EU leaders discussed Ukraine, the Middle East, competitiveness, European defence, the next MFF, migration, oceans, multilateralism and the Western Balkans.
António Guterres, UN Secretary-General, was invited to a working lunch.
A Euro Summit in inclusive format was held on the margins of the meeting.

European Council conclusions, 20 March 2025
Remarks by President António Costa at the press conference following the European Council meeting of 20 March 2025
Euro Summit, 20 March 2025

The text on Ukraine was firmly supported by 26 heads of state or government.

Ukraine

Three years into Russia’s war, the EU remains steadfast in its solidarity with and support for Ukraine. To date, the EU has provided €139.2 billion to Ukraine, including €49.3 billion in military support.
The EU is committed to continuing to support Ukraine and its people, in coordination with like-minded partners and allies.

Russia’s war against Ukraine (background information)

A comprehensive, just and lasting peace
The EU is committed to a comprehensive, just and lasting peace, based on the UN Charter and international law. In this respect, EU leaders reiterated the principles they set out for a peace negotiation at the special European Council on 6 March.
They also welcomed the joint statement by Ukraine and the US, including the proposal for a ceasefire agreement, humanitarian efforts and the resumption of US intelligence sharing and security assistance.
They called on Russia to show real political will to end the war and called for:

the exchange of prisoners of war
the release of civilians
the return of all Ukrainian children and other civilians unlawfully deported and transferred to Russia and Belarus
Special European Council, 6 March 2025
Ukraine: Statement by the High Representative on behalf of the European Union following the Ukraine-U.S. meeting in Saudi Arabia (press release, 11 March 2025)

Russia’s immobilised assets
The EU remains ready to step up pressure on Russia, including by applying new sanctions and by strengthening the enforcement of existing sanctions.
Subject to EU law, Russia’s assets should remain immobilised until Russia ceases its war and compensates Ukraine for the damages caused by the war.

How Russian immobilised assets are used (background information)

EU solidarity with Ukraine

Security guarantees

The EU maintains its peace through strength approach, which requires Ukraine to be in the strongest possible position. Ukraine’s own military and defence capabilities are an essential component of this.
To deter future Russian aggression, Ukraine also needs to have robust and credible security guarantees. To this end, EU leaders welcomed the efforts that have begun to be made in this regard together with like-minded and NATO partners and expressed their readiness to contribute, particularly by supporting Ukraine’s ability to defend itself effectively.
They also called on member states to urgently step up efforts to address Ukraine’s pressing military and defence needs.
Financial support
The EU will continue to provide Ukraine with regular and predictable financial support. To this end, EU leaders called on:

the Commission to swiftly frontload financing under the Ukraine Facility and the G7 extraordinary revenue acceleration loan
the Commission and member states to use all options under the Ukraine Facility to increase support
The Ukraine Facility (background information)

EU membership
EU leaders stressed that the EU will intensify support for Ukraine’s reform efforts to become a member state. In this regard, they highlighted the importance of progress in accession negotiations in line with the merit-based approach and of opening clusters once the conditions are met, starting with the fundamentals as soon as possible.

Ukraine: enlargement (background information)

EU military support for Ukraine

Competitiveness

Faced with multiple complex challenges, the EU needs to strengthen its competitiveness and enhance Europe’s open strategic autonomy and resilience in order to stay prosperous and maintain its global leadership.
In this context, the leaders underlined that the need to invest in defence is closely interlinked with the EU’s competitiveness.

A more competitive Union will be a stronger Union, better able to protect its citizens, its values and its interests on the global stage while sustaining its prosperity and its social model.

European Council conclusions, 20 March 2025

They also stressed that 2025 should mark a step change to boost competitiveness, strengthen the single market, promote quality jobs and ensure successful green and digital transitions, in line with the agreed climate objectives.
In this regard, they agreed to prioritise simplification, lowering energy prices and mobilising private savings in order to unlock necessary investments. They also welcomed the competitiveness compass, the clean industrial act and the omnibus simplification packages presented by the Commission.

Competitiveness compass (background information)

Simplification and reducing administrative burdens
Simplification must be implemented at all levels to provide a clear and innovation-friendly regulatory framework, without undermining predictability, policy goals or the single market.
In this regard, the leaders called on the Commission, the Council and the Parliament to:

work towards achieving the target of reducing administrative burdens by at least 25% and 35% for small- and medium-sized businesses
advance work on the simplification packages presented on 26 February 2025
adopt the stop-the-clock mechanism on sustainability reporting and due diligence by June 2025
adhere to better regulation principles throughout the legislative process

They also called on the Commission to present further simplification packages, including on industrial decarbonisation and on security and defence, and to continue reviewing the body of EU law to identify ways in order to simplify and consolidate existing laws.

Commission simplifies rules on sustainability and EU investments, delivering over €6 billion in administrative relief (European Commission, 26 February 2025) 

Competitiveness and industry

Energy

The EU is committed to achieving European sovereignty and climate neutrality by 2050, while remaining competitive globally. In this context, the leaders called for efforts to be urgently stepped up to:

protect citizens and businesses from high energy costs
secure the supply of affordable and clean energy
build a genuine energy union before 2030, including electrification through net-zero and low-carbon solutions
ensure cross-border long-term investment planning to fully integrate and interconnect the EU energy market
intensify additional energy supplies to Europe

They also welcomed the Commission’s action plan for affordable energy and urged all relevant stakeholders to start delivering on the actions therein in 2025.

Energy prices and security of supply (background information)
Affordable energy action plan (European Commission) 

Energy

Savings and investments union

To make the EU more competitive and more autonomous, it is paramount to create truly integrated and deeper European capital markets by achieving the capital markets union and completing the banking union.

A genuine savings and investment union will help channel hundreds of billions of euros of additional investment to the European economy every year.

European Council conclusions, 20 March 2025
In this context, and in light of the Commission communication on the savings and investment union strategy, the leaders stressed the need to take decisive steps in 2025 and 2026 and called on:

the Council and the European Parliament to quickly agree on all pending proposals from the 2020 action plan on the capital markets union, including insolvency
the Commission and the Council to advance work towards greater retail participation in capital markets by making investment and saving possibilities available, including at EU level
the Commission to swiftly propose improvements to the existing pan-European personal pension product

the Commission to propose improvements to the private equity and venture capital ecosystem and to propose an optional 28th company law regime to allow innovative companies to scale up
the Commission to propose a revised securitisation framework

In terms of convergence and efficiency, the leaders called on the Commission and the relevant authorities to ensure convergent supervisory practices and to complete the assessment of the conditions enabling the European supervisory authorities to supervise the most systemic relevant cross-border market actors and put forward a proposal in that respect.
The leaders also stressed the importance of mobilising private financing for the European defence industry, and invited the Commission to consider further leveraging EU programmes such as InvestEU.

Banking union (background information)
Retail investment strategy (background information)
European defence industry (background information)
Communication on the savings and investments union strategy (European Commission) 

Capital markets union explained

Single market

To achieve a deeper single market, EU leaders called for specific work strands to be pursued without delay to secure Europe’s industrial innovation, renewal and decarbonisation.
This includes growth in key technologies, such as artificial intelligence, quantum technologies, semiconductors, 5G/6G and other critical technologies, while also paying attention to traditional industries in transition such as the automotive, shipping, aviation and energy-intensive industries.
In this context, the leaders called on the Commission to put forward relevant proposals, including additional flexibilities under the regulation setting CO2 emission performance for cars and vans, as well as the review foreseen in that regulation.
They also called for further efforts to enhance the recognition and retention of skills across the EU.

