More excellent research, impactful innovation and technology scale-ups are needed to make Europe more globally competitive, secure and sustainable. These are among the twelve expert recommendations presented today to the Commission to strengthen Horizon Europe, the EU research and innovation programme, and its successor.
The recommendations have been drafted by an independent group of 15 leading experts chaired by Manuel Heitor, former secretary of state for science, technology and higher education of Portugal. Their report, entitled ‘Align, Act, Accelerate: Research, Technology and Innovation to boost European Competitiveness’, highlights the European added value of the EU framework programme for research and innovation (R&I), and puts forward twelve recommendations:

Adopt a whole-of-government approach to align research and innovation with the EU strategy for competitiveness and a clean, digital economy.
Boost Europe’s global competitiveness by fostering impactful research, innovation and scale-ups through a stronger framework programme.
Deliver European added value via a portfolio of actions focused on competitive excellence, industrial competitiveness, societal challenges and a strong research and innovation ecosystem.
Establish an experimental unit to launch disruptive innovation programmes with fast funding options, such as “ARPA-style” initiatives.
Strengthen competitive excellence by expanding funding for European Research Council, European Innovation Council and the Marie Skłodowska-Curie Actions to attract top talent.
Create an Industrial Competitiveness and Technology Council to enhance industrial research and innovation investment and ensure relevance to strategic autonomy.
Form a Societal Challenges Council to address key societal issues, align with EU strategic priorities and engage with philanthropy and civil society.
Build an inclusive and attractive EU R&I ecosystem by securing long-term investments, fostering university alliances and encouraging Member States’ co-investment.
Simplify the programme by reducing administrative burdens, embracing agile funding and streamlining application processes.
Develop an innovation procurement programme to stimulate industrial scaling through demand-driven solutions.
Approach international cooperation with a nuanced strategy, tailoring partnerships to specific domains and global geopolitical considerations.
Optimise dual-use technology innovation by managing civilian and military R&I programmes separately, leveraging benefits for national security and civilian needs.

Building on these recommendations, the independent experts are calling for an increased, more focused and protected budget. According to their analysis, this investment would position Europe as a leader in international R&I collaboration and governance.
 
Background
The high-level group on the interim evaluation of Horizon Europe brought together 15 experts from across Europe with a wide range of backgrounds.
The group was tasked in December 2023 to provide concrete recommendations to the Commission on how to enhance the EU R&I programme in the short and longer term. The recommendations build on extensive stakeholder consultations and a wide body of evidence and analysis, including external studies.
For more information, please contact:

Thomas Regnier, Spokesperson

Roberta Verbanac, Press Officer

 
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Elevated risks to public debt call for enduring and carefully designed fiscal adjustments
Blog post by Era Dabla-Norris, Davide Furceri, Raphael Lam, Jeta Menkulasi | Global public debt is very high. It is expected to exceed $100 trillion, or about 93 percent of global gross domestic product by the end of this year and will approach 100 percent of GDP by 2030. This is 10 percentage points of GDP above 2019, that is, before the pandemic.
While the picture is not homogeneous—public debt is expected to stabilize or decline for two thirds of countries—the October 2024 Fiscal Monitor shows that future debt levels could be even higher than projected, and much larger fiscal adjustments than currently projected are required to stabilize or reduce it with a high probability. The report argues that countries should confront debt risks now with carefully designed fiscal policies that protect growth and vulnerable households, while taking advantage of the monetary policy easing cycle.
Worse than expected
The fiscal outlook of many countries might be worse than expected for three reasons: large spending pressures, optimism bias of debt projections, and sizable unidentified debt.
Previous IMF research has shown that fiscal discourse across the political spectrum has increasingly tilted toward higher spending. And countries will need to increasingly spend more to cope with aging and healthcare; with the green transition and climate adaptation; and with defense and energy security, due to growing geopolitical tensions.
On the other side, past experience suggests that debt projections tend to underestimate actual outcomes by a sizable margin. Realized debt-to-GDP ratios five-years ahead can be 10 percentage points of GDP higher than projected on average.
The Fiscal Monitor presents a novel “debt-at-risk” framework linking current macro-financial and political conditions to the entire spectrum of possible future debt outcomes. This approach goes beyond the typical focus on the point estimates of debt forecasts and helps policymakers quantify risks to the debt outlook and identify their sources.

This framework shows that in a severely adverse scenario global public debt could reach 115 percent of GDP in three years—nearly 20 percentage points higher than currently projected. This could be due to several reasons: weaker growth, tighter financing conditions, fiscal slippages, and greater economic and policy uncertainty. Importantly, countries are increasingly vulnerable to global factors affecting their borrowing costs, including spillovers from greater policy uncertainty in systematically important countries, such as the United States.
Sizable unidentified debt is another reason for public debt to end up being significantly higher than projected. An analysis of more than 30 countries finds that 40 percent of unidentified debt stems from contingent liabilities and fiscal risks governments face, of which most are related to losses in state-owned enterprises. Historically, unidentified debt has been large, ranging from 1 to 1.5 percent of GDP on average, and it increases sharply during periods of financial stress.

