How to fund Europe’s defence and security

Political

Summary:

Time for the three European big institutions to step up.

As Europe embarks on ambitious plans to boost its spending in defence and security in the light of curtailed support from the US, the big question is how this will be funded in a sustainable manner.

This was discussed at OMFIF Sovereign Debt Institute’s 2025 Public sector debt summit earlier this month in Paris. The event brought together senior officials from European sovereign debt management offices and public sector borrowers as well as leading fixed income investors and intermediaries for in-depth conversations on the key priorities for this market.

Historical debt brake reform

‘There is a real willingness to do more, but it is not clear yet what the end game will be,’ said a senior official at the summit. On a national level, governments are looking at how they can raise extra funds to boost their countries’ investments in defence. Germany’s Bundestag, for instance, last week approved plans for a package consisting of a €500bn infrastructure fund while reforming its debt brake to allow for higher defence spending. The landmark ruling allows for defence spending of more than 1% of gross domestic product to be exempted from the debt brake.

Germany’s fiscal capacity is an exception in Europe. Due to its conservative debt brake, which has been in place since 2009, Germany’s debt-to-GDP ratio has been well below the euro area average. This is why the market reaction to Germany’s historic shift in fiscal policy has been largely muted.

However, some analysts reckon the 10-year Bund yield could reach 3% on the back of Germany’s increased borrowing and spending, more than 20 basis points from where it is currently trading at. Higher borrowing by Germany also raises the likelihood that the European Central Bank will restart public sector bond purchases sooner than expected.

Other countries like Italy, Spain and France will find it far more challenging to borrow more without an impact on spreads and credit ratings. France is particularly vulnerable having already suffered downgrades over its rising budget deficit. Further downgrades to France could also have wider repercussions for the European public sector bond market.

Leaning on EU, EIB and ESM

This is where Europe’s three key institutions – the European Commission, European Investment Bank and European Stability Mechanism – come into play.

The ESM was created as a permanent pan-euro area organisation following the 2012 euro sovereign debt crisis to protect the financial stability and prosperity of the euro area. The biggest risk to financial stability would be a war, and so it is natural to look to the ESM to support against this. The ESM also has plenty of firepower with a lending capacity of €500bn, of which €430bn is currently available, meaning there is around 85% of unused capacity.

Europe could call on the ESM as a lender of last resort if countries face widening spreads and financial stability pressure from taking on the burden of defence spending themselves. The ESM also offers an advantage in terms of pricing. It would be able to lend at favourable rates to its member states due its status in the capital markets as not only a well-regarded triple-A issuer but for having one of the tightest spreads among public sector issuers. Among euro area member states, only Germany, the Netherlands, Ireland and Luxembourg borrow more cheaply in the capital markets. This means 16 euro area countries pay more than the ESM.

Extra lending capacity

Of course, it is not just the ESM that has additional firepower at its disposal. The European Commission and the EIB also have plenty of capacity to lend and disburse more to Europe. If the ESM and the European Commission put their full lending capacity to use, and with an extension of the EIB’s balance sheet, an extra €1tn could be made available for supporting Europe’s defence and security investment.

The European Commission has announced a ‘ReArm Europe Plan/Readiness 2030’ plan to enable spending of over €800bn. This includes a new dedicated instrument coined Security Action for Europe, which will allow member states to immediately scale up their defence investments in the European defence industry. To fund this, the Commission will raise up to €150bn extra in the capital markets until 2030.

This new programme further validates the importance of the European Commission in supporting crises following its role during the Covid-19 pandemic and the recovery of Europe (Next Generation EU) in which it became one of the largest borrowers in the capital markets. It also eases concerns from investors in the Commission’s bonds about the permanency of the EU as a large issuer, which has been one of the key drawbacks to its inclusion in sovereign bond indices.

Meanwhile, the EIB has lifted limits on financing for defence projects, broadening the scope of what is eligible, as part of the ReArm Europe Plan/Readiness 2030 plan. To fund Europe’s defence and security, it is imperative that all three European institutions step-up and work together to give the continent the boost it needs.