Artificial intelligence (background information)

The EU single market: benefits, facts and figures

European defence and security

The EU is speeding up efforts to strengthen its defence readiness to deal with immediate and future challenges.
Building on the special European Council on 6 March and the Commission’s white paper on the future of defence, leaders called for an acceleration of all work strands to ramp up Europe’s defence readiness within the next five years.
They also called for the implementation of the actions identified in the European Council conclusions of 6 March 2025 in the field of capabilities to be initiated as a matter of urgency and for continued work on the relevant financing options.
In this regard they also pointed out that a stronger and more capable EU would make a positive contribution to global and transatlantic security and would complement NATO, which remains the foundation of the collective defence of those EU countries that are members.

Security and defence (background information)
EU-NATO cooperation (background information)
Special European Council, 6 March 2025
White paper on the future of European defence (European Commission) 

EU defence in numbers

MFF 2028-2034

EU leaders held a first exchange of views on the next multiannual financial framework (MFF), the EU’s long-term budget, and new own resources, a form of revenue that helps finance the EU’s expenditure.

Long-term budget explained (background information)

Financing the EU budget

Migration

Following up on past conclusions, the leaders discussed progress and encouraged further work on:

the external dimension of migration, notably through comprehensive partnerships
the implementation of adopted EU laws
the prevention and countering of irregular migration, including through new ways in line with international law
efforts related to returns
safe third countries and countries of origin
the fight against instrumentalisation, human trafficking and smuggling
visa alignment by neighbouring countries
safe and legal pathways in line with national competencies

In this context, they called on the Council and the European Parliament to advance on files with a migration dimension, especially the recent Commission proposal on returns.

Proposal to establish a common European system for returns (Eur-lex) 

Migration and asylum

Oceans
In view of the triple planetary crisis of climate change, pollution and biodiversity loss, EU leaders highlighted the important role of oceans and the blue economy in strengthening the EU’s competitiveness, resilience, maritime security and environmental sustainability and protection.
In this regard, the leaders:

welcomed the Commission’s intention to propose a European ocean pact to foster healthy oceans and a sustainable and competitive blue economy
called for increased global action and ambition, including accelerated ratification of the UN agreement on the conservation and sustainable use of marine biological diversity of areas beyond national jurisdiction (BBNJ agreement)
took stock of the preparations for the UN ocean conference
Maritime security (background information)

Multilateralism

The EU has always upheld and will continue to uphold the UN charter and the rules and principles it enshrines, in particular those of sovereignty and territorial integrity, political independence and self-determination. In this context, EU leaders:

pledged that the EU will remain a predictable and credible partner
resolved to drive forward the ‘UN80 initiative’ internal reform process to ensure that the UN remains effective, cost-efficient and responsive
expressed their readiness to cooperate with all stakeholders to ensure the effective implementation of the pact for the future
stressed the importance of the fourth international conference on financing for development

EU cooperation with the United Nations

Western Balkans
EU leaders addressed the situation in the Western Balkans and invited the Council to address the matter in April 2025.

Western Balkans (background information)

 
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The European Commission has adopted its strategy for the savings and investments union (SIU), a key initiative to improve the way the EU financial system channels savings to productive investments. It seeks to offer EU citizens broader access to capital markets and better financing options for companies. This can foster citizens’ wealth, while boosting EU economic growth and competitiveness.
The savings and investments union is a horizontal enabler that will create a financing ecosystem to benefit investments in the EU’s strategic objectives. As highlighted in the competitiveness compass, Europe’s capacity to address current challenges – such as climate change, rapid technological shifts and new geopolitical dynamics – demands significant investments, which the Draghi report estimates at an additional €750‑800 billion per year by 2030, and which is further impacted by increased defence needs. Much of these additional investment needs relate to small and medium sized enterprises (SMEs) and innovative companies, which cannot rely solely on bank financing. By developing integrated capital markets – alongside an integrated banking system – the savings and investments union can effectively connect savings and investment needs.
 
Why a Savings and Investments Union?
The European Union has the means to secure its own economic future and has an enormous potential to better serve its citizens and businesses. The EU benefits from a talented workforce, many innovative and successful companies, a large pool of savings and a predictable and sound legal environment, based on common principles and the rule of law. Europe’s stock exchanges count together for trillions of market capitalisation, it is home to UCITS, the globally most successful brand of investment funds, and has become the global leader for sustainable finance issuances with more issuances than the Americas and Asia & Pacific regions together. The business case for Europe is there – the Commission’s Competitiveness Compass defines the areas that are fundamental for growth and competitiveness, through flagship measures under the three transformational imperatives: closing the innovation gap, a joint roadmap for decarbonisation and competitiveness and reducing excessive dependencies and increasing security. Financial markets contribute to a thriving economy that creates better jobs with higher salaries for today’s workers and future generations and offers adequate retirement income in light of demographic developments. The EU’s resilient and well-regulated financial system has significant untapped potential to channel more savings to productive investment. EU citizens stand to benefit from well-developed, integrated and efficient EU financial markets that can offer them access to more wealth creation opportunities.
The development of a Savings and Investments Union is a crucial priority as it aims to improve the way the EU financial system channels savings to productive investment, creating more and a wider range of financial opportunities for people and businesses, notably sustainable businesses. The EU offers attractive investment opportunities, including to investors from third countries, but it is important to render it an even more attractive investment destination by enhancing its overall growth potential. Such attractiveness should be secured by means of strong aggregate demand, support to private investment, access to cleaner and more affordable energy, raw materials and advanced technologies, as well as a simpler business environment in a single market with fewer barriers.
The rapidly evolving geopolitical landscape, the challenges of climate change and technological developments have profound implications for the future of the EU and reviving the economy must be a key focus of the EU’s response. Major policy challenges lie ahead, in the fields of security and defence, sustainable prosperity and economic competitiveness, and also democracy and social fairness, as the EU must urgently prepare to play a very different role on the global stage. The EU’s economy will be instrumental in this respect, and it is now vital to take a more ambitious approach to policy coordination among Member States, reflecting the imperative to act collectively to unlock significant untapped potential for growth, employment and wealth creation.
At the same time, persistent fragmentation limits the benefits to be gained from the EU’s single market. For financial services alone, the IMF estimates that internal barriers to the single market are equivalent to a tariff of over 100 per cent, implying a huge cost to the EU economy. Urgent action is required to address these barriers if the EU’s prosperity and economic and geopolitical strength are to be secured. Clearly, the EU financial markets and wider economy can be much more than the sum of its national parts and, as argued in the Draghi Report, a vibrant and resilient economy is a pre-condition for the EU to manage its own destiny. The EU’s international partners are already adapting to the new geo-economic realities, and so the EU must also respond decisively.
Read more here.

Frequently Asked Questions
Factsheet: The savings and investments union – Connecting savings and productive investments

 
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Washington, DC: The International Monetary Fund (IMF) has released the seventh edition of the Integrated Balance of Payments and International Investment Position Manual (BPM7, the Manual) (https://www.imf.org/-/media/Files/Data/Statistics/BPM6/draft-bpm7-wcv.ashx). This new edition provides updated global standards for compiling external sector statistics, including balance of payments and integrated international investment position. It highlights key changes in the global economy, such as the increasing economic interconnectedness, digitalization, and innovations in financial markets since the time of the last update of the manual in 2009.
The launch of BPM7 marks the culmination of several years of work by the IMF Statistics Department in consultation with the IMF Committee on Balance of Payments Statistics (BOPCOM), with support from the global balance of payments (BOP) community of statisticians and users. BPM7 serves as a key framework for member countries, guiding the preparation of internationally comparable statistics and the production of high-quality data that reflects economic realities.
The release of BPM7 coincides with the release of the updated System of National Accounts, 2025 (2025 SNA) which was adopted by the United Nations Statistical Commission on March 5, 2025 (https://unstats.un.org/unsd/nationalaccount/sna2025.asp). The Government Finance Statistics Manual 2014 and Monetary and Financial Statistics Manual and Compilation Guide 2016 will also be revised in the near term to maintain their harmonization with the two updated standards. This uniform set of statistical methodologies ensures policymakers can make well-informed, data-driven decisions.
Countries are encouraged to implement both standards by 2029–2030. The IMF will support implementation of the updated BPM7 by providing additional guidance and technical assistance.
The white cover (pre-edited) version of BPM7 is available electronically in English, with publication in other languages—Arabic, Chinese, French, Russian, and Spanish—expected to be completed following the release of the final version.
 
