Annual Report 2025

In 2025 the ECB succeeded in bringing inflation back in line with its medium-term target of 2%, after a succession of crises – the pandemic, the economic fallout of Russia’s unjustified invasion of Ukraine – had driven it to record highs in late 2022.

In response to the largest inflation shock in a generation, the ECB implemented the sharpest tightening of monetary policy in its history, increasing policy rates by a record 450 basis points between July 2022 and September 2023 and pledging to keep rates at sufficiently restrictive levels for as long as necessary.

That tightening worked. Inflation in the euro area fell sharply, and from mid-2024 the ECB began gradually dialling back its monetary policy restriction. At the start of 2025, the disinflation process was well on track and the ECB’s projections foresaw inflation returning to target.

But the year brought a major geopolitical shock. The United States, Europe’s largest export market, surrounded itself with a tariff wall – a move that threatened to weigh on euro area growth and one that made the inflation outlook considerably more uncertain.

As it happened, the inflationary effects were contained. Europe refrained from large-scale retaliation, and the appreciation of the euro exchange rate dampened imported price pressures.

With inflation continuing on its projected path, the Governing Council was able to continue reducing policy rates, cutting a total of 100 basis points in four consecutive steps to bring the main policy rate to 2.00% by June.

Each decision was guided by the Governing Council’s reaction function, based on three elements: the assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. In making its decisions, the Governing Council pursued a data-dependent and meeting-by-meeting approach, without pre-committing to a particular rate path.

The euro area economy, meanwhile, showed surprising resilience to a challenging global environment.

This was partly due to frontloading, as firms rushed to get ahead of the new trade barriers in the early months of the year, giving European manufacturing a temporary lift. That boost faded as tariffs took hold and as manufacturing weakened in the face of competitiveness challenges.

But more fundamentally, the euro area economy was sustained by a genuine strengthening of domestic demand, which more than offset the external shock. Domestic demand fully accounted for growth in 2025.

Perhaps the most encouraging development was in investment.

Business investment expanded at a robust pace, driven by intangible areas – artificial intelligence, software and digitalisation – as Europe’s firms embraced digital technology with new urgency. And towards the end of the year, higher German defence spending began to take effect, itself a response to the new geopolitical environment.

Euro area growth reached 1.4% in 2025 – almost one-third stronger than projected at the start of the year, and a testament to the economy’s resilience.

Altogether, this allowed the Governing Council to put rates on hold from July onwards. With inflation around our medium-term target, longer-term inflation expectations well anchored and a broadly neutral monetary policy stance, the Governing Council was in a good place and well positioned to respond to future shocks in either direction.

In 2025 the Governing Council also formalised how it would interpret and react to future shocks, through its monetary policy strategy assessment – a collaborative Eurosystem effort completed in June. Narrower in scope than the 2021 review, it incorporated lessons from the shift in the inflation environment and the policy response that followed.

The assessment reaffirmed the symmetric 2% inflation target over the medium term as the cornerstone of the ECB’s strategy. And it extended that symmetry to the reaction function: large, sustained deviations from the target in either direction would be tackled with appropriately forceful or persistent action. The Governing Council also underlined the importance of taking into account not only the most likely path for inflation and growth, but also the surrounding risks and uncertainty, including through scenario and sensitivity analyses.

Beyond monetary policy, the ECB made progress across a range of other areas in 2025.

As the debate about reducing regulatory complexity gained momentum in Europe, the Governing Council created the High-Level Task Force on Simplification to develop proposals for streamlining the regulatory, supervisory and reporting frameworks. The task force published its recommendations towards the end of the year, to serve as an input for the European Commission as it prepares a report on the overall situation of Europe’s banking system.

There were notable developments in market infrastructure and payments, too.

The Eurosystem Collateral Management System was launched in June, replacing fragmented national platforms with a single system for managing collateral. Euro-denominated instant payments settled through TIPS surged by 132%, following the Instant Payments Regulation’s 2025 requirements, which obliged payment service providers in the euro area to be able to receive and send instant payments.

The Governing Council also advanced to the next phase of the digital euro project, focusing on technical readiness, market engagement and the legislative process, with the aim of being ready for a possible pilot exercise in 2027 and a potential rollout in 2029.

Work on the redesign of euro banknotes continued in parallel, reflecting the ECB’s commitment to maintaining cash alongside digital money. The Governing Council selected motifs illustrating two possible themes for the next series of banknotes – “European culture: shared cultural spaces” and “Rivers and birds: resilience in diversity” – and launched a design contest for the new banknotes in July.

The quality of the ECB’s research continued to earn wide international recognition, a reflection of the excellence of our researchers. The ECB now ranks first in the world in the field of monetary economics according to Research Papers in Economics – a widely used index of economics research.

At the end of the year, the euro area stood ready to welcome Bulgaria as its 21st member, reaffirming the euro’s attractiveness at a time of growing geopolitical uncertainty. And support for the euro among euro area citizens reached a record 83% in the spring and remained strong throughout the year.

None of the above would have been possible without the dedication and expertise of ECB staff. This Annual Report provides a detailed account of their work in 2025.

Frankfurt am Main, May 2026

Christine Lagarde

President

Global economic activity remained resilient in 2025 despite heightened trade-related headwinds. The effects of a marked shift in US trade policy on global growth were mitigated by supportive policies, strong investment related to artificial intelligence (AI) and frontloading of imports. Global trade expanded as imports were brought forward in anticipation of higher tariffs, but momentum weakened later in the year as these effects unwound and the impact of higher tariffs materialised. Global inflation continued to ease, albeit at a slower pace and with a less synchronised pattern than in previous years. The euro appreciated in nominal effective terms and, more markedly, against the US dollar. The euro area economy displayed a moderate but broad-based recovery in 2025, during which labour productivity growth turned positive while employment growth weakened somewhat. Growth dynamics were supported by less restrictive monetary policy, but the economy faced challenges relating to uncertainty about trade tariffs and the geopolitical situation. While industry showed some volatility, services remained more stable, keeping a floor under growth. Headline inflation in the euro area continued to move towards the ECB’s 2% medium-term target in 2025, driven by the past monetary policy tightening, receding pipeline pressures from energy and non-energy commodity prices as well as low import price pressures more generally. Most indicators of underlying inflation showed a gradual further moderation in the course of 2025, supporting the development of headline inflation towards rates close to the target. In this economic environment, and on the back of the less restrictive monetary policy and an increase in real long-term interest rates, euro area yield curves steepened and stock prices increased significantly. Financing conditions for euro area firms and households continued to ease early in the year before broadly stabilising. However, the recovery in bank lending remained weak and broad money growth was sluggish.

1.1 Global growth remained resilient despite a shift in US trade policy

The global economy proved resilient in 2025 and continued to expand at a moderate pace, broadly unchanged from 2024 at 3.4%. The year was marked by a major shift in economic policy priorities in the United States that saw US tariffs increase to their highest level in nearly a century. While the overall impact on the global economy was cushioned by the limited response from trading partners, uncertainty surrounding future trade arrangements remained high (Chart 1.1), clouding trade prospects. Despite these headwinds, several countervailing factors supported global activity. Strong investment linked to advances in AI boosted trade in technology-related products and contributed to equity market gains in some economies, particularly the United States. Furthermore, firms and households accelerated purchases of foreign goods in anticipation of possible tariff increases, supporting – at least temporarily – manufacturing output and exports, including in China. A generally supportive policy mix in major economies – especially on the fiscal side – further softened the drag from trade tensions. Nevertheless, global growth momentum weakened towards the end of the year as the temporary positive factors faded, while trade barriers and uncertainty continued to weigh on confidence and investment, albeit to a lesser extent than in the first half of the year.

Global trade grew robustly in 2025, increasing by 4.7%. This reflected strong import growth in the first half of the year, when households and firms advanced both consumption and investment decisions in anticipation of higher tariffs. Moreover, trade patterns adjusted to the new tariff landscape, with some flows redirected to other countries. Trade, especially exports from Asian countries, was also supported by high demand for goods that enable the deployment of AI, amid strong investment in information and communication technology equipment in the United States and other advanced economies. In the second half of the year, trade growth slowed markedly, as the earlier frontloading dissipated and the effects of higher tariffs materialised.

Global inflation continued to ease in 2025, though with a less synchronised pattern than in the previous year. Headline consumer price inflation (CPI) fell to 2.2% in December 2025, from 3.0% in December 2024 (Chart 1.2). The deceleration was moderated by a renewed increase in goods inflation, while services inflation remained persistent in many economies. Inflation developments varied across countries. In the United States, headline inflation remained above target, with tariff increases leading to a significant acceleration in goods inflation. In the United Kingdom, inflation was higher at the end of 2025 than at the end of the previous year amid higher administered and food prices as well as the fading impact of past declines in energy prices. In China, by contrast, inflation remained subdued, reflecting weak domestic demand linked to the prolonged downturn in the real-estate sector and persistent industrial overcapacity.

Energy prices were lower at the end of 2025 than a year earlier, reflecting declines in both oil and European gas prices (Chart 1.3). Brent oil prices dropped by 19%, driven by a combination of demand and supply factors. On the demand side, global economic activity weakened following the tariff disputes that began in April. On the supply side, successive OPEC+ production increases pushed the market into a significant surplus by year-end. Prices nonetheless experienced some volatility in June amid heightened tensions in the Middle East, particularly following the Israeli and US strikes on Iran, but the brief upward spike subsided after the announcement of the US-brokered ceasefire in Gaza. European gas prices declined by 42% in the year-end comparison, remaining far below their 2022 peak. Gas prices initially rose early in the year owing to the expiry of the transit agreement between Russia and Ukraine and concerns about European gas storage adequacy for the 2025-26 winter. They subsequently moved downward, driven by relatively weak European consumption, subdued Asian liquified natural gas demand, and, later in the year, renewed prospects of an end to Russia’s war against Ukraine.

The euro appreciated in nominal effective terms by 6.8% and against the US dollar by 13.1% compared with end-2024. Most of the appreciation against the dollar occurred in the first half of the year. This shift was driven by heightened uncertainty over US tariff policies, which weighed on the dollar and triggered an acceleration of capital flows into euro area assets, as well as by adjustments in hedging behaviour and more resilience than expected in the euro area economy. In subsequent months, the euro traded within a relatively narrow range, as downward and upward pressures broadly offset each other. Market expectations about how much the Federal Reserve System would cut its policy rate fluctuated repeatedly as new economic data came out. Tariff-related upward pressure on inflation tended to support the US dollar by reducing expectations of interest rate cuts, while signs of a slowing labour market had the opposite effect. In addition, regulatory and institutional uncertainty, along with concerns surrounding the US federal government shutdown likely weighed on the dollar. Beyond its substantial appreciation against the US dollar, the euro also strengthened in trade-weighted terms. It made notable gains against some Asian currencies, including the Japanese yen (+12.9%) amid uncertainty surrounding Japan’s fiscal and monetary policy stance. The euro likewise appreciated against other major reserve currencies, such as the British pound (+5.2%) and the Canadian dollar (+7.6%). By contrast, it depreciated slightly against the Swiss franc (-1.0%), which continued to serve as a safe haven during periods of elevated uncertainty.

1.2 Economic activity held up despite high global uncertainty

Euro area real GDP growth rose to 1.4% in 2025 from 0.9% in 2024 (Chart 1.4). The ECB’s gradual shift from a restrictive to a more neutral monetary policy stance, the anticipation of a looser fiscal stance and easing inflation played an important role in supporting the moderate but broad-based recovery. The economic landscape was also strongly influenced by geopolitical tensions and high uncertainty relating to trade tariffs – especially those of the United States – as well as the volatile geopolitical situation in parts of the world affecting confidence and production chains. The slight recovery in the manufacturing sector and a steadier services sector were key to understanding why the euro area economy remained relatively resilient in 2025 despite the challenging environment.

Real gross value added in industry expanded by 2.2% in 2025, after contracting by 0.5% in 2024. The rebound originated mainly from the first quarter, reflecting the temporary boost in production to accommodate the frontloading of exports in anticipation of the higher tariffs subsequently imposed by the new US Administration. However, growth dynamics softened considerably for the remainder of the year, reflecting higher tariffs, increasing global competition, persistently elevated energy costs and high, albeit gradually declining, economic policy uncertainty. While the key ECB interest rates had remained high through most of 2024, clearer signals of forthcoming easing in early 2025 reduced uncertainty and improved credit conditions for firms. This helped investment to recover, especially in manufacturing sectors that had been constrained by high financing costs. Real gross value added in services grew by 1.2% in 2025, slowing from 1.5% in 2024 but nonetheless keeping a floor under euro area growth. The deceleration in services growth stemmed partly from caution on the part of households, reflected in high household savings, amid persistent geopolitical risks and high economic uncertainty. At the same time, digital and IT services remained relatively resilient – benefiting from continued corporate investment in automation, cybersecurity and AI integration.

Private consumption accelerated slightly in 2025, rising by 1.5% compared with the previous year. Consumption of goods grew more strongly at the start of the year, while spending on services gained more momentum starting with the second quarter, although it slowed in the third quarter. Overall, consumption of goods expanded by more than that of services (Chart 1.5). The growth of real disposable income supported household expenditure, as nominal wage growth remained robust, inflation continued to decline and employment growth was resilient, albeit somewhat weaker than in the previous year. However, private consumption continued to lag behind the developments in real disposable income, as the saving rate remained elevated amid heightened geopolitical risks and economic uncertainty.

After falling sharply in 2024, reflecting weak demand and the lagged impact of tighter financing conditions, housing investment began to recover in 2025. This largely reflected improvements in financing conditions and the continued increase in household real incomes, both of which improved affordability and helped stabilise housing demand over the course of the year. Even so, housing investment remained weaker than private consumption and non-construction investment, underscoring the early stage of its recovery.

Non-construction investment (a standard national accounts proxy for business investment which excludes construction from total investment, in the absence of available statistics on private and public investment) grew robustly in 2025, driven by rising demand and by easing financing conditions as the ECB continued to lower its key interest rates in the first half of the year. It increased by 4.4% overall in 2025 compared with 2024, amid considerable quarterly volatility throughout the year. Excluding volatile intangibles in Ireland – which are influenced to a considerable extent by the activities of multinational firms – business investment rose by 2.2% in 2025 (see Chart 1.5). This outcome reflects the continued divergence between tangible and intangible investment dynamics observed in recent years. Investment in tangibles, such as machinery, equipment and transport, was dampened by higher tariffs and elevated uncertainty. Conversely, intangible investment grew strongly, driven by advancements in digitalisation, particularly in the areas of AI and software development. Additionally, a recovery in profit growth and spillover effects from the Next Generation EU (NGEU) programme supported investment in 2025, helping to offset the adverse effects of competitiveness losses. Burdensome regulation is also reported by firms to have held back investment last year.

Trade developments in 2025 were marked by pronounced volatility and structural challenges for the euro area. Euro area exports surged in the first quarter, driven by frontloading ahead of anticipated higher US tariffs and largely reflecting a spike in pharmaceutical shipments, particularly from Ireland. However, this momentum was temporary. In the second quarter, exports contracted amid higher US tariffs, a strong euro and subdued global demand, with pharmaceutical exports showing sharp fluctuations. Exports picked up in the third quarter as a result of higher pharmaceutical sales to the United States, but underlying momentum remained weak. The US-EU trade agreement in July, which capped US tariffs on EU goods at 15%, helped to alleviate the still elevated policy uncertainty (Chart 1.1). However, forward-looking indicators suggested continued weakness in manufacturing export orders. Imports showed moderate growth in 2025, buoyed by rising volumes from China, partly reflecting trade diversion as a result of tensions between China and the United States, and the stronger euro, which lowered the cost of imports. Euro area import prices also remained under downward pressure as energy commodity price pressures continued to recede. The influx of competitively priced Chinese goods in the context of persistent Chinese manufacturing overcapacity intensified competition for domestic producers, while Chinese export restrictions on critical inputs, such as rare earths, highlighted vulnerabilities in euro area supply chains.

Labour market

After a period of labour hoarding, employment growth slowed in 2025 relative to recent years and survey indicators suggested that the euro area labour market continued to cool over the course of the year (Chart 1.6). The unemployment rate moved between 6.3% and 6.4%, and was 6.3% in December – one of the lowest points recorded since the introduction of the euro and 1.2 percentage points below the pre-pandemic level in January 2020. Total employment and total hours worked increased in 2025 by about 0.7% and 0.6% respectively, i.e. at a lower rate than real GDP, which grew by 1.5%. These developments led to a recovery in labour productivity growth. Stronger labour productivity growth underlined a reduction in labour hoarding, i.e. companies holding on to more workers than demanded by short-term needs of production. This is also indicated by the job vacancy rate receding further from its peak in the second quarter of 2022 to a level of 2.2% in the fourth quarter of 2025, below its pre-pandemic level of 2.3%. Average hours worked moved downwards in 2025, amid significant volatility and differences between countries.^[3] The labour force participation rate in the age group 15-74 years increased to 66.2% in the fourth quarter of 2025, which is 1.6 percentage points above its pre-pandemic level. Women, older workers, persons with higher education and foreign workers contributed most to this increase in the labour force.

1.3 Need for prioritisation in public spending at times of limited fiscal space

The euro area general government deficit is expected to have decreased marginally to 3.0% of GDP in 2025 (Chart 1.7), from 3.1% in 2024 and 3.5% in 2023. The significant fiscal tightening in 2024 resulted from the phasing-out of the remaining government measures that had been introduced to compensate households and firms for high energy prices and inflation. By contrast, the only moderate fiscal tightening projected for 2025 results from higher taxes and social security contributions which are not fully matched by higher growth in primary public spending (including items funded by the NGEU programme) and rising interest payments.

The euro area debt-to-GDP ratio is expected to have increased to 87.3% of GDP in 2025, from its already elevated level of 86.6% of GDP in 2024. It remains well above its pre-pandemic level of 83.6% in 2019 (Chart 1.8). The projected rise in the debt ratio in 2025 is the result of the aggregate primary deficit and positive deficit-debt adjustments, which are only partly offset by a favourable, but shrinking, interest rate-growth differential.

Strategic spending needs, including for defence, infrastructure, and the digital and green transitions – together with population ageing – are putting upward pressure on public debt.^[4] For defence spending in particular, some of the euro area countries with lower levels of debt have made use of their fiscal space, leading to higher debt ratios than before Russia invaded Ukraine in 2022. More generally, the revised EU fiscal governance framework, adopted in April 2024, provides some budgetary flexibility to accommodate part of the spending pressures. In fact, several countries have made use, under their medium-term fiscal-structural plans, of the opportunity to extend the consolidation period from four to seven years in exchange for structural reforms and investment, thereby reducing their annual fiscal adjustment burden. Moreover, the national escape clause, activated for 11 euro area countries, offers temporary flexibility to deviate from the country’s net expenditure path as a result of higher defence spending, provided that such deviation does not endanger fiscal sustainability over the medium term.^[5] As the budgetary flexibility will not cover the additional spending in full, complementary routes need to be followed, including spending efficiency and reprioritisation of national budgets.

On 25 November 2025 the European Commission adopted the 2026 European Semester Autumn Package, setting out economic policy priorities.^[6] The package contains the Commission’s assessment of Member States’ compliance with the EU fiscal governance framework and provides guidance for their fiscal policies in 2026. Implementing the revised governance framework fully, transparently and without delay will help governments bring down budget deficits and debt ratios on a sustained basis. Of the 17 euro area countries that had submitted their draft budgetary plans for 2026, the European Commission assessed 12 countries to be compliant with the EU fiscal framework.^[7] For five countries, the plans were assessed to be at risk of non-compliance, with two countries showing risks of material non-compliance. Moreover, for the six euro area countries in excessive deficit procedure, i.e. Belgium, France, Italy, Malta, Austria and Slovakia, the European Commission will assess the situation in spring 2026 on the basis of fiscal outturn data for 2025. The European Commission also suggested in November that an excessive deficit procedure be opened for Finland.