Source:Burhan Khadbai

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Add to Favorites

Gerik

Commodity

Russia-Ukraine Conflict

UK Leads the Crackdown on Russia’s Sanction-Evading Tanker Fleet

In a sweeping escalation of its sanctions regime, the British government has announced punitive measures against over 100 oil tankers believed to be transporting Russian crude on the global market. This represents a 75% increase in the number of Russian-affiliated vessels sanctioned by the UK, making it the most aggressive nation in targeting what has been termed Russia’s “shadow fleet.”

The sanctioned vessels—accused of helping Russia evade international restrictions imposed after its invasion of Ukraine—have reportedly facilitated more than $24 billion in oil exports since the beginning of 2024. The move is part of broader Western efforts to choke off the Kremlin’s energy-driven war chest and prevent Russia from circumventing the G7’s price cap framework through alternative logistical routes.

The Rise of the Shadow Fleet and Western Responses

Russia has, since early 2023, employed a large fleet of discreetly operated tankers—often sailing under flags of convenience or owned through opaque entities—to bypass sanctions. These ships rely on non-G7 insurers, frequently registered in countries like India and the UAE, and do not adhere to the $60/barrel price ceiling set by the G7, EU, and Australia.

Previously, the UK had sanctioned 133 tankers and effectively immobilized 41, but reports indicate that 39 of those vessels continued operations despite the restrictions. This highlights enforcement limitations and the adaptive tactics employed by Moscow, including ship-to-ship transfers and falsified manifests.

The new measures, however, aim to close these loopholes by expanding surveillance, tightening insurance access, and pressing for more coordinated action among G7 members.

Germany and the EU Push Beyond Sanctions

Beyond financial sanctions, European countries have begun physical enforcement. In a notable case earlier this year, German authorities seized a Russian-linked oil tanker named Eventin, flagged under Panama, which had drifted into German waters in the Baltic Sea. The vessel, carrying approximately $43 million worth of crude oil, was confiscated and its cargo nationalized—an assertive move designed to send a clear message of non-tolerance for sanction violations.

The European Union has sanctioned 153 tankers in total, outpacing both the UK and the U.S. This suggests the bloc is leading in terms of breadth, though the UK is quickly closing the gap by targeting high-value vessels and expanding its sanctions criteria.

Geopolitical Implications: Strategic Isolation Through Maritime Chokepoints

The move to sanction a larger portion of Russia’s energy transport infrastructure reflects a strategic shift. Rather than just focusing on pricing or production limits, the G7 is now actively targeting the logistical backbone of Russia’s fossil fuel exports. This approach aligns with a broader goal: to isolate Russia from global energy markets by disrupting not just sales, but the physical means of delivery.

Yet, challenges remain. Russia’s ability to insure and operate tankers outside the G7’s jurisdiction, and its deepening energy ties with countries like China and India, complicate enforcement. Beijing, for instance, has continued to import Russian crude—often at discounted rates—suggesting that the effectiveness of these sanctions hinges on multilateral coordination and third-party compliance.

The UK’s aggressive sanctioning of over 100 Russian oil tankers marks a turning point in the West’s economic campaign against the Kremlin. While the sheer scale of targeted vessels is unprecedented, the true test will be in enforcement and global alignment. As the shadow fleet adapts, G7 nations face a continuous challenge: to stay ahead of Russia’s evasive tactics and ensure that punitive measures translate into meaningful disruption of oil revenues.

Source: Reuters

Risk Warnings and Disclaimers

Add to Favorites

Devin

Economic

Of all the lessons I learned managing investments in emerging markets, the most important was to concentrate on the trend instead of the level. You can make a lot of money when a terrible outlook in a risky country turns slightly less terrible.