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III. COMPETITIVENESS 
11. A more competitive Union will be a stronger Union, better able to protect its citizens, its values and its interests on the global stage while sustaining its prosperity and the European social model. The need to invest in our defence and our competitiveness are closely interlinked. The European Council underlines the urgent need to strengthen Europe’s competitiveness, building on the Budapest Declaration on the New European Competitiveness Deal and on its conclusions of 6 March 2025 on European defence. In that regard, the European Council welcomes in particular the presentation of the Competitiveness Compass of 29 January 2025, the Clean Industrial Deal of 26 February 2025 and the Omnibus simplification agenda.
12. 2025 should therefore mark a step change in the EU’s action to boost competitiveness, strengthen the Single Market, promote quality jobs and ensure successful twin transitions, in line with the agreed climate objectives. In order to achieve these goals, and contribute to closing the innovation and productivity gap with the EU’s global competitors and within the EU, the European Council agrees to give priority to simplification and reducing regulatory and administrative burdens, lowering energy prices and mobilising private savings to unlock necessary investment in the EU economy.
Simplification and reducing administrative burdens
13. Following up on the Commission communication of 11 February 2025 on implementation and simplification, the European Council calls for efforts at all levels – EU, national and regional – to ensure a clear, simple, smart and innovation-friendly regulatory framework and to drastically reduce, as a matter of urgency, administrative, regulatory and reporting burdens for businesses and public administrations, without undermining predictability, policy goals, high standards and the integrity of the Single Market. In this context, the European Council:
a)    calls on the Commission and the co-legislators to work towards achieving the target of reducing the cost of all administrative burdens by at least 25 %, and by at least 35 % for SMEs;
b)    calls on the Commission to keep reviewing and stress-testing the EU acquis to identify ways to further simplify and consolidate existing legislation;
c)    urges the co-legislators to take work forward on the Omnibus simplification packages presented on 26 February 2025 as a matter of priority and with a high level of ambition, with a view to finalising them as soon as possible in 2025;
d)    calls on the co-legislators to adopt the proposal on the stop-the-clock mechanism on sustainability reporting and due diligence without delay and at the latest by June 2025;
e)    calls on the Commission to rapidly follow up with further simplification initiatives, including on industrial decarbonisation and on security and defence; and
f)    urges the Commission and the co-legislators to adhere to better regulation principles throughout the legislative process, thereby avoiding over-regulation and the introduction of administrative burdens, in particular on SMEs.
Energy
14. Recalling its commitment to pursue the dual objective of European energy sovereignty and climate neutrality by 2050, and in order for the Union to remain competitive globally, the European Council:
a)    calls for all efforts at EU and Member State level to be urgently stepped up, in order to better protect EU citizens and businesses from high energy costs, secure the supply of affordable and clean energy and build a genuine Energy Union before 2030, which will require ambitious electrification using all net-zero and low-carbon solutions, and investment in grids, storage and interconnections at national and EU level. Recalling the agreed energy targets, the European Council calls for cross-border and Union-wide long-term investment planning, with a view to fully integrating and interconnecting the EU energy market, contributing to the Union’s energy security, and infrastructure protection and resilience; and
b)    welcomes in that context the presentation of the Commission’s Action Plan for Affordable Energy on 26 February 2025, which outlines both structural and short-term measures, in particular for the most affected citizens and businesses, while preserving the integrity of the Single Market; and urges the Commission, the Council, the Member States and all other relevant stakeholders to start delivering on these actions in 2025. It calls for efforts to enable additional energy supplies to Europe to be intensified, notably to ensure security of supply for all Member States.
Savings and Investments Union
15. Having regard to the challenges to the EU’s competitiveness, it is of paramount importance to create truly integrated and deeper European capital markets, by achieving the Capital Markets Union as a matter of urgency and completing the Banking Union. A genuine Savings and Investments Union will help channel hundreds of billions of euro of additional investment to the European economy every year, helping to boost the EU’s competitiveness, strategic autonomy and economic security.
16. In this context, and in the light of the Commission communication of 19 March 2025, the European Council:
a)    expects the co-legislators to quickly agree on all pending proposals from the 2020 Action Plan on the Capital Markets Union, including on insolvency;
b)    to complement actions at EU level, stresses the need for national-level actions in order to increase the size and depth of capital markets that are accessible to all citizens and businesses across the Union;
c)    with a view to expanding opportunities for citizens, calls:
–    on the Commission, the Council and Member States to advance work towards greater retail participation in capital markets by making available European investment and savings possibilities, including enhanced possibilities for EU-wide savings and pension products, drawing on best practices, in time to allow decisive steps to be taken in 2025; and
–    on the Commission to swiftly propose, in 2025, improvements to the existing pan-European personal pension product;
d)    with a view to increasing private funding for businesses, calls on the Commission:
–    to put forward proposals to improve the private equity and venture capital ecosystem and, in line with the respective competences under the Treaties, to propose an optional 28th company law regime allowing innovative companies to scale up, in time to allow the co-legislators to take decisive steps by 2026;
–    to swiftly propose, in 2025, a revised securitisation framework, including targeted adjustments to the prudential framework, while maintaining financial stability; and
–    to keep under review the global level playing field in the banking and insurance sectors and take appropriate measures;
e)    with regard to improving the convergence and efficiency of the supervision of capital markets across the EU and reducing fragmentation, calls on the Commission, working where relevant with national and European competent authorities:
–    to ensure convergent supervisory practices. To that end, it is essential to foster homogenous implementation, interpretation, application and enforcement of EU law by national competent authorities;
–    to complete the assessment of and the work on the conditions for enabling the European Supervisory Authorities to effectively supervise the most systemic relevant cross-border capital and financial market actors, with the aim of strengthening financial integration and ensuring financial stability, simplifying processes and reducing compliance costs, taking into account the interests of all Member States, and, on the basis of that assessment, to put forward, as appropriate, a proposal on supervision;
–    to swiftly remove barriers to market-led consolidation of market infrastructure and to cross-border investment; and
–    to streamline existing rules and eliminate duplication, clarify regulatory provisions and reduce the cost of compliance and reporting;
f)    underlines the importance of mobilising private financing for the European defence industry and invites the Commission to consider making further use of EU programmes, such as building on the experience of the InvestEU Member State compartment, taking into account the specific character of the security and defence policy of certain Member States.
Single Market, industry and skills
17. These competitiveness priorities will be supported by an ambitious new horizontal Single Market Strategy, to be presented in June 2025, which should aim at deepening the Single Market, by removing remaining barriers, in particular in the area of services and essential goods, addressing fragmentation, and improving the application and enforcement of Single Market rules.
18. The European Council also calls for the following specific work strands to be pursued without delay:
a)    building on the Clean Industrial Deal, the Automotive Action Plan of 5 March 2025 and the Steel and Metals Action Plan of 19 March 2025, which refer to technological neutrality, work must be stepped up to secure Europe’s industrial innovation, renewal and decarbonisation and to ensure the growth of tomorrow’s key technologies, such as artificial intelligence, quantum technologies, semiconductors, 5G/6G and other critical technologies, while paying particular attention to traditional industries in transition, notably the automotive, shipping, aviation and energy-intensive industries, and the need to secure a level playing field. To this end, it calls on the Commission to put forward, without delay, a targeted proposal for additional flexibilities to the 2025 milestone under the Regulation setting CO2 emissions performance standards for cars and vans, and to take forward the review foreseen in this Regulation; and
b)    following the Commission communication of 5 March 2025 on a Union of Skills, further efforts should be made to enhance the acquisition, recognition and retention of skills across the EU, from the building of basic skills to engaging in life-long learning, reskilling and upskilling, in line with the European Pillar of Social Rights and its Action Plan.
Other actions and way forward
19. The European Council addressed priorities for the 2025 European Semester and endorses the Recommendation on the economic policy of the euro area. The European Council also considered the employment and social situation in the European Union.
20. The European Council stresses that, going forward, all the abovementioned competitiveness priorities and actions should work together, in a mutually reinforcing manner, along with relevant EU instruments, to support research and innovation, investment, convergence and cohesion, connectivity, trade diversification and economic partnerships, growth and economic resilience in the European Union. The European Council remains seized of all these matters, and will assess progress on competitiveness and the green and digital transitions at its meeting in October 2025.
IV. EUROPEAN DEFENCE AND SECURITY
21. Following up on its conclusions of 6 March 2025 and in the light of the White Paper on the Future of European Defence of 19 March 2025, the European Council calls for an acceleration of work on all strands to decisively ramp up Europe’s defence readiness within the next five years. It invites the Council and the co-legislators to swiftly take work forward on the recent Commission proposals. The European Council calls for the implementation of the actions identified in its conclusions of 6 March 2025 in the field of capabilities to start as a matter of urgency and for continued work on the relevant financing options.
22. The European Council recalls that a stronger and more capable European Union in the field of security and defence will contribute positively to global and transatlantic security and is complementary to NATO, which remains, for those States that are members of it, the foundation of their collective defence.
23. The above is without prejudice to the specific character of the security and defence policy of certain Member States, and takes into account the security and defence interests of all Member States, in accordance with the Treaties. The European Council invites the Commission and the High Representative to report regularly on progress made in the implementation of its conclusions on defence. It will revert to all strands of work on this issue at its next meeting.
VI. MIGRATION
25. The European Council took stock of progress in the implementation of its conclusions on migration, including in light of the recent letter from the President of the Commission. The European Council encourages further work in particular on: the external dimension, notably through comprehensive partnerships; the implementation of adopted EU legislation and the application of existing legislation; the prevention and countering of irregular migration, including through new ways in line with EU and international law; efforts to facilitate, increase and accelerate returns, using all relevant EU policies, instruments and tools; the concepts of safe third countries and safe countries of origin; the fight against instrumentalisation, human trafficking and smuggling; visa policy alignment by neighbouring countries; as well as safe and legal pathways in line with national competences. The European Council recalls the EU’s determination to strengthen security at its external borders and ensure their effective control, in line with EU and international law.
26. The European Council calls on the co-legislators to make progress, as a matter of priority, on files with a migration dimension. In particular, it invites the co-legislators to swiftly examine the recent Commission proposal on returns.
 
