Anxious relief, such was the mood in Washington DC last week during the Annual Meetings of the International Monetary Fund (IMF), from official and private sector participants alike. Relief that the global economy, and all its regional parts, are doing much better than expected in the Spring despite the US tariff shock. Anxiety that underneath the recent benign economy and markets, tectonic shifts are underway, still in their early stages and poorly understood.
Modernity sometimes conceals, under new guises, a return to old precepts: a currency backed 100% by the safest assets, bank deposits guaranteed by tangible reserves, the search for unfailing financial stability. Stablecoins (digital tokens backed by highly safe and liquid assets) are part of this logic. However, in our modern economies, banks only keep a small fraction of deposits in reserve with the Central Bank: this is the principle of "fractional reserves" which gives them the ability to create money (the remaining deposits can be allocated to credit). Beyond the intellectual interest that they attract, stablecoins raise a broader question: if their use were to become widespread, would they not risk making it more difficult to finance the economy?
The Treasury market is one of the pillars of the global financial system. This is due to its size and liquidity, its role in setting borrowing conditions, and the safety that these securities provide.However, the announcement of so-called 'reciprocal' tariffs last April caused turmoil in the market, reminding us that Treasuries had become more sensitive to periods of stress…
In August 2025, the decrease in market rates (Euribor, swap, etc.), which began in October 2023, had been passed on in full to the rates on new bank loans to corporations and households in the Eurozone. Banks generally tend to adjust the pricing of new loans to the cost of their resources with comparable maturities. Swap rates are good reference rates in this respect, as they provide a reliable approximation of what the market considers to be the expected path of short-term rates for a wide range of horizons.
Beyond supply factors (see US Federal debt: the risks of abundance) and demand factors (see A safe haven put to the test), banking regulations have also contributed to weakening the Treasuries market. This is the subject of the third instalment of our EcoInsight series on Treasuries.Since 2023, the US authorities have taken various measures to support the liquidity and stability of the Treasuries market (greater transparency of transactions, increased use of centralised clearing of repurchase agreements, programme to buy back the least traded securities).However, the balance sheet constraints faced by the banks responsible for intermediating this market remain an aggravating factor in times of stress
At a time when central banks are navigating between persistent inflation, economic slowdown, and unprecedented structural challenges, their room for maneuver has never been so closely scrutinized. Should they lower rates to support growth, maintain them to anchor inflation, or raise them in the face of unexpected shocks? Between balancing acts, threats to their independence, and regional divergences, the choices made by central bankers will shape the economy of tomorrow.
After historic increases, lending rates for households and businesses are calming down. Should we expect a return to normal?
Economic growth in emerging countries held up well in the first half of 2025. So far, US tariff measures have had little impact on global trade and therefore on their exports. Furthermore, domestic demand, another driver of growth in these countries, remains strong, in particular thanks to the support of domestic credit. Bank lending growth has returned to its pre-COVID level for a large number of countries, it exceeds potential GDP growth in real terms. This is a trend to watch, as it could lead to a deterioration in foreign trade and/or an increase in non-performing loans.
Following on from the first part of our EcoInsight series on US Treasuries, which focused on the US administration's budget plans (US federal debt: the risks of abundance), this second part we are examining how president Trumps’ excesses have harmful effects on the demand for federal paper.The profile of US Federal Government creditors has changed significantly over the past 20 years. The appeal of Treasuries for so-called ‘long-term’ investors (i.e. foreign central banks, resident pension funds and insurers) has waned. More ‘short-term’ investors (i.e. leveraged funds), who favour procyclical strategies, are now very active in this market. This shift has contributed to undermining the safe-haven status of Treasuries, which are now more sensitive to periods of stress
The Genius Act, signed into law on July 18 by President Donald Trump, aims to stimulate stablecoin holdings and demand for T-bills from their issuers. This legislation could ultimately have a significant impact on the scope of monetary policy, banking intermediation, and financial stability. However, the U.S. administration's hope that the increase in net demand for short-term Treasury securities will match that of stablecoins may not entirely come to fruition.
After a long decline of real long-term interest rates in advanced economies, the direction has changed in recent years. The prospect of rising private- and public-sector financing needs is raising concern that this movement is not over. Empirical research shows that the long-run dynamics of long-term interest rates are predominantly driven by economic growth, demographic factors (life expectancy and working-age population growth) and financing needs (public debt and pensions). The first two factors are expected to continue exerting downward pressure, whereas upward pressure should come from the huge financing needs. Empirical estimates of the relationship between long-term interest rates and expected borrowing requirements point towards an impact that should be rather limited, all in all
Considered the safest and most liquid assets in the world, US Treasuries are the first choice of investors seeking security. However, the turmoil that hit their market last April, in the wake of the announcement of new US tariffs, revived memories of the dysfunction caused by the COVID-19 pandemic in March 2020. Despite the magnitude of the shock, the market's loss of liquidity at the time came as a surprise, given Treasuries' safe-haven status. As a matter of fact, more than the shock per se, this fragility is due to structural factors.This first part of our EcoInsight series on Treasuries analyses how the US administration's fiscal plans threaten to exacerbate this fragility
The number of corporate bankruptcies continued to rise in the first quarter of 2025. However, the momentum slowed, and the increase was uneven. Record highs were broken in the United Kingdom, where a slight decline was nevertheless observed. In contrast, the increase remains much more limited in Italy and Germany, where it continues. In France, the figures are high, but the increase has slowed. In terms of business sectors, services, trade, and construction are the most affected, but to varying degrees depending on the country. In contrast, industry appears to be relatively unscathed. An analysis of bank balance sheets, particularly in France, puts the impact of bankruptcies into perspective
Despite the slowdown in inflation and the increase in household purchasing power (measured by real gross disposable income), private consumption in the Eurozone remains weak compared to the pre-Covid period. This sluggishness can be explained by the gap between harmonised inflation and households' perception of price trends. Recent developments in inflation and households' opinions on past price trends show a more marked divergence than before. Since early 2025, the associated opinion balances have not moderated much. This reflects the persistence of inflation in households' perceptions despite the observed slowdown. Households probably still have in mind (at least in part) the cumulative increase over the entire inflationary episode, rather than that over the last 12 months.
