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New financing needs, not foreseen when the EU's long-term budget for 2021 to 2027 was finalised, have arisen in recent months, reflecting multiple crises. From the very outset, in 2021, implementation of the EU's 2021-2027 budget faced challenging circumstances, with the pandemic and its consequences. In response, the EU and its Member States mobilised €3.7 trillion overall, with the EU budget providing direct support of €70 billion to help EU citizens and enterprises, and countries outside the EU ...

The EU budget is extremely tight. Borrowing costs related to the European Union recovery instrument (EURI), which have risen significantly due to the rise in interest rates, are putting further pressure on the budget. This undermines the EU's capacity to finance its priorities or react to unforeseen events, and puts flagship programmes at risk. A report by Parliament's Committee on Budgets calls for an urgent revision of the EU's long-term budget – to be in place by the start of 2024 – providing ...

European long-term investment funds (ELTIFs) invest on a long-term basis in infrastructure projects, real estate, and small and medium-sized enterprises, among other things. While the legislative framework – the ELTIF Regulation – for these funds was adopted six years ago, their market remains small. For this reason, the Commission has proposed amending the ELTIF Regulation to make it more appealing to investors. The key mulled changes involve differentiating between ELTIFs marketed to professional ...

Brexit poses unique challenges for policymakers in the EU as the most important financial centre in Europe is now outside its regulatory framework. We expect significant divergence over the medium- to long-term, given recent legislative and regulatory initiatives in the UK, but also developments of the regulatory framework in the EU. However, there seem to be limited concerns of an easing of the tax evasion and Anti-Money Laundering framework in the UK. We expect a limited use of the EU equivalence ...

The magnitude of the invrease in long-term rates is still relatively modest and is mainly driven by good news. It does not represent a strong tightening of financial conditions, nor does it endanger public finances. The ECB should monitor the situation carefully but it should not be a major concern for the moment. Nevertheless, if in the future yields drift away from levels compatible with economic fundamentals, or threaten the European recovery and the return of inflation towards 2%, the ECB’s expanded ...

Despite the partial realignment of European long-term government bonds after the crisis in 2012, there has been some renewed divergence in yields in the last years. We find that the government bond markets in the euro area are highly sensitive to changing market sentiments, both in time and across countries. Our analysis suggests that pulling the plug on QE too soon might undo some of the benefits of QE in the countries of the periphery and may lead to increases in the refinancing costs of member ...

Are European bond markets overshooting?

Indgående analyse 15-05-2017

We find that monetary variables, spillovers from US financial markets, expectations and sovereign risks are the main determinants of long-term interest rates in the EA. The empirical model does not identify recent overshooting. The observed rise since August 2016 is attributed to two factors: a) the increase in US long-term interest rates after the reversal in the Fed’s monetary stance; b) political tensions in France, Italy or Spain which generated higher perceived political risk.

The European Parliament will discuss the European Central Bank's (ECB) annual report for 2015 in its first November plenary, and is due to debate an own-initiative report focusing on monetary policy and on banking supervision activities in the euro area.

The notes in this compilation discuss the main factors underlying the extraordinary low levels of long-term rates across the euro area, assess the risks for financial stability and the implications for ECB monetary policy. The notes have been requested by the Committee on Economic and Monetary Affairs as an input for the September 2016 session of the Monetary Dialogue.

Increasing the pool of private capital available in the EU for the financing, mainly in Europe, of both tangible (infrastructure or industrial facilities) and intangible (education, research and development) assets, is vital to promote innovation and competitiveness. The Commission proposes to create a new type of investment vehicle which would invest in asset classes, such as unlisted companies and infrastructure projects. Such 'European long-term investment funds' (ELTIFs) would therefore contribute ...