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By António Dias da Silva and Marco Weissler | AI is already part of many workers’ daily routines. Some fear losing their jobs, but most don’t. The ECB Blog looks at how workers are using AI tools, how they feel about it and what that means for work in the future.

This post is part of a miniseries related to the ECB conference “The Transformative Power of AI”, on 1-2 April 2025, bringing together researchers, practitioners and policymakers. Learn more here.
The dawn of AI was accompanied by promises of new jobs being created and workers, including those at the bottom of the earnings distribution, benefitting from better work.[1] But there were also fears about nearly every job being automated, making many workers completely redundant. In this post we use the ECB’s Consumer Expectations Survey (CES) to look at how workers actually perceive AI and what effect they expect it will have on them. We also investigate how personal or job characteristics affect those views.
How many workers use AI in their jobs?
The May 2024 CES asked workers in 11 euro area countries whether they used AI at work.[2] About a quarter responded that they did in fact use AI tools.[3] As shown in Chart 1, there were some interesting patterns in the responses. First, there is a notable age bias. Workers aged 18-34 are twice as likely to use AI in their work (36%) as those aged 55-74 (18%). Second, workers with university educations are also more likely to use AI (30%) than those without (18%). Third, there is a less pronounced but noticeable gender difference, with men more likely to use AI (28%) than women (24%).[4]
AI usage also varies across activity sectors and workers’ occupations, as we will discuss below. And that has implications for how workers’ perceive the impact of AI on their jobs.

Chart 1
AI usage by demographic group

Percentage of workers

Sources: ECB Consumer Expectations Survey. Notes: Share of employed workers reporting the use of AI in their work. The question reads: ”Do you personally use artificial intelligence (including a large language model, such as ChatGPT or Gemini) in your work?”.

What do workers think about AI?
The CES also asked workers about their expectations regarding the impact of technological advancements like AI on their current jobs and their employment prospects over the next five years. Most workers expressed neutral or favourable views. Approximately 41% of all workers believe that new technologies will have a positive effect on their productivity or job opportunities (Chart 2). Another 37% do not anticipate any effect. This means that only about 20% of workers have negative expectations, possibly fearing job losses or worsening employment prospects. Interestingly, there are again visible differences across demographic groups. We find significantly more positive views of AI among workers with university education and younger workers in particular. These differences may be related to the actual usage of AI. As we described above, it is exactly these younger and university educated workers who use AI more frequently in their jobs already. Overall, those who use AI tools tend to have more favourable views than those who don’t. Nearly two-thirds of them foresee a positive effect on their future employment prospects. This may be because users with a positive view of AI tools are more likely to use them, or because using these tools has helped them discover the potential benefits.

Chart 2
AI usage and perceptions of impact on jobs

Percentage of workers

Sources: ECB Consumer Expectations Survey.
Notes: The question reads “Do you think that technological advancements (e.g. the increasing use of artificial intelligence, large language models, automation) will affect your current job or employment prospects in the next five years?” with three possible answers: a) Yes, they will affect me positively (e.g. by increasing my productivity and/or improving my employment prospects); b) Yes, they will affect me negatively (e.g. by making my job less necessary and/ or worsening my employment prospects); and c) No, they will not affect me at all.

AI use varies from one sector to another (Chart 3). The share of workers using AI is highest in the financial services sector, followed by professional services. At the other end of the scale are workers in the health & social, health care and trade & transport sectors.
Much like demographic groups, those sectors with the highest use of AI tools also report the most positive attitudes towards them (Chart 3). Conversely, the sectors with the lowest shares of AI use report some of the least positive attitudes. These disparities may reflect the fact that workers in some sectors see AI as more of a complement to their work, while workers in others sectors instead fear that AI could replace them. Workers in sectors characterised by manual tasks appear to have less favourable attitudes towards AI, while those involving analytical tasks report more favourable views. Meanwhile, negative perceptions remain strikingly consistent across sectors. Analysis shows that this negative sentiment is strongly linked to workers’ perceived job loss risks. This confirms that the risk of total or partial replacement by technology could be a main driver behind negative attitudes towards AI and similar technologies.

Chart 3
AI usage and perceptions of impact across activity sectors

Percentage of workers

Sources: ECB Consumer Expectations Survey.
Notes: The shown perception percentages exclude workers who expect no effect of technological advancements (such as AI or automation) on their current or future employment prospects. Perceptions are reported for all workers independently of their AI usage.

Managers, professionals and technicians are employee groups that are more likely to integrate AI into their daily tasks, have more positive attitudes towards it, and believe AI will positively impact their jobs (Chart 4). Notably, more than half of all managers view AI favourably in their occupations. These differences in attitudes towards AI of people working in different occupations could be related to training opportunities. There is a positive link between the amount of training received and the level of AI adoption. This suggests that workers’ attitudes towards AI are greatly influenced by their proficiency with these technologies and their ability to harness them to boost productivity and enhance their job market prospects.

