European Central Bank

Fiscal aspects of European defence spending: implications for euro area macroeconomic projections and associated risks

08/07/2025 European Central Bank Central banks

EU government spending on defence is expected to increase in response to heightened geopolitical tensions. This increase underpins efforts towards reaching a higher NATO defence spending commitment, as agreed at the NATO summit of 24-25 June. This box explores the implications for the euro area baseline projections and the risks around the baseline, as reflected in the June 2025 Eurosystem staff macroeconomic projections.

Uncertainty in seasonally adjusted services inflation: the role of Easter and travel

08/07/2025 European Central Bank Central banks

This box outlines the uncertainty related to the seasonal and calendar adjustment of the euro area Harmonised Index of Consumer Prices (HICP) for services. To gauge the impact of statistical estimations with respect to this uncertainty, we zoom in on historical revisions of seasonal and calendar adjustments conducted by the ECB and the results of alternative methods. The implications for the interpretation of services momentum – which moved up sharply recently – are derived from these findings.

Real wage catch-up in the euro area

08/07/2025 European Central Bank Central banks

Real wages have been increasing in recent quarters, recovering after their decline during the period of high inflation in 2022. By the first quarter of 2025 – when deflated by price indices that reflect consumption patterns, such as the Harmonised Index of Consumer Prices and the private consumption deflator – real wages had almost returned to the levels recorded prior to the inflation surge.

Bank lending implications of climate stress tests

08/06/2025 European Central Bank Central banks

Do climate stress tests affect bank credit supply to brown firms? Using a difference-in-differences approach and detailed data on individual bank loans in the euro area, this paper provides novel evidence on the effects of the ECB’s 2022 climate risk stress test. Despite no capital implications or public disclosures, participating banks significantly reduced credit to greenhouse gas-intensive industries relative to nonparticipants. Among affected firms, smaller borrowers were more negatively impacted.

Bank lending implications of climate stress tests

08/06/2025 European Central Bank Central banks

Do climate stress tests affect bank credit supply to brown firms? Using a difference-in-differences approach and detailed data on individual bank loans in the euro area, this paper provides novel evidence on the effects of the ECB’s 2022 climate risk stress test. Despite no capital implications or public disclosures, participating banks significantly reduced credit to greenhouse gas-intensive industries relative to nonparticipants. Among affected firms, smaller borrowers were more negatively impacted.

What does increasing competition from China mean for euro area employment?

08/06/2025 European Central Bank Central banks

This box explores the implications of rising import penetration of Chinese products for the euro area labour market. As China advances into high value-added sectors, such as vehicles and specialised machinery, its exports increasingly challenge euro area firms across domestic and third-country markets. Panel regressions, following Autor et al. (2013), show that greater exposure per worker to imports from China is associated with a negative impact on the employment rate.

Consumer confidence and household consumption decisions

08/06/2025 European Central Bank Central banks

Consumer confidence plays an important role in determining economic activity. This box presents a consumer confidence indicator derived from the ECB’s Consumer Expectations Survey to explore its relation with household consumption. Analysis reveals that confidence levels vary by income quintile, with high-income households demonstrating greater sensitivity to economic news, in line with their greater financial literacy and higher share of discretionary spending.

Should we mind the gap? An assessment of the benefits of equity markets and policy implications for Europe’s capital markets union

08/05/2025 European Central Bank Central banks

The European Union (EU) economy depends heavily on bank funding. For this reason, strengthening EU equity markets as an alternative funding source has been a policy priority under the Capital Markets Union (CMU) agenda, and more recently a key feature of the Savings and Investment Union (SIU). EU listed equity markets are smaller and structurally different from those in the United States (US), with differing market capitalisations of listed firms and differences in the number of companies listed, stemming from lower initial public offering (IPO) activity in Europe.

The impact of climate litigation risk on firms’ cost of bank loans

08/05/2025 European Central Bank Central banks

Using a novel worldwide dataset of 5,264 syndicated loans issued to 329 firms from 2006 to 2021, we study how climate-related litigation risk affects firm’s cost of borrowing. We find robust empirical evidence that firms targeted by climate lawsuits pay significantly higher spreads on their bank loans. These effects are more pronounced for firms with weaker environmental performance and higher ESG controversies. The results suggest that lender’s view climate litigation as a material risk factor, which is increasingly priced into debt contracts.

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