Pandemic-related special factors led to unusually low inflation in 2020 and unusually high inflation in 2021, Chief Economist Philip R. Lane tells Il Sole 24 Ore. 2022 is a transition phase: high inflation will be fading this year |
Euro area HICP inflation in December hit another record all-time high. Maybe a peak. Markets are now even more convinced that the ECB is going to raise interest rates at the end of this year. Is this data going to derail your monetary policy stance?
In our December projections we assessed that inflation at the end of 2021, including in the month of December, was going to be high. But we also believe that inflation will fall this year, and that it will go below our 2 per cent target in 2023 and 2024. This is driving our monetary policy assessment. We are looking beyond the inflation we have right now: monetary policy is based on the medium term.
European citizens are paying more for food, petrol, electricity. How far can the ECB tolerate prices shooting up? Is inflation really only “moderately” higher than your target?
The 5 per cent inflation number in December is unusually high. This is dominated by the fact that energy went up by 26 per cent last year. The key issue for us as the central bank is: do we see changes in household and firm decisions? Do we see changes in wage behaviour? But we do not see behaviour that would suggest inflation will remain above our target into the medium term.
Did you expect inflation to be so high in December? Was 5 per cent in the Eurosystem staff projections at the time of the December Governing Council meeting?
It is within the margin of error of what we expected. We knew we would have a concentration of price pressures at the end of 2021, especially the big surge in energy prices. This is visible in the December data, but the basic narrative remains in place.
By this you mean that interest rates are not going to go up this year?
This goes back to our December assessment that inflation will not only fall this year but will settle below our target in 2023 and 2024. The criteria for moving interest rates up are therefore not in place. This remains our view. As the year goes by, we will have more data and will continue to assess the situation.
Many market players still expect the first interest rate hike in the euro area at the end of this year: is there a problem of communication?
The data we have, make it quite unlikely that the criteria we set to raise interest rates will be fulfilled this year. Next year and the year after that, the same criteria will apply: these criteria are very clear and the market can study them. But let me focus on one element, we have a cross-check: to raise interest rates, we need to see sufficient progress in underlying inflation. The pandemic makes it more difficult to interpret indicators of underlying inflation. It will take some time to filter out the effects of the pandemic – base effects, supply bottlenecks and so on − and to have a proper assessment of what is going on with underlying inflation. We have highlighted on a regular basis that the central element in understanding underlying inflation is to find out what happens to the trend in wages. We will be looking at wage settlements throughout the year. Behind prices are costs, and the most important cost in the economy is wages. Labour costs are a big part of the overall price level, and labour costs tend to move on a more persistent and more gradual basis. Energy moves are abrupt, energy can go up and down in a volatile way. But a significant move in the persistent and underlying source of inflation is unlikely unless you see wages picking up quite a bit. Until now, the wage data do not indicate any major acceleration in underlying inflation.
US core inflation is expected to be 2.7 per cent this year. The Federal Reserve said it will raise rates “sooner or at a faster pace”; three hikes are expected in 2022 and three in 2023. The ECB rates are on hold. Does the euro area risk importing inflation with a weaker euro and a stronger US dollar?
It is important to see foreign exchange as part of the pandemic cycle. In 2020 we had a euro appreciation. In recent months, some of that appreciation was reversed. Compared to pre-pandemic levels, we had an initial appreciation of the euro, and now a depreciation. It is not a major element. I would not overly focus on the exchange rate.
Why is the ECB monetary accommodation being extended while the Federal Reserve and the Bank of England start tightening? Why is the ECB so far apart?
There is a crystal-clear difference. In the United States and the United Kingdom, the assessment is that inflation will not stabilise at the target of around 2 per cent unless there is a monetary policy tightening. The discussion about monetary tightening there depends on the assessment that inflation will remain above target: then monetary tightening is considered necessary. Our assessment for the euro area is different − inflation is expected not only to go back to the target but also to fall below the target − therefore our monetary policy reaction is different. This is the key issue.
It is crystal clear, but there is also confusion due to exceptional factors – the pandemic and bottlenecks – that are having an impact on inflation, with no historical parallel that can be made.
It is important to recognise the pervasive impact of the pandemic on inflation. Look at the three pandemic years, that is, 2020, 2021 and 2022. In 2020, we had low inflation or even disinflation. And this was one of the motivations for us to react with the pandemic emergency purchase programme (PEPP): inflation was too low. The ECB has a symmetric view: too high inflation and too low inflation are equally undesirable. In 2021, the world economy and the European economy recovered more quickly than expected. There was a fast recovery driven by vaccinations, demand was strong and supply could not keep up due to bottlenecks. In the initial stage of the pandemic, some countries reacted with special measures, such as the VAT cut in Germany, which drew up prices when it was reversed in 2021. We have a lot of special factors that are leading to unusually low inflation in 2020 and unusually high inflation in 2021. I see 2022 as a transition phase, gradually going out of the pandemic. The high pressure on inflation in 2021 will be fading this year, but 2022 is still part of the pandemic cycle. And when the pandemic is over, in 2023 and 2024, inflation will stabilise at a lower level, at about 1.8 per cent, which is much closer to our target compared to what we had before the pandemic. Inflation is not just going back to its pre-pandemic level. We have made progress by providing monetary policy support and fiscal support. The economic recovery in 2023 and 2024 in the euro area will bring inflation closer to our target.
Is the economic recovery solid in the euro area and in Italy? Can bottlenecks jeopardise the recovery?