Chart 4
AI usage and perceptions of impact across occupations

Percentage of workers

Sources: ECB Consumer Expectations Survey. Notes: The shown perception percentages exclude workers who expect either no effect or negative effect of technological advancements (such as AI or automation) on their current or future employment prospects. Perceptions are reported for all workers independently of their AI usage.

What does this mean for the future?
New technologies often spark fears of job losses. And those fears are not completely unfounded as whole professions could become obsolete. But at the same time those technologies have in the past generally created even more new tasks and opportunities. It remains to be seen whether AI will have the same net positive effect. At the moment, workers in the euro area have diverging views on the topic, with those already using AI tools generally having significantly more positive views, suggesting that familiarity reduces fear. Data show that familiarising workers with new AI technologies can improve their perceptions and attitude towards them. The CES remains a good barometer of the effects of AI on euro area workers, and we will continue to monitor this as technologies develop.
The views expressed in each blog entry are those of the author(s) and do not necessarily represent the views of the European Central Bank and the Eurosystem.
Check out The ECB Blog and subscribe for future posts.
For topics relating to banking supervision, why not have a look at The Supervision Blog?

Evidence from the euro area for the period 2011-2019, marked by great progress in machine learning and deep learning technologies, shows that occupations more exposed to AI saw an increase in their employment shares, suggesting potential benefits: Albanesi, S., Dias da Silva, A., Jimeno, J. F., Lamo, A., and Wabitsch, A. (2025). “New technologies and jobs in Europe.” Economic Policy, 40, 121: 71–139. Additionally, for the potential equalising effect of AI see Brynjolfsson, E., Li, D., and Raymond, L. R. (2023) “Generative AI at Work.” Quarterly Journal of Economics, qjae044, https://doi.org/10.1093/qje/qjae044.
These are: Belgium, Germany, Ireland, Greece, Spain, France, Italy, Netherlands, Austria, Portugal and Finland.
As the CES is an online survey the share of workers using AI may be higher here than in other surveys that are not administered online.
The patterns across demographic groups are consistent with evidence in other surveys. For example, using the Federal Reserve Bank of New York Survey of Consumer Expectation (SCE), the BIS reports that AI usage is lower for women, persons without college degree and persons older than 60 in the United States as well. See Aldasoro, I., Armantier, O., Doerr, S., Gambacorta, L., and Oliviero, T., “Survey evidence on gen AI and households: job prospects amid trust concerns” BIS Bulletin, No 86, 23 April 2024.

 
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Today, the Commission takes action to maintain and expand European industrial capacities in the steel and metals sectors. The Action Plan on Steel and Metals is designed to strengthen the sector’s competitiveness and safeguard the industry’s future.
The European steel industry is fundamental for European economy, providing inputs to critical sectors such as automotive, clean tech, and defence. A strong steel and metals industry in Europe is crucial to guarantee the EU’s security in the current geopolitical context and to deliver on the ”ReArm Europe Plan/Readiness 2030” also presented today. At the same time, this sector is at a critical turning point, challenged by high energy costs, unfair global competition, and the need for investments to reduce greenhouse gas emissions. The Plan is delivered in a time when market distorting measures, such as non-market support to global overcapacities and unjustified tariffs on EU steel and aluminium, can negatively impact our economy.
Commission President, Ursula von der Leyen, said: “The steel industry has always been a core engine for European prosperity. Next-generation, clean steel should therefore continue to be manufactured in Europe. That means we have to help our steelmakers who are facing strong headwinds on the global market. To make sure they remain competitive, we must reduce energy costs and help them introduce innovative, low-carbon technologies to the market. With today’s Action Plan we are offering concrete solutions for a thriving European steel industry.”
With this Action Plan, the Commission supports these sectors in facing the current challenges in the short to medium term. The sector-specific priority measures are the result of an inclusive and collaborative process, which involved multiple discussions and stakeholder engagement, including the Steel Dialogue that took place on 4 March 2025. The Action Plan will:

Ensure an affordable and secure energy supply for the sector: Energy costs represent a larger share of production costs for metals than for other sectors. The Action Plan promotes the use of Power Purchase Agreements (PPAs) and encourages Member States to leverage energy tax flexibility and reduced network tariffs to alleviate electricity price volatility. The Plan promotes faster grid access for energy-intensive industries and supports the increased use of renewable and low-carbon hydrogen within the sectors.

Prevent carbon leakage: The Carbon Border Adjustment Mechanism (CBAM) must ensure a level playing field. It should also ensure that non-EU industries do not “greenwash” their metals to appear low-carbon while still relying on high-emission energy sources. In the second quarter of this year, the Commission will issue a communication on how to address the problem of carbon leakage for CBAM goods exported from the EU to third countries. In addition, the Commission will conduct a review of CBAM, with a first legislative proposal by the end of 2025 extending the scope of CBAM to certain steel and aluminium-based downstream products and including additional anti-circumvention measures.

Expand and protect European industrial capacities: Global overcapacity is a serious threat to the profitability and competitiveness of this sector. The EU has already acted with trade defence measures against unfair competition in steel, aluminium, and ferroalloys, but the situation continues to worsen. This is why the Commission is tightening the current steel safeguards. Before the end of the year, the Commission will propose a new long-term measure to maintain highly effective protection of the EU’s steel sector once the current safeguard expires in mid-2026. To prevent exporters from bypassing trade defence measures, the Commission will also assess the introduction of the “melted and poured rule” to determine the origin of metal goods.

Promote Circularity: Improving recycling is crucial for cutting emissions and energy use in the metals industry. The Commission plans to set targets for recycled steel and aluminium in key sectors and assess whether more products, like construction materials and electronics, should have recycling or recycled content requirements. Additionally, the Commission will consider trade measures on metal scrap, a vital input for decarbonised steel, to ensure sufficient availability of scrap.

De-risking decarbonisation: The future Industrial Decarbonisation Accelerator Act will introduce resilience and sustainability criteria for European products in public procurement to boost demand for EU-produced low-carbon metals, creating lead markets. The Commission will allocate €150 million through the Research Fund for Coal and Steel in 2026-27, with an additional €600 million via Horizon Europe devoted to the Clean Industrial Deal. At the scale-up stage, the Commission targets €100 billion through the Industrial Decarbonisation Bank, drawing on the Innovation Fund and other sources, with a €1 billion pilot auction in 2025 focusing on decarbonising and electrifying key industrial processes.

Protect quality industrial jobs: The steel and metals industry are vital to the EU economy, employing directly and indirectly nearly 2.6 million people. Active labour policies will support skills development and fair job transitions. The European Fair Transition Observatory and the Quality Jobs Roadmap, part of the Clean Industrial Deal, will oversee employment impacts, ensuring workers’ rights are protected.

For more information, please contact:

Thomas Regnier, Spokesperson, EUROPEAN COMMISSION
Federica Miccoli, Press Officer, EUROPEAN COMMISSION

 
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Prepared by Malin Andersson, Valerie Jarvis and Michel Soudan | Business investment in the euro area has grown less dynamically – and its outlook remains less favourable – than in the United States.[1] In the post-pandemic period between the fourth quarter of 2021 and the fourth quarter of 2024, business investment grew by 15.4% in the United States – more than double the 6.8% cumulative increase over this period in the euro area (Chart A).[2] Across components, intangible investment – i.e. intellectual property products (IPP) – has contributed most to the differential, with euro area growth in intangibles (excluding volatile Irish IPP) only half that in the United States. In terms of the other main asset classes, transport equipment contributed only slightly less to investment in the euro area than in the United States. At the same time machinery and equipment investment declined in the euro area, while remaining slightly positive in the United States.