Larger fiscal consolidation
If public debt is higher than it looks, current fiscal efforts are likely smaller than needed.
Fiscal adjustment plays a crucial role in containing debt risks. With inflation moderating and central banks lowering policy rates, economies are better positioned now to absorb the economic effects of fiscal tightening. Delaying would be both costly and risky, as the required correction grows as time goes by; and experience shows that high debt and lack of credible fiscal plans can trigger adverse market reaction, constraining room to maneuver in the face of turbulence.
Our analysis, accounting for country-specific risks surrounding the debt outlook, suggests that current fiscal adjustments—on average, of 1 percent of GDP over six years by 2029—even if implemented in full, are not enough to significantly reduce or stabilize debt with a high probability. A cumulative tightening of about 3.8 percent of GDP over the same period would be needed for an average economy to ensure a high likelihood of debt stabilization. In countries where debt is not projected to stabilize, such as China and the United States, the required effort is substantially greater. But these two largest economies have a much richer set of policy choices than other countries.
Focus on people
Such large fiscal adjustments, if not well calibrated, will entail large output losses as aggregate demand falls and can harm vulnerable groups and lead to higher inequality. A careful design is thus needed to mitigate the costs of the adjustment and to garner public support for needed fiscal adjustment.
The choice of fiscal measures matters because the impacts are not alike and involve trade-offs. For example, cuts in public investment have the largest output losses and hurt long-term growth prospects, while reducing social transfers hurts vulnerable households and raises inequality.
A judicious mix of people- and growth-focused fiscal measures is needed and will vary across countries. Advanced economies should advance entitlement reforms, reprioritize expenditures, and increase revenues where taxation is low. Emerging market and developing economies have greater potential to mobilize tax revenues—by broadening tax bases and enhancing revenue administration capacity—while strengthening social safety nets and safeguarding public investment to support long-term growth.
Speed also matters. Our analysis suggests that a measured and sustained pace of adjustment would alleviate fiscal risks, while limiting the negative impact on output and inequality by about 40 percent less than a more abrupt tightening. That said, some countries with high risk of debt distress will need front-loaded adjustments.
Adjustments need to be accompanied by stronger fiscal governance, including credible medium-term frameworks, independent fiscal councils, and sound risk management. Enhancing fiscal risk assessment, monitoring closely contingent liabilities in state-owned enterprises, and publishing granular and timely debt statistics can reduce unidentified debt.
High public debt is a concern. Even for some countries where the public debt levels seem manageable, the Fiscal Monitor argues that risks are elevated, and actual debt outcomes in coming years may be worse than projected. Current adjustment plans are not enough to stabilize or reduce debt confidently. The report also shows that well-designed fiscal adjustments can help reduce debt risks, improve public debt outlooks, and mitigate the adverse impact on society.
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The second meeting of the Accession Conference with Albania at ministerial level was held today in Luxembourg.
The European Union delegation was led by Mr Péter Szijjártó, Minister of Foreign Affairs and Trade, on behalf of the Hungarian Presidency of the Council of the European Union, with the participation of Commissioner for Neighbourhood and Enlargement Olivér Várhelyi. The Albanian delegation was led by Mr Edi Rama, Prime Minister of Albania.
The meeting served to open negotiations with Albania on Cluster 1: Fundamentals, including the following areas and negotiating chapters:

Functioning of democratic institutions
Public administration reform
Chapter 23 – Judiciary and fundamental rights
Chapter 24 – Justice, freedom and security
Economic criteria
Chapter 5 – Public procurement
Chapter 18 – Statistics
Chapter 32 – Financial control

The EU also set interim benchmarks, both on the horizontal level for the cluster, and for chapters 23 and 24 (the rule of law chapters) that would need to be met before the next steps in the negotiating process of this cluster can be taken.
In addition, the EU set benchmarks for the provisional closure of chapters 5, 18 and 32.

Albania is performing well in the accession process, and with the opening of the first, fundamental chapters in the EU accession negotiations, the country has reached another important milestone in its enlargement efforts. One of the key priorities of the Hungarian Presidency is to advance EU enlargement, as the European Union requires renewed momentum, fresh energy, and new perspectives, which the Western Balkans can provide. I look forward to Albania’s continued progress on its path to EU membership.
Péter Szijjártó, Minister of Foreign Affairs and Trade, on behalf of the Hungarian Presidency of the Council of the European Union

Monitoring of progress in the alignment with and implementation of the EU acquis and relevant European standards will continue throughout the negotiations.
The Accession Conference will return to this cluster at an appropriate moment.
Background
Following the introduction of the revised methodology for the accession negotiations in 2020, negotiating chapters are divided in six thematic clusters:

Fundamentals
Internal market
Competitiveness and inclusive growth
Green agenda and sustainable connectivity
Resources, agriculture and cohesion
External relations

Negotiations on the Fundamentals cluster are the first to be opened and the last to be closed. Progress under this cluster will determine the overall pace of negotiations.
 
