the risks will continue to increase, meaning that climate adaptation measures are also essential.
The European Climate Risk Assessment identifies 36 major climate risks for Europe within five broad clusters: ecosystems, food, health, infrastructure, and the economy. More than half of the identified risks demand more action now and eight of them are particularly urgent, mainly to conserve ecosystems, protect people against heat, protect people and infrastructure from floods and wildfires.
Since the adoption of the EU’s first Adaptation Strategy in 2013, and the updated Adaptation Strategy adopted in February 2021 under the von der Leyen Commission, the EU and its Member States have made considerable progress in understanding the climate risks they face and in preparing for them. National climate risk assessments are increasingly used to inform adaptation policy development. However, societal preparedness is still low because of a lag between policy development and implementation and the rapid increase in risk levels.
 
 
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Open, well-functioning, and integrated European capital markets are crucial to promote the single market and to attract the necessary investments, and thereby to boost the EU’s global competitiveness, innovation, sustainable growth, and job creation. It will provide better funding possibilities for growing companies, including small and medium-sized companies, and give EU citizens the opportunity to invest their savings more productively in Europe.
Deep and liquid capital markets that can allocate capital efficiently and allow for cross-border private risk-sharing constitute, together with a well-functioning Banking Union, a key element for the resilience of our economic and monetary union.
Today, Europe is at risk of falling further behind globally in terms of competitiveness, growth, and prosperity of its citizens. European capital markets need to be urgently developed into globally competitive markets. The EU needs a capital market that can channel domestic savings and foreign capital freely and effectively into innovative companies, allowing them to develop into engines of long-term growth and, ultimately, help the EU to become a global leader for innovation and new industries.
The robust and well-regulated banking sector of the European Union carries nowadays the bulk of the financing needs for businesses. Banks and insurance companies are the main distribution channel offering savings and investment possibilities for citizens. But to match the substantial financial needs of the future, market-based funding opportunities must urgently become more widely and readily available in Europe.
While we have made significant progress in recent years to improve the functioning of European capital markets through the Capital Markets Union action plans, they are far from reaching their full potential.
The lack of a deep and well-functioning market for risk capital in Europe – notably in the start-up and scale-up phase of companies, but also for those in more mature stages of development – continues to force many of the EU’s most dynamic and innovative businesses to seek funding abroad. Reducing fragmentation, regulatory burden, and high transaction costs can increase the EU’s attractiveness as a financial hub. Attracting and keeping businesses in the EU will improve its future economic growth potential and offer more profitable investment opportunities in the EU.
An open, liquid capital market which is well integrated into global markets is important to support the flow of private investment into innovation, including in the green and digital sectors. With the limited fiscal space and multiple spending priorities, funds to build up production capacity and boost innovation in Europe need to come primarily from the private sector.
Equally, well-functioning capital markets allow European citizens to benefit from more attractive investment opportunities that help boost their available income and complement their future pension income.
Priority areas for action
Preparing for the next European legislative term of 2024-2029, under the mandate of the EU Leaders, the Eurogroup in inclusive format has identified three priority areas for action where measures are necessary to improve the functioning of European capital markets:
A. Architecture: develop a competitive, streamlined and smart regulatory system, allowing funds to be better channelled into innovative EU businesses, with greater liquidity, risk taking and risk sharing together with higher resilience and financial stability.
B. Business: ensure better access to private funding for EU businesses to invest, innovate and grow in the EU.
C. Citizens: create better opportunities for EU citizens to accumulate wealth and improve financial security, by increasing direct and indirect retail participation through access to profitable investment opportunities.
Measures
The Eurogroup in inclusive format considers the following measures in the three areas to be imperative and urgent to be taken forward during the next European legislative term, which should be considered in full respect of the European Commission’s right of initiative and the role of the Union legislator. The Eurogroup in inclusive format intends to monitor and evaluate progress achieved at national and EU-level:
A. Architecture: Develop, within the EU, an agile capital markets framework that allows better cross-border diversification of risk by reducing barriers and developing a competitive, consistent, streamlined, and smart regulatory and supervisory system that works for businesses, investors, and savers, and ensures financial stability.
1. Develop the EU securitisation market to allow for the efficient and transparent transfer of risks to parties best equipped to carry those risks
We invite the European Commission to comprehensively assess all the supply and demand factors holding back the development of the securitisation market in the EU. This assessment should cover, inter alia, the adequacy of our toolbox, including the prudential treatment of securitisation for banks and insurance companies and the reporting and due diligence requirements. The European Commission should consider coming forward with corresponding proposals, taking into account international standards.
2. Further supervisory convergence of capital markets across the EU
We invite the European Commission to assess ways to improve supervision in the EU through further developing the common rulebook as well as examining a broad range of options to enhance supervisory convergence through a more efficient and effective use of the existing powers of the European Supervisory Authorities and a possible targeted strengthening of their role and governance arrangements. The aim should be to strengthen financial integration, ensure financial stability, simplify processes and reduce compliance costs for supervised entities across the EU, thus delivering a more harmonised enforcement of rules, improving the access to and the attractiveness of EU capital markets and building trust in the single market for EU capital.