1.4 Inflation moved towards the 2% medium-term target over the course of the year

Headline inflation in the euro area, as measured by the Harmonised Index of Consumer Prices (HICP), moved further towards the medium-term target of 2% over the course of 2025 (Chart 1.9). Annual inflation averaged 2.1% in the fourth quarter and for the year as a whole, following a rate of 2.4% in 2024. The impact from the ECB’s past monetary policy tightening, easing wage pressures, receding pipeline pressures from energy and non-energy commodity prices, as well as low import price pressures more generally – in part due to the appreciation of the euro – supported continued disinflation. HICP inflation excluding energy and food (HICPX) made the largest contribution to the decline in headline inflation in 2025. It decreased gradually throughout the year, stabilising between 2.3% and 2.4% in the later months. This was largely due to easing, yet still elevated, services inflation, reflecting in particular decreasing wage pressures. Non-energy industrial goods inflation, by contrast, remained broadly stable around its longer-term pre-pandemic average throughout most of 2025 and declined more visibly only in the last months of the year given low import price pressures. Headline inflation was also dampened by subdued energy inflation, due to declines in energy commodity prices and the appreciation of the euro. Food inflation, by contrast, was on an upward path in the first part of 2025 and peaked in July, driven mainly by unprocessed food price increases stemming from adverse weather and supply-side shortages. It moderated to 2.5% at year-end. Processed food inflation also contributed to the pressures, reflecting the continued pass-through of earlier commodity price increases, particularly for cocoa and coffee.^[8]

Energy inflation decreased in the beginning of 2025 and was negative from March onwards, driven primarily by declines in oil and wholesale gas prices in US dollars as well as the appreciation of the euro. However, the annual rate of change in consumer energy prices also displayed some volatility, largely driven by upward base effects, particularly in the transport fuel component. Food inflation showed a hump-shaped development over 2025, driven primarily by unprocessed food prices. In the first eight months of the year, unprocessed food inflation followed an upward trend, pushed up by increases in fruit and vegetable prices related to adverse weather conditions, as well as by steadily increasing meat prices amid supply shortages linked partly to animal diseases. From September onwards it began to ease as the weather effect on fruit and vegetable prices faded, but rebounded somewhat at the end of the year. Processed food inflation remained relatively stable for most of 2025, declining clearly only in the last quarter as pipeline pressures from food commodity prices such as coffee and cocoa receded. Overall, food inflation remained elevated during the year. This reflected the continued, albeit weakening, pass-through of earlier increases in food commodity prices, supply-demand imbalances in some segments, and still elevated price pressures from factors including wages.

Underlying inflation indicators, which are aimed at capturing the persistent or common component of inflation, supported the development of headline inflation towards rates close to the target. For instance, core inflation, as measured by the HICPX, displayed little volatility and edged down from 2.7% in December 2024 to rates between 2.3% and 2.4% in most months from March onwards. The disinflation in core inflation was driven mainly by services items. Services inflation declined from 4.0% in December 2024 to 3.4% in December 2025, reflecting the gradual easing of earlier drivers, notably wage pressures and annual repricing effects.^[9] Services inflation displayed some short-term volatility in April, when the timing of Easter temporarily lifted prices for some items, but fluctuated within a relatively narrow range for the remainder of the year.^[10] Non-energy industrial goods inflation remained relatively unchanged throughout 2025, hovering quite closely around its pre-pandemic average of 0.6% (measured over 1999 to 2019). It edged up somewhat in the third quarter, yet by October had returned to its pre-pandemic average. Towards the end of the year it fell somewhat below that average, given low import price pressures and the appreciation of the euro. Other underlying inflation indicators also declined gradually in the course of 2025, or remained broadly stable.^[11]

Domestic cost pressures in the euro area, as measured by growth of the GDP deflator, fell to 2.4% in 2025 from 3.0% in 2024 (Chart 1.10). The decline stemmed from a decrease in the contributions of unit taxes and unit labour costs, the latter related to moderating compensation per employee growth and strengthening labour productivity growth. These declines were in part offset by a gradual strengthening in the contribution of unit profits in line with cyclical developments. Within compensation per employee growth, which was broadly stable throughout the year and averaged 3.9%, negotiated wage growth and the wage drift were volatile.^[12] Negotiated wage growth eased substantially over the course of the year, averaging 2.8% after 4.5% in 2024. This reflected the normalisation of wage demands following a period where workers had gradually recuperated purchasing power lost during the surge in inflation in 2022.^[13] Developments in the wage drift, partly related to statistical effects stemming from one-off payments in 2024, pushed up overall wage growth. Unit profits recovered somewhat in the course of 2025 and realigned more closely with the business cycle, but continued to buffer labour costs, albeit to a lesser degree than in 2024.

Longer-term inflation expectations remained broadly aligned with the ECB’s 2% medium-term target throughout 2025, supporting a sustainable return of inflation to target. In the ECB Survey of Professional Forecasters, as well as in the ECB Survey of Monetary Analysts, longer-term inflation expectations were firmly anchored at 2% in 2025 (Chart 1.11). Other survey indicators, such as Consensus Economics, also reported stable longer-term inflation expectations at around 2%. Market-based measures of longer-term inflation compensation, such as the five-year forward inflation-linked swap (ILS) rate five years ahead, stayed close to 2%, with limited variation during the year. A slight increase in the ILS rate was observed in March, driven by fiscal expansion plans in Europe, though this was partially offset by the repercussions of trade tensions shortly after. Further temporary increases were seen in June, reflecting developments in energy prices, but the ILS rate ultimately stabilised at 2.1% after the summer for the remainder of the year. These movements mainly reflected higher inflation risk premia, while model-based estimates of genuine longer-term inflation expectations – excluding risk premia – remained steady between 1.9% and 2%. On the consumer side, median inflation expectations for three years ahead hovered between 2.4% and 2.5% throughout the year, ticking up to 2.6% in December. This persistence at a slightly heightened level likely reflected still elevated uncertainty. Evidence from the ECB Consumer Expectations Survey shows that food prices strongly influenced inflation perceptions and one-year expectations, while their impact on longer-term expectations was more limited.

1.5 Credit recovery remained weak, despite a further easing in financing conditions

A decline in short-term interest rates, combined with a significant increase in long-term rates, led to a steepening of the euro area risk-free yield curve in 2025. The reduction in short-term rates, which occurred predominantly during the first half of the year, reflected the policy rate cuts implemented by the ECB up to June as inflation was on track to move sustainably towards the 2% medium-term target (see Section 2.1). At longer maturities, the ten-year overnight index swap (OIS) rate averaged 2.8% in December 2025 (Chart 1.12), marking an increase of approximately 60 basis points compared with the average recorded in December 2024. Long-term rates experienced some sharp and volatile movements during the first four months of the year, on the back of defence and infrastructure spending plans in European countries as well as heightened uncertainty surrounding US tariffs and trade policies. From the end of April the ten-year OIS rate gradually increased by around 30 basis points in the remaining part of the year, primarily reflecting an increase in the real rate component on the back of a more resilient economy. Importantly, the steepening of the euro area risk‑free curve reflects a strong global component, as similar repricing occurred across other major advanced economies. Mirroring developments in the OIS rate, the ten-year GDP-weighted euro area sovereign bond yield rose over the course of the year. It reached 3.2% in December, approximately 50 basis points higher than its level a year earlier. Ten-year government bond yields across euro area countries ended 2025 at higher levels than at the start of the year, with a narrowing of spreads relative to the OIS rate. The announcement of defence spending plans in some euro area countries (see Section 1.3) was a pivotal moment in the market reappraisal, triggering a sharp increase of approximately 40 basis points in the ten-year German Bund yield, with other euro area sovereign yields experiencing similar upward pressure. Euro area sovereign yields subsequently fell somewhat, although most ended the year at higher levels. The exception was the ten-year sovereign yield for Italy, which was broadly unchanged from its level at the end of 2024, supported by ongoing consolidation of Italy’s fiscal position. Conversely, political uncertainty in France raised concerns among market participants about potential delays in fiscal consolidation, leading to upward pressures on French sovereign yields. These developments resulted in a convergence of Italian and French bond yields toward similar levels, while yield dispersion in the euro area reached historically low levels.

In 2025 stock prices – as measured by the EURO STOXX index – rose by about 21%. Strong earnings expectations, higher dividends and lower equity risk premia drove the increase in equity prices despite the dampening impact of rising long-term risk-free rates. Equity prices increased in both the non-financial and the financial sector, with the latter seeing more pronounced gains. Within the financial sector, banking stocks led the gains, supported by improved profitability stemming from banks’ trading activity, the provision of credit and the steepening of the yield curve. By the end of 2025 the broad indices of euro area non-financial corporation and bank equity prices were around 12% and 80% higher, respectively, than their levels at the end of 2024. Corporate bond spreads generally narrowed, with the notable exception of bonds issued in the high-yield segment of the financial sector and despite the sell-off in the corporate bond market following the US tariff announcement on 2 April. After that, corporate bond spreads declined significantly, owing to renewed risk appetite and a more resilient economy.

Financing conditions for firms in the euro area continued to ease in the first part of the year, before broadly stabilising, in line with bank funding cost dynamics. The decline in banks’ composite cost of debt financing early in the year reflected the pass-through of policy rate cuts, while the subsequent stabilisation was driven by market interest rate dynamics and reduced expectations of further rate cuts. The reduction in the nominal cost of borrowing for firms from the peak levels in 2023 reflects in part banks’ prudent lending behaviour since the start of the monetary policy easing cycle, which has been associated with a reallocation of lending towards lower-risk borrowers, which receive more favourable loan pricing. For households, the decline in borrowing costs in 2025 was more limited, the rates on new mortgages largely reflecting the increase in long-term market interest rates. The composite bank lending rate for non-financial corporations stood at 3.6% in December, about 80 basis points below its level at the end of 2024, while the corresponding rate for households for house purchase declined by about 10 basis points, to 3.3% (Chart 1.12). As a result, the spread between lending rates for firms and households, which had widened during the monetary policy tightening phase, narrowed significantly. Cross-country dispersion in corporate lending rates also moderated, while dispersion in household lending rates continued to be influenced by differences in loan maturity structures across countries.

Bank lending continued to recover alongside the monetary policy easing, albeit more gradually than suggested by historical patterns (Chart 1.13). Lending to firms stabilised in the second half of 2025, with growth rates remaining well below their historical average given that aggregate demand was subdued and banks risk-averse despite their strong capital positions, limited deterioration in asset quality and still strong profitability. According to the euro area bank lending survey, banks’ credit standards (i.e. internal guidelines or loan approval criteria) for firms tightened in the first and last two quarters of 2025. Smaller and riskier firms experienced a particularly marked deterioration in loan availability, as reported in the survey on the access to finance of enterprises. The annual growth rate of bank loans to firms stood at 3.0% in December, compared with 4.3% on average between January 1999 and December 2025. Growth in total credit, including financing from non-bank financial intermediaries, remained contained, also as a result of high economic policy uncertainty, as shown in an ECB Blog post published in October.^[15] Higher valuations of listed shares contributed to the net increase in external financing for firms (Chart 1.14). Lending to households continued to recover, with an annual growth rate of 3.0% in December (also well below its long-term average of 4.2%), mostly driven by mortgages. This development is in line with solid housing loan demand reported in the bank lending survey, as well as the sustained house purchase intentions reported in the Consumer Expectations Survey. At the same time, the share of households reporting a deterioration in access to credit in the latter survey increased relative to those reporting improvements. The share was larger for lower-income households. Consumer credit, to which lower-income households had sustained recourse in 2025, was subject to tighter lending standards throughout the year, according to the bank lending survey.

After plateauing at nearly 4% earlier in the year, annual broad money (M3) growth moderated towards the end of 2025, supported by stable dynamics in loans and deposits of households and firms (Chart 1.13). Annual M3 growth was 2.8% in December, compared with 3.4% in December 2024. The moderation largely reflected the continued liquidity drain resulting from the contraction in the Eurosystem asset portfolios and a reduction in net foreign inflows, which appear to have lost vigour and become more volatile compared with 2024, while banks’ purchases of government bonds supported money growth in an environment of robust bond supply.

The Governing Council cut the three key ECB interest rates four times in the first half of 2025, continuing a process that had begun in 2024. It decided these interest rate cuts in light of consistent evidence that inflation was on track to move sustainably towards the 2% medium-term target. The three key ECB interest rates were reduced by 100 basis points in total, bringing the deposit facility rate to 2.00% by June. The Governing Council followed a data-dependent and meeting-by-meeting approach, without pre-committing to a particular rate path. Less restrictive monetary policy, alongside a robust labour market, rising real incomes and solid private sector balance sheets bolstered the resilience of the euro area economy against global trade tensions and geopolitical uncertainties.

The Eurosystem balance sheet contracted by €0.1 trillion in 2025, reaching €6.3 trillion by year-end and continuing the normalisation process started in 2022 (see Section 2.2). This reduction was driven by declines in the monetary policy portfolios, as the Eurosystem no longer conducted reinvestments under its asset purchase programmes. Although excess liquidity fell, recourse to the Eurosystem refinancing operations remained small, reflecting still ample liquidity conditions and the relatively lower cost of market funding alternatives. The pool of assets eligible as collateral for Eurosystem refinancing operations grew to €20.3 trillion.

In 2025 the Eurosystem enhanced its risk management framework to ensure risk-efficient implementation of monetary policy. The changes mainly concerned collateral policies and were aimed at ensuring a continuing robust approach to assessing the credit quality of collateral assets, refining the calculation of haircuts for some asset classes and adapting the collateral framework to address climate change-related uncertainties. Several central banks of the Eurosystem, including the ECB, continued to incur low or negative income in 2025. The loss incurred by the ECB will be written off against future profits (see Section 2.3 and the ECB’s Annual Accounts for 2025).

2.1 The Governing Council cut the three key ECB interest rates by 100 basis points

Monetary policy continued to be guided in 2025 by the Governing Council’s determination to ensure that inflation stabilised sustainably at its 2% medium-term target. The Governing Council pursued a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. It did not pre-commit to a particular policy rate path and remained prepared to adjust its instruments as needed to achieve its mandate and to ensure the smooth functioning of monetary policy transmission.

The Governing Council’s interest rate decisions were based on its assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. This comprehensive assessment led the Governing Council to expect that inflation would move towards the 2% target in the medium term in a sustained manner. The Governing Council therefore continued lowering interest rates, a process which it had started in 2024. Between January and June the three key ECB interest rates were cut at each monetary policy meeting, by 100 basis points in total (see Chart 2.1). After the Governing Council’s meeting in June, the interest rates on the deposit facility, the main refinancing operations and the marginal lending facility remained unchanged, at 2.00%, 2.15% and 2.40% respectively.

At its first monetary policy meeting of the year the Governing Council assessed that the disinflation process remained on track. Inflation was developing in line with the latest staff projections and was expected to return to the 2% medium-term target in the course of the year. Most measures of underlying inflation indicated that inflation would return to target on a sustained basis, although domestic inflation remained high owing to delayed adjustments in wages and some services prices following the past inflation surge. Signs of moderation in wage growth and the effects of profits buffering inflationary pressures further supported the Governing Council’s view that disinflation was proceeding as intended, warranting a less restrictive monetary policy stance. It therefore decided to lower the three key ECB interest rates by 25 basis points.

The Governing Council noted that recent rate cuts were gradually making new borrowing less expensive for firms and households. However, financing conditions remained tight, in line with the still-restrictive monetary policy. While the euro area economy faced ongoing headwinds, rising real incomes and the fading impact of past monetary policy restriction were expected to support a gradual rebound in demand over time. Nevertheless, risks to growth remained tilted to the downside, with greater frictions in global trade and geopolitical uncertainties, including those related to Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East, which had the potential to disrupt energy supplies and further weigh on global trade.

To support lasting improvements in economic performance, the Governing Council emphasised the role of fiscal and structural policies in fostering a more productive, competitive and resilient euro area economy. It welcomed the European Commission’s Competitiveness Compass and stressed the need to follow up, with further concrete and ambitious structural policies, on Mario Draghi’s proposals for enhancing European competitiveness and on Enrico Letta’s proposals for empowering the Single Market. Governments were urged to fully implement their commitments under the EU’s economic governance framework, prioritising growth-enhancing reforms and investment.

Having discontinued reinvestments under the pandemic emergency purchase programme (PEPP) at the end of 2024, and under the asset purchase programme (APP) already as of July 2023, the Governing Council noted that the APP and PEPP portfolios were declining at a measured and predictable pace (see Section 2.2 on the evolution of the portfolios). Moreover, banks had repaid the remaining amounts borrowed under the targeted longer-term refinancing operations (TLTROs) in December 2024, thus concluding this part of the balance sheet normalisation process.

The March ECB staff macroeconomic projections for the euro area entailed a slight upward revision in headline inflation, which was expected to average 2.3% in 2025, mainly on the back of stronger than expected energy price dynamics. Despite this revision, most indicators of underlying inflation continued to suggest that inflation would settle sustainably at around the 2% medium-term target. Wage growth showed signs of continued moderation, as expected, while profits continued to buffer inflationary pressures. In light of these developments, the Governing Council decided to cut the three key ECB interest rates by a further 25 basis points in March.

The Governing Council noted that monetary policy was becoming meaningfully less restrictive, as the interest rate cuts were lowering borrowing costs for firms and households, and supporting a pick-up in loan growth. However, lending still remained subdued overall. The staff economic growth projection for 2025 was revised down to 0.9%, driven by weaker exports and subdued investment amid heightened trade and policy uncertainty. Rising real incomes and lower borrowing costs remained the key factors expected to underpin a gradual recovery in demand over time, alongside the diminishing drag from earlier monetary policy tightening.

Against the backdrop of rising uncertainty, the Governing Council reaffirmed its commitment to a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. It reiterated that it was not pre-committing to a particular rate path and remained ready to adjust its instruments as needed to achieve its price stability mandate.

As confidence in a sustained return of inflation to target continued to strengthen, the Governing Council decided in April to again lower the three key ECB interest rates by 25 basis points. The disinflation process remained firmly on track, with both headline and core inflation declining in March. Services inflation had eased significantly, and most measures of underlying inflation indicated a sustained return of inflation to the ECB’s 2% medium-term target. Wage growth continued to show further signs of moderation, and profits continued to partially absorb the impact of elevated wage growth on inflation, contributing to easing domestic price pressures.

The Governing Council noted that the growth outlook for the euro area had deteriorated in response to rising trade tensions. These tensions increased uncertainty and posed a risk to household and business confidence. Moreover, the adverse and volatile market response to the trade tensions was likely to have a tightening impact on financing conditions, further challenging the euro area’s growth prospects. At the same time, the euro area economy had been building up some resilience against global shocks. A strong labour market, rising real incomes and supportive monetary policy were expected to underpin spending, while national and EU-level initiatives in defence spending and infrastructure investment were set to bolster manufacturing activity. Against the background of high geopolitical risk, the Governing Council reiterated the importance of fiscal and structural policies to make the euro area more productive and competitive, calling for a swift adoption of proposals aimed at simplifying regulatory frameworks and completing the savings and investments union. In light of such exceptional uncertainty, the Governing Council also reiterated its intention to adhere to a data‑dependent and meeting‑by‑meeting approach to setting interest rates.

As the year progressed, the Governing Council grew increasingly confident that inflation dynamics were aligning with the target, while the economy was gradually recovering. In June, it decided to lower the three key ECB interest rates by an additional 25 basis points. Inflation was now hovering around the target. The latest Eurosystem staff projections revised headline inflation down for both 2025 and 2026, primarily owing to lower energy prices and a stronger euro. The projections for inflation excluding energy and food remained broadly unchanged, with wage growth moderating visibly and contributing to a sustained return of inflation to target. Economic growth in the first quarter of the year had been boosted by firms frontloading exports ahead of expected tariff hikes. But growth was also bolstered by strong domestic demand.

