Keynote Speech by Philip R. Lane, Member of the Executive Board of the ECB, at the Danish Economic Society Conference
Kolding, 9 January 2026
I am grateful to the Danish Economic Society for the invitation to participate in this conference. In line with the overall theme of the event, I will speak today about the implications of a changing world for the euro-denominated monetary system.
In our 2025 assessment exercise that reviewed the monetary policy strategy of the ECB, the Governing Council concluded that:
“Ongoing structural shifts related to geopolitics, digitalisation, artificial intelligence, demography, the threat to environmental sustainability and changes in the international financial system suggest that the inflation environment will remain uncertain and potentially more volatile, with larger target deviations in both directions, posing challenges for the conduct of monetary policy. A more resilient financial architecture – supported by progress on the savings and investments union, the completion of banking union and the introduction of a digital euro – would also support the effectiveness of monetary policy in this evolving environment.”
In addition to their implications for monetary policy, this set of structural factors will also re-shape labour markets, investment dynamics, productivity and the financial system. In what follows, I will focus my attention on how structural changes might affect the euro monetary system.
Monetary Union: Common Shocks and Scale Economies
By and large, the structural changes facing Europe can be interpreted as common shocks. While each country might face some specific challenges, forces such as revisions to the global geopolitical equilibrium (including the global trading system), digitalisation, AI, demography, climate change and shifts in the international financial system have broadly similar implications across EU Member States.
Under such circumstances, a monetary union acts as an embedded coordination mechanism by enabling that a common monetary policy can respond effectively to the evolution of common trends and common shocks.
Moreover, the identified structural changes are arguably more easily handled in a larger-scale monetary system than under the hypothetical alternative of a collection of standalone national monetary systems. First, all else equal, a larger-scale monetary system means that a greater proportion of trade and financial transactions will be denominated in domestic currency – both among domestic counterparties and with external counterparties. In turn, this provides considerable insulation against shifts in the exchange rate or changes in foreign monetary systems. Chart 1 illustrates the high euro invoicing share in trade involving euro area member countries: there is a strong positive correlation between the importance of the euro area as an export destination and the invoicing share of the euro.[1]

Chart 1
Share of exports to the euro area and euro export invoicing share

(x-axis: share of exports to euro area, percentages; y-axis: euro export invoicing share, percentages)

Sources: ECB staff calculations based on analysis in Boz, E. et al. (2025), “Patterns of Invoicing Currency in Global Trade in a Fragmenting World Economy”, Working Papers, No 178, IMF, September, and expanded and updated data from Boz, E. et al. (2022), “Patterns of invoicing currency in global trade: New evidence”, Journal of International Economics, Vol. 136, May; Taiwan Ministry of Finance; IMF Direction of Trade Statistics; and World Development Indicators.
Notes: Data are averaged over the period 1999-2023. Country names on the chart are displayed as three-letter ISO codes.

Second, the existence of considerable fixed costs in running the market infrastructure and payment systems that underpin the monetary system means that larger-scale monetary systems can be operated more efficiently.[2] Large-scale monetary systems also have the capability to reduce dependencies on external providers of infrastructural services. In addition, large-scale monetary systems can afford to undertake infrastructural innovations that might not be viable for smaller-scale monetary systems.
This means that the automation and digitalisation of the financial system can be accompanied and reinforced by investment projects that ensure that central bank money can adapt to such innovations. A prime example is the digital euro project that, if the supporting legislation is adopted, will provide retail central bank money in digital form.[3] It also includes the Pontes/Appia projects that aim to ensure that settlement in central bank money can play its essential role in the future-ready, innovative and integrated financial ecosystems that can best exploit the opportunities promised by technological development in the financial system. For smaller-scale monetary systems, such projects would be more daunting and incur higher unit costs, increasing the likelihood of transactions migrating to foreign-currency systems.
Third, scale matters for the efficiency, breadth and liquidity of the financial system. Euro area residents can allocate assets across borders within the euro area without taking on currency risk, which is especially relevant for the money market, the bond market and the banking system.[4] Chart 2 illustrates the high area-wide integration in these markets.

Chart 2
Price-based financial integration indicators by market segment

(monthly data, January 1995 – October 2025; January 1995 – September 2025 for the banking sub-index)

Sources: ECB and ECB calculations.
Notes: See also the report “Financial Integration and Structure in the Euro Area” and the Statistical Annex document on the ECB webpage Indicators of financial integration and structure in the euro area.

In addition, a larger market is also more attractive for foreign investors and foreign issuers, especially since the availability and cost of hedging instruments are scale-dependent. A larger market also makes it more feasible to fund supranational initiatives such as the Next Generation EU (NGEU) programme and other EU bond issues, as well as bonds issued by the European Stability Mechanism and the European Investment Bank.
These scale benefits from a monetary union are at risk if internal imbalances and financial fragilities give rise to fragmentation dynamics. These lessons were learned at a high cost during the sequence of crises over 2008-2013. However, the euro area financial architecture is now far more resilient, thanks to the significant institutional reforms that were introduced in the wake of these crises and the track record of financial stability Europe has shown over the last decade.[5]
The list of reforms include: an increase in the capitalisation of the European banking system; the joint supervision of the banking system through the Single Supervisory Mechanism; the adoption of a comprehensive set of macroprudential measures at national and European levels; the implementation of the Single Resolution Mechanism; the narrowing of fiscal, financial and external imbalances; the introduction of the fiscal backstops provided by the European Stability Mechanism; solidarity shown during the pandemic through the innovative NGEU programme; the demonstrated track record of the ECB in supplying liquidity in the event of market stress; and the expansion of the ECB policy toolkit (Transmission Protection Instrument, Outright Monetary Transactions) to address a range of liquidity tail risks.
As illustrated in Chart 3, the improved resilience has increased the role of common factors in driving the euro area bond market, with much less volatility in inter-country spreads in recent times.

Chart 3
Ten-year sovereign bond spreads vs Germany

(percentage points)

Sources: LSEG and ECB calculations.
Notes: The spread is the difference between individual countries’ ten-year sovereign yields and the ten-year yield on German Bunds. The latest observations are for 2 January 2026.