Over the last two months, President Donald Trump has turned the US from the central pillar of the world’s political and economic order into the main source of disruption and policy uncertainty. Risk assets have sold off, recession talk is rising and corporate strategy teams everywhere have frozen decisions on mergers or acquisitions until the path ahead on taxes, regulation and tariffs looks even a little more clear.

Figure 1. Global economic policy uncertainty has climbed in 2025

Looking for investment opportunities in the Trump policy tornado_1

Source: www.policyuncertainty.com

This chart is compiled by three economics professors based on media references to policy uncertainty, dispersion in expert forecasts and the number of tax provisions due to expire. While the data are global, the recent spikes align closely with the Covid-19 pandemic and each of Trump’s election victories.

But charts like this never rise indefinitely.

We may not get back to the levels recorded before 2016 anytime soon and the odds of recession may even be on the rise. Those who follow markets closely, however, will be watching for dynamics that may restore at least some temporary calm and slightly more predictability.

Here are five.

First, if tax uncertainty is high in the months before major provisions expire in the US code, the colourful members of the 119th Congress are hard at work on a new budget. A tight Republican majority and a deeply frustrated Democratic minority make for all kinds of member antics, procedural acrobatics and nail-biting deadlines around the parallel debt ceiling debate. But it’s still a good bet that Republicans will pass a reconciliation bill with pro-market fiscal policy before the August recess.

Second, maybe the most encouraging thing to be said about Trump’s tariff policy today is that it’s hard to imagine how it will become even more uncertain. But clarification may be on the way. The America First Policy Trade review is due 1 April and reciprocal and sectoral tariffs are set to take effect the following day. The bureaucratic challenges around assessing numerical reciprocity with more than 200 countries, territories and regional associations are daunting enough. Adjusting for differences in market access, currency manipulation and other non-tariff barriers will take far longer than a few weeks for the work. Still, it feels like these discussions will help frame the debate and create at least a range around where tariff levels are headed. The only thing worse than tariffs is wild uncertainty around tariffs.

Third, retaliation and escalation are among the biggest drivers of policy uncertainty. The European Union in March announced its two-step response to the 25% tariffs on all steel and aluminium imports. China announced a mix of tariffs and investment rules that target US firms. But escalation never continues indefinitely. After the first or second rounds of retaliation, there are reasons to expect a period of relative stability.

Fourth, setting aside all the talk of a 51st Canadian state, summer should also bring early conversations around renegotiating the US-Mexico-Canada Agreement which will set expectations for long-term North American tariffs. Granted, this may only come after the president tries to re-impose 25% tariffs on all Canadian and Mexican goods in early April, but the economic and market reactions to those are sure to make them unsustainable without huge carveouts. Look for Trump to beat a hasty retreat and change the subject to Greenland or the Panama Canal, while negotiations shift to setting some targeted North American tariffs on goods like Canadian softwood lumber and Mexican industrial goods outside the automotive supply chain.

Fifth, beyond tariffs and tax cuts, Trump promised deregulation. Still, revoking large swaths of Joe Biden-era rules has been even more destabilising at first, because many state and local regulations remain in place. But relative calm should return in a few months, especially as new leaders at the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Trade Commission set out their new priorities. Cutting taxes, deregulation and easing mergers and acquisitions regulation are Trump’s offsets to tariffs.

To be clear, none of these tracks signals a period of calm and predictability. Political divisions remain sharp and Trump has returned to office with sweeping ambitions to refashion the US government and undercut global institutions. His challenges on court decisions and attacks on the press look especially destabilising to the business model that has made America successful for decades. Meanwhile, Trump’s vision of an American economy that vigorously protects national champions risks undermining the competitiveness and creativity that have made the country so successful for so long.

Those are debates for a different time, however, and remain far beyond the narrower interests of financial investors hoping to turn a profit in markets that react sharply to shifts in the trend more than the trend itself. When unpredictability becomes slightly more predictable, the country may still be headed for darker times. But there’s still money to be made in those brief plateaus of relative calm.