The Governing Council noted that concerns about the tightening impact of financial market volatility, observed in April in response to trade tensions, had eased. More positive news about global trade policies and improving global risk sentiment had contributed to this stabilisation. Corporate borrowing conditions continued to improve, with lending rates declining and corporate bond spreads narrowing, while equity prices had risen. Moreover, bank lending had strengthened for both firms and households.

Despite these favourable developments, the Governing Council assessed that risks to growth remained tilted to the downside, driven by global trade tensions and geopolitical uncertainty. However, it emphasised that favourable financing conditions and increased government investment were expected to support resilience over the medium term. The outlook for inflation was more uncertain than usual, reflecting the volatile global trade environment, which created two-sided risks. In particular, the Governing Council cautioned that inflation could turn out to be lower if higher tariffs led to lower demand for euro area exports and induced countries with overcapacity to reroute their exports to the euro area. It was considered that trade tensions could lead to greater volatility and risk aversion in financial markets, which would weigh on domestic demand and would thereby also lower inflation. By contrast, inflation could turn out to be higher if a fragmentation of global supply chains pushed up import prices and added to capacity constraints in the domestic economy.

As the second half of the year began, the Governing Council decided in July to keep interest rates unchanged. Inflation stood at the ECB’s 2% medium-term target, with incoming data broadly consistent with the Governing Council’s previous assessment of the inflation outlook. Domestic price pressures continued to ease as wage growth moderated. Despite challenging global conditions, the euro area economy remained resilient overall, supported by robust labour market conditions, rising real incomes and favourable financing conditions. The decision to hold rates steady reflected the Governing Council’s growing confidence that interest rates had reached an appropriate level to ensure that the convergence of inflation to the target proved sustainable.

Presented with a situation similar to that in July, the Governing Council decided again in September to keep interest rates unchanged. The updated ECB staff projections indicated headline inflation averaging 2.1% in 2025, slightly higher than previously projected, then dropping to 1.7% in 2026 and 1.9% in 2027. The growth projection for 2025 was revised up to 1.2%, reflecting stronger than expected domestic demand, while the projection for 2026 was lowered slightly, as ongoing global uncertainties were expected to weigh on economic activity. The decision in September underlined the Governing Council’s data-dependent, meeting-by-meeting approach to setting interest rates amid persistent global uncertainties.

Economic activity had grown by 0.7% in cumulative terms in the first half of 2025, supported by robust consumer spending and investment. Headwinds from higher tariffs, global competition and a stronger euro were expected to dampen growth for the remainder of the year. However, these effects were projected to fade in 2026, with consumer spending and business investment benefiting from easing financing conditions and continued labour market strength. Inflation remained steady and close to the ECB’s target. Domestic price pressures continued to ease, supported by moderating wage growth and productivity improvements, which contributed to slower labour cost growth.

The Governing Council assessed risks to growth as more balanced than earlier in the year. While trade tensions and geopolitical uncertainties persisted, recent trade agreements had reduced some of the risks weighing on global demand and confidence. Higher than expected defence and infrastructure spending, along with productivity-enhancing reforms, would provide additional support for growth over the medium term. At the same time, the Governing Council continued to see the outlook for inflation as more uncertain than usual, for the same reasons as at the previous meetings.

In October the Governing Council held its annual external meeting outside Frankfurt, hosted by Banca d’Italia in Florence. Again it decided to keep interest rates unchanged, as inflation remained close to the 2% medium-term target and the assessment of the inflation outlook was broadly unchanged.

Economic activity had grown modestly in the third quarter, driven by strength in the services sector, particularly tourism and digital services offsetting weakness in manufacturing, which continued to face headwinds from higher tariffs and global competition. Domestic demand was expected to remain resilient, with consumer spending supported by rising real incomes, government infrastructure and defence investment, and favourable financing conditions. External demand, however, faced challenges, with declining goods exports and ongoing trade uncertainties. Annual inflation had increased slightly to 2.2% in September, largely driven by energy price volatility. At the same time, wage moderation and productivity improvements were expected to continue to ease domestic price pressures, and longer-term inflation expectations remained firmly anchored.

The Governing Council reiterated its commitment to making retail and wholesale central bank money fit for the digital age. In this vein, it decided to move to the next stage of the digital euro project, to ensure technical readiness for potential issuance once the legislation had been adopted and support Europe’s digital sovereignty (see Box 4).

The Governing Council concluded the year with another decision to keep rates unchanged. The December Eurosystem staff projections saw inflation averaging 2.1% in 2025, 1.9% in 2026, 1.8% in 2027 and 2.0% in 2028. Inflation was revised up for 2026, mainly because staff expected services inflation to decline more slowly than had been foreseen in previous projections. The moderately higher expected inflation profile compared with the September projections and the projected return to target by 2028 further bolstered the case for keeping policy rates unchanged. Moreover, the euro area economy remained resilient, supported by robust labour markets, rising real incomes and government spending, despite challenges from global trade and geopolitical tensions.

Credit conditions in the economy were broadly stable, while euro area banks remained resilient, supported by strong capital and liquidity ratios, solid asset quality and robust profitability. Geopolitical uncertainty and the possibility of a sudden repricing in global financial markets were seen as posing risks to financial stability in the euro area, and the Governing Council reiterated that macroprudential policy remained the first line of defence against the build-up of financial vulnerabilities, enhancing resilience and preserving macroprudential space.

The Governing Council once again reaffirmed its commitment to a data-driven and meeting-by-meeting approach to determining the appropriate monetary policy stance.

2.2 Normalisation of the Eurosystem balance sheet progressed further

In 2025 the gradual normalisation of the Eurosystem balance sheet, which began in 2022, continued steadily. By the end of the year the balance sheet had decreased to €6.3 trillion, from €6.4 trillion at the end of 2024. This reduction was primarily driven by the continued decline in securities holdings in the APP and PEPP portfolios.

At the end of 2025 securities held for monetary policy purposes amounted to €3.7 trillion, a decline of €0.5 trillion compared with the end of 2024. These securities represented 60% of total assets, down from 67% a year earlier. Loans to euro area credit institutions in the context of Eurosystem refinancing operations remained limited, standing at around €37 billion after €34 billion at the end of 2024. Meanwhile, other financial assets on the balance sheet (foreign currency-denominated assets, gold and euro-denominated securities in non-monetary policy portfolios) increased by €0.4 trillion. This increase was mainly attributable to the rise in gold prices.

On the liabilities side, the overall amount of credit institutions’ reserve holdings (including their recourse to the deposit facility) decreased to €2.6 trillion at the end of 2025, from €3.0 trillion at the end of 2024. This represented 41% of total liabilities, compared with 47% the previous year. Banknotes in circulation remained virtually unchanged at €1.6 trillion, accounting for 26% of total liabilities, up from 25% a year earlier. Other liabilities, including government deposits, other non-monetary policy deposits, revaluation accounts, and capital and reserves, increased by €0.2 trillion.

APP and PEPP portfolio developments

In line with the Governing Council’s decisions, the Eurosystem’s monetary policy portfolios continued to decline in 2025. Following the end of reinvestments under the APP as of July 2023, and under the PEPP at the end of 2024, 2025 marked the first year since the start of the programmes in which the Eurosystem did not conduct any monetary policy-related asset purchases.

Redemptions under the APP amounted to €351.4 billion, reducing the portfolio holdings to €2.3 trillion (at amortised cost) by year-end. The public sector purchase programme (PSPP) accounted for the largest amount of maturing securities, bringing PSPP holdings down to €1.9 trillion, 80% of the APP portfolio. The weighted average maturity of the PSPP holdings remained broadly unchanged at 6.8 years at the end of 2025. Asset-backed securities accounted for less than 1% (€3 billion) of the APP portfolio, while covered bonds represented 9% (€210 billion) and corporate sector securities 11% (€249 billion).

Under the PEPP, principal redemptions amounted to €185.9 billion in 2025, bringing the portfolio holdings down to €1.4 trillion (at amortised cost) by year-end. Public sector securities accounted for 97% of the PEPP portfolio (€1.4 trillion) at year-end, with a weighted average maturity of 7.0 years. Corporate sector securities accounted for 3% (€41 billion), while covered bonds represented less than 1% (€5 billion). The transparent publication schedule introduced in January 2025 for PEPP redemptions supported the orderly unwinding of the holdings. The schedule aligned PEPP data releases, including backward and forward-looking redemption profiles, with those of the APP, ensuring consistency and predictability across the two portfolios.

Combined APP and PEPP holdings declined by €537.3 billion in 2025, bringing the total monetary policy securities portfolio to €3.7 trillion at year-end. The Eurosystem’s full transition to passive balance sheet reduction proceeded smoothly throughout the year, with no signs of adverse effects on market functioning. Liquidity conditions remained orderly, repo markets operated efficiently and private sector investors continued to demonstrate steady demand for euro area debt securities.

Overall, developments in 2025 confirm that the unwinding of monetary policy portfolio holdings is progressing as expected. The passive reduction regime has provided a stable foundation for the continued normalisation of the Eurosystem’s balance sheet. This approach has facilitated a smooth and transparent transition to a lower level of excess reserves while preserving stable market conditions.

Developments in Eurosystem refinancing operations

At the end of 2025 the outstanding amount of Eurosystem refinancing operations stood at €36.7 billion, a marginal increase of €2.5 billion compared with the end of 2024. The recourse to these operations remained low, reflecting significant excess liquidity and the higher cost of Eurosystem funding compared with market-based alternatives. At year-end, the outstanding amounts of the main refinancing operations and of the three-month longer-term refinancing operations were €25.0 and €11.7 billion respectively. In December the ECB invited banks to test their access to the main refinancing operations and/or the three-month longer-term refinancing operations at least once a year, with a bid amount at their discretion and against collateral in accordance with the Eurosystem general collateral framework.^[20]

Developments in eligible marketable assets and mobilised collateral

The nominal value of marketable assets eligible as collateral for Eurosystem refinancing operations increased by €939 billion in 2025, reaching €20.3 trillion by the end of the year (Chart 2.3). The increase in eligible collateral was driven primarily by higher government bond issuance. Central government securities remained the largest asset class (€10.9 trillion). Other significant asset classes included unsecured bank bonds (€2.3 trillion), corporate bonds (€2.1 trillion) and covered bank bonds (€2.0 trillion). Meanwhile, asset classes such as regional government securities (€688 billion), asset-backed securities (€669 billion) and other marketable assets (€1.7 trillion) accounted for a more limited share of the eligible asset universe.

Mobilised collateral increased by €53 billion in 2025, reaching €1.6 trillion by year-end (Chart 2.4). At the same time, the volume of Eurosystem refinancing operations remained low throughout the year, resulting in a historically low ratio of outstanding credit from the Eurosystem to the total amount of mobilised collateral, which stood at just 1.4% at year-end. Covered bank bonds, credit claims and asset-backed securities continued to be the most heavily mobilised asset classes. Asset-backed securities experienced a slight increase in mobilisation over 2025, while the largest decline in mobilisation was observed for credit claims. The Eurosystem monetary policy implementation framework underwent a number of changes in 2025 related to the credit assessment and risk control frameworks for assets eligible to be mobilised as collateral (see Section 2.3).

2.3 The Eurosystem continued to reinforce its financial risk management framework

The Eurosystem continuously manages the financial risks inherent in the implementation of its monetary policy operations. Its risk management function aims to attain risk efficiency, limiting risk taking to the level necessary to meet its monetary policy objectives.

The main changes to the Eurosystem’s risk management framework in 2025 were related to collateral policies, and consisted of: 1) changes in the use of external ratings for assessing the credit quality of certain collateral assets, 2) the introduction of targeted enhancements to the risk control framework for specific collateral assets, 3) the introduction of a “climate factor” in the valuation of certain mobilised collateral assets to reflect climate change-related uncertainties, 4) and the inclusion of climate change risks in ratings issued by national central banks’ in-house credit assessment systems (ICASs). Risks related to the APP and PEPP portfolios continued to be managed according to the established risk control frameworks.

Several central banks of the Eurosystem, including the ECB, continued to incur low or negative net income in 2025. While the key ECB interest rates have been lowered, the cost of liabilities on the balance sheets of most Eurosystem central banks exceeded the income generated on their APP and PEPP securities portfolios, which resulted in negative net interest income. In addition, the depreciation of foreign currencies against the euro negatively affected the foreign reserves portfolios of some central banks. Such losses do not affect the ability of the Eurosystem to pursue its price stability objective and operate effectively. When a central bank incurs negative income, it can use financial buffers built up in previous years to offset it or record it on its balance sheet to be offset with future profits. Furthermore, a significant increase in the Eurosystem’s financial buffers, driven by higher revaluation accounts, in particular those linked to gold holdings, has added substantially to its financial resilience.

Changes to the Eurosystem’s financial risk management framework

The Eurosystem’s financial risk management framework underwent several changes in 2025.

First, in February 2025 the Governing Council decided to amend the rules on using external credit ratings for private sector assets, with implementation planned no earlier than 18 months from the announcement date. The change concerns ratings issued by external credit assessment institutions (ECAIs) for private sector assets such as unsecured bank bonds, covered bank bonds and assets issued by non-financial corporations, and also covers non-euro area public sector assets eligible for use as collateral in the Eurosystem’s monetary policy operations. Once the change has been introduced, the second-best rating among the ratings issued by accepted ECAIs for such assets will be used to determine their eligibility, as well as the applicable valuation haircuts. The amended rules make better use of the available external credit rating information. For assets with only one credit rating available from accepted ECAIs, a one-notch downgrade will be applied to the available credit rating to determine the rating relevant for collateral purposes. Assets issued or guaranteed by the euro area public sector (e.g. euro area central, regional and local governments; international and supranational issuers located in the euro area whose shareholders are located in the EU; and agencies recognised by the ECB) will continue to be assessed on the basis of the current first-best rating rule. For these assets the Eurosystem makes regular use of all available credit quality information and applies enhanced due diligence procedures. For asset-backed securities, the second-best issue rating rule already in use will remain unchanged.

Second, the Eurosystem in 2025 conducted a review of the risk control framework for collateralised credit operations. The Eurosystem applies risk control measures to the assets underlying its credit operations to protect itself against the risk of financial loss if the assets have to be sold after the default of a counterparty. The aim of the review was to ensure that the framework remains protective, consistent and risk-equivalent across asset classes. One risk control measure takes the form of valuation haircuts, which reduces the amount that can be borrowed in monetary policy credit operations for a given collateral value. Following the review, the Eurosystem decided to introduce targeted improvements in the haircut methodology, with a particular focus on own-used covered bonds, retained asset-backed securities and individual credit claims. The implementation of these changes is planned for November 2026 at the earliest.

Third, as part of its efforts to address climate-related risks, the Governing Council decided in July to introduce a “climate factor” in the collateral framework. The climate factor, which is scheduled for implementation as of 15 June 2026, may reduce the value assigned to certain marketable assets pledged as collateral, depending on the extent to which they are exposed to climate change-related uncertainties. The measure is designed to act as a buffer against the potential financial impact of climate-related transition shocks. It will complement the Eurosystem’s existing risk management framework by incorporating forward-looking climate scenario analyses and therefore improve the resilience of the Eurosystem’s monetary policy implementation. The climate factor will focus on marketable assets issued by non-financial corporations and their affiliated entities and will be calibrated to also preserve sufficient collateral availability. The climate factor, including its scope and calibration, will be regularly reviewed by the Governing Council. By addressing uncertainties linked to adverse events associated with the green transition, the Eurosystem will strengthen its ability to mitigate climate-related financial risks.

In 2025 all ICAS credit assessments incorporated climate-related risks, in line with common Eurosystem standards implemented at the end of 2024. After the ECB announced its climate action plan in July 2021, the Eurosystem agreed in 2022 on a set of common minimum standards for how ICASs should include climate-related risks in their ratings. ICASs are an important source of credit risk assessment for credit claims. The common standards require that ICAS rating processes distinguish between transition and physical risks and also consider the various climate risk transmission channels. The assessment of climate-related risks is conducted by ICASs at firm level whenever sufficient and reliable data are available, with the aim of determining whether and to what degree climate change risk affects the creditworthiness of rated non-financial corporations.

Managing risks of asset holdings in the APP and PEPP portfolios

The APP and PEPP portfolios declined at a gradual and predictable pace in 2025, the Eurosystem having discontinued reinvestments in these portfolios. The financial risks of these programmes continue to be managed with the previously established risk control frameworks. Both programmes are composed of different types of asset class, namely public sector and corporate sector debt securities as well as asset-backed securities and covered bonds. The risk frameworks take into account each programme’s policy objectives and the risk profiles of the different asset classes it contains. They consist of eligibility criteria, credit risk assessments and due diligence procedures, pricing frameworks, benchmarks and limits.

In 2025 financial stability risks in the euro area remained elevated amid heightened geopolitical tensions, trade fragmentation and increased global policy uncertainty. Tariff shocks and weaker external demand weighed on corporate profitability and added to credit risk. Sovereign vulnerabilities were driven by high debt levels, the prospect of higher defence expenditures and investment needs, and spillovers due to concerns about global fiscal sustainability. Banks’ strong capitalisation and profitability continued to underpin their resilience despite rising credit and market risk, and persistent vulnerabilities in the non-bank financial intermediation (NBFI) sector owing to leverage, liquidity mismatches and interconnectedness. Despite these underlying vulnerabilities, however, the NBFI sector also remained broadly resilient. Macroprudential policy focused on preserving resilience by maintaining and, in some cases, increasing capital buffers and borrower-based measures. Regarding microprudential supervision, advances were made in simplification, digital operational resilience and incorporating climate and nature‑related risk into the supervisory agenda, while stress tests confirmed banks’ robustness. During the year the ECB also worked on developing proposals for simplifying the European regulatory, supervisory and reporting frameworks. Important legislative initiatives progressed, including the implementation of the final Basel III reforms, the reform of the EU’s crisis management and deposit insurance framework and steps towards the savings and investments union.

3.1 The financial stability environment in 2025

Financial stability vulnerabilities in the euro area remained elevated in 2025, against a backdrop of heightened geopolitical tensions and rising concerns about geoeconomic fragmentation. Global economic policy uncertainty surged, driven largely by changes in the US trade landscape and regulatory and fiscal policies, as well as by concerns about a general retreat from multilateralism. The announcement of higher than expected US import tariffs in early April 2025 triggered a pronounced spike in market volatility across asset classes and a marked sell-off in riskier assets, reflecting investors’ reassessment of global growth prospects and the risk of deeper geoeconomic fragmentation. Later in the year trade agreements between the United States and several of its main trading partners, including the EU, eased trade policy uncertainty and calmed markets. However, as a highly open economy that is deeply integrated into global value chains, the euro area remained particularly exposed to geoeconomic fragmentation risks.

Sovereign vulnerabilities in the euro area stemmed from still elevated debt levels in some countries, rising issuance needs and changing investor demand. The Eurosystem’s reduced footprint in bond markets, combined with expectations of higher government financing needs, led to a steepening of euro area yield curves over the year, which also reflects global concerns over the sustainability of US long-term debt and the external financing required to fund the US twin deficits. While strong credit fundamentals and rating upgrades in several euro area countries helped to compress sovereign spreads, spreads widened in countries facing fiscal challenges and rating downgrades. At the same time, fiscal fragilities in major advanced economies, including the US budget impasse and a temporary US government shutdown, raised concerns about global sovereign debt sustainability and the risk of a broader reassessment of sovereign risk in the euro area. Furthermore, the need to respond to elevated geopolitical tensions and hybrid threats highlights the urgency for euro area NATO member countries to boost defence spending to meet the new NATO target of 5% of GDP by 2035. However, higher defence spending, together with planned large-scale infrastructure and climate-related investments, implies sizeable additional financing needs in the medium term. This could raise concerns about sovereign debt sustainability in some euro area countries, and the resulting increase in sovereign yields could spill over to corporate and financial sector funding conditions through higher risk premia and potential rating downgrades.