An Increasing Global Role for the Euro?
The events of 2025 have prompted much discussion of possible shifts in the international monetary system. In particular, a more domestically oriented US economy suggests that the US dollar will offer a less effective hedge against global risks.[6] For euro area investors, this might translate into a lower portfolio allocation to dollar assets and/or increased currency hedging of dollar positions, with a greater “euro home bias” in financial holdings. For global investors, it might entail a somewhat lower portfolio allocation to dollar assets and a somewhat higher portfolio allocation to the euro as the “next best” international currency. While the dollar should remain by far the largest international currency, there is some scope for a shift towards a less unipolar international monetary system.
Across a range of metrics, the euro is firmly established as the second-largest international currency (Charts 4 and 5). In relation to the raising of debt (bonds and loans), Tables 1 and 2 illustrate some of the largest euro-denominated issuances in 2024 by external entities.

Chart 4
The euro is the second-largest international currency

(percentages)

Sources: Bank for International Settlements; IMF; CLS Bank International; Ilzetzki, E., Reinhart, C. and Rogoff, K. (2019), “Exchange Arrangements Entering the Twenty-First Century: Which Anchor will Hold?”, The Quarterly Journal of Economics, Vol. 134, No 2, pp. 599-646; and ECB staff calculations.
Notes: The latest data on foreign exchange reserves, international debt, international loans and international deposits are for the fourth quarter of 2024. Global payment currency (SWIFT) data are as of December 2024. Foreign exchange turnover data are as of April 2025. The US dollar is not shown in the chart. *Since transactions in foreign exchange markets always involve two currencies, foreign exchange turnover shares add up to 200%.

Chart 5
Share of the euro in global foreign exchange reserves

(percentages; at constant Q4 2024 exchange rates)

Sources: IMF and ECB staff calculations.
Notes: The vertical line is for 1 October 2016, i.e. when the Chinese renminbi was first identified as a reporting currency in IMF data. Previously, its share was included under the remaining currencies, denoted as “Other currencies excluding USD’’ in the chart. The latest observations are for the fourth quarter of 2024.

Table 1
Largest euro-denominated international bonds issued in 2024

Pricing date

Issuer

Deal nationality

Deal value (USD millions)

4 March 2024

TD Bank Group

Canada

5,962

18 March 2024

Morgan Stanley

United States

5,444

19 September 2024

Romania

Romania

5,438

30 October 2024

DSV Finance BV

Denmark

5,403

15 May 2024

Novo Nordisk

Denmark

5,023

28 August 2024

Bulgaria

Bulgaria

4,851

Sources: Dealogic and ECB staff calculations.

Table 2
Largest euro-denominated international loans issued in 2024

Credit date

Issuer

Deal nationality

Deal value (USD millions)

20 September 2024

DSV A/S

Denmark

15,598

24 April 2024

Swisscom AG

Switzerland

8,650

21 February 2024

Axpo Holding

Switzerland

7,556

15 October 2024

Bank Gospodarstwa Krajowego

Poland

7,263

25 October 2024

Nestlé S.A.

Switzerland

7,022

27 August 2024

Novo Nordisk

Denmark

6,537

Sources: Dealogic and ECB staff calculations.

There are also some signs of a step up in demand for euro-denominated assets (and in the hedging back to euro of dollar exposures) during 2025. As illustrated in Chart 6, the shift in international debt flows was largely concentrated in the second quarter.

Chart 6
Net foreign investment in debt securities of euro area non-monetary financial institutions

(flows as a percentage of the previous year’s annual GDP)

Sources: ECB (balance of payments and international investment positions), Eurostat and ECB calculations.
Note: The latest observations are for the third quarter of 2025.

Of course, much of the adjustment took the form of a level shift in the EUR/USD rate, with the euro appreciating against the dollar by 9 per cent (1.08 to 1.18) during the second quarter. According to a BVAR model maintained by ECB staff (Chart 7), much of this appreciation can be attributed to a risk sentiment factor, reflecting some mix of a decline in risk sentiment towards the dollar and an improvement in risk sentiment towards the euro.

Chart 7
BVAR historical decomposition of the drivers behind the USD/EUR exchange rate

(percentages; increase = appreciation of the euro)

Sources: Haver and ECB staff calculations.
Notes: The model extends a Bayesian vector autoregression (BVAR) (Farrant, K. and Peersman, G. (2006), “Is the Exchange Rate a Shock Absorber or a Source of Shocks? New Empirical Evidence”, Journal of Money, Credit and Banking, Vol. 38, No 4, pp. 939-961) to include seven endogenous variables: USD/EUR rate, relative GDP, relative CPI, relative two-year yields (euro area-United States), euro area GDP, euro area CPI and euro area two-year yields. Quarterly data (from the first quarter of 1999 to the third quarter of 2025) are entered in first differences. The model includes four lags and a constant, estimated via Bayesian methods following Korobilis, D. (2022), “A new algorithm for structural restrictions in Bayesian vector autoregressions”, European Economic Review, Vol. 148. A tightening euro area (US) monetary policy shock is assumed to increase euro area (US) interest rates more than in the United States (euro area) and to reduce euro area (US) GDP growth and inflation more than in the United States (euro area), while causing the euro to appreciate (depreciate) against the dollar. A risk sentiment shock assumes that stronger investor sentiment towards the euro causes the euro to appreciate, weighing on inflation and growth, which lowers euro area yields (more than US yields). The latest missing GDP observations are projected; shocks are identified via sign restrictions. The latest observations are for the third quarter of 2025.

Chart 8 shows that 2025 was also a strong year for euro-denominated bond issuance by external firms.

Chart 8
Net issuance of euro-denominated bonds by non-euro area corporations

(accumulated flows in EUR billions since the beginning of each year)

Sources: ECB (centralised securities database) and ECB calculations.
Notes: Figures are not seasonally adjusted. The latest observations are for November 2025.

