Europe’s Missing Safe Asset

Abstract The euro area has debated a common safe asset for more than 15 years, almost always as a question of fiscal mutualisation – who pays when things go wrong. This article reframes the question. A safe asset is, first and foremost, financial-market infrastructure: it anchors yield curves, underpins collateral in repo and derivatives markets, and transmits monetary policy. The euro area built a monetary union without this infrastructure, and the costs are now visible. European repo markets are increasingly collateralised in US Treasuries. European banks cannot scale in the absence of a deep, integrated capital market. European savings flow overseas rather than financing European assets. An April 2025 episode, in which US Treasuries briefly lost their safe-haven properties, only sharpened the urgency. The choice facing Europe is not between fiscal sovereignty and fiscal mutualisation, but between building this infrastructure and continuing to import one from abroad.