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The implementation of the Recovery and Resilience Facility (RRF), at the heart of the EU’s recovery instrument NextGenerationEU, is speeding up, fostering continuous reform and investment progress in Member States. As shown in the Commission’s third Annual Report on the RRF adopted today, the Commission is supporting Member States in the full and timely delivery of their plans through more streamlined processes, and has further improved both transparency and mechanisms to protect the EU financial interests.
The RRF, with €650 billion in grants and loans, is a critical driver of ambitious investments and reforms across Member States, in initiatives that advance the green and digital transition, and strengthen the resilience and competitiveness of the EU.
Since its inception, the RRF has driven over €82 billion in investments directly supporting businesses. Over 900 reforms are being delivered to cut red tape and speed up business processes to obtain permits and licenses for example, helping EU industry become more competitive. With RRF support, 34 million megawatts hours in energy consumption have been saved, over 11.8 million people have participated in education and training, and 9.8 million people benefitted from protection measures against climate-related disasters.
The Commission, Member States, and all relevant stakeholders, along with the European Parliament and Council, have worked closely together to achieve these results.
Over €300 billion in RRF funds expected to be disbursed by the end of 2024
Implementation and disbursements under the RRF have accelerated after some delays in 2023 largely linked to Russia’s illegal invasion of Ukraine, high inflation, supply constraints and the need to adopt REPowerEU chapters. To date, the Council has endorsed 26 such chapters, which provide additional funds to roll out reforms and investments that diversify the EU’s energy supplies, accelerate the green transition, and support vulnerable households.
As of today, the Commission received 69 payment requests from 25 Member States and disbursed over €267 billion, i.e. more than 40% of the available RRF funding. By the end of the year, over €300 billion in RRF funds are expected to be disbursed. The report details numerous examples of how progress with reforms and investments across the six RRF policy pillars is having a tangible and positive impact on citizens and businesses alike.
The Union has also continued to successfully raise funds on the capital markets to finance the Facility, with more than €60.2 billion issued in NextGenerationEU Green Bonds to date.
Implementation by Member States made simpler
In view of the time-bound nature of the RRF, all efforts should remain focused on the full and timely implementation of the plans by 2026. Member States must continue to swiftly implement their RRPs in full, and the Commission is actively supporting them in these efforts.
In this context, the Commission took further steps in 2024 to support Member States in the implementation of the RRF. In July this year, the Commission introduced simpler processes in updated guidance to Member States, with a focus on how to revise plans, which will remain relevant to address implementation bottlenecks. Reporting requirements for Member States have also been streamlined. In addition, further clarity has been provided on ways to combine RRF with other EU funds to enhance synergies.
Reinforced transparency
The Commission is striving for high clarity and transparency in the implementation of the RRF, even beyond legal requirements.
For example, the report adopted today includes an in-depth analysis of Member States’ data on the 100 largest final recipients of funding under the RRF. The Commission is also providing further guidance on key concepts in the RRF Regulation, for transparency and clarity, which are laid out in the annexes to the report:

clarifying how the Commission determines when a reform or investment has started to ensure eligibility under the RRF;
clarifying what the Commission considers as a recurring expenditure, which is prohibited as a general rule, and the criteria used to determine when an exemption is duly justified;
the concept of double funding in the RRF context, and
the notion of final recipients of RRF funds.

Robust protection of the financial interests of the Union
The protection of the EU’s financial interests is a top priority for the Commission. Therefore, it continuously strengthens its audit and control framework, also taking into account the recommendations of the European Parliament, the Council and the European Court of Auditors. The Commission carried out 17 risk-based ex-post audits over the September 2023–August 2024 period on the satisfactory fulfilment of milestones and targets. Four system audits of national control systems were also carried out. By the end of 2023, the Commission had audited all Member States at least once.
Background
This report is the third of a series of annual reports by the Commission, which cover the implementation of the RRF during its entire lifespan, as required by the RRF Regulation. It will feed into the ongoing dialogue on the RRF implementation both among the Union institutions and with stakeholders.
The information provided in the report is based on the content of the adopted recovery and resilience plans, as assessed by the Commission, on the data reported by Member States until April 2024 as part of their bi-annual reporting obligations, and on developments in the implementation of the RRF until 31 August 2024.
Progress in the implementation of recovery and resilience plans can be followed on the Recovery and Resilience Scoreboard, an online portal the Commission set up in December 2021. You can find more information on the RRF on this page, which features an interactive map of projects financed by the RRF.
For more information, please contact:

Veerle Nuyts, Spokesperson

Quentin Cortes, Press Officer

 
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Today, the Council approved conclusions on climate finance ahead of the United Nations framework convention on climate change (UNFCCC) meeting in Baku, Azerbaijan, from 11 to 22 November 2024 (COP 29).
In its conclusions, the Council underlines that the EU and its member states are committed to the current goal of developed countries to collectively mobilise $100 billion per year in climate finance until 2025. This goal was met for the first time in 2022.
The Council also highlights its strong commitment to continue delivering on climate finance in the future and its intention to support reaching ambitious new collective quantified goals after 2025.
The EU and its member states are the world’s largest contributor to international public climate finance, and since 2013 have more than doubled their contribution to climate finance to support developing countries.
As in previous years, the conclusions do not yet include the figure of the EU contribution for the year 2023. It will be made available by the Commission and to be approved by the Council separately, in time before the start of COP29.
Background
The main objective for the upcoming COP29 will be to negotiate the new collective quantitative goals (NCQGs) after 2025.
Every year, the conference of the parties (COP) to the UN framework convention on climate change (UNFCCC) meets to determine ambition and responsibilities, and identify and assess climate measures.
The EU and its member states are parties to the Convention, which has 198 Parties (197 countries plus the European Union) in total. The rotating presidency of the Council, together with the European Commission, represent the EU at these international climate summits.
Later in October 2024, the Council is expected to approve conclusions that set the general mandate for the EU’s negotiators at the COP29 climate conference. The conclusions approved today will complement the EU’s general mandate.
 