Bottlenecks are another temporary factor: if there is a shortfall in production today, it means there is going to be more production later on. The order book is very good. Overall, in Europe we see a solid growth engine this year, next year and the year after that. This applies also to Italy. First, there is the bounceback from the pandemic. Italy was hit very hard in 2020 and it had a strong recovery in 2021, even if some sectors, such as tourism and travel, are not back to normal. Next Generation EU (NGEU) is another engine for growth and Italy is amongst the primary recipients. This is where I see the difference between the pandemic and the great financial crisis: we now have medium-term growth engines − NGEU will last for several years. Moreover, this time the banking system provided support for the recovery. The banking system is stronger. Now, there is more support for the recovery.
Italy’s growth is solid, but the BTP-Bund spread is widening, in spite of more flexibility in PEPP reinvestments to intervene against fragmentation. The ECB has always found instruments to intervene against fragmentation: the Securities Markets Programme, Outright Monetary Transactions, then PEPP net purchases: but why is flexibility now only in PEPP reinvestments?
In December, the Governing Council decided to end net purchases under the PEPP in March and to use PEPP reinvestments in a flexible way if needed. But to provide total clarity, we also considered it a good idea to remind people in more general terms that our mandate is price stability, and that on some occasions, to deliver our mandate, we have to use instruments and programmes that can be flexible to counter fragmentation. So in December we also said that if there is a threat to price stability, and this threat is fragmentation, under stressed conditions we will implement monetary policy in a flexible way. This is quite straightforward. It is a restatement of what the ECB needs to do: the ECB cannot always run monetary policy in a mechanical way in the euro area, where 19 countries adopt a single monetary policy. What is important is that we reiterate our flexibility when it is appropriate. And then we have the specific reminder that, as we move into the next phase in the recovery, we said we have a mechanism, PEPP reinvestments, by which we can deal with fragmentation risk.
The Federal Reserve will reduce its balance sheet after the first interest rate hike. The PEPP’s portfolio will be reinvested until 2024. And the asset purchase programme is still open-ended. When will the ECB balance sheet shrink? When will banks repay the targeted longer-term refinancing operations (TLTROs)?
With the TLTROs, the decisions are driven by banks: so long as TLTRO funding is available, it is up to banks to decide whether to replace TLTROs with funding on the market. As for the ECB balance sheet, there is a clear sequence: net purchases stop before the first interest rate increase, and only well after the first increase in interest rates will the central bank think about shrinking its balance sheet. This principle is valid for all central banks, it is fairly universal. But the ECB is further away from increasing interest rates than some other central banks. So the debate on when to start shrinking our balance sheet is also further away; the shrinkage of our balance sheet is much more a topic for the future than for today.
Asset purchasing is linked to interest rate hikes. The last ECB interest rate hike was more than ten years ago, in 2011: a rate hike could take markets by surprise. Is the ECB worried about price correction and asset valuation triggered by monetary policy tightening?
Investors, academics, they all know very well that in a world of low interest rates, rates eventually go up and there are implications for asset prices. Any bank, insurance company or pension fund will allow for this risk. Regulators and supervisors also think a lot about this. So it will not come as a surprise that at some point in time rates, short-term rates or long-term rates, will go up. But I also disagree that monetary policy has a significant surprise element. This is in contrast to major financial crisis episodes, for example what happened in September 2008, which came as a big surprise. It’s important for central banks to be clear, to be predictable. And I think we are very clear on interest rates and we are very predictable. The world can adapt to higher rates, and many institutions will already have allowed for this risk in their planning.
My last question is not on interest rates or monetary policy but on your very detailed proposal for the reform of the Stability and Growth Pact. Can you give your thoughts on the reform?
Let me give some initial suggestions at a personal level. One topic is that the fiscal framework should combine debt sustainability with fiscal countercyclicality. Fiscal policy must be sustainable in the longer term, but it should not aggravate the business cycle by loosening during expansion and tightening during recession. For debt sustainability, I agree we must see high debts coming down. But in a world of low rates, maybe an adjustment path can allow for a more moderate pace of reduction (for example, at 3 per cent per annum rather than the current 5 per cent). A second point is that the inflation element could be incorporated in the fiscal framework: fiscal policy has a bigger multiplier when interest rates are low and when inflation is low. But the debate has just started, it is early days, these ideas will be part of the debate in the European institutions.
Some proposals have been made, going as far as asking the ECB to sell its government bonds to specific buyers: would this be possible?
There is an important separation. The fiscal framework is for Member States and the European Union to decide. We are clear in our strategy: our monetary policy and our balance sheet is driven by price stability and by what is needed to stabilise inflation at our 2 per cent target. The fiscal framework cannot imply any particular imposition on the ECB. Fiscal policy matters a lot to the ECB. But there is a clear separation between fiscal policy and monetary policy.
Compliments of the European Central Bank.
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Today, the EU Commission and the European Union Intellectual Property Office (EUIPO) launched the new EU SME Fund, which offers vouchers for EU-based SMEs to help them protect their intellectual property (IP) rights. This is the second EU SME Fund aiming at supporting SMEs in the COVID-19 recovery and green and digital transitions for the next three years (2022-2024).
Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “Small is beautiful, but if SMEs want to grow or take the lead in new technologies, they need to protect their inventions and creations, as big companies do. New ideas and expertise are the main added value we have in the EU. With this Fund, we want to support SMEs to face those peculiar times and remain strong and innovative through the decades to come.”
Commissioner for Internal Market, Thierry Breton, said: “It goes without saying that SMEs have been particularly impacted by the COVID-19 crisis. But what does not change is that they remain the backbone of our economy, of our ecosystems. This Fund will support SMEs to valorise their innovations and creativity. And this is crucial for SMEs to recapitalise and drive the green and digital transitions.”
The EU SME Fund, with a budget of €47 million, will offer the following support:

