Philip R Lane: Expanding the supply of euro safe assets
Keynote speech by Mr Philip R Lane, Member of the Executive Board of the European Central Bank, at the joint workshop of the European Systemic Risk Board Advisory Technical Committee and Advisory Scientific Committee "A European safe asset and financial stability", Frankfurt am Main, 22 April 2026.
A foundational element of any autonomous monetary system is the existence of a benchmark safe asset that serves as the anchor for asset pricing. Such a safe asset should be highly liquid, so that an investor can transact in large volumes without affecting market pricing. The safe asset should also rise in relative value during stress episodes, acting as a hedge against the volatility of risk assets. By extension, it is desirable for the international monetary system that there are global safe assets that are highly liquid (directly or indirectly) and rise in currency-adjusted value during stress episodes.
The current design of the euro area financial architecture results in an undersupply of euro-denominated safe assets. Since the Bund is the highest-rated large-country national bond in the euro area, it serves as the main de facto euro-denominated safe asset. However, the stock of Bunds is too small relative to the size of the euro area or the global financial system to satiate the demand for euro-denominated safe assets.
The wider universe of national sovereign bonds can also directionally contribute to the stock of euro safe assets. As illustrated in Chart 1, the role of common factors in driving the euro area bond market has increased in recent years, with much less volatility in inter-country spreads. This decline in volatility reflects a more resilient institutional structure for the euro area, underpinned by an important set of reforms in the wake of the global financial crisis and the euro area debt crisis.