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Nine out of ten consumers have been affected by “dark commercial patterns” – manipulative online design tactics such as countdown timers, hidden fees, and subscription traps that influence consumer behaviour and often lead to unintended purchases or privacy compromises. These deceptive practices are widespread on websites and apps, posing significant risks to consumers worldwide.
The findings are part of a new OECD survey conducted with over 35 000 respondents across 20 countries. They were presented during the OECD Consumer Policy Ministerial Meeting on 8-9 October, where Ministers adopted a Declaration committing to further protecting and empowering consumers in the digital and green transitions. The Declaration underscores the need to act against both current and emerging harms consumers face online, encourages businesses to adopt fair practices, and commits governments to protect all consumers. It places emphasis on those who may be particularly vulnerable, such as children, older consumers and infrequent internet users. Additionally, the Declaration calls for an update to the OECD Recommendation on Consumer Protection in E-commerce to better address the evolving risks and harms in the digital transition.
“With consumer spending accounting for about 60% of GDP in OECD countries on average, consumer policies have an important role to play in contributing to well-functioning, open and competitive markets by protecting consumers from deceptive, unfair and fraudulent commercial practices and unsafe products, fostering informed consumer decisions and trust, and ensuring a level playing field for businesses, by ensuring fair competition based on quality, price and innovation,” OECD Secretary-General Mathias Cormann said. “Today’s Ministerial Meeting has discussed how policymakers can ensure consumer policies help people navigate these new digital and green products, services and options, by adapting to new technology-related risks, by continuing to prioritise consumer safety, and by ensuring consumer policies are well-co-ordinated with other relevant areas, such as competition, digital and environmental policies.”
The OECD also announced the launch of the Global Forum on Consumer Policy. This new forum will bring together policymakers, academics, civil society, businesses, and experts in an inclusive network to collaborate on consumer issues, behavioural economics, technological trends, and emerging consumer policy research.
Participants also addressed ways to protect and empower consumers making sustainable consumption decisions and tackle new consumer product safety risks. A part of the discussion was the safe and responsible use of lithium-ion batteries. With a growing number of safety incidents involving these batteries, the OECD and its members are launching an awareness campaign on their safe and responsible use. The global lithium-ion battery market is projected to reach USD 307.8 billion by 2032, up from USD 59.8 billion in 2022, underscoring the urgency of these efforts.
For more information on the outcomes of the OECD Consumer Policy Ministerial Meeting, please visit: https://oe.cd/consumer24.
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Keynote speech by Piero Cipollone, Member of the Executive Board of the ECB, at the Bundesbank Symposium on the Future of Payments
 