We also invite the European Commission to explore ways to enhance the efficiency of supervisory data collection and storage in the EU, in order to facilitate supervision of market activities and to reduce IT and compliance costs for financial companies and supervisory authorities.
Any possible follow-up initiatives should be based on a thorough impact assessment including a cost-benefit analysis and a consultation with relevant stakeholders, including Member States, national supervisors and the industry concerned.
3. Reassess the regulatory framework to reduce regulatory burden and transaction costs for market participants
We invite the Commission, following a thorough assessment, to consider bringing forward additional measures to reduce regulatory burden in the EU’s financial market framework, in particular for smaller market participants, to improve the EU’s competitiveness as a financial hub, while maintaining the related policy objectives.
Any new legislative initiatives, in the three areas to foster the Capital Markets Union and in financial services in general, should also always be based on thorough impact assessments in line with agreed principles for better regulation to support informed decisions. These impact assessments should be based on aggregate effects and cost estimates at EU level and, subject to data being made available, at national level.
We also invite the European Supervisory Authorities to aim at reducing, to the fullest extent possible and based on cost-benefit analysis, compliance costs and regulatory burden for financial companies when carrying out their tasks and exercising their powers.
4. Targeted convergence of national corporate insolvency frameworks
We invite the European Commission to assess the need for additional measures to facilitate further convergence in specific features of insolvency frameworks that could deter cross-border capital markets/investments, notably the ranking of claims and insolvency triggers or the rules for financial collateral and settlement.
5. Further harmonise accounting frameworks in a targeted manner to enhance cross-border comparability of available information on companies, without increasing administrative burden, to allow in particular small and medium sized businesses (SMEs) and other non-listed firms to better benefit from the new European Single Access Point (ESAP) and thus facilitate investment in those companies.
We invite the European Commission to consider making appropriate proposals to that end, including with regard to the development of a voluntary IFRS-light regime for SMEs. We encourage the industry to make use of the ESAP and invite the European Commission to report on its progress regularly.
6. Increase the attractiveness of capital market funding for companies through better integrated market infrastructure in the EU and through further convergence and harmonisation of listing requirements across European exchanges to ensure lower costs and easy access to make equity and bond financing in the EU more attractive, including for SMEs.
We invite the European Commission and Member States to assess and, if appropriate, address obstacles that could hinder mergers and acquisitions or other forms of integration of market infrastructure, including stock exchanges, with the view to strengthening European centres of expertise.
We also invite the European Commission to monitor any outstanding issues following the adoption and implementation of the Listing Act and of the consolidated tape, including the identification of areas where further developing the consolidated tape could be beneficial to market integration.
7. Foster equity financing through well-designed national corporate tax systems to ensure EU companies have access to diversified sources of funding.
Member States are invited to investigate ways to reduce the debt equity bias (for example through their national tax systems) and share best practices and plans to address this bias. We invite the European Commission to support this initiative by providing analysis and advice.
B. Business: Increase investments in the EU, especially in the sustainable and digital sectors, and ensure that businesses, especially SMEs, have access to the appropriate funding to grow within the EU, can be competitive and are not hindered by excessive administrative burden.
8. Improve conditions for institutional, retail, and cross-border investment in equity, in particular in growth/scale up venture capital through regulatory means, targeted tax incentives by Member States or other measures at EU and national level.
We invite the European Commission to consider coming forward with proposals to improve the financing conditions for EU businesses throughout their lifecycle, providing the ecosystem necessary for EU businesses to grow and prosper with investment from private investors.
We invite the European Commission, in cooperation with Member States, to assess the impediments, including of a regulatory nature, to cross-border investment, especially in the EU equity market, by institutional investors, including pension funds and, based on this assessment, consider ways to tackle the impediments.
Member States and EU institutions are invited to consider setting up a European initiative based on joint public-private investment structures facilitated by the EIF aimed at improving exit routes from the venture capital stage, following up on the European Tech Champion Initiative (ETCI), to help EU businesses grow into successful global players. We invite the EIB group to consider setting up similar initiatives as ETCI to facilitate access for mid-sized companies in all participating Member States.
We invite the European Commission to explore ways to support Member States in their efforts to facilitate the path for companies of all sizes to raise capital through public listings.
9. Bolster the EU’s edge in sustainable finance by scaling up the impact of the EU framework in place and fostering the use of the provided finance toolkit by market participants to support their transition efforts.
We invite the European Commission to continue its efforts to enhance the usability of the EU sustainable finance framework and to support stakeholders with its implementation and, where appropriate, to take steps to reduce administrative burden through enhancing clarity, consistency and ease of use based on an appropriate impact assessment.
We also invite Member States to step up their efforts in supporting market participants in the uptake of sustainable finance tools and to address national barriers which slow down the use of the common EU framework.
C. Citizens: Facilitate citizens’ access to capital markets by creating easier access routes to a larger choice of investment possibilities for their savings and pensions, by providing tools for citizens to improve their financial literacy, and by creating attractive, consumer-centric, investment products, underpinned by a robust retail investor protection framework that bolsters trust in capital markets.