The benefits of such an increase in euro asset demand would be larger if Europe undertook reforms to increase the scale of high-quality euro asset supply.[7] Most importantly, pro-growth economic policies would increase the size and profitability of European firms, thereby increasing the incentives to issue and hold corporate securities. As laid out in the Draghi and Letta reports, a concerted campaign to increase the pan-European integration of product markets would not only contribute to a faster growth rate but would also enable more firms to expand to the scale at which market-based financing becomes a more viable option. By lowering transaction costs, improving liquidity and increasing domestic demand for the full spectrum of financial assets, the savings and investments union package of measures (reinforced by further progress on banking union) can further boost the scale and efficiency of the European financial system.
In recognition of the implications for monetary policy transmission of the participation of foreign investors in euro area financial markets, the ECB provides swap and repo lines to key partners. The provision of such liquidity lines ensures the smooth transmission of monetary policy, prevents euro liquidity shortages abroad and strengthens global trust in the euro. Our frameworks for providing liquidity lines are reviewed regularly to ensure that they continue to serve their purpose.
An Increase in the Supply of Safe Assets
A foundational element of the international monetary system is the provision of global safe assets.[8] In particular, a safe asset should rise in relative value during stress episodes, thereby providing essential hedging services.
The current design of the euro area financial architecture results in an undersupply of the safe assets that play a special role in investor portfolios. 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, but 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. Especially in the context of much smaller and less volatile spreads (as shown in Chart 3), other national bonds also directionally contribute to the stock of safe assets. However, the remaining scope for relative price movements across these bonds means that the overall stock of national bonds does not sufficiently provide safe asset services.
In principle, common bonds backed by the combined fiscal capacity of the EU Member States are capable of providing safe asset services. However, the current stock of such bonds is simply too small to foster the necessary liquidity and risk management services (derivative markets; repo markets) that are part and parcel of serving as a safe asset.
There are several ways to expand the stock of common bonds. Just as the NGEU programme was financed by the issuance of common bonds jointly backed by the Member States, these countries could decide to finance investment in European-wide public goods through more common debt. From a public finance perspective, it is natural to match European-wide public goods with common debt, in order to align the financing with the area-wide benefits of such public goods. In related manner, common policy imperatives such as the urgent funding of Ukraine also warrant joint borrowing.
Outlining the general potential for greater scope for joint debt in funding joint programmes raises many governance issues, especially when the natural set of participants in a joint programme does not fully match the current membership of the EU. Accordingly, innovative forms of governance may be desirable, including taking into account the coordination of programme operation and programme funding. To this end, Philipp Hildebrand, Hélène Rey and Moritz Schularick have recently developed a set of principles that jointly address how European countries could expand shared defence capabilities and develop a common framework for their financing.[9] Over time, the associated joint debt could make a sizeable contribution to the expansion of euro safe assets.
In addition, in order to meet the rising global demand for euro-denominated safe assets more quickly and more decisively, there are a number of options to generate a larger stock of safe assets from the current stock of national bonds. For instance, Olivier Blanchard and Ángel Ubide recently proposed that the “blue bond/red bond” reform be re-examined.[10] Under this approach, each member country would ring-fence a dedicated revenue stream (say a certain amount of indirect tax revenues) that could be used to service commonly issued bonds. In turn, the proceeds from issuing blue bonds would be deployed to purchase a given amount of the national bonds of each participating Member State. This mechanism would result in a larger stock of common bonds (blue bonds) and a lower stock of national bonds (red bonds).
As emphasised in the Blanchard-Ubide proposal, there is an inherent trade-off in the issuance of blue bonds. In one direction, a larger stock of blue bonds boosts liquidity and, if a critical mass is attained, would also trigger the fixed-cost investments needed to build out ancillary financial products such as derivatives and repos. In the other direction, too large a stock of blue bonds would require the ring-fencing of national tax revenues on a scale that would be excessive in the context of the current European political configuration in which fiscal resources and political decision-making primarily remain at the national level. As emphasised in the Blanchard-Ubide proposal, this trade-off is best navigated by calibrating the stock of blue bonds at an appropriate level.
In particular, the Blanchard-Ubide proposal gives the example of a stock of blue bonds corresponding to 25 per cent of GDP. Just to illustrate the scale of the required fiscal resources to back this level of issuance: if bond yields were in the range of 2 to 4 per cent on average, the servicing of blue bond debt would require ring-fenced tax revenues in the range of 0.5 to 1 per cent of GDP. While this would constitute a significant shift in the current allocation of tax revenues between national and EU levels, it would still leave tax revenues predominantly at the national level (the ratio of tax revenues to GDP in the euro area ranges from around 20 to 40 per cent). The shared pay-off would be the reduction in debt servicing costs generated by the safe asset services provided by an expanded stock of common debt.
An alternative, possibly complementary, approach that could also deliver a larger stock of safe assets from the pool of national bonds is provided by the sovereign bond-backed securities (SBBS) proposal.
The SBBS proposal envisages that financial intermediaries (whether public or private) could bundle a portfolio of national bonds and issue tranched securities, with the senior slice constituting a highly safe asset. The SBBS proposal has been studied extensively (I chaired an ESRB High-Level Task Force on Safe Assets that published a report in January 2018) and draft enabling legislation was published by the European Commission. Just as with the blue/red bond proposal, sufficient issuance scale would be required in order to foster the market liquidity needed for the senior bonds to act as highly liquid safe assets.
In summary, there are several complementary routes to expand the stock of common euro debt and thereby help to meet the demand for euro-denominated safe assets. I have focused on proposals that are potentially feasible, constituting incremental steps that build on the current institutional configuration. Of course, the safety of common debt inescapably relies on the robust and demonstrable commitment of all Member States to maintain sustainable national debt paths: an expansion of common debt increases the importance of fiscal discipline at the national level.
Monetary Policy and Structural Shocks: Incorporating Uncertainty
Finally, I would like to comment on the implications of structural change for the conduct of monetary policy. Our 2025 assessment of our monetary policy strategy drew several conclusions.
First, in an environment of elevated uncertainty, it is all the more important that people can be confident that the central bank will protect price stability. For the ECB, this translates into a symmetric commitment to ensure that inflation stabilises at the two per cent target in the medium term. In turn, this commitment determines our monetary policy decisions, which is evident in our track record in delivering the return of inflation to target after the 2021-2022 inflation surges.
Second, especially given the range of structural factors operating on the economy, the flexibility of the medium-term orientation should take into account that the appropriate monetary policy response to a deviation of inflation from the target is context-specific and depends on the origin, magnitude and persistence of the deviation. This means that it is unhelpful to seek out all-purpose monetary policy rules that set interest rates on the basis of a fixed relation to a small number of variables. Rather, optimal monetary policy requires a nuanced, full-scale assessment of the underlying drivers of inflation and activity.
Third, monetary policy decisions should take into account not only the most likely path for inflation and the economy but also the surrounding risks and uncertainty, including through the appropriate use of scenario and sensitivity analyses.
Taken together, these considerations call for a pragmatic, evidence-based approach to making monetary policy decisions that draws on a comprehensive and rigorous analytical framework for interpreting the unfolding evidence in relation to the shocks driving inflation, economic activity and monetary and financial developments. Arguably, there are increasing returns to scale in providing such an analytical framework: the range and quality of analysis prepared by Eurosystem staff in recent years (much of which has been published in the ECB’s Economic Bulletin, other ECB outlets and the publications of the national central banks) would be difficult to match for a smaller central bank. In particular, scale economies are especially relevant in building and maintaining a range of macroeconomic models that are capable of facilitating useful scenario analysis and the exploration of optimal policy paths.