Frankfurt am Main, 7 October 2024
The foundations of the financial system as we know it today can be traced back to 14th-century Italy,[1] when double-entry bookkeeping[2] was introduced, along with nostro and vostro accounts[3] to facilitate the settlement of foreign trades across separate, independent ledgers[4].
Although today’s financial markets are highly complex and sophisticated, the fundamental practice of bookkeeping across ledgers has remained largely unchanged and continues to exert a significant influence on existing market structures. For example, at each stage of the securities life cycle, banks, brokers, information providers and other market participants play an essential role in intermediation. This complexity comes at a cost: research shows that on the whole, financial intermediation costs in advanced economies have increased since the late 1960s.[5]
In Europe, this complexity is compounded by regulatory fragmentation across the continent, resulting in the ongoing fragmentation of capital markets. For example, there are 35 different exchanges for listings and 41 exchanges for trading.[6] Some effort has been made towards integration in the post-trade sector, including through the creation of the TARGET2-Securities (T2S) platform, which can be used to transfer securities and cash between investors across Europe[7], and through common platforms used by central securities depositories (CSDs). But the lack of harmonisation in the legislative and regulatory framework regarding custody, asset servicing and tax-related processes, for example, prevents the sector from reaping the benefits and synergies that an integrated European market could bring.[8]
The European Union (EU) has taken steps to address the regulatory barriers that exist in order to create deeper and more integrated capital markets.[9] But many obstacles still remain, such as insufficient regulatory harmonisation, the absence of unified supervision[10] or the lack of a permanent safe asset and integrated banking system[11]. This has led to multiple calls for renewed efforts, including from euro area finance ministers[12], EU institutions[13] and Enrico Letta and Mario Draghi in their recent reports[14].
But there is one crucial dimension that has often been overlooked, and that is technology. My aim today is not to discuss how to create a capital markets union for traditional assets, but to discuss how to create one for digital assets from the outset.
Although technology has undeniably helped facilitate the provision of financial services through electronic bookkeeping, for example, digital technology has so far failed to deliver financial integration in Europe. In fact, non-interoperable technological ecosystems in each country – shaped by diverging national regulatory regimes – have created siloed pools of asset liquidity, further entrenching fragmentation.
However, recent advancements in digital technology offer an opportunity to create an integrated European capital market for digital assets – in other words, a digital capital markets union.
Financial institutions are increasingly exploring the potential of tokenisation, which is the process of using new technologies, such as distributed ledger technology (DLT), to issue or represent assets in digital form, known as tokens. Unlike conventional assets, these tokens are not recorded on a centralised ledger but using DLT. Imagine a future where money and securities no longer sit in electronic, book-entry accounts but “live” on distributed ledgers held across a network of traders, each with a synchronised copy.
If public authorities fail to act, this could lead to fragmentation. But if they seize the opportunity, then the benefits of this new approach could reach far beyond tackling technological inefficiencies, eventually resulting in a move away from the centuries-old structure of intermediation to a unified, distributed ledger or a constellation of fully interoperable ledgers. This transition could help us deal with the current fragmentation of financial infrastructures, reduce barriers to entry and serve as a driver of capital market integration in Europe.
As a central bank, we recognise that our role in this transformative journey is to maintain trust and confidence in the value of money and the financial system. To fulfil this mandate, we have to adapt to the evolving technological landscape that is reshaping how money is exchanged and financial transactions are settled in an increasingly digital world. Understanding these innovations, preparing for them and – when they materialise – supporting their safe adoption are central to our mission. In addition, central bank money has a key role to play in facilitating the interoperability and integration of decentralised systems.[15]
Today, I want to explore how we can build an integrated European capital market for digital assets from the outset. At the same time, while the potential benefits of advances tokenisation and DLT are significant, we must also consider the risks to the financial market structure and the provision of central bank money. I will discuss how central banks can effectively support this technological transition.
 
The transformative potential of tokenisation and DLT in capital markets: balancing innovation with risk
In recent years, there has been a notable increase in the adoption of financial technology, including the use of tokens and DLT. This transformation is not just theoretical: it is happening now.
In the banking sector alone, over 60% of EU banks surveyed are actively exploring, experimenting with or using DLT solutions, while 22% have already started using DLT applications.[16] However, the use of DLT is not yet widespread. Currently, it is mainly used for primary issuance, although further applications and use cases are increasingly being looked at. But there is strong interest in exploring the potential of DLT, and leading global financial market infrastructures such as DTCC, Clearstream and Euroclear are aiming to set standards to facilitate the adoption of tokenisation across the financial sector.
The public sector is also contributing to this movement. Since having a solution for settling transactions in central bank money makes DLT-based solutions more attractive and less risky, there is strong demand from market participants to be able to use central bank money to settle digital asset transactions. As a result, the Eurosystem is conducting exploratory work to test DLT for the settlement of wholesale transactions in central bank money.[17] Similarly, the Bank for International Settlements’ Innovation Hub has launched several projects exploring this theme.[18]
The promise of tokenisation and DLT lies in the creation of a transparent ledger which would make it possible to perform the three key functions of asset trading, namely negotiation, settlement and custody, on the same platform.[19] This is expected to reduce transaction costs by reducing the need for reconciliation, matching and other data processing steps, which would foster resilience and make it possible to operate on a 24/7, 365 days a year basis. DLT also supports the native issuance of digital assets, enabling direct transactions between a wide range of investors. This could lower barriers to entry and create opportunities for small issuers, such as small and medium-sized enterprises, to access capital markets. DLT would also enhance efficiency by significantly reducing settlement times and using the self-executing, programmable functions in smart contracts.
This could potentially bring substantial savings. According to some estimates, automation and smart contracts could reduce annual infrastructure operational costs by approximately USD 15-20 billion in global capital markets.[20]
In addition to these savings, the possibility of extensive implementation of tokenisation and DLT offers opportunities to overhaul market structures. This could prove instrumental in tackling the technological obstacles hindering the establishment of a capital markets union in Europe. The new ecosystem could be designed from scratch in a more integrated and harmonised manner by providing a “common set of rails” – a shared ledger or an ecosystem of fully interoperable ledgers – that would ensure reachability, open access and compatibility across participants’ services. CSDs, banks, investment managers and other market stakeholders would provide their services directly on a shared infrastructure, while each would be able to maintain a level of control and customisation over the functionalities. This would also allow a more flexible approach to the role of each participant in the ecosystem. From a technical perspective, it would also be possible to bring together all assets, functionalities and market players on one centralised platform. But it is precisely the combination of a shared infrastructure with customised control that could encourage different stakeholders to agree on “common rails” instead of relying on their own infrastructures, as they often do today.
However, the early development stages of DLT present significant coordination challenges and risks to the financial system.
There are therefore three primary risks that we must address.
The first is the potential for an uncoordinated proliferation of DLT platforms, which could result in a fragmented landscape. In this nascent stage of development, established financial institutions are apprehensive about DLT but are nevertheless keen to take advantage of its potential. Several new DLT platforms could emerge as a result, as market participants develop their own solutions without fully considering the broader economic implications. This could exacerbate the existing fragmentation among CSDs and other proprietary ledgers, leading to a lack of standardisation. This, in turn, would pose new coordination challenges and jeopardise our objective of establishing a digital capital markets union for Europe.[21]
The second risk is that central bank money could lose its status as the safest and most liquid settlement asset. If end users – in this case firms and investors – demand an “on-chain” means of payment to seamlessly support automated transactions via DLT, the lack of a solution for settling transactions in central bank money could encourage banks or stablecoin issuers to offer private money alternatives. A permanent shift from central bank money to commercial bank money or stablecoins could disrupt the existing two-tier monetary system and threaten financial stability by undermining central bank money’s role as a risk-free settlement asset. This would contradict the principles agreed at international level.[22]
Lastly, public authorities still have more work to do to understand and assess the inherent risks and vulnerabilities stemming from DLT-based tokenisation.[23] Tokenisation does not remove the vulnerabilities we know of from traditional finance, although these vulnerabilities may play out differently depending on design choices, adoption and scale. The key issue will be the choice of settlement assets, which could amplify liquidity risk or other vulnerabilities, but other risks could also emerge if new entities fall outside the scope of regulation or there are operational weaknesses.
To deal with these risks, central banks and regulators must act early and work with market participants from the outset. If we drag our feet while other jurisdictions move faster and produce better solutions, we could see financial activities migrating elsewhere and private entities from outside the EU assuming a dominant position in European capital markets. Moreover, European market participants may then adopt uncoordinated approaches and invest in their own infrastructures. They could then resist any efforts by central banks to introduce enhanced settlement solutions, particularly if these threatened the viability of their new business models. If we don’t act soon, it may be impossible to achieve a genuine digital capital markets union with efficient wholesale payment and settlement services using risk-free central bank money.
 