Reimburse 90% of the fees charged by Member States for IP Scan services, which provide a broad assessment of the intellectual property needs of the applying SME, taking into account the innovative potential of its intangible assets;
Reimburse 75% of the fees charged by intellectual property offices (including national intellectual property offices, the European Union Intellectual Property Office and the Benelux Intellectual Property Office) for trademark and design registration;
Reimburse 50% of the fees charged by the World Intellectual Property Organisation for obtaining international trade mark and design protection;
Reimburse 50% of the fees charged by national patent offices for the registration of patents in 2022;
From 2023, further services could be covered e.g. partial reimbursement of the costs of the patent prior art search, of the patent filing application; private IP advice charged by IP attorneys (for patent registration, licensing agreements, IP valuation, alternative dispute resolution costs, etc.).

SMEs need a flexible intellectual property toolbox and quick financing to protect their innovations. Hence, for the first time the new EU SME Fund is now also covering patents. The Commission’s financial contribution, which amounts to €2 million, will be dedicated fully to the patent related services. For instance, an SME could apply for the reimbursement of the registration fee to patent its invention in a Member State.
EUIPO will manage the SME Fund through calls for proposals. The first call is launched today on the EUIPO website.
In order to ensure fair and equal treatment of potential beneficiaries as well as safeguarding an efficient management of the action, the application for grants will be open throughout the period 2022-2024. The applications will be examined and evaluated based on a ‘first in first out’ criterion. SMEs with no experience in the area of intellectual property are encouraged to apply first for an IP Scan service and only subsequently to the other services.
At the EU Industry Days (8-11 February 2022) a special session will be dedicated to the SME Fund allowing SMEs to ask questions of the experts managing the Fund and receiving a practical guide on how to apply for the different services. The special session is scheduled for 11 February 2022. It can be followed remotely by subscribing to the EU Industry Days.
Background
The EU needs to increase the resilience of its SMEs to enable them to cope with the current challenges created by the COVID-19 crisis and to help their transition to green and digital technologies. The EU capitalises on the value of the intangible assets its companies create, develop and share, by helping them manage these assets more effectively and by providing financial support and better access to finance.
The Commission published the Action Plan on Intellectual Property to support the EU’s recovery and resilience in November 2020. Among the priorities of the Action Plan, the Commission committed to promote an effective use and deployment of intellectual property tools, in particular by SMEs. Concretely, the Commission offered financial support for SMEs impacted by the COVID-19 crisis, helping them to manage their IP portfolios as well as helping them move towards green and digital technologies.
In 2021, the Commission together with EUIPO launched a first EU SME Fund offering services to reimburse the costs of IP Scan and national trade mark and design registration costs. A total of €6.8 million of the budget has been used by 12,989 SMEs from all 27 Member States. In total, 28,065 services were rendered in the first year of the initial SME Fund, which shows that the action proved very successful.
Compliments of the European Commission.
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During the post-pandemic recovery, the US and UK labour markets show many similarities, albeit with different implications for wages. This box reviews post-pandemic labour market developments in the United States and United Kingdom. It shows that, in both countries, imbalances between labour demand and labour supply are causing a high and unusual tightness for such an early stage in a recovery. This could translate into broad-based wage pressures, in turn posing a risk to inflation. Such pressures are becoming increasingly visible in the United States, but are less marked in the United Kingdom.
In the United States, labour demand outstrips supply. According to the latest available data, in October 2021 the labour force participation rate still stood significantly below its pre-crisis level (1.7 percentage points below the level prevailing in February 2020). Such a level is commonly observed at an early stage of a recovery in the labour market cycle. The maximum employment objective for the Federal Reserve System, of which the participation rate is one element, appears to be far from being reached (Chart A). At the same time, firms are opening positions at a fast pace in response to the rapid recovery of the US economy. This has brought vacancies to very high, even unprecedented, levels, which are usually associated with a late stage in the labour market cycle. As a result, labour market tightness has already jumped above pre-crisis levels, instead of making a slow recovery, as was the case after the global financial crisis (Chart A).[1] The lack of response on the part of labour supply (low participation) to rising labour demand (high level of vacancies) is indicative of a decline in matching efficiency in the current recovery. This appears to be the case especially for businesses with frequent customer contact, such as bars and restaurants, which have encountered difficulties in attracting workers. Moreover, a temporary increase in unemployment benefits (particularly significant for low-paid workers), early retirement, and an increased need to care for children and other family members during the pandemic, particularly for women, has also reduced the labour supply.[2] This partly accounts for what has been called the “Great Resignation”, as support programmes have allowed people more freedom to leave their jobs or to be more selective when looking for new ones.