Source:Christopher Smart

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Damon

Economic

In 1956, the first transatlantic telephone cable service opened, providing instant, continuous communication between New York and London via 36 phone lines and promising to link Old and New World voices in what would ‘swiftly become an everyday occurrence’.

Forty subsequent years of innovation culminating in the world wide web ‘flattened’ the communication system: not just bringing the connectivity enjoyed by the fortunate few hundred daily callers in 1956 to nearly every person on earth but levelling the playing field via ubiquitous, fast and cheap access.

Today, cross-border payments are being flattened by a quantum leap in financial integration and interconnectivity: the public ledger. Harnessing distributed ledger technology, public ledgers operate on open, permissionless blockchains, enabling the near-instant and continuously auditable means of recording and synchronising transactions.

Public ledgers and cross-border payments

Public ledgers allow anyone with an internet-enabled device to securely transact at speed and scale with the same technical ease in sending a payment across the globe as across the street. The traditional two-tiered financial system, by contrast, connects proprietary databases, or private ledgers, between financial institutions, relying on a network of central and correspondent banks to act as the modern-day switchboard operators. Each intermediary in the payment chain amends its own private ledger, which can add both time and costs, particularly for hard-to-reach or underbanked communities.

Public ledgers create a seamless and interoperable platform for the direct exchange of value, flattening the settlement system by bringing the efficiency, speed and cost-savings that have long been the domain solely of wholesale interbank settlement down to everyday retail use. The cross-border payments system is ripe for flattening.

In its 2024 annual survey of cross-border payments, the Financial Stability Board found that retail cross-border payments – defined as business-to-business, business-to-person and person-to-person – remain costly, slow and fragile with no segment achieving the cost and speed targets set by the G20 and several having worsened in the last year. Remittances remain particularly vulnerable to the high costs of intermediation with the global average cost of sending $200 more than double the 3% target and rising.

Reducing costs and inefficiencies

In the last two decades, digital payments increasingly sent via non-banks have emerged as a critical force in reducing some of the cross-border inefficiencies in retail payments, making gains through novel credit and netting systems designed to reduce settlement delays in banking networks. These improvements remain incremental, though, constrained by structural frictions in the wholesale settlement network as well as the sharp decline in correspondent banking relationships during the last decade.

Public ledgers supporting tokenised assets instead offer an inherent advantage: directly connecting individuals, businesses and financial institutions across borders and providing access to always-on, programmable liquidity. This enables small and medium-sized enterprises to better manage their global supply chains, reducing settlement risk and avoiding the need to preposition funds or risk stranding them.

As financial institutions and multinationals lean more heavily on tokenised assets, public ledgers will continue to find their way into everyday global payments with cross-border exchange on public networks already measuring into the trillions of dollars per year.

Today, it would be absurd to think of abandoning the phone line, which continues to carry significant volumes of internet traffic. However, revisiting the building blocks of global systems is necessary to ensure the benefits extend to all segments of society. The need for a more equitable cross-border payments system is exigent and public ledgers offer an efficient, scalable and inclusive means of connecting distant islands in the financial archipelago.

Source:Andrew Gallucci

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Frederick Miles

India And Pakistan Agree To Immediate Ceasefire_1

India's Foreign Secretary Vikram Misri holds a press briefing at Ministry of External Affairs (MEA) in New Delhi, India, May 10, 2025.

India and Pakistan have agreed to an "immediate ceasefire," President Donald Trump said Saturday, following days of rising tensions and fighting between the two nations.

"After a long night of talks mediated by the United States, I am pleased to announce that India and Pakistan have agreed to a FULL AND IMMEDIATE CEASEFIRE," Trump wrote on Truth Social.

Pakistani and Indian leaders also confirmed the ceasefire agreement.

The ceasefire announcement comes hours after fighting continued to escalate on Saturday, with both nations launching continued military operations against each other.

"Pakistan and India have agreed to a ceasefire with immediate effect," Pakistan's Foreign Minister Ishaq Dar wrote on X on Saturday.