A European vision for the future of digital capital markets
Given the early stage of market development and the strategic approaches being adopted by industry players, it is paramount that central banks provide clear direction. By offering clear and consistent guidance, the ECB serves as a crucial coordination mechanism for the European financial industry. This helps market participants align their efforts and innovate within a common framework, fostering interoperability.
Central banks should play a proactive role in this transformation for two main reasons. First, it is vitally important to maintain, if not increase, the use of central bank money as the settlement asset in wholesale markets. Central bank money plays a pivotal role as the anchor of our two-tier monetary system, serving as a cornerstone of financial stability.
The second reason is to promote robust, stable and integrated European capital markets. Therefore, our aim is to facilitate the provision of central bank money settlement for wholesale transactions of DLT assets, thereby using the financial industry’s adoption of DLT to address existing shortcomings associated with the fragmentation of European capital markets.
One way to achieve this would be to move towards a European ledger, which would be a single-platform solution where assets and cash would coexist on one chain. Many market participants believe this is a must if we want to fully reap the benefits of DLT. This ledger would address the technological complexities, inefficiencies and fragmentation that are currently preventing the integration of European capital markets for traditional assets.
A European ledger could bring together token versions of central bank money, commercial bank money and other digital assets on a shared, programmable platform. In essence, this would see T2S evolving into a DLT-based, single financial market infrastructure for Europe. While central banks would provide the platform, or the “rails” so to speak, market participants would supply the content, or the “trains”. However, further consideration would have to be given to the specifics of this platform, including the scope of services, governance structure, operational procedures and the potential implications for existing infrastructure and assets.
One risk of the unified ledger is that it entails choosing one technological solution over all others. As all market players will use it, they will be less inclined to explore and promote alternative innovative technical solutions to provide the same services. Another option would therefore be to allow the coordinated development of an ecosystem of fully interoperable technical solutions. This flexibility would be beneficial, as it would better serve specific use cases and the coexistence of legacy and new solutions.
We need to reflect on this trade-off.
Research is continuing in the market, but in the meantime, there is a pressing need for solutions that would make it possible to settle DLT transactions in central bank money. This provides an opportunity to build on the interoperability solutions we have been trialling as part of the Eurosystem’s exploratory work. This trial, in which the Eurosystem offers interoperability between its central bank money settlement services and external DLT platforms for both real and mock transactions, was successfully launched in May 2024 and will run until November. Some 60 industry participants are involved, in addition to central banks.
Offering such solutions could allow the Eurosystem and market participants to experiment and develop DLT-based solutions further, unlocking investment in the industry. To this end, we have started to look at how we can build on our ongoing exploration. We will also examine the eligibility of DLT-based assets for use as collateral in Eurosystem credit operations.
However, there is a risk that relying on existing interoperability solutions over the long term could perpetuate inefficiencies in the post-trade environment given the ongoing lack of full harmonisation and standardisation. Such interim solutions are thus a stopgap measure to smooth the transition towards our long-term vision.
These efforts must align with EU legislators and regulators who have a window of opportunity to create a comprehensive, European regulatory and supervisory framework that will support financial integration for digital assets while protecting market participants and preserving the underlying infrastructures. The limited progress in advancing a capital markets union for traditional assets shows that harmonising new activities from the outset is much easier than ironing out any differences at a late stage. Building on the EU’s DLT pilot regime, this new framework should aim to establish the harmonised regulation and integrated supervision of digital assets.
 