Chart A
US employment rate, participation rate and labour market tightness
(percentages of civilian population; ratio of vacancies to unemployment; monthly)
Sources: BLS and author’s calculations.
Notes: Labour market tightness is measured by the ratio of vacancies to unemployment. Shaded areas indicate recessions. The latest observations are for September 2021 for tightness and October 2021 for employment and participation rates.

The increase in labour market tightness has translated into broadening wage pressures. While the high level of vacancies has been broad-based across industries, up to the second quarter of this year wage growth – as measured by the employment cost index – was limited to leisure and hospitality, as firms tried to make these contact-intensive and mostly low-paid jobs more attractive (Chart B). In the third quarter of this year, however, an acceleration in wages also became visible in most other industries, such as trade and, to a lesser extent, manufacturing, financial activities and professional services, although for the latter three industries still remaining within ranges observed in the past. This development has sparked a debate about the risk of a further broadening of wage pressures, and if it could ultimately lead to a wage-price spiral. Whether these risks materialise depends on various factors. First, most of the factors which have held back labour supply in the United States are expected to be temporary and to revert in the coming months, therefore reducing the level of tightness. The temporary increase in unemployment benefits has already expired. Second, new coronavirus (COVID-19) infections have been falling since summer, which should attenuate fears about returning to work in high-contact industries, and the reopening of schools should favour a return to work by parents. At the same time, above average productivity growth has kept unit labour costs, a measure that is more relevant for firms in setting prices than nominal wages, close to long-term averages. Third, the recent increase in inflation has to a large extent been driven by goods and services, for which wage growth has remained subdued (for example car manufacturing), or is related to other factors (such as rents, which are linked to housing market developments). On the other hand, although indexation clauses are not a common practice in the United States, the high inflation environment (highest headline inflation rate recorded since 1990), coupled with labour market tightness could translate into a heightened risk of higher wage demands proliferating going forward.

