Lane: Expanding euro safe assets for stability

ECB Executive Board Member Philip R. Lane highlighted the structural undersupply of euro-denominated safe assets, which serve as a crucial anchor for asset pricing.

Currently, the German Bund acts as the de facto benchmark, but its stock is too small relative to the euro area's size and global demand.

While the broader universe of national sovereign bonds contributes, their overall stock does not sufficiently provide safe asset services due to remaining scope for relative price movements, despite increased common factors and institutional reforms.

Lane also noted that recent revisions to the ECB's EUREP repo facility enhance the attractiveness of euro-denominated assets for global investors, ensuring timely backstop funding for central banks outside the euro area.

Lane discussed common bonds, backed by the combined fiscal capacity of EU Member States, as a potential solution.

However, their current stock, used for programmes like Next Generation EU (NGEU), is too small to foster necessary liquidity and risk management services.

Expanding common bonds could involve financing European public goods or urgent joint borrowing, such as for Ukraine.

This raises governance issues, especially when programme participants do not fully match EU membership, suggesting a need for innovative governance forms to align funding with area-wide benefits.