Conclusion
Let me conclude.
In the current era of rapid technological change, “whosoever desires constant success must change his conduct with the times”.[24]
These insights mirror the European financial sector’s current exploration of tokenisation and DLT. These technologies do not just have the potential to enhance efficiency. They could also fundamentally reshape the very structure of financial intermediation – a system that has remained largely unchanged for centuries. Many financial market participants have already started to delve into these technologies, recognising their transformative potential.
As prudent central bankers, we must also adapt to these new technologies if we are to fulfil our mandate of preserving trust and confidence in money and the financial system. Our primary objective in this evolving landscape is to ensure that central bank money – the safest and most liquid settlement asset – remains a cornerstone of stability, even in a capital market based on tokens and DLT. Or to quote Tancredi in Lampedusa’s The Leopard[25], “For things to stay the same, everything must change”.
However, the current nascent stage of market development does not just pose challenges. It also offers a unique opportunity. By establishing a clear vision of a digital capital markets union – an integrated European digital ecosystem where assets and cash coexist on one or more fully interoperable chains – these emerging technologies could help to address the existing shortcomings of European capital markets.
In embracing this technological shift, we are not merely reacting to change, but actively participating in shaping a more efficient, innovative and resilient financial future for Europe.
Thank you for your attention.

I would like to thank Cyril Max Neumann and Jean-Francois Jamet for their help in preparing this speech, as well as Ulrich Bindseil, Alexandra Born, Johanne Evrard, Daniel Kapp, Mirjam Plooij and Anton Van der Kraaij for their comments.
Sangster, A. (2024), “The emergence of double entry bookkeeping”, The Economic History Review, pp. 1-30, May.
A nostro/vostro account is a bank account where one bank has another bank’s money on deposit, typically on behalf of a foreign bank in relation to international trade or other financial transactions. The terms “nostro” and “vostro” are used to indicate which bank has money on deposit.
Yamey, B. S. (2011), “Two-currency, nostro and vostro accounts: historical notes, 1400-1800”, Accounting Historians Journal, Vol. 38, No 2, pp. 125-143, December.
Bazot, G. (2018), “Financial Consumption and the Cost of Finance: Measuring Financial Efficiency in Europe (1950-2007)”, Journal of the European Economic Association, Vol. 16, Issue 1, pp. 123-160, February. The study provides evidence that the ratio of domestic financial intermediaries’ income to GDP increases continuously in Germany, France, the United Kingdom and Europe more broadly over the period from 1950 to 2007, even during the 1990s and the 2000s. When including property income and capital gains, this ratio stood at 6-7% in Germany, France and the UK, and around 9% in the United States at the end of the period. The study then measures the unit cost of financial intermediation based on the ratio of financial income to financial assets intermediated. It finds that the European unit cost appears to have increased since the late 1960s but by a smaller proportion than in the United States. See also Philippon, T. (2015), “Has the US Finance Industry Become Less Efficient? On the Theory and Measurement of Financial Intermediation”, American Economic Review, Vol. 105, No 4, pp. 1408-1438, April. This paper finds that the unit cost of intermediation does not seem to have decreased significantly with advances in information technology and changes in how the finance industry is organised. Philippon finds that the annual cost of intermediation is 1.5-2% of intermediated assets, while Bizot finds that the European unit cost of financial intermediation falls within a similar range.
Wright, W. and Hamre, E.F. (2021), “The problem with European stock markets”, New Financial LLP, March. There are also a large number of central counterparties (CCPs) and central securities depositories (CSDs). However, a large part of EU CCP and CSD activity is concentrated in a few CSDs and CCPs within large corporate groups. For instance, the three largest groups represent 96% of European CSD settlement activity and 93% of assets under custody. See also Euroclear (2024), “Unlocking scale and competitiveness in Europe’s markets – Enablers for an integrated and digitised post-trade architecture”, Whitepaper, September.
T2S provides a common platform on which securities and cash can be transferred between investors across Europe, using harmonised rules and practices. Banks pay for securities on the platform using the account they have with their central bank, so the money used to settle transactions is central bank money. As a result, transaction risk is greatly reduced. T2S lays the foundations for a single market for securities settlement and thus contributes to achieving greater integration of Europe’s financial market.
For an example, see Born, A., Heymann, D. S., Chaves, M. and Lambert, C. (2024), “Frictions in debt issuance procedures and home bias in the euro area”, Financial Integration and Structure in the Euro Area, ECB, April.
European Council and Council of the European Union (2024), What the EU is doing to deepen its capital markets and McGuinness, M. (2024), “Vested interests must not block the EU’s capital markets union”, Financial Times, 19 March.
Lagarde, C. (2023), “A Kantian shift for the capital markets union”, speech at the European Banking Congress, 17 November and Véron, N. (2024), “Capital Markets Union: Ten Years Later”, European Parliament, March.
Panetta, F. (2023), “Europe needs to think bigger to build its capital markets union”, The ECB Blog, 30 August.
Eurogroup (2024), Statement of the Eurogroup in inclusive format on the future of the Capital Markets Union, 11 March.
ECB (2024), Statement by the ECB Governing Council on advancing the Capital Markets Union, 7 March; European Council (2024), Special meeting of the European Council – Conclusions, 18 April 2024; and European Commission (2024), Mission Letter from Ursula von der Leyen to Henna Virkunnen, 17 September.
Letta, E. (2024), Much more than a market – Speed, Security, Solidarity. Empowering the Single Market to deliver a sustainable future and prosperity for all EU Citizens, April; Draghi, M. (2024), The future of European competitiveness – A competitiveness strategy for Europe, September.
Cipollone, P. (2024), “Modernising finance: the role of central bank money”, keynote speech at the 30th Annual Congress of Financial Market Professionals organised by Assiom Forex, 9 February.
European Banking Authority (2024), Uses of DLT in the EU banking and payments sector: EBA innovation monitoring and convergence work, April.
European Central Bank (2024), “Second group of participants chosen to test DLT for settlement in central bank money”, MIP News, 21 June.
Bank for International Settlements (2023), “Blueprint for the future monetary system: improving the old, enabling the new”, Annual Economic Report, Chapter III, 20 June.
These three functions are currently performed by three different entities (exchange, settlement infrastructure and CSD).
Global Financial Markets Association (2023), Impact of Distributed Ledger Technology in Global Capital Markets, 17 May.
See also ECB (2024), Statement by the ECB Governing Council on advancing the Capital Markets Union, 7 March.
See Bank for International Settlements, (2012), Principles for financial market infrastructures, April.
The Financial Stability Board is assessing the potential financial stability implications of tokenisation in an upcoming report.
Machiavelli, N. (1513), Discourses on the First Ten Books of Titus Livius, Third Book, Chapter IX.
Lampedusa, G.T. di (1958), The Leopard.