"Pakistan has always strived for peace and security in the region, without compromising on its sovereignty and territorial integrity!" Dar added.

Indian Foreign Secretary Vikram Misri also said that the ceasefire would begin at 5pm local time.

Secretary of State Marco Rubio also said Saturday that the two nations agreed "to start talks on a broad set of issues at a neutral site."

Rubio said that Vice President JD Vance met with leaders of the two nations over the last two days.

The secretary of state lauded the two nations' prime ministers "on their wisdom, prudence, and statesmanship in choosing the path of peace."

Source: CNBC

Risk Warnings and Disclaimers

Add to Favorites

Thomas

Economic

The European Union is pressing pause on some of its most ambitious sustainability regulations. Through the Omnibus Regulation, the European Commission is scaling back and delaying key provisions of the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive, along with adjustments to the EU Taxonomy and Carbon Border Adjustment Mechanism.

The official rationale is simplification. But the impact is more sweeping: the number of companies in scope for CSRD reporting will fall by approximately 85%, and many of CSDDD’s stricter requirements around value chain enforcement and civil liability have been removed or watered down. What was once a far-reaching architecture for embedding sustainability into corporate reporting and governance is now being reworked midstream.

So, what’s actually changed, what comes next and how should companies respond?

What’s changed?

The most immediate change is a two-year delay for CSRD implementation for companies that haven’t yet started reporting. This means many mid-sized firms will now begin disclosures from FY2026 instead of FY2024. In parallel, the CSDDD’s transposition deadline has been pushed back by one year, giving member states more time to integrate it into national law.

The European Commission has also tasked the European Financial Reporting Advisory Group with simplifying the European Sustainability Reporting Standards.

The revised ESRS are due from EFRAG by 31 October 2025 and will be implemented via delegated act within six months of the final Omnibus text. Companies will be allowed to use the revised ESRS for FY2026 and required to use them from FY2027 onward.

What’s next?

The ‘stop-the-clock’ provisions were approved by the European Council and endorsed by the Parliament under urgent procedure. A final vote is set for 3 April. If approved, trilogues between Parliament, Council and Commission will begin shortly thereafter to finalise the legal text.

Despite the rapid pace of change, key elements remain unsettled. The European Parliament’s initial vote on the proposal passed resoundingly, but divisions among parties remain. Some member states have pushed hard for fast adoption to provide legal clarity for businesses, but others remain wary of the broader implications of weakening EU leadership on sustainable finance.

What it means for business

In the short term, the Omnibus offers breathing room for many companies. For firms not yet in scope, the CSRD delay may provide much-needed time to prepare systems, gather data and align internal teams. The expected reduction in datapoints and clearer materiality guidance could also reduce compliance costs and make the reporting process more usable.

But the longer-term implications are more complex.

First, the delay risks setting back progress on sustainability data quality and comparability. This weakens not just regulatory oversight, but investor and market ability to assess and price sustainability risks. Second, businesses operating globally may still need to report to other frameworks such as the International Sustainability Standards Board, which remain in force and are quickly gaining traction.

Third, the underlying rationale for these regulations hasn’t changed. Climate and nature-related risks are accelerating. Regulatory alignment, forward-looking planning and robust disclosures remain essential. Weakening standards or delaying implementation may create short-term flexibility, but it also increases long-term uncertainty and the risk of fragmented compliance obligations down the line.

Ultimately, this is also a story of process failure. Had the EU initially launched these sustainability frameworks as a single, coherent package with clear sequencing, technical guidance and regulatory alignment progress might be further along today. Instead, the attempt to correct course mid-flight may leave both companies and regulators navigating greater complexity.

The Omnibus is more than a technical reversal – it reflects deeper questions about Europe’s strategy on sustainable finance. Whether this is a pause to build smarter or a backslide that undercuts ambition will depend on the final text and what follows. For businesses, the imperative remains clear: understand the rules, track what’s changing and prepare not just for compliance, but for resilience in a world that still expects, and requires, sustainability.

