At the beginning of 2025, decades-old paradigms are shifting and the contours of a new framework for world governance remain ill-defined. In Europe, these issues are as pertinent as in any corner of the globe. EU member states are reckoning with a historic change in defense spending needs that is set to significantly increase issuance of government bonds in the continent.
The implications this new fiscal stance will have for funding markets are significant and come at a time when market participants are still readjusting to a complex monetary environment. While the European Central Bank (ECB) seeks to cut rates, national central banks are still trying to reduce the size of their balance sheets through quantitative tightening.
Taken together, these conditions are pushing funding markets from an era of collateral scarcity to one of abundance. Against this backdrop, market participants must re-assess their business models to adapt to these new conditions. As specialness evaporates from repo markets, trading desks are already considering collateral optimization and clearing – routes that offer significant capital and operational efficiencies.
In this landscape, innovation has taken on central importance. Not only to gain a competitive edge, but to ensure compliance too. Even as Europe’s firms prepare to implement T+1 settlement, the prospect of T+0 is already being discussed – a transition that will be impossible without further harmonization efforts in the post-trade segment and the widescale adoption of a DLT.
Innovation takes many forms, and Europe has long shown that it can innovate in market structure and efficiency through cooperation between institutions. While the importance of competition remains paramount, there are many ways in which infrastructure providers and even regulatory bodies can and do foster innovation through cooperation.
These themes, and more, were discussed in depth at the recent Clearstream and Eurex Global Funding and Financing Summit, held in Luxembourg in January this year. This whitepaper provides a summary and analysis of the event and its key findings.