 
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The global economy is turning the corner as growth remained resilient through the first half of 2024, with declining inflation, though significant risks remain, according to the OECD’s latest Interim Economic Outlook.
With robust growth in trade, improvements in real incomes and a more accommodative monetary policy in many economies, the Outlook projects global growth persevering at 3.2% in 2024 and 2025, after 3.1% in 2023.
Inflation is projected to be back to central bank targets in most G20 economies by the end of 2025. Headline inflation in the G20 economies is projected to ease to 5.4% in 2024 and 3.3% in 2025, down from 6.1% in 2023, with core inflation in the G20 advanced economies easing to 2.7% in 2024 and 2.1% in 2025.

GDP growth in the United States is projected to slow from its recent rapid pace, but to be cushioned by monetary policy easing, with growth projected at 2.6% in 2024 and 1.6% in 2025. In the euro area, growth is projected at 0.7% in 2024, before picking up to 1.3% in 2025, with activity supported by the recovery in real incomes and improvements in credit availability. China’s growth is expected to ease to 4.9% in 2024 and 4.5% in 2025, with policy stimulus offset by subdued consumer demand and the ongoing deep correction in the real estate sector.
“The global economy is starting to turn the corner, with declining inflation and robust trade growth. At 3.2%, we expect global growth to remain resilient both in 2024 and 2025,” OECD Secretary-General Mathias Cormann said. “Declining inflation provides room for an easing of interest rates, though monetary policy should remain prudent until inflation has returned to central bank targets. Decisive policy action is needed to rebuild fiscal space by improving spending efficiency, reallocating spending to areas that better support opportunities and growth, and optimising tax revenues. To raise medium-term growth prospects, we need to reinvigorate the pace of structural reforms, including through pro-competition policies, for example by reducing regulatory barriers in services and network sectors.”
The Outlook highlights a range of risks. The impact of tight monetary policy on demand could be larger than expected, and deviations from the expected smooth disinflation path could trigger disruptions in financial markets. Persisting geopolitical and trade tensions, including from Russia’s war of aggression against Ukraine and evolving conflicts in the Middle East, risk pushing up inflation again and weighing on global activity. On the upside, real wage growth could provide a stronger boost to consumer confidence and spending, and further weakness in global oil prices would hasten disinflation.
As inflation moderates and labour market pressures ease further, monetary policy rate cuts should continue, even though the timing and the scope of reductions will need to be data-dependent and carefully judged to ensure inflationary pressures are durably contained.
With public debt ratios elevated, rebuilding fiscal space is key to be able to react to future shocks and future spending pressures, including from population ageing and needed investments in the digital transformation and the climate transition. Fiscal policy needs to focus on containing spending growth and optimising revenues, while credible medium-term adjustment paths would help stabilise debt burdens.
“Governments also need to turn the corner on structural reforms,” OECD Chief Economist Álvaro Santos Pereira said. “The pace of regulatory reforms in recent years has been stalling, and in important parts of the economy reform progress came to a standstill. Amid sluggish productivity growth and tight fiscal space, product market reforms that promote open markets with healthy competitive dynamics remain a key lever to reinvigorate growth.”
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