A significant exception relates to commodities trade, which is largely US dollar-based. See also Brüggen, A., Georgiadis, G. and Mehl, A. (2025), “Global trade invoicing patterns: new insights and the influence of geopolitics”, The International Role of the Euro, June.
In addition to the financial costs of setting up and running these systems, scale also matters in terms of the benefits of harmonisation of procedures and technical standards and in terms of operational simplicity especially for multi-country financial intermediaries. Scale economies also means that it can be efficient for smaller countries to use the systems developed by larger neighbours. For instance, Danish market participants can use the ECB-developed TARGET Services to settle wholesale and retail payments in Danish krone. The three TARGET platforms are: the T2 platform for settling large payments instantly and individually in central bank money; the TARGET2-Securities (T2S) platform for settling securities transactions in central bank money; and the TARGET Instant Payment Settlement (TIPS) platform for real-time, pan-European instant payments in central bank money.
The costs of launching a digital currency have a substantial fixed component, arising from the design, development, governance and operation of the system, rather than rising linearly with the number of transactions processed. Compared to fragmented national systems, the payment rails provided by the digital euro spreads the costs incurred by financial intermediaries over a very large user base, sharply reducing unit costs.
Currency risk is less relevant for the equities market.
See also Lane, P.R. (2021), “The resilience of the euro”, Journal of Economic Perspectives, Vol. 35, No 2, pp. 3-22.
See also Hassan, T., Mertens, T., Wang, J. and Zhang, T. (2025), “Trade war and the dollar anchor”, Brookings Papers on Economic Activity, 24 September.
See also Lagarde, C. (2023), “A Kantian shift for the capital markets union”, speech at the European Banking Congress, Frankfurt, 17 November; Lagarde, C. (2025), “Earning influence – lessons from the history of international currencies”, speech at an event on Europe’s role in a fragmented world organised by Jacques Delors Centre at Hertie School, Berlin, 26 May; Lagarde, C. (2025), “Europe’s “global euro” moment”, The ECB Blog, ECB, 17 June; Lagarde, C. (2025), “Turning openness into strength – the moment of the euro”, speech at the Business France event “Business en Européens”, Paris, 7 October; and Lagarde, C. (2025), “From resilience to strength – unleashing Europe’s domestic market”, speech at the 35th European Banking Congress, Frankfurt, 21 November.
This section draws on the discussion in Lane, P.R. (2025), “The euro area bond market”, keynote speech at the Government Borrowers Forum 2025, Dublin, 11 June.
Hildebrand, P., Rey, H. and Schularick, M. (2025), “European defence governance and financing”, VoxEU, 20 November.
Blanchard, O. and Ubide, Á. (2025), “Now is the time for Eurobonds: A specific proposal”, Peterson Institute for International Economics, 30 May.

 
 
 
 
 
 
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1 January 2026

Euro banknotes and coins start circulating in Bulgaria
Bulgarian National Bank joins Eurosystem
Bulgaria becomes 21st euro area member
Bulgarian National Bank now also full member of Single Supervisory Mechanism following period of close cooperation

The euro officially entered into circulation in Bulgaria today, bringing the number of European Union (EU) Member States using the single European currency to 21. This follows on from the formal decision made in July, which also announced the official conversion rate of 1.95583 Bulgarian lev per 1 euro.
“I warmly welcome Bulgaria to the euro family and Governor Radev to the ECB Governing Council table in Frankfurt” said Christine Lagarde, President of the European Central Bank (ECB). “The euro is a powerful symbol of what Europe can achieve when we work together, and of the shared values and collective strength that we can leverage to confront the global geopolitical uncertainty that we face at the moment.”
The ECB also marked the historic milestone of Bulgaria’s official adoption of the euro by lighting up its main building in Frankfurt, symbolising the integration and unity of 358 million Europeans who use the euro as their currency.
With Bulgaria joining the euro area, Българска народна банка (Bulgarian National Bank), the country’s national central bank, becomes part of the Eurosystem and the Governor of the Bulgarian National Bank gains a seat on the Governing Council of the ECB.
The Bulgarian National Bank also becomes a full member of the Single Supervisory Mechanism, although the country has been part of the close cooperation framework since October 2020. As such, the ECB is currently responsible for directly supervising four significant institutions in the country and overseeing 17 less significant institutions there. As part of its supervisory tasks, the ECB is also responsible for licensing banks and assessing the buyers of qualifying holdings in all banks. Bulgarian National Bank has a representative on the ECB’s Supervisory Board.
Bulgarian National Bank has paid the remainder of its contribution to the capital of the ECB and transferred its contribution to the ECB’s foreign reserve assets. Bulgarian counterparties of the Eurosystem will be able to participate in ECB open market operations announced after 1 January 2026. A list of credit institutions and branches of credit institutions located in Bulgaria that are subject to reserve requirements will be published shortly on the ECB’s website, as will lists of branches of Bulgarian credit institutions located in other EU Member States already using the euro. The ECB announced transitional provisions for minimum reserve requirements on 13 October 2025. Assets located in Bulgaria that fulfil the necessary requirements will be added to the euro area’s list of eligible collateral.
As of today, the Bulgarian market has also joined the Eurosystem’s TARGET services which ensure the free flow of cash, securities and collateral across Europe. These services are T2 (for settling payments), T2S (for settling securities), TIPS (for settling instant payments) and ECMS (for collateral management of Eurosystem credit operations). Settlement in euro in T2S and TIPS has been possible for the Bulgarian market since 2023 and 2024, respectively. The migration of Bulgarian counterparties went smoothly, and all services are now active.
As of today the new system of rotating voting rights comes into force in the ECB’s Governing Council, as shown in this calendar.
 
