Central Bank Governor Christodoulos Patsalides says that a common European safe asset could serve as a launchpad for deeper financial integration.
The CBC Governor, in an article published on the Central Bank's website on Sunday, 7 June under the title 'The Integration Dividend of a European Safe Asset – A European Perspective on Economic Integration and Strategic Assertiveness,' places particular emphasis on the creation of a common European safe asset, arguing that such a development could serve as a “launchpad for deeper financial integration and innovation by enhancing liquidity across Europe”.
As he notes, “modern financial systems rely on highly liquid benchmark assets to support collateral markets, repo activity, derivatives pricing and institutional portfolio allocation.”
He further argues that the issuance of “large-scale, standardised and highly liquid European safe assets would provide an efficient foundation for the development of integrated digital capital-market infrastructures, including tokenised securities, programmable settlement systems, and interoperable collateral frameworks.”
Patsalides also notes that the creation of such an asset could serve as a catalyst for the Savings and Investments Union. He says a common European safe asset would provide the pricing benchmark, collateral base and liquidity needed for integrated capital markets, while deeper capital markets would in turn strengthen the asset through a broader investor base, greater liquidity and increased issuance capacity.
He additionally stresses that Europe faces not only an innovation challenge but also a scale challenge, as fragmented capital markets make it more difficult to finance globally competitive companies in strategic sectors such as artificial intelligence, clean technology, digital infrastructure, defense, pharmaceuticals, and advanced manufacturing.
“A deeper and more liquid European capital market, anchored by a common benchmark asset, would facilitate larger institutional pools for capital, support long-duration investment, and lower financing costs across borders,” he says.
At the same time, the Governor estimates that a common European safe asset would enhance financial stability and strengthen the Banking Union by providing banks with a highly liquid and widely accepted asset for liquidity management and collateral purposes.
According to Patsalides, deeper European capital markets would also reinforce the international role of the euro and help finance common European priorities, including defense initiatives, the green transition and climate adaptation, health preparedness, cross-border energy infrastructure, and digital transformation.
“Zeno’s cosmopolis was grounded on the idea that prosperity emerges when individuals recognise their participation in a wider community bound by shared obligations and common destiny. The European project is, in many respects, a modern expression of that idea. A European safe asset would embody the principles of shared obligations and common destiny that lie at the heart of the European project,” the Governor concludes.
(Source: CNA)