Vulnerabilities in the euro area corporate sector remained elevated in 2025 as the impact of higher tariffs and persistent trade tensions fed through more strongly. While balance sheets had strengthened in previous years, and aggregate indebtedness had fallen below levels seen before the global financial crisis, profitability came under pressure from subdued external demand, elevated debt service costs and rising labour expenses. The appreciation of the euro and higher tariffs on euro area exports eroded the price competitiveness of euro area firms in global markets. This led to a loss of market share that was squeezed further by strong competition from Chinese exporters, partly reflecting weak domestic demand in China. Insolvencies rose across a broad range of sectors and countries, reflecting the still weak and uncertain business environment and increasing the risk of broader macro-financial spillovers, notably from tariff-sensitive and export-oriented sectors.

Household balance sheets strengthened over the year, supported by buoyant labour markets, rising real wages and a continued reduction in debt-to-GDP ratios, which bolstered debt servicing capacity and provided buffers against adverse shocks. This resilience was also underpinned by the large stock of savings accumulated during earlier periods of uncertainty and sustained by persistently high savings rates. However, this benign situation could reverse if trade-related corporate vulnerabilities were to unfold more forcefully. A rise in bankruptcies and lay-offs in tariff-sensitive sectors could weaken labour market conditions, weigh on wage growth and dent consumer confidence, thereby adversely affecting household consumption and borrowers’ resilience.

The resilience of the euro area banking sector remained a key stabilising factor for the financial system in 2025. Bank capital and liquidity ratios stayed well above regulatory requirements. Strong net interest income, together with solid net fee and commission income, underpinned returns on equity above 9% in 2025. Furthermore, improved market sentiment towards the sector, alongside expectations of sustained profits and record profit distributions in the form of dividends and share buybacks, boosted bank stock prices and lifted price-to-book ratios to new post-global financial crisis highs, gradually narrowing the gap with those of US peers.

The aggregate non-performing loans (NPL) ratio of significant institutions remained close to historical lows in 2025. At the same time, credit risks in banks’ loan portfolios increased somewhat for loans to small and medium sized-enterprises and for consumer loans. In addition, the combination of weak macro-financial conditions, the lagged impact of past interest rate increases, and escalating trade tensions tilted the credit risk outlook to the downside for exposures to both firms and households. Banks with concentrated exposures to sectors reliant on extra-EU trade or to regions more affected by trade frictions could face increased pressure on asset quality if trade fragmentation were to intensify or economic conditions were to weaken further. In such a scenario, higher provisioning needs could weigh on banks’ profitability, even though their capital buffers provide a substantial cushion against losses.

Euro area and global financial markets experienced bouts of heightened volatility in 2025, notably after the US tariff announcements in early April, which triggered a sharp repricing and sell-offs in riskier assets. While market functioning in the euro area was still orderly overall, and volatility subsided after the announcement of a temporary tariff pause and subsequent trade agreements, valuations in some asset classes remained elevated. This left markets vulnerable to renewed sharp, abrupt adjustments if liquidity conditions were to deteriorate. At the same time, concerns about US fiscal fundamentals and institutional credibility weakened the safe-haven status of US Treasuries and the US dollar, increasing the risk that sudden shifts in global capital flows and disorderly exchange rate fluctuations could spill over to euro area financial conditions.

The market footprint of the NBFI sector in the euro area continued to expand in 2025, supporting deeper and more diversified capital markets for financing the real economy. Despite heightened policy uncertainty and recurring episodes of market volatility, the sector remained resilient overall. At the same time, liquidity mismatches persisted across several NBFI segments and were compounded by pockets of high leverage, particularly in parts of the investment fund segment. These structural fragilities left the NBFI sector exposed to adverse price movements, abrupt fund outflows and spikes in margin and collateral calls, potentially triggering procyclical asset sales and amplifying market stress. Interlinkages with euro area banks continued to expose both the NBFI sector and the banking sector to spillover risk via credit and funding channels.

Overall, while the euro area financial system proved resilient in 2025, risks to financial stability remained elevated. In addition to cyclical pressures from weaker growth and trade tensions, several structural factors continued to weigh on the risk outlook. Cybersecurity weaknesses and hybrid threats became more salient in an increasingly complex geopolitical landscape. The rapid adoption of artificial intelligence offered efficiency gains, but also created new channels for operational risk and market disruption.

At the global level, growing regulatory fragmentation and renewed calls for deregulation are likely to encourage cross-border arbitrage and a build-up of vulnerabilities outside the regulatory perimeter.

Looking ahead, demographic trends related to ageing populations, together with the ongoing transition to a low-carbon economy, are expected to affect growth prospects. While the transition entails costs, it also creates economic opportunities, and both factors could interact with existing cyclical and structural vulnerabilities in ways that challenge financial stability. If several of these risks were to materialise at the same time, they could become mutually reinforcing and significantly increase stress in the financial system.

3.2 Macroprudential policy: preserving resilience in an uncertain environment

The ECB has the task of assessing macroprudential capital measures proposed by national authorities for banks in countries participating in the Single Supervisory Mechanism (SSM). Importantly, it also has the power to apply more stringent capital measures if necessary. The ECB’s close monitoring of national macroprudential policy stances in 2025 did not identify a need for this, as several countries had already implemented macroprudential measures to strengthen the resilience of their banking systems to accumulated vulnerabilities and downside risks.

Preserving the resilience of the financial system remained the main priority

In July 2025 the Governing Council issued a statement calling on national macroprudential authorities to maintain existing capital buffer requirements in order to preserve the resilience of the banking sector and ensure that buffers are available in case the banking sector or macro-financial conditions deteriorate. The statement referred to heightened risks to financial stability stemming from a sharp rise in global geopolitical uncertainty. In this context, the Governing Council expressed its full support for those national authorities that were planning to increase capital buffer requirements to address vulnerabilities while prevailing banking sector conditions were limiting the risk of procyclicality. It also called on national authorities to maintain existing borrower-based measures to preserve sound and sustainable lending standards. The statement indicated that a targeted recalibration or simplification of macroprudential measures could be considered where the sources of systemic risk had changed persistently and when such actions would not result in a reduction of the overall resilience of the banking sector. Lastly, the Governing Council noted that, considering the high level of uncertainty, macroprudential policy needed to remain agile and adapt to changing conditions.

Against this background, some national authorities continued to tighten macroprudential policy in 2025 to boost the resilience of banks. In particular, two participating countries announced an increase in the countercyclical capital buffer rate, while another announced the introduction of the systemic risk buffer (SyRB).^[21] By the end of the year, all participating countries had a releasable capital buffer in place. Nevertheless, some countries decided to either deactivate or reduce systemic risk buffers on account of lower systemic risk in sectors that had seen an accumulation of vulnerabilities in the past.^[22] Furthermore, some countries, for individual institutions, adjusted the levels of the buffer for global systemically important institutions (G-SIIs) and the buffer for other systemically important institutions (O-SIIs). For the latter, this was due to the phased introduction of the enhanced floor methodology for assessing O-SII buffers from January 2025.^[23] Lastly, in addition to capital-based measures, one country implemented borrower-based measures, bringing the number of countries with such measures in place to 18.^[24]

The ECB communicated its views on macroprudential policy topics in 2025. In the May issue of its Financial Stability Review, it stated its support for the revision of the EU macroprudential framework aimed at enhancing its effectiveness, streamlining processes and establishing consistency across jurisdictions.^[25] In this respect, the ECB pointed out that ensuring the usability and releasability of macroprudential buffers was crucial given the complex interaction between prudential and resolution frameworks. In the November issue of the Financial Stability Review, the ECB stressed that macroprudential policy should remain firmly focused on safeguarding financial stability, thereby benefiting the economy without compromising the banking sector’s competitiveness as measured by profit efficiency. While it had been argued that higher capital requirements restrict credit supply and weaken banks’ competitiveness, the ECB indicated that recent empirical evidence did not align with this view.^[26]

Cooperation with the European Systemic Risk Board

The ECB hosts the secretariat of the European Systemic Risk Board (ESRB) and provides it with analytical, statistical, logistical and administrative support.^[27] The ECB President is chair of the ESRB General Board, which meets every quarter to discuss current threats to financial stability and possible responses. ECB staff members are heavily involved in the preparation of these discussions, through co-chairing various working groups, as well as conducting research and analytical work. In particular, the ECB provides crucial support for the ESRB’s data analysis work, enabling it to use vast pools of data, notably on individual derivatives transactions. Another area of close cooperation is the development of adverse scenarios for stress tests, which are adopted by the ESRB and must be both severe and plausible. Developing such scenarios requires model-based input from the ECB. In 2025, in close cooperation with the relevant European Supervisory Authorities, the ESRB agreed adverse scenarios for the EU-wide stress tests for the banking sector, for pension funds and for money market funds.

In addition, ECB staff members provided important analytical input for several ESRB reports, two of which are highly relevant for banks’ risk management: (i) a report published in May that looked at the financial stability implications of the 2021 extension of the simple, transparent and standardised (STS) criteria to on-balance-sheet securitisations under the amended EU Securitisation Regulation^[28]; and (ii) a report published in November on credit default swaps. This report highlighted some market imperfections that could hinder effective price discovery for credit default swap spreads, which are a widely used metric of credit risk. ECB and ESRB staff members also worked jointly on two topical reports on (i) geoeconomic risks and financial stability, and (ii) linkages between banks and non-bank financial intermediaries in the EU. The latter report highlights both the important role of banks in managing liquidity and providing leverage to non-bank financial intermediaries, and the financial stability risks that may arise from such linkages.

In April 2025 the ECB submitted a non-paper on EU and third country stablecoin multi-issuance to the Council of the European Union, highlighting the risks to financial stability of authorising one stablecoin for issuance simultaneously by an entity authorised under the Markets in Crypto-Assets Regulation (MiCAR)^[29] and another entity under a third-country jurisdiction. In the event of a crisis, the reserves held by the EU issuer could become quickly depleted if holders of the stablecoin are less well protected under the third-country’s regulation. The ESRB devoted part of its report on systemic risks from crypto-assets to an in-depth analysis of the risks of multi-issuance. Furthermore, it issued a recommendation on third-country multi-issuer stablecoin schemes^[30], calling on the European Commission to clarify that multi-issuance with third-country issuers is not permissible under MiCAR and to develop appropriate safeguards to prevent multi-issuance from causing systemic risk.

3.3 Microprudential activities to ensure the soundness of individual banks

In 2025 banks under ECB supervision demonstrated strong resilience in a challenging economic and geopolitical environment. Overall, the euro area banking sector remained well capitalised. In the third quarter of 2025, the aggregate Common Equity Tier 1 ratio stood at 16.1%, while the aggregate NPL ratio of significant institutions remained roughly stable at 1.9%, significantly lower than over the past decade.^[31]

The ECB, together with the national competent authorities participating in the SSM, advanced several initiatives in 2025 aimed at strengthening the efficiency, effectiveness and risk focus of banking supervision.^[32] These included further progress on the reform of the Supervisory Review and Evaluation Process (SREP), notably the broader adoption and expanded use of the multi-year approach and a risk tolerance framework, which led to more focused and timely supervisory decisions. In parallel, the ECB launched the “Next level supervision” project, introducing a set of initiatives to simplify and streamline European banking supervision, reduce undue complexity and ensure that supervisors retain the capacity to tackle new and emerging risks. The focus areas include decision-making, internal model supervision, stress testing, capital-related decisions, reporting and on-site inspections. In addition, the ECB introduced a supervisory culture initiative, aimed at fostering a shared supervisory culture aligned with strategic objectives and at supporting the consistent and effective implementation of reforms across European banking supervision. It also developed a framework to assess the effectiveness of its supervisory activities. Looking ahead, in 2026 the ECB will start a review of its supervisory guides and other communications with a view to enhancing transparency regarding its expectations and supervisory approaches. The ECB will also review the application of proportionality in the supervision of less significant institutions. These initiatives complement the Governing Council’s recommendations to the European Commission based on the proposals of the ECB High-Level Task Force on Simplification.

During the year, the ECB strengthened its focus on digital operational resilience by setting out supervisory expectations for implementing the requirements laid down in the Digital Operational Resilience Act (DORA)^[33] in its Guide on outsourcing cloud services to cloud service providers, which also presents a collection of observed good practices for managing the risks of cloud outsourcing. In addition, the ECB clarified the use of machine learning techniques in its revised guide to internal models.

In 2025 the ECB conducted a system-wide stress test, which confirmed that the euro area banking sector remains resilient to a severe but plausible economic downturn.^[34] Despite substantial projected losses, capital depletion remained lower than in previous stress tests, reflecting strong profitability and stable asset quality. Under the adverse scenario, the aggregate CET1 ratio would stand at 12.0%, confirming that current capital buffers are supportive of banks’ ability to withstand adverse shocks.

Geopolitical risk remained a key focus of the ECB’s supervisory priorities given the heightened global uncertainties and the interconnected nature of the associated risks. Accordingly, the ECB continued to emphasise the importance of banks integrating geopolitical risk into their overall risk management frameworks and maintaining broad-based resilience. In addition, supervising banks’ ability to adequately manage climate and nature-related risk remained high on the supervisory agenda. In this regard, the ECB completed a multi-year programme to advance banks’ risk management capabilities and continued to move towards a business-as-usual approach by supervising climate and nature-related risks as part of its regular supervisory assessments and processes.

As part of its continued efforts to promote transparency, in 2025, following a public consultation, the ECB published a Guideline on the supervisory approach by national competent authorities to coverage of non-performing exposures held by less significant supervised entities.^[35] Additionally, following another public consultation, the ECB updated its policies on options and discretions available under EU law in order to ensure that they are applied consistently by the ECB and the national competent authorities. This will support transparency and effectiveness alongside fostering a level playing field for banks under European banking supervision.

The ECB and the Authority for Anti-Money Laundering and Countering the Financing of Terrorism signed a Memorandum of Understanding, laying down the framework for their cooperation.

More detailed information can be found on the ECB’s banking supervision website and in the 2025 ECB Annual Report on supervisory activities.

3.4 The ECB’s contribution to European financial sector policy initiatives

In 2025 significant progress was made on strengthening the EU’s financial regulatory and supervisory framework. The bulk of the Basel III reforms entered into force, with the remaining elements on track for implementation. The ECB supported key legislative initiatives, including targeted adjustments to prudential requirements, and contributed to developing the regulatory framework for crypto-assets. It also provided technical input to the co-legislators on policy discussions related to the review of the crisis management and deposit insurance framework. The agreement reached by the European Parliament and the Council of the European Union on that review marked a significant milestone on the path towards completing the banking union and strengthening the EU’s bank resolution framework. The ECB continued to contribute to policy discussions on NBFI and the savings and investments union, notably regarding legislative initiatives aimed at reducing fragmentation in EU financial markets, which will continue in 2026. In December 2025 the Governing Council put forward recommendations to the European Commission and co-legislators for simplifying the European prudential regulatory, supervisory and reporting framework for banks (see Box 3).

Developments in the regulatory framework for banks

The revised Capital Requirements Regulation (CRR)^[36] and revised Capital Requirements Directive (CRD)^[37] came into effect in 2025, thereby implementing the final Basel III reforms in the EU, which are aimed at increasing the resilience of the EU banking system to various risks. During the year the ECB supported, and also continues to support, the European Banking Authority with many Regulatory or Implementing Technical Standards related to the CRR/CRD. The implementation of the Basel market risk rules in the EU, known as the Fundamental Review of the Trading Book (FRTB), had been postponed owing to level playing field concerns arising from delays in the Basel III implementation by some major global jurisdictions. In November 2025 the European Commission launched a targeted consultation on the FRTB, focusing on policy options to be adopted by a delegated act offering specific changes to mitigate the capital effects for EU banks.^[38] The ECB published its response to the targeted consultation on 15 January 2026.^[39]

On 31 March 2025 the European Commission proposed making permanent the transitory prudential treatment of short-term securities financing transactions and unsecured transactions undertaken with financial customers under the net stable funding ratio. Upon completion of the transitional period that was scheduled to end in June 2025, in the absence of any legislative amendments, this treatment would be aligned with that laid down in the Basel net stable funding ratio standard.^[40] The ECB provided its opinion on the proposal on 2 May and the co-legislators adopted the Commission’s proposal in June.^[41],[42]

Strengthening the NBFI policy framework

During 2025 the ECB continued to emphasise the importance of addressing structural vulnerabilities in the NBFI sector and strengthening the relevant policy framework from a macroprudential perspective. It contributed to discussions on enhancing the macroprudential toolkit for the asset management sector and improving policy coordination across EU Member States, while underlining the importance of the full and timely implementation of international recommendations to address liquidity risk in open-ended and money market funds.^[43]

In parallel, the ECB highlighted the need to address risk from leverage in the NBFI sector and to enhance cross-border information sharing, contributing to the development of international policy recommendations to mitigate related systemic risks.^[44],[45] Furthermore, it actively contributed to promoting and monitoring the implementation of the regulatory response to crypto-asset activities in international fora, including through its involvement in the Thematic Review of the Global Regulatory Framework for Crypto-asset Activities conducted by the Financial Stability Board.^[46]

Supporting progress towards the savings and investments union

Accelerated progress towards the savings and investments union continued to be a key priority for the ECB in 2025. This is an essential step in strengthening Europe’s competitiveness, strategic autonomy and financial stability, while supporting the efficient financing of the real economy.^[47]

Specifically, the ECB contributed to advancing the savings and investments union in the area of financial market infrastructures (see Section 4.2). In addition, it actively engaged in policy discussions and provided technical advice on key legislative initiatives, such as the European Commission’s proposed legislative package on market integration and supervision.^[48] The package put forward concrete proposals to remove barriers that fragment the single market in trading, post-trading and asset management, while fostering innovation and strengthening supervision. In June 2025 the ECB contributed to the targeted consultation^[49] leading up to those proposals. Following publication of the proposals, and as requested by the co-legislators, the Governing Council adopted an opinion on the package on 9 April 2026.^[50]

The ECB also provided its opinion on the European Commission’s proposals to review the EU securitisation framework, which was the first legislative initiative by the Commission under the savings and investments union agenda.^[51]

The Eurosystem plays a central role in developing, operating and overseeing market infrastructures and payments. It operates the TARGET Services, all of which saw increased traffic in 2025. The functionalities of the TARGET Services, including multi-currency settlement services, were further developed. On 16 June a new TARGET Service went live, with the Eurosystem Collateral Management System (ECMS), a unified system that harmonises collateral management for Eurosystem credit operations for all euro area jurisdictions. The Eurosystem continued to promote the safety and efficiency of Europe’s payments and market infrastructure, pursuing the three imperatives of innovation, integration and independence. It also completed the preparation phase of the digital euro project, another milestone for the potential issuance of a digital euro. In 2025 the Eurosystem continued work on the development of an innovative, integrated and safe European digital asset ecosystem for wholesale transactions using distributed ledger technology, with the start of the Pontes and Appia initiatives. In the area of oversight, the recast of the ECB Regulation on oversight requirements for systemically important payment systems updated the definition of a systemically important payment system operator and provisions on governance, cyber risk and outsourcing.

4.1 TARGET Services

TARGET Services consist of three settlement services and a collateral management service: T2, a real-time gross settlement system for payment transactions supporting monetary policy operations, bank-to-bank transfers and commercial payments; TARGET2-Securities (T2S), a single platform for securities settlement in Europe; TARGET Instant Payment Settlement (TIPS), which settles instant payments in central bank money on a 24/7 basis; and the Eurosystem Collateral Management System (ECMS), a unified system that was successfully launched on 16 June 2025 and harmonises collateral management for Eurosystem credit operations for all euro area jurisdictions.

The multi-currency feature of the TARGET Services allows settlement services to be provided in currencies other than euro. It has been used in T2S for settlement of securities transactions in Danish kroner since October 2018 and in TIPS for settlement of instant payments in Swedish kronor since February 2024. In April 2025 settlement in Danish kroner also became available in T2 and TIPS. In the future, TIPS will allow settlement in Norwegian kroner, while the possible addition of further currencies in both TIPS and T2 is currently under investigation. In the context of Bulgaria’s accession to the euro area on 1 January 2026, the Bulgarian National Bank and the country’s financial community joined all TARGET Services, including ECMS.