Chart B
US employment cost index by industry
(year-on-year growth rates)
Sources: BLS and author’s calculations.
Notes: The box plots represent the minimum, the first quartile, the median, the third quartile and the maximum from the first quarter of 1997 to the fourth quarter of 2019. The latest observations are for the third quarter of 2021.

The UK labour market is also showing signs of increased tightness, coupled with a slow recovery in employment and labour market participation. As in the United States, both the employment rate and the labour force participation rate have only slowly been approaching their pre-crisis levels. The respective gaps of 1.2 percentage points and 0.9 percentage points compared with February 2020 levels remain considerable and indicate an early cycle stage of the labour market recovery (Chart C). In contrast, vacancies have been increasing rather sharply, as UK firms have faced both an increased demand for goods and services (driven by the re-opening of the economy) and a decreased supply of low-skilled EU workers (owing to Brexit). As a result, labour market tightness has already surpassed pre-crisis levels, pointing towards a late stage in the cycle, as opposed to the slower recovery experienced in the aftermath of the global financial crisis (Chart C). Similar to the United States, the sluggish response of UK labour supply relative to strong labour demand suggests lower matching efficiency. This is for similar reasons, but also because of lower participation by many younger people who have chosen to stay in education. The furlough scheme may be another explanation for the tightness in the labour market, as employees on furlough had less incentive to join the pool of available workers and apply for new jobs. However, the scheme ended in September, meaning that labour market tightness might already be lower than the official data show.

Chart C
UK employment rate, participation rate and labour market tightness
(percentages of working age population and ratio of vacancies to unemployment, 3-month moving average)
Sources: ONS and authors’ calculations.
Notes: Labour market tightness is measured by the ratio of vacancies to unemployment. Shaded areas indicate recessions. The latest observations are for September 2021.

Reflecting the diverse developments in vacancies, wage pressures have so far remained limited to specific sectors. While economy-wide growth in average weekly earnings remains high (at 5.8% in September), most of the increase comes from negative base effects reflecting the introduction of the furlough scheme last year.[3] This can also be observed on a sectoral level, as base effects drove wages in the second quarter of this year to historically high rates across most industries. The latest data for the third quarter indicate that wage growth has not increased further and, in most cases, has even decelerated (Chart D).[4] Wage increases were most pronounced in professional and business services and in sectors previously relying on low-skilled migrant labour (construction, and leisure and hospitality). It is worth noting that even though specific professions (such as lorry drivers) experienced a substantial increase in earnings, this increase did not extend to the industry as a whole (trade, transportation and utilities). Therefore, the risk of broad-based wage pressures and a wage-price spiral appears less likely at this stage of the recovery, considering that the underlying wage growth remains much more contained.

Chart D
Average weekly earnings by industry in the United Kingdom
(year-on-year growth rates, 3-month moving average)
Sources: ONS and authors’ calculations.
Notes: The box plots represent the minimum, the first quartile, the median, the third quartile and the maximum from the first quarter of 2002 to the fourth quarter of 2019. The latest observations are for the third quarter of 2021.

Overall, while both the United States and United Kingdom are experiencing labour shortages, developments on the wage front differ to some extent. Factors constraining labour supply are expected to fade somewhat in both countries. In the United Kingdom, this is likely to reduce labour market tightness and to dampen what have been – up until now – very localised wage pressures. In the United States, expectations of further strong economic growth in the short term could prolong labour market tightness, in turn leading to broader-based wage increases.
Authors

Katrin Forster van Aerssen
Ramon Gomez-Salvador
Michel Soudan
Tajda Spital

Compliments of the European Central Bank.
The post ECB | The US and UK labour markets in the post-pandemic recovery first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The Council has approved an agreement between the EU and the UK on fishing opportunities for 2022, paving the way for EU fishermen and women to exercise their fishing rights in the Atlantic and the North Sea.
The decision determines fishing rights for around 100 shared fish stocks in EU and UK waters, including the total allowable catch (TAC) limit for each species.
At the Agriculture and Fisheries Council on 12-13 December, ministers set provisional TACs for fish stocks shared with the UK pending the outcome of the EU-UK consultations; these catch limits will be amended to take account of the new agreement.