Chart A
Business investment and breakdown by asset

a) Euro area

b) United States

(cumulated percentage changes and percentage point contributions)

(cumulated percentage changes and percentage point contributions)

Sources: Eurostat, US Bureau of Economic Analysis, and ECB staff calculations.
Notes: Euro area non-construction investment and intangibles exclude intellectual property products (IPP) in Ireland. Non-construction investment in the United States refers to private fixed non-residential investment excluding structures. Intangibles refers to IPP. The latest observations are for the fourth quarter of 2024.

Weaker tangible investment in the euro area can be partly explained by lower demand. Since early 2022 domestic demand for goods – which is a key driver of tangible investment in machinery and equipment, including transport – has been considerably more subdued in the euro area. This has resulted in capacity utilisation falling markedly below its historical average since mid-2023 (Chart B, panel a). Stronger aggregate demand in the United States, supported by a swift deployment of investment-boosting policy measures, kept manufacturing capacity utilisation above its pre-pandemic average. In addition, sharper rises in energy prices in the euro area, coupled with heightened geopolitical uncertainty following Russia’s invasion of Ukraine, are likely to have dampened euro area demand for investment to a greater degree than in the United States, given the EU’s greater reliance on Russian gas as an energy source and proximity to the war zone. They would have had an impact both directly, through higher production costs and lower confidence, and indirectly, through competitiveness losses in export markets.[3] Confidence in the euro area has shown a particularly strong and extended decline since 2022 (Chart B, panel b). The fact that economic policy uncertainty was higher in the euro area than in the United States over this period also acted as a stronger drag on demand for investment in the euro area compared with the United States (Chart B, panel c).[4]

Chart B
Capacity utilisation, manufacturing Purchasing Managers’ Index and economic policy uncertainty

a) Capacity utilisation

b) Manufacturing Purchasing Managers’ Index

c) Economic policy uncertainty

(percentage point deviation from historical mean)

(diffusion indices)

(standardised index)

Sources: The European Commission’s Directorate General for Economic and Financial Affairs; S&P Global Market Intelligence; Baker et al. “Measuring Economic Policy Uncertainty”, The Quarterly Journal of Economics, Vol. 131, No 4, November 2016, pp. 1593-1636; and ECB staff calculations.
Notes: Capacity utilisation is shown as the deviation from the 1999-2019 mean and euro area economic policy uncertainty is the GDP-weighted average for the four largest euro area economies (standardised over 1999-2019). The latest observations are for January 2025 for capacity utilisation in the United States, for February 2025 for both the Purchasing Managers’ Index (PMI) and economic policy uncertainty, and for the first quarter of 2025 for capacity utilisation in the euro area.

There is also a significant intangible investment differential, related to innovation and research and development (R&D) spending, contributing to a widening productivity gap between the EU and the United States. According to the European Investment Bank’s Investment Survey 2024, which provides comparative data from a large survey of firms in the United States and the EU, expansion of capacity has been a greater driver of investment in the United States than in the EU. By contrast in the EU the primary purpose of investment has been replacement (Chart C, panel a).[5] US firms’ investment also tends to focus more on innovation than that of firms in the EU (Chart C, panel b). The 2024 EU Industrial R&D Scoreboard shows that euro area R&D investment is focused on mature industries such as cars and equipment, while in the United States it is increasingly concentrated in ICT-based activities, including data centres and artificial intelligence-related facilities. Intangible investment is key for longer-term growth and is likely contributing to the rising productivity gap between the two economies.[6]

Chart C
Investment and innovation

a) Purpose of investment spending

b) Firm innovation

(percentage of investment)

(percentage of firms)

Source: European Investment Bank (EIB) Investment Survey 2024.
Notes: In panel a), the figures may not add up to 100 due to rounding. In panel b), the data are based on replies to two questions on the proportion of total investment devoted to developing or introducing new products, processes or services, with a breakdown into innovations new to the company, to the country or to the global market. The latest observations are for 2024.

Firms point to higher obstacles to investment in the EU than in the United States. In the EU the main obstacles reported by corporates relate to a lack of skilled staff, high energy costs, elevated uncertainty and onerous regulation, according to the EIB Investment Survey 2024 (Chart D). Both energy costs and uncertainty appear to be somewhat more important in the EU than in the United States, in part reflecting the greater exposure of EU firms to the impact of Russia’s war in Ukraine. While uncertainty could be seen as a temporary factor, large and long-standing differences in energy costs, regulations in product and labour markets, and aspects related to productivity differentials are likely to be more persistent.[7] Heavier regulation is also contributing to a less dynamic corporate landscape in the euro area, with fewer firm entries and exits, and typically weaker firm growth. This is likely to hold back investment, notably in intangibles.[8]

Chart D
Perceived major obstacles to investment

(percentage point contributions)

Source: EIB Investment Survey 2024.
Note: The latest observations are for 2024.

A faster implementation of investment-boosting policies also helped shape the swifter and stronger rebound in US investment. While the Next Generation EU (NGEU) funds, amounting to €750 billion, are expected to boost EU business investment in digitalisation and the green transition, their deployment has been very gradual and delayed. The size of the associated fiscal multipliers is also uncertain.[9] In the United States, the Inflation Reduction Act (IRA) combined with the CHIPS and Science Act amount to about USD 835 billion of spending on clean energy and chip manufacturing. This is slightly larger than the NGEU programme in the EU in absolute terms, but represents a smaller share of GDP. These programmes have already given a major boost to US private non-residential investment in structures, which is not included in Chart A. The impact is particularly visible in manufacturing investment – especially investment in factories, which increased by more than in the EU.[10] The faster deployment of IRA funding compared with the NGEU may in part reflect the greater maturity of the single market in the United States. In addition, the IRA focuses on federal direct tax credits to firms and households, while in the EU tax policies remain national.[11]
Recent EU policy initiatives to improve the investment environment in the euro area should help to close the gap with the United States. The European Commission’s newly-announced Competitiveness Compass is a welcome step forward. Notably, the Compass aims to boost competitiveness and innovation through the following measures: simplifying and reducing the regulatory burden, removing barriers to fully benefiting from the Single Market, better coordinating policies at EU and national level, and improving access to – and affordability of – financing. It is thus vital to advance the capital markets union agenda, particularly as more sophisticated venture capital markets would make it easier for innovative EU firms to access risk capital and to grow. The swift implementation of these measures is of the utmost importance.

For earlier analysis, see the box entitled “The post-pandemic recovery – why is the euro area growing more slowly than the United States?”, Economic Bulletin, Issue 4, ECB, 2024.
The detailed national accounts data became available shortly after the cut-off date for this issue of the Economic Bulletin. Business investment is proxied by whole-economy non-construction investment in the euro area (excluding the volatile Irish IPP) and private fixed non-residential non-structural investment in the United States. For the euro area, see “Intangible assets of multinational enterprises in Ireland and their impact on euro area activity”, Occasional Paper Series, No 350, ECB, 2024.
See the article entitled “Past and future challenges for the external competitiveness of the euro area”, Economic Bulletin, Issue 6, ECB, 2024.
See, for instance, the box entitled “What are the economic signals from uncertainty measures?”, Economic Bulletin, Issue 8, ECB, 2024 and Chen et al., “Economic policy uncertainty and firm investment: evidence from the U.S. market” Applied Economics, Vol. 51, No 31, 2019, pp. 3423-3435, for an assessment the adverse impact of policy uncertainty on investment.
The euro area breakdown is not yet available.
See McKinsey & Company, “Getting tangible about intangibles: The future of growth and productivity?”, 2021; the box entitled “Labour productivity growth in the euro area and the United States: short and long-term developments”, Economic Bulletin, Issue 6, ECB, 2024; and Herzog, Stein and Horn, “The Productivity Puzzle: It’s the Lack of Investment, Stupid!”, Intereconomics, No 2, 2018.
See the article entitled “European competitiveness: the role of institutions and the case for structural reforms”, Economic Bulletin, Issue 1, ECB, 2025.
See Thum-Thysen et al., “Investment dynamics in Europe: Distinct drivers and barriers for investing in intangible versus tangible assets?”, Vol. 51, December 2019, pp. 77-88.
See the article entitled “Four years into the Next Generation EU programme: an updated preliminary evaluation of its economic impact”, Economic Bulletin, Issue 8, ECB, 2024 on the economic impact and “The real effects of Next Generation EU”, Recovery Watch, 2024, on the fiscal multipliers.
The IRA spurred investment in factories and other production facilities, notably the construction of data centres – a development which has been much less pronounced in the EU except in Ireland. As President Trump halted all IRA-related disbursements as of 20 January 2025, its potential long-term benefits are in doubt. Investment in non-residential manufacturing structures in the United States grew by 112% between the end of 2021 and the third quarter of 2024, although it only amounted to 0.5% of GDP and less than 4% of private non-residential fixed investment.
See Cahen et al., “Is Next Generation EU a game changer? A Comparison with IRA and ways to respond”, Eurofi Regulatory Update, February 2024.