Source:David Carlin

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Owen Li

Cryptocurrency

Countries worldwide have an opportunity to strengthen their positions as financial centres by establishing themselves as hubs for stablecoin transactions. Two complementary strategies would bring substantial economic benefits: enabling domestic financial institutions (regulated banks and non-banks) to receive and convert foreign stablecoins; and promoting global acceptance of locally issued stablecoins.

These forward-looking policies would generate significant fee and foreign exchange revenue for financial institutions, ensure proper regulatory oversight of digital currency flows, create diversified demand for government debt and reinforce a nation’s role as an innovative financial centre in the global economy.

Inbound stablecoin conversion

A global stablecoin clearing system would enable a country’s financial institutions to receive stablecoins from foreign issuers and convert them to local currency at par value.

If financial institutions were able to capture just 5% of the hypothetical $1tn global stablecoin redemption flow, this could generate approximately $1.83bn in annual gross revenue for the domestic financial sector. This would create a new revenue stream for banks and regulated fintechs without requiring them to take principal risk. Processing occurs through existing regulatory frameworks similar to how foreign currency cheques are handled today through international cash letter arrangements.

There are several regulatory benefits to this strategy. It ensures all foreign stablecoin flows into the country are processed through regulated institutions with robust know-your-customer, anti-money laundering and sanctions controls. It prevents disintermediation of domestic financial institutions by unregulated offshore stablecoin platforms and unhosted wallets. And it provides regulators with visibility into digital currency flows entering the economy.

This strategy also creates a foundation for bilateral trade negotiations: ‘We’ll facilitate acceptance of your stablecoins on a national level if you’ll do the same for ours.’ It positions the country as a forward-thinking jurisdiction embracing digital currency innovation within regulatory guardrails, and strengthens its competitive position against other financial centres hesitant to engage with digital assets.

Outbound national stablecoins

Promoting global acceptance of locally denominated stablecoins creates international demand for digital national currency, with significant macroeconomic benefits. Locally issued stablecoins held overseas indirectly generate demand for domestic government debt (as backing assets). This creates a new channel for the national currency to act as a reserve currency in digital form and broadens the utility of the domestic currency in international trade and cross-border transactions.

Consider consumers purchasing from overseas merchants through global marketplaces. These substantial payment flows could be denominated in local stablecoins, which many overseas marketplace sellers would willingly hold as part of a diversified currency portfolio. This creates sustainable foreign demand for domestically denominated assets without requiring immediate settlement back to the seller’s local currency.

This strategy extends the country’s financial influence in the growing digital economy, reduces transaction costs for domestic businesses engaged in global trade and provides a complementary digital currency strategy alongside any potential future central bank digital currency initiatives.

Policy recommendations

To make the most of this opportunity, countries should clarify the regulatory treatment of financial institutions receiving foreign stablecoins on behalf of clients and engage with clearing systems like Ubyx to ensure national interests are represented in this emerging infrastructure.

They should establish a cross-sector working group with the finance ministry, central bank, financial regulators and industry participants to develop a coherent national stablecoin strategy. This group should consider targeted incentives to encourage domestic financial institutions to develop stablecoin acceptance capabilities.

Countries should include stablecoin interoperability in discussions with international financial centres and trade partners, while enabling regulated banks and non-banks to participate in public-permissionless blockchains with appropriate risk management frameworks.

Finally, it is important to distinguish between infrastructure and outsourcing in regulatory frameworks to allow financial institutions to operate on public blockchains, as well as support accounting recognition of stablecoins as cash equivalents under appropriate conditions.

Nations that have historically thrived by embracing financial innovation while ensuring appropriate safeguards stand to benefit significantly from stablecoins. A progressive policy approach represents a substantial opportunity to generate economic benefits, strengthen regulatory oversight and enhance a country’s position as a global financial leader in the digital age.

By enabling both inbound conversion and outbound usage of locally-issued stablecoins, nations can establish themselves as pivotal hubs in the global digital currency landscape.