A foundational element of any autonomous monetary system is the existence of a benchmark safe asset that serves as the anchor for asset pricing. Such a safe asset should be highly liquid, so that an investor can transact in large volumes without affecting market pricing. The safe asset should also rise in relative value during stress episodes, acting as a hedge against the volatility of risk assets. By extension, it is desirable for the international monetary system that there are global safe assets that are highly liquid (directly or indirectly) and rise in currency-adjusted value during stress episodes. The current design of the euro area financial architecture results in an undersupply of euro-denominated safe assets. 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. However, 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. The wider universe of national sovereign bonds can also directionally contribute to the stock of euro safe assets. As illustrated in Chart 1, the role of common factors in driving the euro area bond market has increased in recent years, with much less volatility in inter-country spreads. This decline in volatility reflects a more resilient institutional structure for the euro area, underpinned by an important set of reforms in the wake of the global financial crisis and the euro area debt crisis. These 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 Next Generation EU (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. 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. Ten-year sovereign bond spreads versus Germany Notes: The spread is the difference between the ten-year sovereign yields of individual countries and the ten-year yield on German Bunds. The latest observations are for 16 April 2026. The recently announced revisions to the ECB’s EUREP repo facility also make euro-denominated assets more attractive to global investors. In the context of greater geoeconomic fragmentation and uncertainty, Eurosystem liquidity facilities such as EUREP will continue to ensure the timely, consistent and broad provision of backstop funding for central banks....