10. Create an attractive, easy-to-use and consumer-centric investment environment, including easy-to-use and secure digital interfaces developed by the industry, and provide incentives to citizens to encourage them to make better use of the opportunities of capital markets.
Member States are invited to assess ways to make their respective personal income tax systems more supportive of investments in capital markets. Notably, Member States should review the tax treatment of long-term retail investment products and of capital gains and losses.
We invite the European Commission to identify and propose best practices and monitor and assess the impact in terms of possible market fragmentation.
We invite the European Commission to look further into any outstanding EU legislative changes to facilitate retail investments building on the retail investment strategy. Easy access to simple, transparent and low-cost retail investment products, with appropriate risk-return profiles for all EU citizens, should be facilitated.
In this context, we call for a speedy implementation of the European framework for digital identity. We invite the European Commission to monitor and assess the uptake of the framework by the financial industry, especially the banking sector, to offer easy-to-use and secure digital interfaces for all retail clients to facilitate flexible access to financial services across the EU.
We invite the European Commission, if necessary, to consider coming forward with legislative proposals to facilitate retail access to an easy-to use digital investment environment.
11. Support sufficient complementary income streams for an ageing population through wider use of longer-term savings and investment products, including through occupational and personal pension schemes.
We invite the European Commission to review and consider whether to further develop and improve the pan-European pension product (PEPP) to offer all citizens attractive options for their pension income and to make sure that pension savings are invested productively.
Member States are invited to assess the availability of products for their citizens on the occupational pensions market and share best practices, including on how to better enrol citizens in occupational pensions. We invite the European Commission to inform Member States’ efforts by identifying and proposing best practices.
Member States are also invited to develop pension tracking systems to provide citizens with an overview of their future retirement income, where needed, based on input from the European Commission. The European Commission is invited to develop a pension dashboard, in collaboration with the European Insurance and Occupational Pensions Authority and Member States, to follow the evolution of pension coverage across Member States and to report back to Member States on developments.
12. Facilitate the strengthening of an investor/shareholder culture among EU citizens to increase retail participation.
Member States are invited to create initiatives to improve financial literacy among citizens as well as SMEs, combined with targeted initiatives to create more interest in long-term wealth-creation through investing. The European Commission should promote a regular exchange of best practices among Member States integrating the joint EU/OECD financial competence frameworks in specific financial education measures aimed at building a better understanding of market-based investment opportunities.
We also invite the European Commission to review the EU Shareholder Rights Directive, notably with the aim to better harmonize shareholder rights in the EU, including the definition of shareholders and to ensure that cross-border shareholders do not face undue obstacles when exercising their ownership rights.
13. Develop attractive cost-effective and simple cross-border investment/savings products for retail investors.
We invite interested Member States and the European Commission to examine the potential of developing a framework for a common cross-border market-based investment/savings product for citizens and assess its impact. Such product could also be aimed at young citizens, offering them an early hands-on capital market experience through mechanisms such as a programmed monthly contribution and a diversified allocation by default.
Process and Follow-Up
The Eurogroup in inclusive format calls on Member States to implement the outlined measures swiftly.
The Eurogroup in inclusive format invites the European Commission to consider bringing forward the corresponding initiatives, as early as possible during the new legislative term and looks forward to completion of relevant legislative work by 2029.
The Eurogroup in inclusive format, in full respect of the competences of the European Commission and the co-legislators, will continue to play an active role in discussing the key political issues to further development of the Capital Markets Union. In this regard, the Eurogroup in inclusive format commits to taking stock regularly of the performance of European capital markets and to monitoring progress on the above-listed measures at national and EU-level regularly, on the basis of input from the European Commission and starting from 2025.
For these regular performance reviews, the Eurogroup in inclusive format invites Member States to report on their national initiatives to deepen capital markets, including any impact assessment, to Member States. We also invite the European Commission to report on progress on EU level initiatives and on capital market developments, based on quantitative key performance indicators and qualitative information providing a clear picture, at ministerial level, of the progress made.
The Eurogroup in inclusive format will also regularly coordinate the exchange of best practices among Member States, with input from the European Commission.
Complementary work streams
We call on Member States to swiftly implement the already adopted European legislative measures aimed at developing our Capital Markets Union.
The Eurogroup in inclusive format looks forward to a rapid completion of the outstanding legislative work following the 2020 Capital Markets Union action plan.
While EU institutions and Member States have a major responsibility in developing the enabling conditions and removing the barriers for a deep and robust Capital Markets Union, the EU-based industry has a central role to play in making full use of these opportunities. Therefore, we invite the industry to make active use of created opportunities and to anticipate these regulatory changes to ensure a smooth implementation of the measures aimed at building a genuine single market for capital.
The Eurogroup in inclusive format remains committed to strengthening and completing the Banking Union in a holistic manner. The Capital Markets Union, together with the Banking Union, is critical to improving the investment opportunities for investors, businesses, and citizens, and promote sustainable growth and financial stability in the EU.
 
 
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