European Systemic Risk Board publishes ECB’s Lane keynote outlining routes to expand euro safe assets

The European Systemic Risk Board published a keynote speech by Philip R. Lane, a member of the European Central Bank Executive Board, arguing that the euro area faces an undersupply of euro-denominated safe assets and that expanding their supply would strengthen the euro’s role in asset pricing and provide better hedging capacity in stress episodes. Lane described German Bunds as the de facto euro safe asset, but said the stock is too small to meet demand. While national sovereign bond markets have become more aligned in recent years, he argued that residual scope for spread movements limits their ability to provide safe-asset services. EU-level bonds issued to fund programmes such as SURE and Next Generation EU were presented as a potential building block, but the current stock is too small and less liquid than major national markets. The speech also referenced the ECB’s recently announced revisions to its EUREP repo facility, framed as improving access to euro liquidity for non-euro area central banks. On expanding supply, Lane outlined options including more joint borrowing to finance European-wide public goods or common imperatives such as funding for Ukraine, alongside approaches that generate safe assets from existing national bond stocks. These included revisiting “blue bond/red bond” structures backed by ring-fenced revenues, with an illustrative calibration of blue bonds at 25% of GDP implying debt service of around 0.5% to 1% of GDP if yields were 2% to 4%, and sovereign bond-backed securities that tranche diversified sovereign portfolios to create a senior safe asset, both of which would require sufficient issuance scale to support liquidity and related repo and derivatives markets.