Non-performing loan (NPL) ratios of non-financial corporations declined in most EU/EEA banking systems between 2019 and 2024. On average, the ratio fell significantly to 3.38% in Q4 2024 (-2.4 percentage points since Q1 2019). Only the German, Austrian and Luxembourg banking systems recorded an increase, but they started from a level significantly below the EU/EEA average NPL ratio.
The decline in borrowing rates in the Eurozone resumed, except for investment loans. New investment loan rates (IRF > 5 years) to non-financial corporations in the eurozone remained stable in May 2025, at 3.67%, for the third consecutive month. By contrast, rates on new treasury loans (variable rate and IRF < 3 months) to corporates continued to fall (-25 bps m/m) to 3.38%. Rates on new loans for house purchases and loans for consumption to households also declined, but much more modestly (-2 bps m/m). They stood at 3.32% and 7.48%, respectively.
Each year, summer is bookended by two landmark central banking conferences where central bankers, academics and a few members of the private financial sector congregate to discuss new research of interest for monetary policy and compare notes on the outlook: in late June, the ECB Forum held in the windy coastal town of Sintra, Portugal; and in late August in the scenic Rocky Mountains valley of Jackson Hole, Wyoming. This year, the Sintra winds were blustery and relentless, but the discussions as calm, focused and insightful as ever, an apt metaphor for central bankers’ condition these days. Some key takeaways.
Faced with the need to find the necessary funding for the massive investments required for the energy and technological transitions identified by Mario Draghi in his report, and for Europe's defence remobilisation (Readiness 2030), on 19 March, the European Commission unveiled its strategy for a Savings and Investments Union (SIEU), of which securitisation is an essential part. On 17 June, the Commission also proposed new measures to boost securitisation activity in the EU while preserving financial stability. These measures are a good basis for relaunching the securitisation market. However, certain aspects could benefit from improvement.
Donald Trump has, for the most part, taken a wait-and-see approach following his destabilising announcements on trade tariffs. Nevertheless, the damage has been done and uncertainty remains high. Both growth and financing of the US economy could be affected. For the time being, the oil sector appears to be holding up well.
“Europe will be forged in crises and will be the sum of the solutions adopted to resolve these crises,” wrote Jean Monnet. Faced with tariffs and the isolationist temptation of the United States, Europe has cards to play, such as intra-zone trade. The momentum of European growth over the next decade will depend on the financing and implementation of the European rearmament programme and Germany's ambitious investment plan.
The quantitative theory of money — the idea that inflation in an economy depends on the quantity of means of payment in circulation — is a very old one. It is generally attributed to the French philosopher and jurist Jean Bodin, who, around the middle of the 16th century, was the first to have the intuition that the causes of the "rise in the price of all things" in Europe were to be found in the influx of precious metals from the New World.
In the coming months, a relaxation of the Basel leverage ratio (Supplementary Leverage Ratio, SLR) could be proposed in the United States. The aim is to ease the balance sheet constraints on primary dealers, most of which are subsidiaries of large banks, and thereby improve intermediation conditions in the US Treasury market.
The investment required to meet the challenges of competitiveness and energy and technology transition in the European Union is huge, and the need for it is imminent (2025-2030). To this must now be added expenditure to strengthen the European Union's military capabilities. To finance this, the EU must of course speed up its roadmap towards a Savings and Investment Union. But given the urgency, it must also take account of its financial ecosystem and rely on its banks. The postponement of the FRTB (Fundamental Review of Trading Book) until 2027 and the European Commission's legislative proposal on securitisation, expected in June, are steps in this direction.
The recovery in loans for house purchase spread to all eurozone countries in March 2025, but the picture is still mixed. New loans to households for house purchase, excluding renegotiations, saw a year-on-year increase in all eurozone countries in March 2025, which is unprecedented since April 2022. However, it was a very mixed picture in terms of year-on-year increases, ranging from 4.3% in Croatia to 48.6% in Lithuania, with a volume-weighted average of 24.3% across the eurozone. As a result, new loans in the eurozone (EUR 60.3 billion) has returned in March 2025 to its August 2022 level, after hitting a low in January 2024 (EUR 37.0 billion).
Every Spring and Fall, economic and financial policymakers from the whole world gather in Washington DC for the IMF/WB Meetings. Thousands of private financial sector professionals tag along. All over town, in both formal and informal settings, participants share and compare with their peers their own assessments of the world’s economic prospects. In my 25 years of taking part in these Meetings, this was one of the most interesting ones, with a pervasive sense among participants of living through a pivotal moment of economic history. In what follows, I offer a distillation of what this global pulse-check revealed.