In 2025 payment traffic increased across all TARGET Services. T2 settled on average 431,067 payments in euro per day, representing a 2.2% increase compared with the previous year, which was driven mainly by payments sent by banks on behalf of customers. T2S settled a daily average volume of 922,533 transactions, a 16.6% increase, which was broadly spread across markets. The EU Instant Payments Regulation^[55], which required payment service providers in the euro area to be able to receive and send instant payments by 9 January and 9 October 2025 respectively, led to a substantial rise in euro-denominated TIPS activity in 2025.^[56] The daily average number of transactions grew from 1,657,421 payments in December 2024 to 1,883,368 in January 2025 and 3,845,376 in December 2025, more than doubling during the course of the year.

ECMS was successfully launched on 16 June 2025 and began operations smoothly, following a coordinated migration involving 20 national central banks and their communities.^[57] It became the fourth TARGET Service, and is fully integrated with other TARGET Services, particularly T2S and T2. ECMS processed an average of over 5,000 instructions daily, mainly related to mobilisations and demobilisations of credit claims as collateral.

The Eurosystem made substantial advancements in the evolution of all TARGET Services in 2025. A number of operational and product enhancements were implemented to increase the efficiency of T2 for participants and central banks. Furthermore, in 2025 the Eurosystem granted non-bank payment service providers access to central bank-operated payment systems, including TARGET. In June, the Eurosystem launched a public consultation on a possible extension of T2 operating hours. After all responses have been processed, a report will be published in the first half of 2026. Finally, preparation work progressed on the T2 adaptations needed for the digital euro project.

Key new functionalities were added in T2S to enhance cross‑border settlement, further improve settlement efficiency – notably through optimised partial settlement – and strengthen automatic liquidity management services for payment banks. Furthermore, work on improving the overall resilience of T2S continued. In close cooperation with the financial industry, the T2S governance bodies also advanced key policy initiatives. Identification and assessment of the system changes required to support the move to a shorter securities settlement cycle in the EU (T+1) were initiated and implementation was planned ahead of the introduction of T+1 in October 2027.

On 27 February 2025 TARGET Services encountered a major incident that made T2 and T2S unavailable for approximately ten and eight hours respectively. Consequently, the processing of securities settlement instructions, payments, ancillary system settlements, and liquidity transfers between TARGET Services was suspended. As a follow-up to the incident, the TARGET Services governance bodies identified 20 measures to enhance contingency arrangements in the future.^[58] The measures include: (i) the replacement of a faulty physical component, (ii) the review of the business continuity management and the IT service continuity management, and (iii) the collection of detailed market feedback on the effectiveness of cut-off delays following a long-lasting outage. Significant progress has been achieved on the measures identified, with most having been implemented by the fourth quarter of 2025.^[59] Other incidents, which also affected the availability of the TARGET Services although to a lesser extent (in particular in March, May and November 2025), were also carefully managed by the Eurosystem, with further lessons being identified.

4.2 Shaping Europe’s payments and market infrastructure of tomorrow

The Eurosystem’s actions to shape the future of Europe’s payments and market infrastructure are driven by three imperatives: innovation, integration and independence. The Eurosystem is using innovative technology to further digitalise retail and wholesale payments and securities markets, and fostering deeper integration and competition through harmonisation and standardisation, for example in the post-trade sphere. Combined with the deployment of pan-European solutions, these efforts will be pivotal in improving the efficiency of transactions as well as bolstering Europe’s strategic autonomy and resilience. They will reinforce its monetary sovereignty and elevate the international role of the euro, while helping to preserve financial stability.

Preserving Europe’s monetary sovereignty with the digital euro

The Eurosystem took important steps in 2025 to advance its work on the digital euro, to ensure people’s access to public money in the digital age. The digital euro would be a digital form of cash that complements banknotes and coins as well as other digital means of payment. It would offer a simple and universally accepted way to pay across the euro area, free for basic use, with high standards of privacy, security and accessibility. In October 2025 the Governing Council decided to move to the next project phase. More detailed information on the project can be found in Box 4.

Fostering a safe and integrated European digital asset ecosystem

Building on the success of the Eurosystem’s exploratory work with distributed ledger technology (DLT), the Governing Council in 2025 approved a strategic plan to advance the development of a European digital asset ecosystem harnessing the potential of DLT. See Box 5 for more detailed information.

Improving cross-border payments by interlinking fast payment systems

With regard to international payments, a key goal of the Eurosystem retail payments strategy is to facilitate cross-border transactions for businesses and consumers in Europe and strengthen the international role of the euro. The Eurosystem is exploring ways in which TIPS can support the targets of the G20 cross-border roadmap.

In June 2025 a cross-currency settlement service based on the European Payments Council’s One-Leg Out (OLO) Instant Credit Transfer (OCT Inst) scheme was implemented in TIPS, allowing transactions to be initiated between any pair of currencies as long as at least one of the two legs is in one of the TIPS-hosted currencies.

At global level, the Eurosystem is exploring the linking of TIPS with other fast payment systems as a means to further improve interoperability, reduce costs and increase the speed and transparency of cross-border payments. In September 2025 the Governing Council decided to explore setting up a potential link between TIPS and the Swiss Interbank Clearing Instant Payments (SIC IP) system. In November 2025 the Governing Council decided to move forward on work to connect TIPS with India’s Unified Payments Interface and with Nexus Global Payments.

Integration of the European market infrastructures for securities and collateral

The use of a common messaging standard for collateral is required by the Single Collateral Management Rulebook for Europe (SCoRE) standards and is key for improving the automation of corporate action and triparty collateral management processing. In December 2025 the Eurosystem’s Advisory Group on Market Infrastructures for Securities and Collateral (AMI-SeCo) set out a roadmap in its ISO 20022 Migration Strategy for a market-wide transition to ISO 20022. AMI-SeCo also published a comprehensive report on remaining barriers to post-trade integration in Europe. The 2025 Corporate Events Compliance Report and the SCoREBOARD Compliance and Progress Report for the second half of 2025 both highlight limited progress and delays in compliance with AMI-SeCo standards. The Eurosystem is therefore seeking feedback from relevant stakeholders on their concrete steps and timeline to achieve full compliance with the ScoRE standards. AMI-SeCo supports the EU’s planned changeover to a shorter settlement cycle (T+1) in some areas of corporate events processing.

More generally, the ECB, together with the European Securities and Markets Authority (ESMA) and the European Commission, is supporting the EU’s move to T+1 (see also Section 4.1) through its participation in the dedicated EU T+1 governance structure.

4.3 Oversight and the role of central bank of issue

The safe and efficient functioning of financial market infrastructures and payments in the euro area remains a priority for the Eurosystem in its oversight capacity. In addition, as central bank of issue for the euro, the Eurosystem participates in cooperative arrangements with other overseers or competent authorities for financial market infrastructures with significant euro-denominated activities.

The comprehensive assessment of TARGET Services which was finalised in 2025 concluded that the services are largely compliant with the applicable oversight requirements. Recommendations were issued in relation to, especially, the governance of risk management and the integration of cyber processes into operational risk management. The findings were not considered to pose a serious risk. Incidents affecting TARGET Services in 2025 were reviewed, above all the major incident in February and further incidents in March, May and November. The review resulted in recommendations in relation to the major incident and business continuity management processes.

The Eurosystem also conducted a number of assessments of other systemically important payment systems, i.e. EBA CLEARING’s EURO1 and STEP2-T and the Mastercard Clearing Management System, with a focus on operational resilience and major changes. Changes were made to the status of some payment systems in 2025, following the annual payment systems classification exercise for oversight purposes.^[63] Furthermore, the Eurosystem finalised the recast of the ECB Regulation on oversight requirements for systemically important payment systems (ECB SIPS Regulation)^[64], which revised various elements, including the definition of a SIPS operator to also cover euro area branches of legal entities located outside the euro area. Furthermore, the recast Regulation includes provisions in relation to cyber risk and outsourcing, also taking into consideration technological and regulatory developments in the European Union, including the Digital Operational Resilience Act (DORA)^[65].

Under its oversight framework for electronic payment instruments, schemes and arrangements (the PISA framework), the Eurosystem concluded comprehensive assessments of selected payment schemes. It also operationalised its new responsibilities under the Markets in Crypto-Assets Regulation (MiCAR)^[66] and, in collaboration with the European Banking Authority, finalised the joint 2025 report on payment fraud.

In the area of cyber resilience, the Eurosystem conducted its periodic cyber survey to assess the resilience of overseen entities.^[67] It also coordinated the activities of the Euro Cyber Resilience Board for pan-European Financial Infrastructures, for which key focus areas in 2025 included crisis coordination as well as third-party risk management.

As central bank of issue for the euro, the Eurosystem contributed to the work of supervisory and resolution colleges for EU central counterparties (CCPs) and participated in the ongoing supervision of systemically important third-country CCPs. It also completed its review of the CCP credit facility available to eligible euro area CCPs under the TARGET Guideline.^[68] The ECB monitored the developments in the EU clearing landscape in 2025 and conducted in-depth analyses of the structure and functioning of the liquidity pools for euro-denominated interest rate derivatives. It also contributed to the work of the newly established Joint Monitoring Mechanism.

In the area of securities settlement, the Eurosystem continued to fulfil its role as a relevant authority under the Central Securities Depositories Regulation (CSDR)^[69], by providing reasoned opinions on the regular review and evaluation, as well as the extension of authorisation, of certain central securities depositories. In addition, the Eurosystem issued non-binding opinions on a number of applications submitted under the DLT Pilot Regime Regulation^[70].

Finally, the ECB contributed to multiple policy and regulatory activities at EU and international level, including the development of the regulatory technical standards linked to recently adopted or updated EU legislation applicable to financial market infrastructures.

The Eurosystem’s swap and repo lines with non-euro area central banks are monetary policy instruments that are used as stabilising tools in times of stress in global financial markets. In 2025 euro liquidity lines again provided a backstop to market-based funding. The ECB also continued to offer US dollar operations to eligible euro area counterparties on a regular basis, backed by the standing swap line network of major central banks, comprising the ECB together with the Federal Reserve System, the Bank of Canada, the Bank of England, the Bank of Japan and the Swiss National Bank. The ECB did not intervene in the foreign exchange market in 2025. It remained responsible for the administration of various financial operations on behalf of the EU and continued to coordinate the Eurosystem reserve management services framework.

5.1 Developments in market operations

Euro and foreign currency liquidity lines

The Eurosystem’s swap and repo lines are monetary policy instruments that help prevent tensions in international funding markets from hampering the effectiveness of euro area monetary policy transmission. Table 5.1 shows the liquidity lines in operation as at 31 December 2025. Drawings on the euro liquidity lines in 2025 remained very limited.

With regard to foreign currency liquidity lines, in 2025 the ECB continued to provide US dollar liquidity on a weekly basis with a seven-day tenor in coordination with the Federal Reserve System, the Bank of Canada, the Bank of England, the Bank of Japan and the Swiss National Bank (the swap line network). Borrowing by euro area counterparties remained very limited throughout the year.

Reporting on foreign exchange interventions

The ECB did not intervene in the foreign exchange market in 2025. Since the inception of the euro, the ECB has intervened in the foreign exchange market twice – in 2000 and 2011. Data on foreign exchange interventions are published on a quarterly basis with a delay of one quarter on the ECB’s website and in the ECB Data Portal, and are recapped in Table 5.2. If there were no foreign exchange interventions in the relevant quarter, this is explicitly stated.

The reporting framework covers foreign exchange interventions carried out by the ECB unilaterally and in coordination with other international authorities, as well as interventions “at the margins” within the exchange rate mechanism (ERM II).

5.2 Administration of EU borrowing and lending operations

The ECB acts as a fiscal agent for the European Commission for the administration of EU borrowing and lending activities. In 2025 it was responsible for the administration of accounts and the processing of payments relating to the following EU programmes:

• The medium-term financial assistance facility (MTFA);
• The European Financial Stabilisation Mechanism (EFSM);
• The European instrument for temporary Support to mitigate Unemployment Risks in an Emergency (SURE);
• The Next Generation EU (NGEU) programme;
• The Ukraine Loan Cooperation Mechanism (ULCM);
• The Ukraine Facility;
• Macro-financial assistance (MFA);
• The Reform and Growth Facility for the Western Balkans.

The ECB also acts as a paying agent for the European Commission in relation to its EU Issuance Service.

In 2025 the ECB processed various disbursements and payments related to the above-mentioned programmes.

It is also responsible for processing all payments in relation to the loan facility agreement for Greece.

As at 31 December the total outstanding nominal amounts were €37.1 billion under the EFSM, €90.4 billion under SURE and €26.3 billion under the loan facility agreement for Greece. There were no amounts outstanding under the MTFA on that date.

5.3 Eurosystem reserve management services

In 2025 the Eurosystem continued to offer a comprehensive set of financial services within the Eurosystem reserve management services (ERMS) framework established in 2005 for the management of customers’ euro-denominated reserve assets. Several Eurosystem national central banks provided these services to central banks, monetary authorities and government agencies located outside the euro area, as well as to international organisations, under harmonised terms and conditions and in line with market standards. The ECB continued to coordinate the framework, monitored the smooth functioning of the services, facilitated improvements to the framework and prepared related reports for the ECB’s decision-making bodies.

The number of customer accounts in the ERMS stood at 285 at the end of 2025, compared with 287 at the end of 2024. In the fourth quarter of 2025 the total average aggregated holdings (including cash assets and securities holdings) managed within the ERMS framework were approximately 8% higher than in the fourth quarter of 2024.

In 2025 the level of euro banknotes in circulation increased again. In line with the Eurosystem’s commitment to ensure that cash remains available, accessible and accepted as means of payment, while also being as sustainable and environmentally friendly as possible, the process to redesign the euro banknotes continued. This process will enhance the security of euro banknotes and also provide an opportunity to make them more relatable to all Europeans.

6.1 Developments in cash circulation and handling

Euro banknotes in circulation continued to grow in 2025 and reached a new high at the end of the year, amounting to 31.3 billion pieces with a total nominal value of €1,619.5 billion. After levelling out during the period of rising interest rates, nominal growth recovered slightly, reaching 2.5% by number and 2.0% by value year on year.

Over the period 2015-25 the value of cash in circulation consistently exceeded 10% of euro area GDP, underscoring the relevance of cash as a means of payment and as a liquid asset held for transaction and precautionary purposes. The growth in banknotes in circulation was also driven by the international use of the euro.

Credit institutions returned 24.5 billion banknotes to the euro area national central banks (NCBs) in 2025, which is a slight decrease of 0.9 billion banknotes compared with 2024. In terms of value, the banknotes deposited at the NCBs totalled €833 billion in 2025, down from €856 billion in 2024. This decline was partly due to credit institutions recirculating higher volumes of banknotes to customers, instead of returning them to the NCBs.

In 2025 the increase in euro coin circulation issued by euro area Member States reached 1.8% by number and 2.6% by value year on year, and amounted to 2.7 billion coins with a face value of €890 million.

6.2 Enhancement of the cash legal framework

The rise in euro banknotes in circulation demonstrates the continued need for forward-looking policies that safeguard the acceptance of cash and preserve good access to cash services, as well as ensure the security and sustainability of banknotes. Growing concerns across the euro area about cash acceptance and access to cash services highlight the urgent need for a comprehensive EU framework with clear and binding rules on the legal tender status of euro banknotes and coins. Such a framework will strengthen public trust in cash and clarify Member States’ responsibilities in terms of ensuring effective access to and greater resilience of cash services. The ECB welcomed the significant progress achieved by the EU legislators, with the Council of the European Union’s December 2025 agreement on a general approach, and stands ready to provide technical support for the finalisation of the Regulation on the tender of euro banknotes and coins^[71] as part of the Single Currency Package. Notwithstanding the general rise in digital retail payments in the euro area, analyses of electricity blackouts show that cash remains a reliable fallback in the event of disruptions to the payment system, which can occur unexpectedly and affect transactions on a wide scale.^[72] Cash bolsters systemic resilience, both acting (additionally to its daily widespread use) as a “spare tyre” for the payment system during disruptions and fostering competition in payment markets. It is also important for financial inclusion since many citizens, not least vulnerable groups, rely on cash to make their daily payments.

6.3 Counterfeiting and euro banknote development

Some 444,000 counterfeit euro banknotes were withdrawn from circulation in 2025, a decrease of 20% compared with the previous year. €20 and €50 denominations continued to be the most counterfeited, together accounting for around 80% of the total.

In 2025, 14 counterfeits were detected per million genuine banknotes in circulation, which is one of the lowest levels observed since the launch of the euro (Chart 6.2). The likelihood of receiving a counterfeit banknote is therefore very small.

Most counterfeits are of low quality with no or only very poor imitations of security features. Banknotes can be checked using the simple “feel, look and tilt” method described on the banknote security features web page and on the websites of the euro area NCBs.

Progress on the euro banknote redesign process

During 2025 the ECB proceeded with its work on redesigning the euro banknotes. The aim of the process is that the new banknotes better reflect Europe’s unity, identity and values, and are more secure, environmentally friendly and relatable to all Europeans. Launched in December 2021, this project highlights the ECB’s commitment to cash as a safe and inclusive payment method.

Public involvement has been crucial in the redesign process. Through consultations and surveys, the ECB has gathered ideas and feedback from across the European Union. In 2023, based on public input and expert recommendations, the Governing Council selected two themes for the new banknotes: “European culture”, celebrating shared cultural spaces and iconic European personalities; and “Rivers and birds”, showcasing Europe’s rich natural diversity. In early 2025 it selected the motifs to illustrate each theme.

Later in the year, on 15 July, the ECB launched its design contest for the new banknotes, inviting designers and artists residing in the European Union to submit applications to participate in the design phase. Participants were selected based on their experience and achievements, and have now started preparing design proposals. The Design Contest Jury, made up of independent experts from each euro area country, will select up to five winning designs for each theme. The public will have the opportunity to share its views before the Governing Council selects the final designs, which is expected around the end of 2026. The new banknotes will enter circulation some years after this decision and following the production process.

The ECB – assisted by the national central banks (NCBs) – develops, collects, compiles and disseminates a wide range of statistics and data needed to support the tasks of the European System of Central Banks (ESCB) and the European Systemic Risk Board. These statistics are also used by public authorities, international organisations, financial market participants, the media and the general public and help the ECB to increase the transparency of its work.

In 2025 the ECB refined euro area statistics to better support monetary policy, financial stability and wider EU priorities. Key datasets on money markets, banks and government finance were enhanced, improving coverage, consistency and transparency while also streamlining NCB reporting. Climate-related indicators were further developed to provide richer information on sustainable finance and climate risks, thereby helping to integrate climate considerations into policy analysis. At the legislative level, the ECB recommended targeted amendments to Council Regulation (EC) No 2533/98 to modernise the framework for collecting statistics, improve data quality and efficiency, and keep reporting burdens to a minimum while protecting confidentiality. In parallel, the Joint Bank Reporting Committee (JBRC) made key advances towards making banks’ data reporting more efficient with the release of its first advice, which concerned the implementation of the revised statistical classification of economic activities.

7.1 Advancing euro area statistics to meet evolving policy needs

In January 2025 the ECB significantly enhanced its Short-Term European Paper (STEP) statistics, which provide information on primary market volumes, transactions and yields for short-term debt securities issued under programmes that have received the STEP label. The new STEP statistics benefit not only from data provided by eligible STEP data providers but also from other high-quality data available in the ECB’s Centralised Securities Database, leading to improved data quality and coverage. The enhanced statistics are published in interactive reports featuring new weekly data, thereby facilitating the monitoring of money market activities by the Eurosystem (for its monetary policy operations), securities issuers and investors.

