Europe has become remarkably good at issuing common debt. The harder part is turning that debt into a market.
By the end of 2025, €702.1bn of EU-Bonds were outstanding. The European Commission issued a record €152.6bn during the year and plans another €180bn in 2026. What began largely as a response to successive crises is becoming part of Europe’s financial architecture.
That raises a larger question: can EU debt become a genuine benchmark safe asset for the euro area?
Most of the debate focuses on quantity. Should Europe issue more common debt? How large must the market become? Could EU-Bonds stand alongside German Bunds as a reference asset?
Size matters, but only up to a point. A safe asset is more than a bond investor’s expectations to be repaid. Investors must also be able to trade it in institutional size, hedge it efficiently, finance it cheaply and use it readily as collateral. Its market also has to keep working when conditions turn difficult.
Europe therefore needs another measure of progress. I would call it the ‘Tradability Test’.
The first test is depth. A pension fund, central bank or global asset manager experiences liquidity differently from a small investor. A few million euros changing hands tells us little; the real question is what happens when hundreds of millions need to move at once.
Europe is making progress. Secondary-market turnover in EU-Bonds reached €1.531trn in the second half of 2025, up from €833bn a year earlier.
The second test is hedgability. Eurex launched a dedicated Euro-EU Bond Future in 2025, an important step. Listing the contract is one thing; seeing major institutions rely on it routinely is another. It remains far smaller than established Bund, OAT and BTP futures.
If investors cannot hedge EU-Bonds directly, they can use national sovereign futures instead. That works, but it creates basis risk: EU debt and German or French debt will not always move together. For a trader, that affects execution, position sizing and risk limits.
The third test is financeability. Repo rarely attracts much public attention, but it is central to a functioning bond market. Dealers need to finance inventory and market makers need reliable access to securities. The Commission’s EU Repo Facility is therefore important because it helps primary dealers obtain eligible bonds and maintain secondary-market quotes.
The fourth test is collateral utility. A mature safe asset does not simply sit in a portfolio. Banks use it, dealers finance against it, asset managers pledge it and central banks hold it.
The fifth test is the hardest: stress liquidity. Almost every market looks healthy on a quiet Tuesday. Safe assets earn their reputation on bad days. Nassim Nicholas Taleb’s distinction between robustness and fragility is useful here. A system can look efficient in normal conditions because it has removed spare capacity. Under stress, that same efficiency can become a weakness.
Europe does not need to predict whether the next shock will come from banks, geopolitics, energy, cyber risk or somewhere else. It needs to ask what happens when the shock arrives. A benchmark market needs some slack: multiple dealers, different sources of financing and deep hedging markets. That spare capacity can look inefficient in calm periods. In turbulent ones, it can be what keeps the market working. A safe asset earns its reputation when everybody wants safety at once and the market still trades easily.
Europe already has many of the pieces: larger benchmark bonds, auctions and syndications, a primary-dealer network, a repo facility and a futures contract. The challenge is getting them to reinforce one another.
Dealers are more willing to warehouse bonds if they can hedge them. Deeper repo makes inventory cheaper to finance. Better market-making lowers transaction costs. Lower costs attract more investors. At some point, liquidity starts attracting liquidity.
Governments can issue debt; liquidity has to develop around it. That does not mean Brussels should try to manufacture trading activity. It should keep concentrating issuance in large benchmark lines, treat repo and derivatives as core infrastructure, and measure market quality as closely as it measures issuance.
That means watching market depth, bid-ask spreads, repo activity, futures volume, hedging costs and, crucially, how they behave when volatility jumps.
This matters beyond the bond market. Reserve currencies need reserve assets. If Europe wants the euro to play a larger international role, highly rated debt alone will not do. Global investors need an asset they can trade, hedge, finance and use as collateral at scale.
Europe will know it has a true safe asset when investors reach for it on their own, before policymakers need to give it the label.