 
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The 147 countries and jurisdictions working together within the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) have agreed on key elements of a package that charts a course forward for the co-ordinated operation of global minimum tax arrangements in the context of a digitalised and globalised economy.
Following months of intense negotiations, the comprehensive package for a “side by side” arrangement announced today represents a significant political and technical agreement which will set the foundation for stability and certainty in the international tax system. It will preserve the gains achieved so far in the global minimum tax framework and protect the ability for all jurisdictions, particularly developing countries, to have first taxing rights over income generated in their jurisdictions.
The package includes five key components:

First, a series of simplification measures will reduce compliance burdens for multinational enterprises (MNEs) and tax authorities in calculating and reporting under the global minimum tax rules.
Second, the package further aligns the treatment of tax incentives globally through the introduction of a new targeted substance-based tax incentive safe harbour.
Third, new safe harbours are available to MNE Groups having an ultimate parent entity located in an eligible jurisdiction which meets minimum taxation requirements.
Fourth, the package includes an evidence-based stocktake process to ensure a level playing field is maintained for all Inclusive Framework Members.
Fifth, the package reinforces the objective that qualified domestic minimum top-up tax regimes remain a primary mechanism in the global minimum tax framework for ensuring the protection of local tax bases, particularly in developing countries.

“This agreement by the Inclusive Framework including 147 countries and jurisdictions is a landmark decision in international tax co-operation,” OECD Secretary-General Mathias Cormann said. “The Members of the Inclusive Framework are to be commended for their work in finalising this package, which enhances tax certainty, reduces complexity, and protects tax bases. I look forward to seeing the Inclusive Framework take forward the implementation of this package, as well as to future proposals for further simplifications of the global minimum tax rules and compliance burdens.”
Additional tools and fact sheets to support implementation of the package will be made available in the coming weeks, alongside a dedicated webinar hosted by the OECD on 13 January 2026. The OECD will also continue to ensure that the rules can be implemented effectively and efficiently by all countries and jurisdictions, offering comprehensive capacity-building assistance where needed.
To access the comprehensive package, please visit: https://www.oecd.org/en/topics/sub-issues/global-minimum-tax/global-anti-base-erosion-model-rules-pillar-two.html
 

Working with over 100 countries, the OECD is a global policy forum that promotes policies to preserve individual liberty and improve the economic and social well-being of people around the world.

 
 
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The European Banking Authority (EBA), the European Central Bank (ECB), national central banks and national supervisory authorities across the European Economic Area have signed a Memorandum of Understanding (MoU) to strengthen cooperation and information sharing in support of non-bank payment service providers’ (PSPs) access to central bank-operated payment systems.
This multilateral agreement sets out clear principles for collaboration and harmonises the processes and procedures for the exchange of information between national supervisory authorities and national central banks in relation to non-bank PSPs’ participation in payment systems operated by central banks. This harmonised approach aims to ensure consistent outcomes and establish a level playing field in the European payments market.
 
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Today, the European Commission and the High Representative presented a Joint Communication on strengthening Economic Security. It outlines concrete steps to reinforce the EU’s strength and resilience in the face of growing external economic threats, while retaining our openness and commitment to international trade and investment.
The Joint Communication builds on the Economic Security Strategy of 2023 which set the overarching economic security objectives of promoting industrial strengths, protecting European interests and partnering with like-minded countries.
This Communication sets out the EU’s strengthened approach to addressing risks, using all the tools at its disposal. To strengthen its economic security, the EU will use existing tools irrespective of their original purpose and will deploy its toolbox more proactively when needed. It will also enhance its information collection and analytical capabilities to inform EU decisions and improve coordination with Member States and businesses.
A proactive and targeted approach
The Communication reflects a paradigm shift, moving from a reactive posture towards a more proactive and systematic deployment of tools. The EU will also be more strategic in leveraging its economic weight and the access to its Single Market. The EU’s measures will remain targeted, proportionate and focused on addressing specific high-risk situations. At the same time, the EU, its Member States and businesses will increasingly need to accept the economic costs that come with increased security and resilience.
Drawing on risk assessment work with Member States, the Commission’s immediate focus will be in six priority high-risk areas:

Reducing strategic dependencies for goods and services;
Attracting safe investment into the EU;
Supporting a vibrant European defence and space industry, and other critical industrial sectors;
Securing EU leadership across critical technologies;
Protecting sensitive information and data;
Shielding Europe’s critical infrastructure.

Coordinated and strategic use of tools
The effectiveness of EU action will be strengthened by using existing tools more strategically and in a coordinated way. This includes, for example, new FDI screening guidelines, taking economic security considerations into account in trade defence investigations, and prioritising funding for projects that work on reducing EU dependencies.
Improved situational awareness
The Commission will enhance its assessment of risks, as well as information gathering and sharing with Member States and stakeholders. It will promote a common understanding of economic security risks, and how and when to deploy measures to counter them. This will help the EU to intervene in a timely and effective manner. A key element will be reinforcing the Commission’s close cooperation with business, which is often at the sharp end of economic security issues.
Completing the EU’s economic security toolbox
The EU is also working on new tools to address the current gaps in the EU’s economic security. The first flagship proposal under the new economic security communication, ResourceEU is presented today, focusing on tackling Europe’s overdependence on overseas suppliers of critical raw materials and semiconductors. Other initiatives are at various stages of preparation and implementation, including the SAFE Regulation, Industrial Accelerator Act, Cloud and AI Development Act, CHIPS 2.0 Act, Net Zero Industry Act, Critical Raw Materials Act, Start-up and Scale-up Strategy, and EU Space Programmes.
International cooperation
Europe is far from alone in facing economic security challenges. With that in mind, the EU will even further step up its cooperation with trusted partners, promote common economic security standards, and where possible take joint action to address key challenges.
Next steps
The Commission is already putting in motion any necessary legislative changes, guidelines and other supportive measures to implement the actions set out in the Joint Communication. The Commission will continue to engage intensively with the Member States, third countries and with stakeholders on the new economic security strategic approach.
 