In the same month, the Governing Council adopted a new Guideline that upgrades and further harmonises the existing framework for euro area statistics on household wealth, income and consumption.^[73] The framework enables a better understanding of the situations of different household groups and how they are affected by economic developments and monetary policy.

The Governing Council adopted a recast Guideline on government finance statistics, which regulates how euro area data on government revenue, expenditure, deficits/surpluses and debt are compiled and reported.^[74] The recast Guideline introduces clearer templates for sector-by-sector data (central, state and local government and social security funds), adds harmonised information on financial links with the EU budget and defines when NCBs may rely on statistics already transmitted by Eurostat. This improves consistency and avoids unnecessary double reporting.

To strengthen the robustness and representativeness of euro money market statistics, data from the expanded money market statistical reporting (MMSR) population were incorporated into the daily calculation of the euro short-term rate (€STR) as of 2 July 2025. This followed the addition of 24 new banks to the MMSR population on 1 July 2024, which increased the sample size for several euro area countries and extended coverage to Luxembourg and Portugal for the first time. The benchmark now rests on higher transaction volumes and improved coverage.

In July 2025 the ECB started publishing more detailed statistics on euro area cross-border portfolio investment positions in debt securities.^[75] These new breakdowns show more currencies and issuer countries, a wider set of investor and issuer sectors, different maturity ranges, and whether a bond is green or sustainable. They also group assets and liabilities by simple risk classes based on credit ratings and provide some indicators at both nominal and market value, giving a clearer picture of exposures over time.

In October 2025 the Governing Council adopted a Guideline amending the Guideline on consolidated banking data.^[76] This extended the statistics coverage to Class 1 investment firms so that the aggregates better reflect the full EU banking sector.^[77] The amendment allows the ECB to aggregate supervisory data centrally on behalf of the NCBs, using its IT systems to enhance cross-country consistency and efficiency. In addition, the reporting templates were refined to provide more granular information on bank statistics.

In November 2025 the ECB further enhanced its climate-related statistical indicators. The indicators on sustainable debt securities were expanded with new breakdowns by currency, maturity and interest rate type. The transition risk indicators now provide a more detailed view of the carbon and sectoral profiles of banks’ loans and securities portfolios, making it easier to assess exposures to high-emitting industries and to follow changes over time. The physical risk indicators were refined to cover a broader set of hazards, including temperature and precipitation-related risks and water stress, and to link them to the geographical location of the underlying exposures.

7.2 Review of Council Regulation (EC) No 2533/98 – collection of statistical information by the ECB

Council Regulation (EC) No 2533/98^[78] provides the legal framework for collecting the statistical information from banks and other reporting agents necessary for the tasks of the ESCB. The Regulation was adopted in 1998 and amended in 2009 and 2015. As the economy, financial system and data landscape continue to evolve, the ECB issued a new recommendation to amend the Regulation in 2025.^[79] An amending Regulation was subsequently adopted by the Council of the European Union on 16 December 2025.^[80]

The digital transformation is creating new demands and opportunities not only for businesses but also in the provision of public services. It has created an unprecedented environment with new needs for statistics to carry out the ESCB’s tasks and new possibilities for the efficient collection of granular data. Moreover, recent economic and financial developments have amplified the need to collect timelier, more frequent and more detailed statistics while keeping the reporting burdens to a minimum.

For these reasons, it was important to adapt the legal framework so that statistical and regulatory reporting could follow the “report once” principle wherever possible. To avoid having multiple Member State and EU authorities and bodies collecting the same data, statistical information should be shared among members of the ESCB and by the ESCB with members of the European Statistical System and other relevant parties in well-defined circumstances, irrespective of which ESCB member initially collected the data.

7.3 Making banks’ data reporting more efficient

Key advances in making banks’ data reporting more efficient were driven by the JBRC, which brings together European and national authorities and the banking industry. The JBRC reached a major milestone in June 2025 with the release of its first advice, which concerned the implementation of the revised statistical classification of economic activities (NACE Rev. 2.1). The ECB and the European Banking Authority will ensure that banks can implement the revised classification simultaneously for statistical, supervisory and resolution reporting.

In 2025 the Eurosystem remained committed to reducing banks’ reporting burdens by consolidating its statistical reporting requirements via the Integrated Reporting Framework (IReF). Owing to geopolitical developments, and considering the long-term nature of the IReF project, the Eurosystem decided to investigate whether this first step towards a fully integrated reporting system could also be a step towards a more technologically sovereign Europe. To this end, the Eurosystem needs more time than anticipated to evaluate more sovereign solutions, including cloud hosting solutions, for the implementation of the IReF.

Lastly, the Banks’ Integrated Reporting Dictionary (BIRD), which provides a bridge between the data requirements of authorities and the language and definitions used by banks, continued to expand its role in supporting more efficient reporting in 2025. This included the addition of FINREP, asset encumbrance and AnaCredit to the dictionary. New workstreams were launched to integrate additional supervisory frameworks and data requirements, further extending the BIRD’s coverage beyond statistical data. This work is particularly important, as it confirms the feasibility of aligning statistical and supervisory reporting at a granular level, thereby enhancing the quality of data reported by banks and fostering greater consistency across reporting domains.

In 2025 ECB staff conducted extensive economic, monetary, financial and legal research, providing key input for policymaking, including for the 2025 strategy assessment. Work under the ChaMP Research Network^[85], as well as research based on the Consumer Expectations Survey and the Household Finance and Consumption Survey, continued to tap a rich vein of evidence to inform monetary policy.

This chapter begins with recognition of the quality of ECB research, followed by a description of the five main areas of research and policy advice, as well as the progress achieved in these areas during the year. The remainder provides an outline of the establishment and activities of the Research Task Force (RTF) on artificial intelligence (AI) and concludes with the box “Macroeconomic modelling in times of uncertainty”.

The ECB aims to produce high-quality research in areas that are central to the mandate and activities of central banks. Since December 2024, Research Papers in Economics (RePEc) – a widely used index of economics research – has ranked the ECB first in the world in the field of monetary economics. In 2025 the Federal Reserve Board and the International Monetary Fund (IMF) ranked second and third respectively. Meanwhile, in the broader field of macroeconomics, the ECB ranked second, behind the Harvard University Department of Economics and ahead of the IMF. In the field of banking, the ECB continued to rank first, ahead of the Bank for International Settlements and the University of Chicago Booth School of Business. Among central banks and similar institutions worldwide, the ECB ranked second in 2025, behind the IMF and ahead of the Federal Reserve Board. In Europe, the ECB ranked third across all fields and institutions, behind the London School of Economics and Political Science and the Paris School of Economics.

The research projects undertaken in 2025 at the ECB can be grouped into five broad thematic areas. Projects in all areas benefited from input from national central banks and collaboration within European System of Central Banks research clusters.

First, the research conducted on monetary policy strategy and transmission supported the ECB’s 2025 strategy assessment and deepened the understanding of monetary policy transmission. Updates of the forecasting models resulted in weaker estimates of transmission. They also boosted the models’ forecasting performance and interpretative power during periods of unconventional policy and energy-driven inflation. Other work in the area of monetary policy transmission analysed quantitative tightening, asset purchases and crisis interventions. Findings shed new light on: the effects of liquidity expectations on money market spreads; transmission heterogeneity across households, firms and sectors; non-linear inflation dynamics; and interactions between monetary policy, financial stability and fiscal policy. Finally, studies on monetary policy implementation focused on money market volatility, repo pricing, and regulatory changes, while research on communication examined trust, expectations anchoring and public attitudes towards central bank communication and the digital euro. Research on communication included collaboration within the ChaMP Research Network.

A second thematic area concerned fiscal policy and governance in the Economic and Monetary Union. Research in this field examined monetary-fiscal interactions, fiscal multipliers and the green transition. Findings showed that well-designed fiscal rules can support monetary policy at the lower bound, that fiscal stimulus affects inflation dynamics, and that climate policies involve trade-offs between inflation, output and transition effectiveness.

Third, in the field of international macroeconomics and finance, ECB researchers examined geopolitical fragmentation, cross-border shock spillovers, and currency dominance and the international monetary system. The related findings highlight the regionalisation of trade and payments, uneven global spillovers from US monetary policy and the continued dominance of the US dollar, alongside gradual shifts in currency use and financial infrastructure. The rule of law, as a value under challenge at the international level, was also examined.

A fourth thematic area of ECB research is macroeconomic dynamics and microfoundations. In 2025 the focus was on analysing firms, households, labour markets and prices, as well as research methods making use of granular data and microfounded models. Work in this field highlighted heterogeneous responses to shocks and monetary policy, the role of expectations, sectoral inflation dynamics, and labour market resilience. It also covered methodological advances – including those achieved using AI-based forecasting and estimation tools.

Finally, in the area of financial institutions and markets, research in 2025 extensively analysed the interaction between monetary policy, financial markets, inflation and the real economy. Studies examined the transmission of monetary policy through housing insurance, credit supply and loan contract structures, highlighting the role of bank balance sheet characteristics and market heterogeneity. Other work in this field assessed the effects of central bank asset purchases, and interactions between monetary and macroprudential policies, showing that monetary policy has a greater impact than macroprudential policies on lending rates. In addition, researchers continued to focus on bank resilience, supervisory reforms and non-bank intermediaries, including mutual funds and insurers. Last but not least, research into the financial system included analyses of climate-related financial risks – including climate transition risks – and the effectiveness of climate-related commitments.

The rapid diffusion of AI is expected to reshape the economy. In response, a two-year RTF on AI was launched in September 2025, organised around two workstreams: AI and the real economy, and AI and the financial sector. Ongoing work in the real economy workstream includes studying the effects of AI on productivity, labour demand, firm dynamics, competition and inflation. It also covers using machine learning and large language models to analyse texts, produce forecasts and study technology diffusion. In the financial sector workstream, researchers have begun experimenting with using AI to analyse securities markets, banking activity and digital payments. Early results appear to differ from those of standard models, with implications for financial stability and loan pricing.

Research output at the ECB remained at a high level. In total, staff published 158 papers in the ECB’s Working Paper Series and 12 Research Bulletin articles. Many of the working papers were also published externally in academic journals. In parallel, research coordinated by the ECB’s Legal Research Programme was published in top-tier international journals and the ECB itself published a special volume of collected papers on the legal aspects of EU autonomy-building.

This chapter deals with the jurisdiction of the Court of Justice of the European Union (CJEU) concerning the ECB, providing information on ECB opinions and cases of non-compliance with the obligation to consult the ECB on draft legislation falling within its fields of competence. It also reports on the ECB’s monitoring of compliance with the prohibition of monetary financing and privileged access.

9.1 Jurisdiction of the Court of Justice of the European Union concerning the ECB

In February 2025 the CJEU rejected an appeal brought against the General Court’s dismissal of a claim for damages against the ECB following a public statement by the ECB President during a press conference (C-11/24 P).^[94] The Court confirmed that for the non-contractual liability of the ECB to arise under Article 340 of the Treaty on the Functioning of the European Union (TFEU), a sufficiently serious breach of a rule of law intended to confer rights on individuals must be established. The Court found that the legal provisions invoked, concerning the allocation of competences between ECB bodies and the objectives of monetary policy, do not confer rights on individuals and thus the ECB is not liable for damages. The Court also upheld the General Court’s finding that no causal link had been established between the public statement made and the alleged financial losses. The order thus reaffirms the limits of the ECB’s liability for monetary policy communications under European Union (EU) law, contributing to legal certainty in the execution of its institutional mandate.

The CJEU confirmed in July 2025 that the ECB had correctly interpreted and applied the Italian law implementing the Bank Recovery and Resolution Directive^[95] when placing Banca Carige under temporary administration (Joined Cases C-777/22 P and C-789/22 P). It clarified that, when the ECB applies national legislation transposing an EU directive to a bank under its direct supervision – as provided for in Article 4(3) of the Single Supervisory Mechanism (SSM) Regulation^[96] – it must interpret those national rules in line with both the directive and EU law as a whole. These appeals brought by the ECB and the European Commission concerned the earlier judgment of the General Court in T-502/19, Corneli v ECB, brought by a minority shareholder challenging the ECB’s decision to appoint temporary administrators at Banca Carige. On the question of admissibility, the CJEU upheld the General Court’s finding that, in certain circumstances, shareholders of supervised entities may have standing to contest ECB supervisory decisions, particularly where those decisions affect the exercise of their administrative rights. The CJEU set aside the General Court’s 2022 judgment and referred the case back to it.

9.2 ECB opinions and cases of non-compliance

Articles 127(4) and 282(5) of the TFEU require that the ECB be consulted on any proposed EU or draft national legislation falling within its fields of competence. All ECB opinions are published on EUR-Lex.

In 2025 nine clear and important cases of non-compliance with the obligation to consult the ECB on draft legislation were recorded. Two non-compliance cases were in respect of Union legal acts and seven in respect of national laws. The ECB adopted own initiative opinions in both cases of non-consultation concerning draft EU legislative provisions and in six of the seven cases of non-consultation concerning draft national legislative provisions.

The first EU case concerned an EU proposal for a directive regarding the two-year postponement of the deadline for Member States to apply certain corporate sustainability reporting and due diligence requirements. This case is considered clear and important because of its relevance to the implementation of monetary policy, the prudential supervision of credit institutions, the contribution to the smooth conduct of policies pursued by competent authorities relating to the stability of the financial system, and the collection of statistical information.

The second EU case concerned an EU proposal for a regulation as regards certain reporting requirements in the fields of financial services and investment support. This case is considered clear and important because of the regulation’s potential impact on the reporting and exchange of supervisory data.

The first national non-compliance case concerns a Bulgarian law which contained measures against the financing of terrorism, the proliferation of weapons of mass destruction and money laundering. This case is considered clear and important because it concerns a national law which has implications for the ECB’s exclusive competence to grant and withdraw authorisations within the SSM. The next three national cases concern Croatian, Greek and Hungarian laws which, among other things, regulate citizens’ access to cash. These cases are considered clear and important because sufficient and effective access to cash services is necessary to preserve the effectiveness of the legal tender status of cash. The fifth national case concerns a Hungarian law on the resilience of critical entities. This case is considered clear and important because the obligations and supervisory powers established under the relevant laws have an impact on the Magyar Nemzeti Bank’s independence under Article 130 of the TFEU. The sixth national case concerns a Hungarian law affecting the Magyar Nemzeti Bank. This case is considered clear and important because of its impact on the Magyar Nemzeti Bank’s decision-making bodies, the prohibition of monetary financing and the permissible activities of the foundations established by the Magyar Nemzeti Bank. The seventh national case concerns a Hungarian law which, in the context of the transposition of the revised Capital Requirements Directive (CRD)^[97], concerns the term of office of a deputy governor and certain requirements related to their appointment and dismissal. This case is considered clear and important because of its impact on the Magyar Nemzeti Bank’s decision-making bodies and the independence of the Magyar Nemzeti Bank.

The ECB adopted eight opinions on EU legislative proposals covering (i) a shorter securities settlement cycle in the EU; (ii) prudential requirements for credit institutions as regards securities financing transactions under the net stable funding ratio; (iii) simplification of corporate sustainability reporting, as well as due diligence and taxonomy requirements; (iv) non-financial commercial real estate statistics; (v) the introduction of the euro in Bulgaria; (vi) the Pericles V programme aimed at combatting euro counterfeiting; (vii) simple, transparent securitisations and related capital requirements; and (viii) the simplification of economic governance rules.

The ECB adopted 37 opinions on draft national legislation. Opinions on national legislation often cover more than one subject depending on the scope of the national law on which the ECB is consulted.^[98] The ECB adopted:

• 17 opinions concerning national central banks, including on the ownership of gold reserves, the terms of office and composition of members of the decision-making bodies, the prevention of conflicts of interest, profit distribution rules, treasury accounts, participation in the SSM, responsibilities during a civil crisis, the application of cybersecurity and resilience requirements, the financing of a Member State’s International Monetary Fund quota contribution, and foundations and pensions;
• eight opinions concerning cash, including access to cash services, cash limits, the legal tender status of cash and the establishment of a constitutional right to make payments in cash;
• seven opinions concerning supervisory independence and the prevention of conflicts of interest;
• three opinions concerning special-purpose bank taxes or financial transaction taxes;
• two opinions concerning access to payment systems;
• two opinions on the assessment procedure for mergers, divestments and acquisitions;
• one opinion concerning digital operational resilience in the field of payments;
• one opinion concerning the oversight of providers of financial messaging services;
• one opinion concerning the portability of IBAN accounts;
• one opinion concerning the mandatory acceptance of cashless payments;
• one opinion concerning special credit institutions with a lower initial capital threshold of €1 million;
• one opinion on the interaction between national law, the SSM and sector-specific banking rules;
• one opinion concerning minimum reserve ratios in a non-euro area country;
• one opinion concerning flood insurance;
• one opinion concerning emergency planning in a civil crisis;
• one opinion concerning macroprudential measures related to mortgage lending.

9.3 Compliance with the prohibition of monetary financing and privileged access

Pursuant to Article 271(d) of the Treaty on the Functioning of the European Union, the ECB is entrusted with the task of monitoring the compliance of the EU national central banks (NCBs) with the prohibitions laid down in Articles 123 and 124 of the Treaty and Council Regulations (EC) Nos 3603/93^[99] and 3604/93^[100]. Article 123 prohibits the ECB and the NCBs from providing overdraft facilities or any other type of credit facility to governments and EU institutions or bodies, as well as from purchasing in the primary market debt instruments issued by these institutions. Article 124 prohibits any measure, not based on prudential considerations, which establishes privileged access by governments and EU institutions or bodies to financial institutions. In parallel with the Governing Council of the ECB, the European Commission monitors Member States’ compliance with the above provisions.

The ECB also monitors the EU NCBs’ secondary market purchases of debt instruments issued by the domestic public sector, the public sector of other Member States and EU institutions and bodies. According to the recitals of Council Regulation (EC) No 3603/93, the acquisition of public sector debt instruments in the secondary market must not be used to circumvent the objective of Article 123 of the Treaty.

The ECB’s monitoring exercise conducted for 2025 confirmed that Articles 123 and 124 of the Treaty were in general respected.

The ECB continues to monitor the involvement of the Magyar Nemzeti Bank in the Budapest Stock Exchange as the purchase of the majority ownership of the Budapest Stock Exchange by the Magyar Nemzeti Bank in 2015 may still be seen as giving rise to monetary financing concerns.

The financing by NCBs of obligations falling upon the public sector vis-à-vis the International Monetary Fund is not considered as monetary financing provided it results in foreign claims that have all characteristics of reserve assets. However, financial donations as provided in previous years by the Nationale Bank van België/Banque Nationale de Belgique and the Banque de France via the International Monetary Fund for debt relief for heavily indebted poor countries did not result in any foreign claims and therefore continue to require corrective measures.

The financing of the Spanish Financial Intelligence Unit (Servicio Ejecutivo de la Comisión de Prevención del Blanqueo de Capitales e Infracciones Monetarias – Sepblac) by the Banco de España is not compatible with the prohibition on monetary financing, as Sepblac is a public sector body. Consequently, the arrangements concerning Sepblac should be reconsidered with a view to ensuring compliance with the prohibition.

The three ECB decision-making bodies (the Governing Council, the Executive Board and the General Council) continued to prepare and set the policy direction under the ECB’s mandate for Europe. The ECB also maintained its open and constructive dialogue with European and international counterparts throughout the year. Central to the ECB’s accountability framework is its ongoing interaction with the European Parliament, particularly through regular hearings and correspondence with the Committee on Economic and Monetary Affairs (ECON).

In the wider international sphere, the ECB supported the G20’s efforts to strengthen both banking and non-bank sectors and advance key commitments on Basel III, crypto-assets, cross-border payments, and financial stability. The ECB also supported the work of the International Monetary Fund (IMF) through its contributions to relevant policy discussions.

