EURIBOR

The EURIBOR (Euro Interbank Offered Rate) is a benchmark interest rate at which eurozone banks lend unsecured funds to each other. Published daily for multiple maturities (overnight to 12 months), EURIBOR serves as the reference rate for trillions of euros in mortgages, bonds, and derivatives across the eurozone. Like LIBOR, EURIBOR is based on panel submissions, though it is being transitioned to the transaction-based ESTER standard.

Structure and calculation

EURIBOR is calculated similarly to LIBOR: a panel of major eurozone banks (typically 20 or so institutions) submits daily quotes for the rate at which it could borrow unsecured funds in the interbank market. The European Money Markets Institute (EMMI) collects these quotes, discards the highest and lowest, and publishes the average as EURIBOR.

Like LIBOR, EURIBOR comes in multiple maturities—overnight, one week, and one month through 12 months—allowing financial instruments of various durations to reference it.

The eurozone advantage and disadvantage

EURIBOR has one structural advantage over LIBOR: the eurozone is a single monetary union with a single currency, the euro. A bank in Spain or France borrowing euros at EURIBOR is borrowing in the same currency and regulatory environment. This coherence makes EURIBOR somewhat more unified than LIBOR, which spans multiple countries and currencies.

However, EURIBOR shares LIBOR’s fundamental flaw: it is based on panel submissions, not observed transactions. The eurozone’s EURIBOR panel was also implicated in scandals, though less prominently than the major LIBOR manipulation cases.

Role in eurozone mortgages and lending

EURIBOR is the reference rate for the vast majority of eurozone residential mortgages and commercial loans. When a borrower takes a variable-rate mortgage in Germany, the coupon is typically “EURIBOR + 0.50%” or similar. As EURIBOR rates move, millions of borrowers’ payments adjust.

During periods of low interest rates (like 2010–2020), low EURIBOR meant low mortgage payments. When the European Central Bank began raising rates in 2022, EURIBOR climbed sharply, and borrowers’ payments rose significantly. This real-world impact makes EURIBOR highly politically sensitive in the eurozone.

The transition to ESTER

Like LIBOR, EURIBOR faces replacement by a risk-free, transaction-based rate. The European Central Bank designated ESTER (Euro Short-Term Rate) as EURIBOR’s successor. ESTER is based on actual, observed overnight unsecured lending transactions in the eurozone, making it harder to manipulate.

The transition began in 2021 and is ongoing. New instruments are being written in ESTER; old EURIBOR contracts are being gradually amended or allowed to mature. Unlike the LIBOR-to-SOFR transition (which was relatively abrupt in the US), the EURIBOR-to-ESTER transition is more gradual, giving the European market more time to adjust.

See also