 
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The global economy has been resilient in 2024, but some signs of weakness are appearing against a backdrop of slower growth, lingering inflation and an uncertain policy environment, according to the OECD’s latest Interim Economic Outlook.
The Outlook projects global growth slowing to 3.1% in 2025 and 3.0% in 2026, with important differences across countries and regions.
GDP growth in the United States is projected at 2.2% in 2025 before slowing to 1.6% in 2026. In the euro area, growth is projected to be 1.0% in 2025 and 1.2% in 2026. China’s growth is projected to slow from 4.8% this year to 4.4% in 2026.
Inflation is projected to be higher than previously expected, although still moderating as economic growth softens. Services price inflation is still elevated amidst tight labour markets, and goods price inflation has begun picking up in some countries, although from low levels. Annual headline inflation in G20 economies is projected at 3.8% in 2025 and 3.2% in 2026. These projections have been revised upwards by 0.3 percentage points compared to our Economic Outlook in December.

“The global economy has shown some real resilience, with growth remaining steady and inflation moving downwards. However, some signs of weakness have emerged, driven by heightened policy uncertainty,” OECD Secretary-General Mathias Cormann said. “Increasing trade restrictions will contribute to higher costs both for production and consumption. It remains essential to ensure a well-functioning, rules-based international trading system and to keep markets open.”
The Outlook highlights a range of risks, starting with the concern that further trade fragmentation could harm global growth prospects.
The Outlook also draws attention to the risk of macroeconomic volatility. An unexpected downturn, policy change or deviation from the projected disinflation path could trigger market corrections, significant capital outflows, and exchange rate fluctuations, particularly in emerging markets. High public debt levels and elevated asset valuations further heighten these risks.
Given these challenges, the Outlook highlights key policy priorities. Central banks should remain vigilant given heightened uncertainty and the potential for higher trade costs to push up price pressures. Provided inflation expectations remain well anchored, and trade tensions do not intensify further, policy rate reductions should continue in economies in which underlying inflation is projected to moderate and aggregate demand growth is subdued.
Decisive fiscal actions are needed to ensure debt sustainability, preserve room for reacting to future shocks and generate resources to meet large impending spending pressures. Stronger efforts are needed to reallocate spending towards activities that support longer-term growth, set within credible medium-term adjustment paths tailored to country-specific circumstances.
With potential output generally weakening across both advanced and emerging economies since the global financial crisis, ambitious structural reforms are needed. Governments must enact reforms to improve productivity and enhance the adoption of new technologies by boosting market competition and eliminating excessive regulatory burdens on firms.
Enhancing education and skills development and reducing constraints in labour and product markets that impede investment and labour mobility will be key. Artificial Intelligence (AI) presents a unique opportunity to revive productivity.
“The OECD projects AI to significantly boost labour productivity growth over the next decade, with even greater potential if synergies with robotics are considered,” OECD Chief Economist Álvaro Santos Pereira said. “Yet, the gains from AI may diminish if policies do not facilitate higher adoption rates and facilitate labour reallocation.”
For the full report and more information, consult the Interim Economic Outlook online. Media queries should be directed to the OECD Media Office (+33 1 45 24 97 00).

 
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By Claudia Buch and Isabel Schnabel | As the normalisation of the Eurosystem balance sheet progresses, the aggregate amount of central bank liquidity available to banks in the euro area will fall over the coming years. This blog explains the role played by the Eurosystem’s refinancing operations within the operational framework for monetary policy implementation. The ECB, both as a monetary policy authority and as a supervisor, expects that banks should consider these operations as an integral part of their day-to-day liquidity management.

In their day-to-day liquidity management, banks need to be able to meet their cash-flow obligations by having sufficient liquid assets or by sourcing short-term funding. The amount of liquidity they need is uncertain as it is affected by external shocks and the behaviour of others, such as depositors or market participants. Central bank reserves are the ultimate liquid asset. Banks can obtain reserves from other banks without, however, affecting the total amount of reserves in the system. They can, for instance, borrow in money markets (changing their funding composition) or sell assets (changing their asset composition). At a system-wide level, banks can source additional reserves only from central banks – for example, in the euro area, by using the standard refinancing operations.
The European banking system is currently operating with a high level of excess liquidity, that is to say, reserves in excess of applicable minimum reserve requirements. This high level of excess liquidity reflects the ample provision of liquidity through earlier monetary policy measures, most importantly quantitative easing, during the low interest rate period before and during the COVID-19 pandemic. Hence, there is currently little need for additional reserves, implying only low demand for liquidity in the ECB’s regular refinancing operations.
Since late 2022, however, in line with the change in the monetary policy regime, excess liquidity has progressively declined, mainly reflecting the maturing of targeted longer-term refinancing operations (TLTROs). As a result, banks have started to tap funding markets as a source of liquidity and have visibly increased their activity in repo markets.[1]
Over the coming years, the reduction of the Eurosystem monetary policy portfolios will further lower the amount of excess liquidity available to banks in the euro area. To manage this transition from abundant to less ample excess liquidity, in March last year the Governing Council adopted a new operational framework for monetary policy implementation.
This blog post explains the role that the Eurosystem’s refinancing operations play within the ECB’s operational framework. It emphasises that, as excess liquidity becomes less ample, the ECB, both as a monetary policy authority and as a supervisor, expects that banks should consider these operations as an integral part of their day-to-day liquidity management.
Banks’ demand for reserves
For most of the past ten years, banks in the euro area operated in an environment in which the ECB was injecting abundant liquidity into the financial system in pursuit of its price stability mandate – similar to the situation in many other parts of the world.
When inflation surged following the pandemic and the Russian invasion of Ukraine, the ECB responded forcefully by raising interest rates sharply and starting to normalise its balance sheet. Excess liquidity has declined visibly since then as banks repaid their TLTROs and the ECB’s monetary policy portfolios are being gradually rolled off (Chart 1).
At its peak in November 2022, excess liquidity in the euro area reached €4.7 trillion, or 14% of euro area banks’ total assets. Today, excess liquidity stands at €2.8 trillion (8.5% of total assets), and it is expected to fall further over the coming years.[2]

Chart 1
Eurosystem balance sheet: actual and projected

(EUR trillions)

Sources: ECB and ECB calculations.
Notes: Monetary policy portfolios and credit operations are assumed to develop in line with the median expectations of analysts as reported in the latest Survey of Monetary Analysts. The projection of banknotes is based on ECB internal models.