10.1 ECB decision-making

The Governing Council, the ECB’s main decision-making body, met 15 times in 2025. Eight of its meetings were mainly dedicated to the monetary policy decisions summarised in Chapter 2. Seven of these meetings were held in Frankfurt and one was hosted in Florence by the Banca d’Italia. The remaining seven meetings – of which one was held in Frankfurt and the others by videoconference – focused either on the other Eurosystem tasks set out in the Treaty on the Functioning of the European Union, such as market operations, payment systems, financial stability, statistics and banknotes, or on more internal matters. In particular, strategic decisions were taken on major topics such as those featured in this Annual Report: the digital euro, the themes and motifs for the third banknote series, the introduction of the euro in Bulgaria and the simplification of EU banking rules. The meetings were often combined with seminars on specific policy topics. Such seminars provide the members of the Governing Council with additional background information and initiate a first informal reflection and exchange of views without decisions being taken. The Governing Council also held a strategic retreat in Porto, Portugal, in May 2025. This was dedicated to the 2025 monetary policy strategy assessment and included a workshop on the digital euro.

As illustrated by the chart below, the Governing Council also took a number of decisions by written procedure. In 2025, 456 written procedures were conducted on central banking matters^[101] and 948 on banking supervision matters.

The composition of the Governing Council changed in the course of 2025. Three new Governors were appointed by the competent national authorities: Martin Kocher (Oesterreichische Nationalbank), Olaf Sleijpen (De Nederlandsche Bank) and Álvaro Santos Pereira (Banco de Portugal). In addition, two members – Mārtiņš Kazāks (Latvijas Banka) and Olli Rehn (Suomen Pankki) – were reappointed to the Governing Council.

As announced on 8 July 2025, Bulgaria joined the euro area on 1 January 2026. Dimitar Radev, as Governor of Българска народна банка (Bulgarian National Bank), became a new member of the Governing Council. To prepare for Bulgaria’s accession to the euro area, from September 2025 onwards he was both kept informed about ECB decision-making matters and attended meetings as an observer. As regards the rotation of voting rights in the Governing Council, the Bulgarian Governor entered the group representing 16 central banks from smaller euro area countries that share 11 voting rights.

The Executive Board is the decision-making body in charge of preparing the Governing Council meetings, implementing monetary policy and other decisions, and managing the ECB’s day-to-day business. It continued to take most of its decisions in its meetings, which take place once a week on Tuesday mornings. In 2025 the Executive Board held 42 meetings and considered 977 agenda items, covering all the ECB’s tasks as well as internal matters (e.g. HR, budget, administration and IT issues). In addition, written procedures were used for information items or to take routine decisions, and some decisions were taken upon delegation from the Governing Council.

The General Council – which, as a transitional body, also includes Governors of the non-euro area national central banks (NCBs) – met four times in 2025. It discussed macroeconomic, monetary and financial developments in the EU and had exchanges of views on specific policy topics of interest to all NCBs. In addition, written procedures were conducted to consult or inform the members of the General Council about items falling within its mandate. In 2025 the General Council decided to reduce the frequency of its meetings to two per year as of 2026.

10.2 The ECB’s accountability

The Treaty on the Functioning of the European Union (TFEU) grants the ECB independence to ensure it can pursue its mandate of price stability free from political interference. This independence is matched by an obligation to remain accountable for its actions to the citizens of the EU, as represented by the European Parliament and its elected officials. The ECB’s accountability practices, based on Article 284(3) of the TFEU, allow for a two-way dialogue with the European Parliament. This enables the ECB to explain its policies and decisions and to hear the concerns of citizens’ elected representatives. Finally, judicial review by the Court of Justice of the European Union complements the ECB’s accountability framework.

In 2025 the President of the ECB participated in four regular hearings before the ECON Committee. The President also participated in the plenary debate on the ECB’s 2023 Annual Report. The Vice-President presented the ECB’s 2024 Annual Report to the ECON Committee in April. On the same day, the ECB published its feedback on the European Parliament’s resolution regarding the 2023 Annual Report. During the year, the ECB responded to 15 written questions from Members of the European Parliament. These questions addressed topics including monetary policy, the economic outlook, the digital euro and institutional matters. And in October 2025 a delegation from the ECON Committee took part in an annual visit to the ECB in Frankfurt am Main.

Over the course of 2025 the ECB continued its close collaboration with the European Parliament on the digital euro. Executive Board member Piero Cipollone participated in four exchanges of views before the ECON Committee, providing updates on the progress of the project. Additionally, its Chair and Committee Members were kept informed through notification on all major developments regarding the digital euro. The ECB also provided technical analysis and input to Members of the European Parliament to support the ongoing legislative process on a digital euro.

According to the spring 2025 Standard Eurobarometer survey, 83% of respondents in the euro area supported the single currency, marking a new all-time high.^[102] Support remained strong in the autumn 2025 survey, with 82% of respondents backing the euro. The ECB remains dedicated to engaging constructively with the European Parliament and citizens in the euro area. By explaining its decisions, addressing public concerns and maintaining an open dialogue, the ECB aims to strengthen trust and ensure the effective discharge of its accountability obligations.

10.3 International relations

G20

During South Africa’s G20 Presidency in 2025 – centred on solidarity, equality and sustainability – the global economy faced headwinds from high and volatile US tariffs, Russia’s war against Ukraine and conflicts in the Middle East. In this context, the Presidency encouraged multilateral cooperation among G20 members. The G20 reached agreement on a communiqué in July, a ministerial declaration on debt sustainability in October and the Johannesburg Leaders’ Declaration on 22-23 November. The Presidency put Africa and the Global South at the centre of the G20’s agenda. Key priorities encompassed debt sustainability, scaling up climate finance, and equitable access to critical minerals, as well as advancing policy cooperation on inclusive economic growth, food security and artificial intelligence. The ECB advised that a level playing field in all jurisdictions is essential to mitigate cross-border spillovers and safeguard financial stability. It welcomed commitments to the G20 Roadmap for Enhancing Cross-border Payments and to the full and timely implementation of agreed reforms and international standards, including Basel III. It also welcomed the endorsement of the Financial Stability Board (FSB) recommendations on leverage in non-bank financial intermediation (NBFI), and the FSB’s review of the implementation of its high-level recommendations for crypto-assets and stablecoins. The ECB also encouraged further work on NBFI, which should be supported by better data and cross‑border information-sharing, to ensure effective implementation and mitigate systemic risk.

Policy issues related to the IMF and the international financial architecture

Amid efforts to adapt and enhance the international financial architecture, the ECB, as a major central bank, continued to play an active role in policy discussions at the IMF^[103] on issues relevant to its own mandate. The IMF has embarked on three major reviews that are due to be completed in 2026. The Review of Program Design and Conditionality aims to improve lending programmes to better support borrowing countries’ external viability and resilience. The Comprehensive Surveillance Review will take stock of the evolving surveillance landscape and set priorities for the next five years. The Financial Sector Assessment Program (FSAP) Review will assess the FSAP’s effectiveness in addressing areas of rising vulnerabilities, NBFI coverage and the impact of IMF policy advice. The ECB is actively involved in these reviews.

The IMF also continued its work towards implementing the 16th General Review of Quotas (which will increase the IMF’s quota resources by 50%), while aiming at developing a set of principles in 2026 to guide future discussions on IMF quotas and governance, including the 17th General Review of Quotas. Regarding resources for IMF trusts, there was further progress on the delivery of financial resources pledged – either as special drawing rights or equivalent contributions – to the Poverty Reduction and Growth Trust and the Resilience and Sustainability Trust, with most pledges now fulfilled. EU Member States and their NCBs are significant contributors to these trusts.

Global efforts to tackle debt challenges were stepped up further in 2025. The IMF and World Bank made progress on assisting countries which have sustainable debt but face debt servicing pressures. The IMF began reviewing the Debt Sustainability Framework for Low-Income Countries, and the Global Sovereign Debt Roundtable published the Debt Restructuring Playbook^[104] to further improve the predictability and timeliness of debt restructuring. The ECB supports efforts by international financial institutions to advance work on debt sustainability.

As a public institution, the ECB is accountable to EU citizens and their elected officials. This responsibility encompasses effectively communicating and engaging with diverse audiences, maintaining the highest ethical standards and transparency, assessing the impacts of climate and nature-related risks, and empowering its employees.

11.1 Environmental, social and governance matters

The key environmental, social and governance (ESG) developments in 2025 are set out in this chapter as follows. Section 11.2 details how the ECB works to continuously enhance its governance frameworks. This includes closely cooperating with peer institutions at the European and international levels to strengthen ethics, integrity and good conduct. Section 11.3 outlines the ECB’s initiatives to step up outreach and increase its transparency, accessibility, and engagement with citizens and the general public. Section 11.4 outlines key developments in 2025 in human resources management and provides key data on the diversity of the ECB’s employees. Lastly, Section 11.5 covers the ECB’s work on climate and nature and provides details of more specialised publications in this area.

The ECB tackles climate risks as part of its risk management frameworks for both financial and non-financial risks, as described in the chapter on risk management in the ECB’s Annual Accounts 2025.

Additional information on these topics can be found in other sections of this annual report and on the ECB’s website (see Table 11.1 below).

11.2 Strengthening ethics and integrity

The ECB’s Compliance and Governance Office (CGO) supports the Executive Board in protecting the integrity and reputation of the ECB, promoting ethical standards of behaviour and strengthening its accountability and transparency.

The Ethics and Compliance Committee continued to assist institutions across the Eurosystem and Single Supervisory Mechanism (SSM) in implementing the Ethics Guidelines. This included providing guidance on restrictions on private financial transactions as well as conflicts of interest concerning matters such as external activities and unpaid leave. The Committee also organised thematic sessions with external speakers. As institutions outside the Eurosystem and SSM were also invited, these sessions were attended by more than 50 different public institutions and organisations. In 2025 the Committee established a dedicated Task Force on Ethics and Artificial Intelligence (AI). This Task Force developed non-binding guiding principles aimed at fostering the ethical and responsible design and use of AI systems and provided practical guidance to Eurosystem and SSM institutions. In line with its commitment to promoting awareness about ethics and integrity, the Committee organised an Ethics Challenge quiz and an external speaker session which addressed ethics, public trust and human behaviour from a behavioural science perspective. Both events achieved high participation from staff across the Eurosystem and SSM.

At the European level, the CGO worked with other EU institutions, bodies and agencies to co-organise the inaugural Interinstitutional Ethics Day. Over 600 colleagues participated, representing 15 different institutions. The ECB’s Chief Compliance and Governance Officer joined representatives of other institutions in a panel discussion on how ethics impacts organisational culture. At the wider international level, the ECB was actively involved in sharing knowledge and best practices within the Ethics Network of Multilateral Organisations (ENMO). The ECB served as Vice-Chair of the network and contributed to its meetings, working groups and the annual members’ meeting hosted by the Asian Infrastructure Investment Bank. This global collaboration paved the way for the adoption of the Standards of Practice for Ethics Functions in April 2025.

Onboarding programmes for newcomers were conducted as usual. Additionally, the CGO offered training courses tailored to specific business functions as well as refresher sessions on the rules applicable to private financial transactions. General awareness and outreach initiatives included the annual Global Ethics Day, featuring stands open to all ECB staff.

The number of requests to the CGO rose from 3,070 in 2024 to 3,532 in 2025 (Chart 11.1), driven by awareness initiatives and sustained efforts to develop intuitive digital tools. As in previous years, the CGO’s annual compliance monitoring checks confirmed that ECB staff members and high-level ECB officials continued to observe the rules on private financial transactions.

The ECB’s independent Ethics Committee – together with the ECB Audit Committee – complements the ECB’s governance structure. It provides advice to high-level ECB officials on questions of ethics, mostly concerning private activities and post-mandate gainful employment, and assesses their Declarations of Interests. In addition, the Committee monitors European and international developments in the field of ethics and good conduct.

In 2025 it reviewed compliance with the rules on private financial transactions by high-level ECB officials via the Declaration of Interests and issued 35 opinions. Of these opinions, 15 concerned post-employment restrictions (with some including recommendations on the observance of cooling-off periods). Ethics Committee opinions are published on the ECB’s website six months after the date on which they are issued.

11.3 Communication and transparency

The past year was shaped by a challenging environment that made communications particularly difficult. Exceptional economic uncertainty, geopolitical tension, rising populism and renewed debates over central bank independence coincided with greater pressures linked to financing Europe’s security, stability and growth. However, the results of the ECB’s core policies lent themselves to conveying a message of reassurance. Inflation was successfully brought back to around the ECB’s 2% target, monetary policy was in a “good place” and the euro area banking system remained resilient. Nevertheless, these successes may have gone unnoticed by many people. Overall – though not rising as fast any longer – prices remained on a higher level than before the inflation surge. This fuelled persistent concerns among Europeans about the cost of living, inflation and household budgets. In addition, increasingly vocal demands for simplification or outright deregulation in the financial sector required a reasoned, judicious and well-communicated response. Finally, new ECB frameworks for careers and staff relations, as well as a large-scale move from the Eurotower to a new building and innovative workplace concept, necessitated supportive internal communication.

In view of the ongoing challenges, the ECB is committed to further adapting to the evolving communication landscape, as confirmed during the 2025 Assessment of the monetary policy strategy. This exercise included taking stock of efforts to modernise ECB communications since the 2021 strategy review. The review had shown increased public awareness of the ECB’s price stability objective and found that the ECB and national central banks had made notable efforts to increase public engagement and outreach – and to enhance the readability and accessibility of their communications. However, among the general public, understanding of what the Eurosystem does and how the economy and the financial sector work remains limited. Accordingly, the ECB reconfirmed its commitment to explaining its monetary policy strategy and decisions as clearly as possible to all audiences.

Moreover, there is increasing evidence that monetary policy could be transmitted to the economy more effectively if consumers generally had a better understanding of the economy and the role of central banks.^[106] That makes promoting financial literacy a key area of interest. Synergies and benefits from cooperation across the Eurosystem in this field could provide one way forward. An example of this was the launch of the five commitments to push forward the financial literacy agenda on International Women’s Day 2025.

Adapting communication through innovative approaches

In January 2025 the ECB launched its Espresso Economics channel on YouTube, aimed mostly at younger viewers. The videos explain basic economic concepts in simple terms and in an entertaining manner. Topics connected to young people’s day-to-day experiences proved most popular, e.g. why young people feel that prices are rising so much and that buying a house has become impossibly expensive, or worries about jobs in the age of AI and working for the gig economy. Similarly, videos explaining hot topics in accessible terms – building on analysis by ECB experts – were also viewed widely. These included videos on how climate change affects grocery prices, what tariffs mean for the economy, or how the attention economy works.

The ECB Podcast marked two major milestones in 2025: publishing its 100th episode and passing one million listens for the series as a whole. To keep up with the changing preferences of listeners, the ECB continued to modernise both the podcast format and content.

In the same vein The ECB Blog, where both ECB Executive Board members and staff share their views and analysis, also tackled topical themes. These ranged from the response of European consumers to US tariffs and the role of foreign workers in driving growth, to the impact of heatwaves on prices or the risks stablecoins pose for Europe. The significant take-up of these blog posts in mainstream media internationally shows how effective this channel is at making ECB insights accessible to a wider audience.

The ECB and its main building continued to attract visitors from all over Europe and beyond. In 2025 more than 23,000 visitors attended almost 700 activities, including lectures and tours of the ECB’s Visitor Centre, which had added new exhibits. A new “About the ECB” video was published inviting visitors, online and offline, to better understand how the ECB’s actions make a difference to their lives.

Artificial intelligence (AI), especially the application of large language models and machine-generated content in communications, has growing implications for the ECB. The ECB is both affected by the wider adoption of AI and using it for its own communications.

Machine-generated content, especially images and video, was used maliciously against the ECB again in 2025. The ECB has dedicated protocols for identifying and dealing with this. Attacks included false social media accounts impersonating the ECB or its policymakers, deepfake videos of the President and other Executive Board members, as well as misinformation and disinformation on social and traditional media. As these incidents increase in number and, with the help of new technologies, the content becomes more difficult to distinguish from genuine ECB information or representatives, the related efforts and the in-house coordination processes will be further stepped up.

The digital euro in particular is a key focus of misinformation and conspiracy narratives, both online and offline. The ECB has prioritised pro-active, fact-based communication across diverse channels and formats, in order to ensure that the public have access to accurate and timely information.

The beneficial uses of AI have long been harnessed in the ECB’s communications. Notably, it has helped the institution to cope with growing demand for translation, especially in banking supervision, and to enhance the reach of its communication. In 2025 more than 45 million pages were exclusively machine-translated – mainly for internal purposes – through the eTranslation tool made available to the ECB by the European Commission. A final quality review by human translators remains indispensable for official ECB documents intended for external communication, in any EU official language.

Communicating about our currency: cash and digital

The most tangible connection between euro area citizens and their central bank is through cash – specifically the euro banknotes. The future design of the banknotes is therefore of interest to the wider public. In 2025 banknote communications centred around announcing the selection of possible future motifs and the launch of a design contest. The comprehensive communication and outreach around those events reinforced the message that the ECB and the Eurosystem remain committed to maintaining cash as a valid and accessible payment method.

The ECB also stepped up its communication efforts on the digital euro amid greater public interest. For example, data-based analyses examined the costs and financial stability impact of the project, in order to increase transparency and address widespread misconceptions. In addition, numerous interviews, speeches, parliamentary hearings, podcasts and opinion pieces by the President and Executive Board members contributed to a more informed debate among the public and EU legislators.

Bulgaria’s adoption of the euro was also an opportunity to celebrate the achievements of the single currency with the wider public throughout the EU. The euro continues to connect Europeans across borders, facilitating everyday life, travel and exchange, and promoting common prosperity across the euro area. The ECB marked the occasion with a dedicated series of communication efforts. These included the President’s speech entitled “Bulgaria on the euro’s doorstep: towards a shared future”, a blog post on the popularity of the euro around the time of adoption and outreach through Bulgarian online content creators as well as a series of social media posts. Most visibly, the ECB illuminated its façade to celebrate Bulgaria joining the euro area – images of which reached millions of people, especially on social media.

Public access to ECB documents

The ECB’s public access framework is essential for upholding its commitment to transparency. It promotes transparency and openness, reinforcing the ECB’s democratic legitimacy by providing broad access to ECB documents while safeguarding the institution’s independence and effective functioning.

In 2025 the ECB received a higher number of requests for public access to its documents. In total 86 requests were received, compared with 74 in 2024. The requests covered a wide range of topics including institutional/governance matters, central banking and banking supervision. As in 2024, requests relating to institutional and internal matters, such as HR policies, continued to remain prominent.

In line with the ECB’s commitment to transparency, documents disclosed in response to public access requests are typically made available through the ECB’s Public Register of Documents. Moreover, the ECB prepared its 2025 overview of topics covered in requests for access to documents.

The CGO conducted outreach to enhance awareness of the legal framework governing access to documents and promote a shared culture of transparency within the institution. Its initiatives were either aimed at all staff or tailored to specific business areas.

No findings of maladministration were raised by the European Ombudsman regarding the ECB’s handling of public access requests.

11.4 Investing in people to ensure the ECB remains resilient and forward-looking

In 2025 the ECB continued to invest in its people to ensure it remains a resilient organisation. The transition to dynamic workspaces supported organisational agility, accessibility and stronger cross-functional engagement, while also improving cost efficiency and work-life balance. New digital HR tools and targeted learning – covering, for example, artificial intelligence (AI) and diversity – made it easier to provide support, highlight development opportunities and promote an inclusive working culture.

Working culture

With 2,440 colleagues having relocated, nearly 50% of staff were assigned to newly designed offices – 1,700 in the Gallileo building and 740 in the ECB main building. The transition to dynamic workspaces, which includes desk-sharing, is encouraging flexibility, inclusion and innovation within the ECB community. ECB Banking Supervision entered a new era, coming together under one roof in the Gallileo building. The entire ECB staff is expected to be working in dynamic workspaces within two years, which is aimed at enhancing cost efficiency and hybrid collaboration while fostering autonomy.