 
 
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Tariffs and trade disruptions dominated headlines in 2025. European firms rely heavily on global trade – it represents about half of EU output. Despite that, European businesses are not radically overhauling their globalised approach. Instead, they are investing to make their supply chains more efficient and resilient.
US firms are a different story. While they rely less on global trade (it represents roughly one-quarter of output), new tariffs caused them to reduce imports and diversify the countries they import from. In short, US firms are rethinking trade and globalisation.
The latest European Investment Bank Investment Survey, which gathered data from approximately 13 000 firms across the European Union and a sample from the United States, provides insight on how businesses are dealing with new trade realities
 

Tariffs complicate trade

Almost half (48%) of EU firms now see tariffs as an obstacle to trade. But a relatively small share, 18%, sees tariffs as a major obstacle to trade. That contrasts with the United States, where more than three-quarters of firms say tariffs are an obstacle, and as many as 39% cite it as a major barrier.
Compliance with new regulations, standards and certifications bogs down trade on both sides of the Atlantic, but arguably more so in Europe. 20% of EU companies say regulations are a major barrier, compared with 8% in the United States.

Firms rethink suppliers

New tariffs shook up global supply chains. But European firms are taking a long view and finding solutions that balance efficiency with supply chain resilience. While just 7% of EU firms reduced imports, as much as 19% started to diversify the countries from which they import.
This differs significantly from US companies, which are aggressively looking for ways to substitute imports. Almost one-third of US companies surveyed are cutting imports, and roughly 40% are switching countries.

EU firms remain committed to trade

EU firms remain well integrated into international trade (either within the European Union or outside it), with manufacturers and large firms leading the way. Roughly two-thirds of EU firms either import, export or both. That’s a much higher figure than for US firms.

*Click on the monitor icon to see the charts

Compliments of the European Investment Bank – a Platinum Member of the EACCNY

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The Commission today presented the Automotive Package to support the sector’s efforts in the transition to clean mobility. It sets an ambitious yet pragmatic policy framework to ensure 2050 climate neutrality and strategic independence while providing more flexibility to manufacturers. It also responds to calls by EU industry to simplify rules.
The automotive sector has been key to Europe’s industrial strength for decades, sustaining millions of jobs and driving technological innovation. As the world is changing, the car industry is transforming through new technologies and actors.
Today’s package maintains a strong market signal for zero-emission vehicles (ZEV) while giving the industry more flexibility to achieve CO2 targets, and supports vehicles and batteries made in the European Union. The corporate vehicles initiative will support the uptake of zero- and low-emission vehicles. The automotive omnibus enhances competitiveness by saving costs, expected to be approximately €706 million per year, and cutting red tape, while providing greater investment certainty.
Commission President von der Leyen said: “Innovation. Clean mobility. Competitiveness. This year, these were top priorities in our intense dialogues with automotive sector, civil society organisations and stakeholders. And today, we are addressing them all together. As technology rapidly transforms mobility and geopolitics reshapes global competition, Europe remains at the forefront of the global clean transition.” 
Staying the course towards clean mobility with pragmatism
The Commission presents a package that addresses both supply and demand of the automotive sector’s transition: on the supply side, it presents a review of the existing CO2 emission standards for cars and vans and a targeted amendment to those for heavy-duty vehicles (HDVs). On the demand side, it proposes an initiative to decarbonise corporate vehicles with binding national targets for zero- and low-emission vehicles.
The CO2 standards now provide further flexibilities to support the industry andenhance technological neutrality, while providing predictability to manufacturers and maintaining clear market signal towards electrification.
From 2035 onwards, carmakers will need to comply with a 90% tailpipe emissions reduction target, while the remaining 10% emissions will need to be compensated through the use of low-carbon steel Made in the Union, or from e-fuels and biofuels.
This will allow forplug-in hybrids(PHEV), range extenders, mild hybrids, and internal combustion engine vehicles to still play a role beyond 2035, in addition to full electric (EVs) and hydrogen vehicles.
Prior to 2035, car manufacturers will be able to benefit from “super credits” for small affordable electric cars made in the European Union. This will incentivise the deployment on the market of more small EV models. For the 2030 target for cars and vans, additional flexibility is introduced by allowing “banking & borrowing” for 2030-2032. An additional flexibility is granted for the vans segment, where the electric vehicle uptake has been structurally more difficult, with a reduction of the 2030 CO2 vans target from 50% to 40%.
The Commission is also proposing a targeted amendment to the CO2 emission standards for heavy-duty vehicles with a flexibility easing the compliance with the 2030 targets.
Regarding corporate vehicles, mandatory targets are set at the Member State level to support the zero- and low-emission vehicle uptake by large companies. Having more zero- and low-emission vehicles on the market, both first- and second-hand markets – will benefit all customers. As companies’ cars cover higher yearly mileages, it also means more emission reductions. It will also make zero- or low- emissions and “Made in the EU” a pre-requisite for vehicles benefitting from public financial support. 
Strengthening Europe’s own battery industry
With €1.8 billion, the Battery Booster will accelerate the development of a fully EU-made battery value chain. As part of the Battery Booster, €1.5 billion will support European battery cell producers through interest-free loans. Additional targeted policy measures will support investments, create a European battery value chain and foster innovation and coordination across Member States. These measures will enhance the cost competitiveness of the sector, secure upstream supply chains and support sustainable and resilient production in the EU, contributing to the derisking from dominant global market players. 
Less red tape and stronger enabling conditions for the transition
The Automotive Omnibus will ease administrative burden and cut costs for European manufacturers, boosting their global competitiveness, and freeing up resources for decarbonisation. Businesses are expected to save approximately €706 million per year, bringing the administrative savings thanks to all omnibuses and simplification initiatives the Commission has presented so far to around €14.3 billion per year. Among other things, it proposes to reduce the number of secondary legislation that will be adopted in the upcoming years and to streamline testing for new passenger vans and trucks. This will reduce costs while maintaining highest environmental and safety standards. The roll-out of electric vans in domestic transport is supported by measures that place them on an equal footing with internal combustion vans regarding drivers’ rest times and rules.
The Omnibus also introduces a new vehicle category under the Small Affordable Cars initiative, covering electric vehicles up to 4.2 meters in length. This will enable Member States and local authorities to develop targeted incentives, stimulating demand for small EVs made in the EU.
The Commission is also updating and harmonising car labelling rules, for customers to have complete information about the cars’ emissions when making purchases.
Background
Today’s proposals build on the Automotive Action Plan, and input from industry and key stakeholders gathered during the Strategic Dialogue under President von der Leyen’sleadership since January 2025.
In January 2025, President von der Leyen launched a Strategic Dialogue on the Future of the Automotive Industry, bringing together industry representatives, social partners, Member States, regions and civil society. Three Dialogue meetings have taken place to date, providing a platform to discuss the challenges and opportunities the sector faces.
 