As excess liquidity declines, it will eventually no longer be sufficient to meet the banking system’s demand. This demand is determined by the public’s cash withdrawals, banks’ payment needs and liquidity preferences, as well as by prudential liquidity regulation. It is inherently difficult to predict when the turning point for excess liquidity will happen. Banks are currently operating in an environment characterised by a high degree of uncertainty,[3] making it more difficult to predict future cashflows and banks’ desired level of reserves. Banks’ demand for liquidity is also affected by the growing relevance of non-bank financial intermediaries in the financial system as both customers and competitors. And the accelerating pace of digitalisation and the growing demand for instant payments may alter depositor behaviour.
These factors are likely to drive up the precautionary demand for liquidity relative to the time before the abundant liquidity regime was introduced, and they contribute to uncertainty around the demand for central bank reserves.[4] The precautionary demand is possibly augmented by investors expecting banks to maintain a certain level of liquidity buffers above the regulatory minimum.
The ECB’s operational framework
Overall, it has become more difficult for central banks to correctly anticipate the demand for reserves and, hence, to steer interest rates in a wide interest rate corridor, as was the case when the ECB was still operating in a scarce liquidity regime.
Against this backdrop, in March 2024 the ECB Governing Council announced changes to its operational framework[5] to ensure the smooth implementation of monetary policy.
The operational framework has three key characteristics.[6]
The first is that the marginal unit of central bank liquidity is provided on demand through the ECB’s refinancing operations. To this end, the Governing Council decided that the standard refinancing operations – the one-week main refinancing operations and the three-month longer-term refinancing operations – will continue to provide as much liquidity as banks demand at a fixed rate and against a broad set of collateral.
The new framework implies that the amount of excess liquidity will be determined by banks themselves through their decisions to use the central bank’s lending operations. This marks a significant change from the recent past when reserves were mainly created by the central bank through asset purchases.
By allowing banks to borrow the liquidity they need against a broad set of eligible collateral, the current operational framework is also fundamentally different from the times when the ECB operated under a scarce liquidity regime.
The second key characteristic is the mix of instruments used to supply reserves. Banks are likely to hold high levels of central bank reserves on a permanent basis. As such, it is not sufficient to rely entirely on short-term lending operations to satisfy banks’ reserve demand as this would imply continuously rolling over large volumes of lending operations.
Therefore, once the Eurosystem balance sheet begins to durably grow again, the ECB will also start supplying reserves through structural longer-term refinancing operations and a new structural bond portfolio, taking legacy bond holdings into account.
These operations will make a substantial contribution to covering the banking sector’s structural liquidity needs arising from autonomous factors and minimum reserve requirements. But the marginal unit of liquidity will continue to be provided by the standard refinancing operations.
The third characteristic of the operational framework is that monetary policy is implemented through a “soft” floor with a relatively narrow spread of 15 basis points between the rate on the main refinancing operations and the deposit facility rate. This will limit the potential upward pressure on money market rates as the ECB’s balance sheet normalises. It will make accessing ECB operations economically attractive, also given that banks can pledge non-high-quality liquid assets as collateral.
At the same time, the spread is large enough to preserve incentives for money market activity by encouraging banks to manage their liquidity prudently, thereby avoiding the risk of excessive liquidity transformation through the ECB’s balance sheet, especially in light of the broad collateral framework.
Navigating the new normal
The ECB’s operational framework therefore relies on the banking system eventually replacing the reserves that will be absorbed through the run-down of the ECB’s bond holdings by borrowing in regular refinancing operations (Chart 2). The structural operations will be conducted only at a later stage.

Chart 2
Stylised breakdown of reserve supply over time

Source: ECB.

This is not the first time that the ECB has given refinancing operations a central role in the implementation of monetary policy. Under the scarce reserve regime in place in the early years of the euro, banks regularly tapped the Eurosystem’s refinancing operations for large amounts, in some periods reaching about €450 billion (Chart 3).

Chart 3
Euro area banks’ use of standard refinancing operations

(EUR billions)

Source: ECB and ECB calculations.
Notes: “MROs” refers to one-week liquidity-providing operations in euro. “Three-month LTROs” refers to three-month liquidity-providing operations in euro. “Other LTROs” refers to one-month, six-month and 12-month liquidity-providing operations in euro. The latest observations are for 10 March 2025.

So banks making greater use of monetary policy operations over the coming years will not be a symptom of liquidity stress. Rather, it will simply reflect their day-to-day liquidity management in the context of the operational framework.
Indeed, one of the strengths of the framework is that all banks in the euro area, regardless of their business model, size and geographical location, can hold the amount of reserves they find optimal, thereby insuring against risks of fragmentation in euro area money markets and sudden liquidity imbalances.[7]
And when banks replenish shortfalls in their desired level of reserves by accessing ECB operations, the total amount of liquidity in the system will be such that the ECB can steer short-term money market rates towards the key policy rate without having to know banks’ desired level of excess reserve holdings.
Refinancing operations also play a central role from a supervisory perspective. In the new normal, standard refinancing operations are seen as a routine and integral component of banks’ day-to-day liquidity management, and they will constitute an important part of a diversified funding mix. This should also be taken into account by bank boards, credit rating agencies and other authorities such as foreign supervisors.
From a supervisory perspective, banks are expected to proactively take forthcoming changes in liquidity and bank funding conditions into consideration. They need to be prepared to operate in an environment of less ample excess liquidity and be ready to source central bank reserves in a swift and scalable manner from a broad range of sources, both from the central bank as well as in money markets.
In this context, it is essential that banks are prepared on an operational level. This entails a robust IT infrastructure that allows them to identify and swiftly mobilise eligible collateral. Banks also need to set up the necessary organisational and contractual arrangements to access monetary policy operations and market counterparties. Moreover, they need to be in a position to prudently plan their liquidity needs.
On all these aspects, the targeted reviews we performed in 2024 to tackle shortcomings in asset and liability management frameworks show that banks still have room for improvement.[8] For example, some banks were not able to determine the eligibility of a material share of their assets. In the same vein, shortcomings were noted in the design, implementation and governance of funding plans, as well as in the integration of monetary policy operations into the overall liquidity management framework.
Conclusion
Successfully transitioning to a monetary policy implementation framework where the marginal unit of central bank liquidity is provided on demand through the ECB’s refinancing operations requires that banks actively and routinely access Eurosystem standard refinancing operations in order to secure a sufficient level of central bank reserves not only individually, but also in the banking system as a whole. Banks’ increasing use of ECB operations will reflect their day-to-day liquidity management in the context of the operational framework.
For this to function smoothly, banks need to ensure that they are operationally ready for the change in how central bank reserves are provided. It is essential that they adjust their liquidity management practices and are ready to access monetary policy operations. The ECB will continuously monitor progress in this area and communicate its expectations to monetary policy counterparties and supervised banks.
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Hudepohl, T. et al. (2024), “How banks deal with declining excess liquidity”, ECB, 18 June.
From a supervisory perspective, the concept of liquidity is wider and includes, in addition to central bank reserves, all assets and funding sources that are legally and practically available to banks to cover potential liquidity gaps. As of the third quarter of 2024, banks directly supervised by the ECB were holding €5.0 trillion of high-quality liquid assets. The underlying assumption is that these assets can be transformed into central bank reserves quickly and without friction, through transactions on the market or with the central bank.
Buch, C. (2024), “Bridges to the future: managing bank risk amid uncertainty”, speech at the Morgan Stanley annual conference, London, 12 March 2024.
Schnabel, I. (2023), “Back to normal? Balance sheet size and interest rate control”, speech at an event organised by Columbia University and SGH Macro Advisors, New York, 27 March.
ECB (2024), “Changes to the operational framework for implementing monetary policy”, press release, 13 March.
Schnabel, I. (2024), “The Eurosystem’s operational framework”, speech at the Money Market Contact Group meeting, Frankfurt am Main, 14 March.
By contrast, liquidity provided through asset purchases has tended to be concentrated among a small number of larger financial institutions, which are predominantly located in a few member countries.
ECB (2024), “Further supervisory activities and follow-up work on past priorities”, Supervisory priorities 2025-27, December.

 
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