In a keynote speech in Frankfurt, Philip R. Lane of the European Central Bank argued that the euro area suffers from a shortage of “safe assets” — highly liquid, low-risk financial instruments that are essential for stable financial markets and effective monetary policy.
He explained that German Bunds currently serve as the main euro-denominated safe asset, but their supply is too limited to meet growing global demand. While EU-wide reforms and crisis-response tools have strengthened financial stability and reduced sovereign risk differences across member states, national bonds still cannot fully function as a unified safe asset.
Lane highlighted that jointly issued EU bonds, such as those used for programs like SURE and Next Generation EU, represent a step toward expanding safe assets, but their scale and liquidity remain insufficient compared to major sovereign bond markets like Germany or France.
To address this, he outlined several possible solutions. These include expanding common EU borrowing for shared priorities such as defence or geopolitical support (for example, Ukraine), and developing innovative financing structures. Among them are proposals like “blue bonds,” which would pool part of national debt into a common instrument backed by earmarked tax revenues, and sovereign bond-backed securities (SBBS), where portfolios of national bonds are transformed into senior safe assets through financial engineering.
Lane stressed that all approaches involve trade-offs between increasing liquidity and maintaining political feasibility, since fiscal authority remains largely at the national level. He also emphasized that greater issuance of joint debt would require strong political trust and continued fiscal discipline among member states.
In conclusion, he argued that expanding the supply of euro safe assets would strengthen the euro’s global role, improve financial stability, and support broader EU goals such as deeper capital markets integration, stronger economic growth, and the development of a more unified financial system.