 
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The Commission welcomes today’s decision by EU Member States to introduce a €3 customs duty per item on e-commerce parcels valued below €150, starting in July 2026. The new duty will help protect the competitiveness of European businesses by levelling the playing field between e-commerce and traditional retail.  

Given the rapid increase in e-commerce goods being imported into the EU, the Commission and Member States have together acknowledged the need for an urgent solution, which will bridge the gap until the setting up of the EU Customs Data Hub in 2028, as part of the EU customs reform.  

The Council and the Commission are working to enable the implementation of this temporary measure, through appropriate legal amendments and by ensuring a well-functioning IT framework.  

The permanent customs duty regime will apply once the EU Customs Data Hub is established. The EU Customs Data Hub will fully integrate new customs data related to e-commerce, providing customs services with a complete picture of goods entering or exiting the EU.  

The temporary customs duty of €3 per item will apply to parcels sent directly to consumers from third countries. This measure is separate from the ongoing negotiation of an EU handling fee on e-commerce parcels.While the customs duty eliminates a competitive advantage that the e–commerce operators currently enjoy, the handling fee is meant to compensate for the increasing costs that customs authorities incur for supervising the very significant flow of parcels.

Protecting EU business from the e-commerce boom

The new customs rules for e-commerce, proposed in the Commission‘s customs reform, will reinforce the EU customs union and better equip customs authorities toprotect theEU retail trade and its workers, as well as EU consumers. Theyare vital to create a level playing field for our EU businesses against growing competition from online platforms abroad. 

Background

Today, parcels valued below €150 that are sent from a third country directly to a consumer in the EU are exempt from customs duties. The Commission proposed the removal of this exemption in May 2023 as part of the customs reform.

The initialproposal for the removal foresaw application as from mid-2028. The Council adopted the removal of the exemption on 13th of November 2025, and called for an earlier application of the measure already in 2026.

Inaddition, in February 2025 in its communication on e-commerce, the Commission introduced the idea of a Union handling fee on goods imported directly to consumers. It was introduced in the customs reform proposal by the Council in its negotiating mandate in June 2025.The handling fee is meant to compensate for the increasing costs for customs authorities of ensuring the release of those goods for free circulation.

According to the Council mandate, the handling fee should enter into force in November 2026. The content and date are currently under negotiation between the Council and the European Parliament in the context of the ongoing customs reform proposal trilogues.
 

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Governing Council endorses recommendations of High-Level Task Force on Simplification, which include:

reducing the number of elements in the risk-weighted and leverage ratio framework
introducing a materially simpler prudential regime for smaller banks, which expands on the existing EU regime
introducing a European governance mechanism that takes a holistic view of the overall level of capital
finalising the savings and investment union – including completion of the banking union – to foster cross-border integration and allow for more efficient capital markets

The European Central Bank (ECB) today published the recommendations of the Governing Council’s High-Level Task Force on Simplification to simplify the European regulatory, supervisory and reporting framework. These recommendations were endorsed by the Governing Council and will now be presented to the European Commission.
These proposals intend to simplify the framework, while maintaining the resilience of the European banking system and ensuring that microprudential, macroprudential and resolution authorities continue to meet their objectives effectively. European harmonisation and financial integration should be fostered. International cooperation is crucial and all jurisdictions should ensure full, timely and faithful implementation of Basel III.
The Governing Council strongly encourages the completion of banking union and the savings and investment union to reduce national fragmentation and allow for more efficient capital markets.
One of the recommendations is to simplify the design of banks’ capital requirements and buffers, also known as capital stacks[1], via two changes. First, merging the existing layers of capital buffers into just two: a non-releasable buffer and a releasable buffer that authorities can lower in bad times.[2] When merging buffers, it will be important to preserve the authorities’ current powers and competencies. Second, reducing the leverage ratio framework from four elements to two, namely a 3% minimum requirement and a single buffer, which could be set to zero for smaller banks.
To improve the quality of banks’ capital, the Governing Council proposes enhancing the capacity of Additional Tier 1 capital to absorb losses when a bank is operating normally, which would be Basel-compliant and maintain resilience. Alternatively, non-equity elements could be removed from the going-concern capital stack provided that Basel compliance and capital neutrality are not compromised.
The Governing Council proposes significantly increasing proportionality under EU banking rules by expanding the existing small banks regime[3] to include more banks and simplifying their applicable rules in a prudent and harmonised manner.
To simplify the macroprudential framework, the Governing Council recommends automatic reciprocation of macroprudential measures. This ensures all banks active in a country that applies a macroprudential measure will be subject to that measure.
For the framework that applies when banks fail, the Governing Council recommends aligning the resolution requirements that apply to all banks more closely with those that apply to the global systemically important banks.[4] This should be done without reducing the components on banks’ balance sheets which can be used to absorb losses and recapitalise in case they fail, thereby keeping the EU in line with international standards and making the rules more transparent and predictable.
To achieve further harmonisation, the Governing Council recommends shifting EU banking rules from directives to directly applicable regulations.
With regard to supervision, the Governing Council recommends completing the Single Rulebook and harmonising rules on licensing, governance and transactions with related parties, which would reduce complexity. Supervisors should be given greater flexibility, for example, in how often they review banks’ internal models.
The Governing Council proposes simplifying the EU-wide stress test by streamlining its methodology and scope and making its results more useful from a banking system and individual bank perspective. The results of this revised stress test exercise would help improve the coordination between macroprudential and microprudential buffers.
The Governing Council proposes being made responsible for taking a holistic view of overall capital in the banking union and cross-country heterogeneities, which is currently missing. This could be done by expanding the role of the Macroprudential Forum, which already brings together the Governing Council and the Supervisory Board, to improve coordination and consistency across countries when setting micro- and macroprudential instruments.
With regard to reporting, the Governing Council proposes that European authorities share their data more widely with each other, allowing banks to report only once, thereby creating a fully integrated reporting system at the European level for statistical, prudential and resolution purposes. This could be done, ideally, via the Joint Bank Reporting Committee. All reporting requirements could be reviewed every three to five years to ensure they are still needed. Banks and supervisors would focus on the important data, disregarding minor reporting errors by implementing a materiality threshold for data resubmission requests. Consolidating supervisory and disclosure data would further reduce reporting efforts, with public disclosure (Pillar 3 reports) derived from supervisory reporting.
The ECB will present the proposals of today’s report to the European Commission, which is preparing a report on the overall situation of the banking system that is due to be presented in 2026.
The ECB has also published today a report entitled “Streamlining supervision, safeguarding resilience”, which discusses its ongoing agenda to increase the effectiveness, efficiency and risk focus of European banking supervision. The initiatives described in this report constitute the ongoing work by ECB Banking Supervision under the existing legislation. They complement the Governing Council’s recommendations and can be fully implemented independently of these recommendations.
The ECB welcomes the ESRB’s report on the simplification of its tasks published today.
 
