VIDEO | George Kalogeropoulos from the European Central Bank (ECB), highlighted the evolving landscape of TARGET services during his session at the PostTrade 360° Nordic 2024 conference. As part of the ECB’s Directorate General for Market Infrastructure and Payments (DGMIP), Kalogeropoulos outlined the key initiatives aimed at enhancing Europe’s financial market infrastructure and discussed the ECB’s role in shaping the future of digitalisation.

TARGET services, which include key systems like TARGET2, T2S, and TIPS, are essential components of Europe’s financial infrastructure. “We’re responsible for the major projects of the Eurosystem in financial market infrastructures,” Kalogeropoulos said, explaining his role within the DGMIP. The aim, he said, is to create a seamless financial market across Europe, one that ensures the Euro’s liquidity and stability in a complex, multi-jurisdictional environment.

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Recent developments in the TARGET services have seen the onboarding of several Central Securities Depositories (CSDs) and the inclusion of the Swedish Krona into TIPS, which Kalogeropoulos described as a “major strategic development.” The move has significantly increased transaction volumes, marking an important step toward integrating non-Euro currencies into the Eurosystem.

Kalogeropoulos also addressed the ECB’s ongoing efforts to explore digital solutions such as Distributed Ledger Technology (DLT) and Central Bank Digital Currency (CBDC). A significant part of this work includes a large-scale experiment with over 60 entities exploring how central bank money can be used for settling digital assets.

“We are looking at how the Eurosystem can provide central bank money settlement to digital assets exchanged outside the TARGET services,” Kalogeropoulos said, noting that this is one of the largest DLT experiments in the world. However, he cautioned that any widespread adoption of digital technologies will take time, emphasising, “If you want to create an infrastructure for a whole currency, you will deep dive beyond the technical challenges into regulation, legal, authoritative, notary function, and you realise you need years of governance to establish authority.”

Challenges in harmonisation

Harmonisation of financial standards remains a priority for the ECB, yet Kalogeropoulos acknowledged that there is still work to be done. “For example, the T2S harmonisation agenda is quite mature, but not 100% there yet,” he said, referring to areas like corporate actions and collateral management, which still require further alignment across markets.

The question of cross-border activity within T2S was also raised during the session. While cross-border flows have picked up recently due to changes in clearing models, Kalogeropoulos noted that “most of the cross-border takes place outside T2S,” facilitated by custodians and intermediaries. He hinted that future developments in CSD links might further enhance cross-border operations.

Adapting

The discussion also covered potential risks tied to the onboarding of new CSDs, a complex process that requires careful governance. “I wouldn’t call them risks, but definitely challenges of adapting to the European norm,” Kalogeropoulos remarked, highlighting the costs involved in harmonising standards across different regions. He stressed that while harmonisation is widely supported, its implementation comes with significant long-term investments.

Europe’s issuance dilemma

A critical question from the audience addressed the issue of European debt issuance migrating to the US. Kalogeropoulos acknowledged the challenge, explaining that although there are no current projects aimed at centralising issuance in Europe, recent developments, such as the European Commission’s issuance of the NGEU (€800 billion), mark a step towards a more unified European debt market. “In the Euro area, we should have a more European issuance,” he said, reflecting on the need for a stronger, more coordinated European financial market.

Speaker:
George Kalogeropoulos, deputy head of Division, DG Market Infrastructure and Payments, European Central Bank

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