The ECB reviewed the reporting, investigation and disciplinary framework to better support a respectful workplace. The new rules clarify reporting channels and streamline misconduct investigations, which will be handled by a single dedicated unit, and also enhance the whistleblowing framework. With the changes comes a stronger focus on prevention, early resolution and on granting support for colleagues involved, including by strengthening proactive protection if a risk of retaliation is identified.

In 2025 we launched a new survey to further improve how we listen to staff, in order to act on their feedback in a more timely and impactful way. The first survey was launched in November, with 75% of eligible staff participating. The results will inform the follow-up in 2026.

Talent and career development

The ECB’s career portal now also provides an internal talent marketplace for ECB staff and offers additional opportunities for professional development. Three types of opportunity were added: tasks, projects and job shadowing. By taking part in or offering these opportunities, staff can broaden their expertise, apply their skills in a new team or business area, and explore new environments with a view to mobility, making new contacts in the process.

A large proportion of staff have shown interest in and/or engaged with either the new opportunities available or the job swaps and mentoring that were already offered on the platform. In 2025 more than 2,000 staff used the portal.

At the ECB mobility is encouraged in order to foster the professional development and adaptability of staff members. In 2025 the internal mobility rate was 6.6%.^[107] Some 57% of mobility took place across business areas, compared with 43% of mobility within business areas, which signals success in enabling broader moves and encouraging adaptability.

External mobility is also supported to enable staff members to gain new experience in other organisations for a defined period of time. Many ECB staff members spend time at other organisations within the European System of Central Banks (ESCB) or Single Supervisory Mechanism (SSM). In 2025, 1.3% of staff commenced external mobility through the unpaid leave for mobility policy.

The 7th edition of the Schuman Programme was launched in 2025 and saw an increase in engagement across the ESCB and SSM. A total of 93 projects were proposed by 23 institutions, generating 220 applications. From these, 41 projects were ultimately offered as secondment opportunities, enabling 47 participants to take part in exchanges between the ECB, national competent authorities (NCAs) and national central banks (NCBs). Overall, 18 countries and 23 institutions took part, marking a rise in the numbers of both projects and participants compared with 2024.

The AI learning offer aims to build confidence and practical skills, helping staff understand and use AI responsibly at the ECB. More than 1,400 staff participated in training to build AI capability in 2025, ranging from foundational courses to more technical and advanced programmes.

Diversity and inclusion

In a changing external context, the ECB remains firmly committed to fostering equal opportunities and unity through its diversity and inclusion (D&I) portfolio. Mandated by the Executive Board and led by the Directorate General Human Resources (DG/HR), the portfolio brings together existing and new measures to remove structural barriers, strengthen fair systems and promote an inclusive culture. This is a shared commitment: executive sponsors champion D&I at leadership level, D&I ambassadors connect the agenda with their business units, and six staff networks amplify diverse voices and foster connection and allyship. These efforts are supported by a dedicated D&I Adviser and team in DG/HR, who embed a D&I lens in policies and enable dialogue. In parallel, regular exchanges across the ESCB and SSM further strengthen the collective impact.

Two gender strategies and their associated targets have been crucial in driving significant progress toward gender equality within the ECB. The most substantial increase has been an 8.2 percentage point rise in female representation in the K-L salary bands since 2019, reaching 39.4% at the end of 2025. The critical mass of 33% female representation has been achieved across all levels from analyst to senior management.

Alongside these efforts, the ECB strengthened its inclusive culture by engaging with staff in many different ways. The Gender Talk Series continued, engaging staff on important topics such as gender norms, masculinity and equal care, and an internal talk was held on intercultural intelligence. LGBT+ inclusion was championed through participation in Frankfurt’s Christopher Street Day event.

In 2025 the ECB’s Diversity Month focused on disability inclusion. A series of initiatives was launched that aimed at strengthening disability confidence across the organisation. Highlights included targeted workshops for leaders and an immersive experience around visual impairments delivered in collaboration with Frankfurt’s Dialog Museum.

Our people at a glance

11.5 Deepening our understanding of climate and nature-related risks

The pace of warming in Europe is twice the global average, with land temperatures already 2.1°C higher than pre-industrial levels.^[108] The economic impact is already materialising. Between 2021 and 2024 weather and climate-related disasters gave rise to economic losses in the EU totalling €208 billion, equivalent to an average of 0.32% of annual GDP.^[109] Biodiversity and ecosystem health in Europe are also declining due to climate change and other effects of human activities.^[110]

In its 2025 strategy assessment, the ECB reiterated that climate change has profound implications for price stability through its impact on the structure and cyclical dynamics of the economy and the financial system. The Governing Council also clarified the pivotal role of nature-related risks in the fulfilment of its mandate. Specifically, the Governing Council committed, within its mandate, to ensuring that it fully takes into account the implications of both climate change and nature degradation for monetary policy and central banking. Ensuring prudent management of climate and nature-related risks is also embedded in the supervisory priorities for 2026-28.

In 2025 the ECB and Eurosystem committees continued to further integrate climate and nature-related risks into their core work.^[111] They implemented commitments^[112] already made and intensified work in three focus areas: navigating the transition to a green economy, addressing the increasing physical impact of climate change, and advancing work on nature‑related risks. In view of the growing economic and financial impacts of climate and nature-related risks, the ECB is committed to staying the course within its mandate. At the end of the year it updated the actions to be taken going forward to enhance its analytical and operational capacity.

The ECB continued to take into account and report climate-related risks as part of its monetary policy implementation. The Eurosystem published the third annual climate‑related financial disclosures for its monetary portfolios and the ECB’s foreign reserves, which showed that the carbon emissions associated with these assets continued to decrease. Furthermore, the Governing Council set an interim target against which to monitor the decarbonisation path for the aggregate corporate portfolios with the aim of supporting the goals of the Paris Agreement and the European Climate Law. If aggregate corporate portfolios deviate from the desired average decarbonisation path, the Governing Council will assess whether – within the limits of its mandate and on a case-by-case basis – remedial action is warranted. In these disclosures a new exploratory indicator was also introduced to measure the exposure of corporate bond holdings to sectors that materially depend or have an impact on nature.

Regarding the collateral framework, since the end of 2024 Eurosystem NCBs have implemented common standards on climate-related risks in the in-house credit assessment systems (ICAS) they use for non-marketable assets (see Section 2.3). A post in The ECB Blog further explains how the ECB strives to properly include climate change risks in credit ratings. Additionally, in July 2025 the Governing Council decided to introduce a climate factor to protect the value of Eurosystem collateral in the event of climate-related transition shocks (see Section 2.3). The measure will be applicable as of 15 June 2026 for marketable assets issued by non-financial corporations. Meanwhile, in July 2025, the Governing Council decided to postpone implementing the requirement to comply with the EU’s Corporate Sustainability Reporting Directive (CSRD) as an eligibility criterion in the Eurosystem collateral framework. This was decided owing to the incomplete transposition of the CSRD into national legislation and its review in the context of the European Commission’s Omnibus simplification package.

Climate considerations have been more systematically integrated into the ECB’s macroeconomic and financial stability analyses. For example, the ECB/Eurosystem staff macroeconomic projections incorporate climate‑related fiscal measures, elements of the EU’s “Fit for 55” package and the macroeconomic impact of the EU Emissions Trading System 2. Regarding scenario analysis, the Network for Greening the Financial System (NGFS) developed new short‑term climate scenarios under a workstream led – as in previous years – by the ECB. These scenarios focus on climate impacts up to 2030, a time frame which is highly relevant for policymakers and market participants. They show that in the euro area an early transition coordinated worldwide reduces macro‑financial risks. In the euro area, physical risks are material even over short horizons – and extreme events could reduce GDP by up to 5% in a physical risk scenario that captures the compounding impact of co-occurring natural hazards in 2026 and 2027 (see “Climate risks: no longer the tragedy of the horizon” in The ECB Blog). Additionally, the ECB contributed to NGFS work on interactions between climate scenario analysis and transition plans.

In 2025 ECB Banking Supervision completed a multi-year programme aimed at advancing banks’ climate and nature risk management capabilities, and continued to move to a business-as-usual approach by supervising climate and nature risks as part of regular supervisory assessments and processes. In general, banks have made significant strides in managing the risks stemming from the ongoing climate and nature crises. However, sustained supervisory attention is needed in view of the remaining issues. More information on this can be found in the ECB Banking Supervision Annual Report.

The ECB updated its climate‑related statistical indicators to incorporate advanced methodologies, new datasets, and adjustments to reflect inflation effects. This ensures more precise tracking of decarbonisation efforts and of the impact of intensifying climate-related hazards. The ECB also contributed to European and international climate data initiatives, such as closing G-20 data gaps and improve sustainability reporting.

The ECB continued to reduce the environmental footprint of its own operations, portfolios and banknotes. The 2025 Environmental Statement reported a 39% reduction in emissions from the ECB’s internal operations between 2019 and 2024, in line with the 2030 target trajectory. Also the Climate‑related financial disclosures of the ECB’s non‑monetary policy portfolios reported that the corporate investments of the ECB staff pension fund remain on track to meet the interim decarbonisation targets. Regarding euro banknotes, efforts to reduce their environmental footprint continued, including steps to achieve the move to 100% organic cotton by 2027 and the increased use of decarbonised electrical energy for banknote manufacturing. In parallel, the ECB is integrating eco‑design principles into the development of future euro banknotes. The Eurosystem also continues to work to reduce the environmental footprint of electronic payments, including across the entire value chain of the digital euro project.

Capacity‑building, seminars and cooperation with other central banks and international institutions underpinned the ECB’s climate and nature degradation work. The ECB continued to contribute to international policy discussions and publications in 2025 through numerous fora at both European and global level. These included the above-mentioned NGFS, the Financial Stability Board, the Basel Committee on Banking Supervision, the European Supervisory Authorities and the European Systemic Risk Board, the Bank for International Settlements and its Committee on Payments and Market Infrastructures, the G7 and G20 as well as the International Monetary Fund and the World Bank.

ECB research and surveys improved our understanding of the economic and financial implications of the transition to a green economy. Banks indicated in the July 2025 bank lending survey that the climate performance of firms and the energy performance of buildings mattered for their lending conditions. They continued to report easier credit standards for firms with better climate performance and a tightening impact for high carbon-emitting firms. Banks also reported that uncertainty about future climate regulation was acting as an obstacle to loan demand. An analysis of Europe’s green investment needs highlighted that, despite progress, investment in green activities had fallen short of what was needed to reach the climate targets – and suggested a range of financial and economic policies to support it. An occasional paper by the Eurosystem’s International Relations Committee considered the interactions between geoeconomic fragmentation and the uncoordinated climate transition policies that might ensue, which could become mutually reinforcing. Further contributions looked at how artificial intelligence and the green transition are interconnected and how increased demand for defence funding could be met without sacrificing green and digital priorities.

Coping with the growing challenges from the physical impact of climate change requires deeper understanding and new strategies. With extreme temperatures and heatwaves becoming more common, ECB analysis showed that physical risks also affect firm-level^[113] and aggregate productivity^[114], substantially reduce economic activity in affected regions and increase food prices^[115]. ECB research indicates that banks and investors increasingly price in the physical climate risks to both residential^[116] and commercial real estate^[117] in risky areas. Sovereign borrowers are not exempt^[118], as physical risks are associated with lower credit ratings. Regarding climate adaptation, ECB research^[119] emphasises the need for enhanced resilience, insurance coverage and financial tools to absorb and smooth the impact of climate hazards in Europe.

The ECB worked intensively to better understand nature-related risks and their impacts on the economy and the financial sector. The explicit reference to nature degradation in the ECB’s 2025 strategy assessment clarified its policy relevance. Key work carried out by the ECB in this field is highlighted in Box 9 below. An ECB occasional paper^[120] and the post “The European economy is not drought-proof” in The ECB Blog highlighted the risks to the real economy, financial sector and price stability posed by degraded ecosystems and biodiversity loss, also spotlighting the materiality of water-related risks to the euro area. In November 2025 the ECB, in conjunction with the NGFS, held an international workshop on practices and tools available to central banks and supervisors to help them assess and address nature-related risks.

At the ECB we are fostering a culture of innovation and have launched a range of initiatives aimed at increasing efficiency and maximising the benefits we deliver to citizens. In 2025 substantial efforts focused on implementing new artificial intelligence (AI) solutions to support our daily work. In this chapter, five colleagues describe their roles in developing and deploying these tools and share their personal experiences of how AI is shaping the way we work at the ECB.

Myriam Moufakkir, Chief Services Officer

As Chief Services Officer, I lead the integrated backbone of support services enabling the ECB to deliver on its mandate. I am responsible for information technology, finance and budget, procurement, human resources, property management, security, operational resilience, governance and large scale transformation. Since joining the ECB in 2023, my primary focus has been on modernising our internal services so the ECB can act flexibly, securely and with the technological sovereignty that it requires.

In my day to day work, I provide strategic guidance and vision as well as operational execution capability, prioritising three pillars:

• capability – building strong AI, digital and operational skills across our teams is essential to unlock innovation and manage risks responsibly;
• sovereignty and autonomy – ensuring that the services and technologies we rely on allow us to deliver on our mandate in full independence;
• resilience – in a context of fast technological changes, disruptions and crises, strengthening our teams, processes and systems’ ability to continue to deliver.

The ECB already applies artificial intelligence (AI) in several areas. We are now accelerating and broadening the ECB’s adoption of AI and advanced machine learning. We are applying these techniques to strengthen economic analysis, improve inflation forecasting and support complex macroeconomic modelling, as well as to reduce heavy workload and tedious tasks. We are doing so through regular exchanges with business areas, a training curriculum covering all layers of the organisation, and within a governance framework that incorporates risk management and sovereignty from the outset.

My professional background spans international transformation roles across the financial services sector, where I led digital initiatives, strategic plans and large-scale organisational change. My academic education in mathematics and sciences allowed me to develop a technical literacy and engage with fast evolving and emerging technologies.

It is a privilege to work on a wide spectrum of topics, and with talented colleagues, to contribute to the ECB’s core mandate, stability and resilience.

Outside the office, my career has taken me across the world and deepened my appreciation for cultural diversity and different perspectives. Despite a demanding schedule, I have always made it a priority to preserve time for my family and to share with them a genuine passion for travel and the discovery of different cultures, making my professional mobility an opportunity for enriching family experiences.

Maximilian Freier

As a Lead Economist in the Front Office of the Directorate General Economics, I serve as Secretary to the ECB Monetary Policy Committee. In this role, I coordinate the committee’s work to ensure that the analysis and policy materials feeding into monetary policy discussions are timely, clear and comparable across the Eurosystem.

I also act as the artificial intelligence (AI) coordinator for the Directorate General Economics. Over recent months, we have made strong progress in advancing the ECB’s AI agenda across central banking business areas. We have developed an initial set of pilot tools that are already showing significant potential to strengthen our analytical capacity and reduce the time spent on recurring tasks. In parallel, we have set out an ambitious Central Banking Digitalisation Programme to advance our data analytics and business process automation.

Since 2007 I have held several positions as an economist in the ECB, in the Directorates General Economics, Monetary Policy, and International and European Relations. Before joining the ECB, I obtained a PhD from the London School of Economics and Political Science, and master’s level degrees in both economics and political science from the Ludwig Maximilian University of Munich.

My research interests span fiscal and monetary policy, innovation management, European integration and governance, comparative political economy, and applied machine learning. I have a particular interest in household and firm-level (“micro”) data. I am also the founding Chair of the ESCB Network on Microsimulation Modelling. Through this network of researchers across the European System of Central Banks, we connect new tools and methods with core policy questions.

Fabienne Allegret-Maret

As Senior Team Lead in the Information Governance Division of the Directorate General Secretariat, I lead the ECB Library. Recognising that information flows have grown dramatically in both scale and speed, I initiated a transformation of the Library to help the ECB navigate an increasingly complex information environment.

Today, my role goes far beyond providing access to books and databases. I position the Library as an integral part of the ECB’s knowledge ecosystem – a critical resource enabling rigorous analysis and innovative thinking. Together with my team, I procure and curate high-quality resources tailored to the needs of economists, supervisors and other experts. I treat thoughtful selection as just as important as access, ensuring that the information available is not only abundant, but authoritative and relevant. While most materials are now digital, we continue to promote access to print collections, convinced that deep attention and contextual reading remain essential for sound decision-making.

The transformation also reshaped our physical library environment: it now fosters knowledge-sharing and innovation, while preserving areas for deep, focused work. The library has become a hub where ECB experts meet, exchange ideas and learn from each other.

As artificial intelligence (AI) reshapes central banking, our responsibilities have expanded further. My team and I ensure that licensed content is used responsibly in AI applications, balancing innovation with legal safeguards. High-quality, reliable information is particularly crucial for AI systems, especially when analysing news, to ensure outputs are accurate and trustworthy.

In parallel, I apply my expertise in information organisation to advocate and support the development of the ECB semantic layer, which connects knowledge across systems – making ECB-specific insights more discoverable and actionable.

Librarianship has evolved far beyond guarding bookshelves: I now operate at the nexus of AI-driven information management, linking the fast-evolving innovations in AI with the specialised demands of central banking. By combining technological innovation with curation and governance, I enable the ECB to innovate with intelligence and integrity.

Steven Moons

In my role as the ECB’s AI Programme Lead and a member of the AI Office, I steer the institution’s strategic transformation in artificial intelligence. I oversee the design and implementation of the ECB’s AI Programme and coordinate both productivity enhancing and transformative AI use cases. My responsibilities include ensuring compliance with ethical, legal and regulatory standards, cultivating partnerships with internal and external stakeholders, and promoting a culture of innovation grounded in responsibility, transparency and robust governance.

Before taking on this role, I led several AI and “SupTech” initiatives in banking supervision. Prior to joining the ECB in 2021, I spent many years in positions focused on IT delivery, digital transformation and organisational change across the private and public sectors. During that time, I worked on modernising IT landscapes, advancing cloud and architecture initiatives, and delivering complex programmes with diverse teams across Europe, the United States and Asia.

What I value most about working at the ECB is how it brings together diverse perspectives from across Europe. Contributing to the institution’s technological and digital future – while helping to strengthen its role as a trusted, forward-looking European institution – is both a privilege and a constant source of motivation. In my current role, I particularly appreciate collaborating with such a wide range of business areas, as AI touches almost every part of the organisation. Engaging with this diverse and committed community of colleagues is inspiring and energising. The ECB’s strong collaborative spirit, and the opportunity to work with people who are genuinely passionate about making a difference, are central to what I value in my work.

Outside of work, I find balance in spending time outdoors, especially walking in the mountains or riding my motorcycle.

Vasilis Papaefthymiou

I am a Supervisor in the SSM’s Supervisory Technologies (SupTech) team. My work focuses on designing and developing innovative business applications that empower banking supervisors at the ECB and across the euro area.

Over the past five years in SupTech, I have specialised in developing artificial intelligence (AI) and generative AI applications. As product owner, I lead the development of two tools. Athena is the first and most comprehensive AI tool available across the SSM, which supports supervisors in identifying relevant information across millions of supervisory documents. Meanwhile, Delphi is an intuitive market risk sentiment tool that combines financial market indicators with key market drivers extracted daily by analysing news articles, providing supervisors with a view on emerging risks.

My passion for technology meets the rapidly evolving field of AI in an ideal setting. SupTech plays a key role in bringing state-of-the-art solutions into European banking supervision. This is an ideal environment for me to apply the computer science and data science experience I acquired through my studies in electrical and computer engineering at the National Technical University of Athens, combined with the management and economics perspective I gained through my master’s degree at ETH Zurich. For a computer engineer, the ECB offers a unique opportunity to work at the intersection of technology and finance, where innovation directly supports financial stability and world class supervision.

I feel highly inspired knowing that my day-to-day work developing innovative IT tools contributes to more effective and risk-focused banking supervision, leading to safer banks and a positive impact on European citizens.

In my free time, I enjoy meeting with friends and spending time by the sea under the Greek sun.

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