Europe’s capital markets have reached a pivotal moment. The financing needs associated with the twin (green and digital) transition, aging demographics and the strengthening of Europe’s strategic autonomy are unprecedented in scale and pressing in their urgency.
Landmark public-private partnership transforming European capital markets
Mobilising long‑term investment to support climate goals, technological innovation, infrastructure and industrial competitiveness will require European capital markets that are deeper, more integrated and more efficient than today. The now well-established Draghi1 and Letta2 reports converge on these recommendations. Yet these objectives cannot be met by scale alone: they require a structural transformation of how European capital markets are designed, operated and connected.
Innovation is a central pillar of this transformation. A core objective of the Savings and Investments Union (SIU) is to enhance market efficiency, increase transparency and improve access to capital for issuers and investors. Advances in digital assets, Distributed Ledger Technology (DLT) and tokenisation can support the delivery of these objectives.
This is particularly relevant in short-term paper markets, given their central role in day‑to‑day liquidity management and high transaction volumes, making them a natural area for immediate gains from DLT. These markets also play a key role in financing the real economy by supporting short-term funding needs of banks, public and corporate issuers.
In a global environment marked by rapid financial innovation and increasing competition between jurisdictions, Europe’s ability to translate innovation into market‑ready solutions will be a decisive factor for its long‑term financial competitiveness. The European Commission has recognised this imperative and demonstrated a clear commitment to fostering innovation within a robust regulatory framework.
Crucially, Europe already possesses the foundations needed to turn policy ambitions into operational reality. Its market infrastructures, public authorities and central banks bring decades of experience in managing systemic financial functions, while its private sector continues to invest in technological capabilities and new market solutions. The challenge and the opportunity lie in harnessing these strengths through effective public‑private cooperation.
In this context, the challenge is not only to design new infrastructures but to create the conditions for coordinated adoption at scale.
Moving from policy ambition to operational reality requires more than technological readiness. It calls for environments in which participants can test new processes, interact across traditional boundaries and progressively align on emerging standards and practices.
This is where ecosystem-driven initiatives, bridging traditional systems and DLT, like Pythagore, play a critical role. By bringing together issuers, investors, issuing and paying agents, dealers and custodians, they enable a structured form of co-creation and collective learning, balancing innovation with continuity while preserving market stability.
Such initiatives provide a practical pathway to explore new operating models, while preserving the essential features of financial markets: liquidity, trust and interoperability.
The Negotiable European Commercial Paper (NEU CP) market provides a compelling illustration of the limits of purely incremental optimisation. It is Europe’s leading euro-denominated short term debt market, with around €300bn outstanding and a strong track record of standardised issuance, same-day capability and settlement in central bank money via Euroclear. Despite its efficiency and robustness, its current structure relies on fragmented processes, limited secondary market, multiparty reconciliations, batch-based interactions and limited real-time data visibility, limiting its ability to evolve towards more integrated and dynamic market models.
At the same time, market participants are not seeking disruption for its own sake; their expectations are pragmatic: faster cycles, improved data, broader investor reach and interoperability with emerging digital euro and DLT-based infrastructure, without compromising liquidity or stability.
The Pythagore project responds to this expectation by adopting a fundamentally distinct approach.
Rather than imposing a predefined target operating model, it creates a structured environment for collective value creation and adoption, bringing together issuers, investors, issuing and paying agents, dealers and custodians.
By addressing the full value chain, from issuance to settlement and reporting, the initiative combines digital issuances with interoperability across existing infrastructures and solutions. This supports continuity with current market practices while enabling progressive adoption.
In doing so, Pythagore positions market infrastructure not only as operator of services, but as an orchestrator of ecosystem transformation through co-creation, enabling market participants to progressively explore and adopt new operating models while maintaining trust, liquidity and systemic stability throughout the transition.
Euroclear sits at the intersection of trust, scale and global market connectivity. As a global financial market infrastructure, it can support the transition to digital assets while preserving the attributes markets rely on: robustness, efficiency and critically, liquidity.
By anchoring digitally native instruments to existing issuance, settlement and collateral rails, Euroclear helps limit liquidity fragmentation. Fragmentation typically translates into a liquidity premium, more conservative risk terms (e.g. higher haircuts) and higher funding costs, slowing adoption beyond early use cases.
The transition towards tokenised markets has immediate implications for financial institutions, well beyond technology choices. It involves deeply embedded processes, legacy infrastructures and highly coordinated interactions between intermediaries. Progress will therefore depend on progressive, collective learning and adoption across the ecosystem, as market practices, roles and business models evolve.
First, transformation will be incremental and hybrid. It will not happen through a big bang, but through a progressive coexistence (interoperability) between traditional and DLT-based infrastructures.
Second, value will increasingly lie in the ability to align market participants around common standards, processes and adoption paths. Success will depend less on technology choices than on the ability to coordinate adoption across market players.
Third, data and transparency will become strategic assets. Tokenised environments can increase end-to-end visibility, creating opportunities for stronger risk management, reporting and product innovation.
Finally, early participation matters. Those who engage early will build operational readiness, influence emerging standards and help shape the market and identify business opportunities.
European capital markets will not transform through technology alone. Progress will come from collective experimentation and coordination, with interoperability ensuring transition risk is managed and liquidity preserved.
Public-private partnerships and ecosystem-based initiatives provide a critical bridge between policy ambition and market reality.
By enabling structured learning and adoption at scale, they offer a credible pathway to design financial markets that are not only more efficient but also more resilient, inclusive and future-ready.