 
Compliments of the European Central Bank
 
 

Banking regulations set out two main sets of requirements: going-concern requirements for banks to remain solvent when they are operating normally and gone-concern requirements to absorb losses and recapitalise if the bank fails. Both frameworks include risk-based requirements, which set requirements based on risk-weighted assets, and non-risk-based requirements which, in contrast, set requirements based on non-risk weighted assets. This results in several capital stacks, each of which is classified as either going- or gone-concern, and as either risk-based or non-risk-based. Each of these different stacks consists of different elements, i.e. specific buffers and requirements.
The new non-releasable buffer would result from merging the capital conservation buffer with the global systemically important institutions buffer or the other systemically important institutions buffer, whichever is higher. The new releasable buffer would result from merging the countercyclical capital buffer with the systemic risk buffer. The non-binding Pillar 2 guidance would be kept separate, on top of the releasable buffer.
EU banking rules include various proportionality provisions, including for small and non-complex institutions. These are banks that meet various criteria including having less than €5 billion on their total balance sheet and having limited trading activities.
The EU has two gone-concern frameworks: the minimum requirement for own funds and eligible liabilities (MREL) applicable to all banks and the total loss-absorbing capacity (TLAC) applicable to global systemically important banks.
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The Council’s presidency and the European Parliament’s representatives reached today a provisional political agreement on the revision of the foreign direct investment (FDI) screening regulation. The updated framework aims to strengthen the EU’s ability to identify, assess and address risks posed by certain foreign investments, while preserving the openness to global trade and investment.
The revised regulation builds on the functioning of the current FDI screening framework, which is key to safeguarding public order and security across the EU. The agreement strengthens the current system, mandating screening mechanisms with a common minimum scope to be carried out by all Member States, and foreign investments through EU subsidiaries covered as well.
The agreement also increases consistency across national mechanisms, reducing administrative burden for investors, and ensuring that the potential cross-border security implications of foreign investments will be screened.
 
“Today’s agreement strengthens the EU’s capacity to protect its security and public order, while ensuring Europe remains an attractive destination for investors. We achieved a balanced and proportionate framework, focused on the most sensitive technologies and infrastructures, respectful of national prerogatives and efficient for authorities and businesses alike.”
-Morten Bødskov, Denmark’s minister for industry, business and financial affairs
Main elements of the agreement
A common minimum scope of screenings
To ensure a higher degree of harmonisation across the EU, the co-legislators agreed that all member states would establish screening mechanisms covering a targeted and clearly defined set of sensitive areas where they must screen foreign investments. The minimum scope includes:

dual-use items and military equipment
hyper-critical technologies, such as artificial intelligence (aligned with the EU AI Act definitions and focused on general-purpose AI with relevance to space or defence), quantum technologies and semiconductors
critical raw materials
critical entities in energy, transport and digital infrastructure, based on a risk-based assessment by the member state where the EU target is established
electoral infrastructures (e.g. voter databases, voting systems, electoral management systems)
A limited list of financial system entities, narrowed to include only central counterparties, central securities depositories, operators of regulated markets, operators of payment systems (excluding central banks) and systemically important institutions.

A strengthened but proportionate cooperation and accountability mechanism
The agreement confirms that screening decisions remain the exclusive responsibility of the member statein which the investment is being made. Member states retain full discretion in deciding whether to authorise, condition or prohibit an investment. The final text preserved this principle while improving transparency and coordination among national authorities and the Commission.
In cases where comments from other member states or an opinion from the Commission have been issued, the screening member state will explain how these were considered, including reasons for any disagreement, without prejudice to sensitive national security considerations. According to the agreement, the Commission may assist the host member state in gathering information.
Streamlining processes and interoperability
The agreement also clarified and streamlined several operational aspects of the framework, including:

a new shared database to prevent circumvention and make exchange of relevant experience easier between authorities
an optional single portal for the electronic filing of foreign investments, to be set up if at least nine member states request it
clarification of risk factors for assessing foreign investments.

Next steps
The provisional agreement will now be endorsed by the Council and the Parliament before being formally adopted. The new rules will start applying 18 months after the entry into force of the regulation.
Background
The current FDI screening regulation has been in force since October 2020 and created, for the first time, an EU-wide framework enabling member states and the Commission to cooperate on the screening of foreign direct investments likely to affect security or public order.
Since its introduction, the number of member states with a national screening mechanism has grown significantly. However, divergences in scope, thresholds, timelines and procedures persist, creating uncertainty for investors and potential risks for the internal market. Moreover, evolving geopolitical and technological challenges, including threats to critical infrastructure, supply chain dependencies and the rapid development of dual-use technologies, highlighted the need to update the EU’s approach.
The revision of the regulation was one of the initiatives announced in the Commission’s 2024 package on strengthening the EU’s economic security.
 
 
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