The successful conclusion of this year’s consultations on shared fish stocks sets a good precedent for future negotiations with the UK. Thanks to good will and a constructive approach on both sides, we were able to reach an agreement that provides certainty for EU fishermen and women going forward.
Jože Podgoršek, Slovenian Minister for Agriculture

Next steps
The regulation on fishing opportunities for 2022 – including the amendment containing the final quotas – will be finalised by the Council’s legal and linguistic experts, following which it will be formally adopted by the Council and published in the Official Journal. The provisions will apply retroactively as of 1 January 2022.
Rest of the text (appears on the press release page only)
Background
Following the UK’s withdrawal from the EU, fish stocks jointly managed by the EU and the UK are considered shared resources under international law. The Trade and Cooperation Agreement (TCA) between the two parties sets out the terms under which the EU and the UK determine their respective fishing rights in the Atlantic and North Sea.
Under the TCA, both parties agree to hold annual talks with a view to determining TACs and quotas for the following year. Consultations are led by the Commission and take into account a number of factors, including:

international obligations
the recommended maximum sustainable yield (MSY) for each species, to ensure the long-term sustainability of fishing in line with the common fisheries policy
the best available scientific advice, with a precautionary approach taken where such advice is not available

the need to protect the livelihoods of fishermen and women

The Council provides political guidance to the Commission throughout the negotiation process and formally endorses the final agreement.

EU-UK fishing opportunities: timeline
Fish stocks shared between the EU and the UK
Fishing quotas after Brexit (feature story):

Compliments of the European Council.
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On 20 December 2021, the OECD published detailed rules to assist in the implementation of a landmark reform to the international tax system, which will ensure Multinational Enterprises (MNEs) will be subject to a minimum 15% tax rate from 2023.
The Pillar Two model rules provide governments a precise template for taking forward the two-pillar solution to address the tax challenges arising from digitalisation and globalisation of the economy agreed in October 2021 by 137 countries and jurisdictions under the OECD/G20 Inclusive Framework on BEPS.
The rules define the scope and set out the mechanism for the so-called Global Anti-Base Erosion (GloBE) rules under Pillar Two, which will introduce a global minimum corporate tax rate set at 15%. The minimum tax will apply to MNEs with revenue above EUR 750 million and is estimated to generate around USD 150 billion in additional global tax revenues annually.
The GloBE rules provide for a co-ordinated system of taxation intended to ensure large MNE groups pay this minimum level of tax on income arising in each of the jurisdictions in which they operate. The rules create a “top-up tax” to be applied on profits in any jurisdiction whenever the effective tax rate, determined on a jurisdictional basis, is below the minimum 15% rate.
The new Pillar Two model rules will assist countries to bring the GloBE rules into domestic legislation in 2022. They provide for a co-ordinated system of interlocking rules that:

define the MNEs within the scope of the minimum tax;
set out a mechanism for calculating an MNE’s effective tax rate on a jurisdictional basis, and for determining the amount of top-up tax payable under the rules; and
impose the top-up tax on a member of the MNE group in accordance with an agreed rule order.

The Pillar Two model rules also address the treatment of acquisitions and disposals of group members and include specific rules to deal with particular holding structures and tax neutrality regimes. Finally, the rules address administrative aspects, including information filing requirements, and provide for transitional rules for MNEs that become subject to the global minimum tax.
“The model rules released today are a significant building-block in the development of a two-pillar solution, converting the foundations of a political agreement reached in October into enforceable rules,” said Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration. “The fact that Inclusive Framework members have managed to reach a consensus on this detailed and comprehensive set of technical rules demonstrates their commitment to a co-ordinated solution to addressing the challenges raised by an increasingly digitalised and globalised economy.”
In early 2022, the OECD will release the Commentary relating to the model rules and address co-existence with the US Global Intangible Low-Taxed Income (GILTI) rules. This will be followed by the development of an implementation framework focused on administrative, compliance and co-ordination issues relating to Pillar Two. The Inclusive Framework is also developing the model provision for a Subject to Tax Rule, together with a multilateral instrument for its implementation, to be released in the early part of 2022. A public consultation event on the implementation framework will be held in February and on the Subject to Tax Rule in March.
To access the full text of the model rules, including an overview, FAQs as well as fact sheets on the application of the rules, visit https://oe.cd/pillar-two-model-rules.
Contacts:

Grace Perez-Navarro, Deputy-Director of the OECD Centre for Tax Policy and Administration (CTPA) | grace.perez-navarro@oecd.org | +33 1 45 24 18 80

Achim Pross, Head of CTPA’s International Co-operation and Tax Administration Division | achim.pross@oecd.org | +33 1 45 24 98 92

Lawrence Speer in the OECD Media Office | Lawrence.Speer@oecd.org | +33 1 4524 7970

OECD Media Office | news.contact@oecd.org |+33 1 4524 9700

Compliments of the OECD.
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The European Commission has today presented a key initiative to fight against the misuse of shell entities for improper tax purposes. December 22nd’s proposal should ensure that entities in the European Union that have no or minimal economic activity are unable to benefit from any tax advantages and do not place any financial burden on taxpayers. This will also protect the level playing field for the vast majority of European businesses, who are key to the EU’s recovery, and will ensure that ordinary taxpayers do not suffer additional financial burden due to those that try to avoid paying their fair share.
While shell, or letterbox, entities can serve useful commercial and business functions, some international groups and even individuals abuse them for aggressive tax planning or tax evasion purposes. Certain businesses direct financial flows to shell entities in jurisdictions that have no or very low taxes, or where taxes can easily be circumvented. Similarly, some individuals can use shells to shield assets and real estate from taxes, either in their country of residence or in the country where the property is located.
Executive Vice-President for an Economy that Works for People, Valdis Dombrovskis, said: “Shell companies continue to offer criminals an easy opportunity to abuse tax obligations. We have seen too many scandals arising from misuses of shell companies over the years. They damage the economy and society as a whole, also placing an unfair extra burden on European taxpayers. Today, we are moving to the next level in our longstanding fight against abusive tax arrangements and in favour of more corporate transparency. New monitoring and reporting requirements for shell companies will make it harder for them to enjoy unfair tax advantages and easier for national authorities to track any abuse arising from shell companies. There is no place in Europe for those who exploit the rules for the purpose of tax evasion, avoidance or money laundering: everyone should pay their fair share of tax.”
Commissioner for Economy, Paolo Gentiloni, said: “This proposal will tighten the screws on shell companies, establishing transparency standards so that the misuse of such entities for tax purposes can more easily be detected. Our proposal establishes objective indicators to help national tax authorities detect firms that exist merely on paper: when that is the case, the company will be subject to new tax reporting obligations and will lose access to tax benefits. This is another important step in our fight against tax avoidance and evasion in the European Union.”
Background
Once adopted by Member States, the proposal should come into force as of 1 January 2024.
This is one initiative in the Commission’s toolbox of measures aimed at fighting abusive tax practices. In December 2021, the Commission tabled a very swift transposition of the international agreement on minimum taxation of multinational enterprises. In 2022 the Commission will put forward another transparency proposal, requiring certain large multinationals to publish their effective tax rates, and the 8th Directive on Administrative Cooperation, equipping tax administrations with the information needed to cover crypto assets. In addition, while this initiative addresses the situation inside the EU, the Commission will present in 2022 a new initiative to respond to the challenges linked to non-EU shell entities.
Compliments of the European Commission.
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The Commission has adopted the Multiannual Indicative Programmes (MIPs) of Global Europe setting out priority areas for cooperation with partner countries and regions around the world for 2021-27. This also includes the financial allocation for 2021-2024 (country level) and for 2021-2027 (regional level) that will support this cooperation for a total of almost €26.3 billion. The adoption of the country and regional MIPs will significantly contribute to climate actions, social inclusion and human development and migration and forced displacement and to achieve gender and biodiversity targets.
High Representative/Vice-President, Josep Borrell, said: “We need to match our words with actions. The investments under the Global Europe programme will ensure that the EU delivers on its political priorities and effectively addresses the needs of our partner countries and regions, ranging from sustainable peace, security and stability to global challenges, such as tackling COVID-19 and the fight against climate change. The EU remains the world’s largest donor of development and humanitarian aid and we will continue to stand up for a fairer and more prosperous future around the world.” 
Commissioner for International Partnerships, Jutta Urpilainen, said: “The European Union has a long history of cooperation based on shared objectives and values. With the programming of our cooperation for 2021-2027, we commit for another seven years to fight inequalities and support inclusive, green and sustainable development. Many of the agreed priorities will support the effective implementation of the Global Gateway strategy, levering key resources for sustainable and trusted connections that work for people and the planet, while tackling most pressing global challenges. I am particularly proud that programmes related to education should be allocated €6 billion over 2021-2027, an increase from 7 to 13% of total expenditures of our external action outside our neighbourhood. Children and youth should be given a real chance to reach their full potential and have a better future.”
A Team Europe that delivers
The priorities have been defined in consultation with the relevant partners’ authorities and a real Team Europe approach, together with EU Member States, the European financial institutions, EIB and EBRD, as well as the European Parliament. Consultations were also held with Civil Society Organisations, including women and youth organisations, local authorities, representatives from the private sector, the UN and other like-minded partners. The agreed priorities are in line with UN’s 2030 Agenda and the Sustainable Development Goals, the Paris Agreement and the EU’s Global Gateway Strategy.
Several projects in partner countries will be taken forward in the framework of Team Europe Initiatives that will receive substantial financial support, many of which will help deliver on the implementation of the Global Gateway. These initiatives will have to be jointly agreed, designed, implemented and monitored in a Team Europe approach.
Programming outcome – Facts and Figures
Programming documents for countries and regions adopted represent an amount of €26.336 billion:

Region
Country allocations 2021-24 (€ million)
Regional allocations 2021-27 (€ million)

Sub-Saharan Africa
9 076
10 242

Asia and the Pacific
2 320
2 344

Americas and the Caribbean
1 074
1 280

TOTAL
 12 470
 13 866

A mid-term review to be completed in 2024 will support the Commission’s decision on country allocations for 2025-27.
For Sub-Saharan Africa, Asia and the Pacific and the Americas and the Caribbean countries and regions, the MIPs will deliver on the overarching EU policy objectives:

Green deal features in all MIPs
Digital agenda features in over 80% of the MIPs
Sustainable growth and decent jobs features in around 70%
Migration is covered by more than half
Governance, peace and security features in nearly 90%
Social inclusion and human development covered in more than 90%; in particular education is addressed in 80% of MIPs
Gender is well mainstreamed in all MIPs

All the country and regional programming documents will be complemented by four thematic programmes already adopted: Human Rights and Democracy (€1.5 billion) Civil Society Organisations (€1.5 billion); Peace, Stability and Conflict prevention (€871 million) and Global Challenges (€3.6 billion). Finally, the ERASMUS+ MIP was adopted earlier this year, and will benefit from the financing coming from the non-neighbourhood geographic envelopes with an amount of €1.79 billion.
Background
The Global Europe programming, officially launched in November 2020, addresses the overarching Commission priorities, promotes the post-COVID-19 green, digital, inclusive and sustainable recovery and fully respects the commitments contained in the new instrument, particularly on climate action, social inclusion and human development, migration and forced displacement, and gender equality.
The country and regional Multiannual Indicative Programmes are adopted by the Commission after consultation with the partner country/regional organisations, EU Member States and all relevant stakeholders. These documents establish the main priority areas for cooperation, specific objectives, expected results as well as the indicative allocations for the EU cooperation with partner countries and regions covered by Global Europe, i.e. the Neighbourhood, Sub-Saharan Africa, Asia and the Pacific, and the Americas and the Caribbean. These Multiannual Indicative Programmes therefore constitute the long-term plans for the implementation of Global Europe in these countries and regions.
Compliments of the European Commission.
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The priorities of France’s presidency are reflected in its motto: ‘Recovery, strength and a sense of belonging’:

recovery, to enable Europe to support the ecological and digital transitions

strength, to defend and promote our values and interests
a sense of belonging, to build and develop a shared European vision through culture, our values and our common history

According to the speech given on 9 December 2021 by French President Emmanuel Macron to present the priorities of the French presidency, the activities of the presidency will focus on three main areas:

pursuing an agenda for European sovereignty, meaning Europe’s ability to exist in the world as it currently exists and defend its values and interests
building a new European growth model

creating a more ’human-sized’ Europe

If I had to sum up in one sentence the goal of this presidency from 1 January to 30 June 2022, I would say that we need to move from being a Europe of cooperation inside of our borders to a powerful Europe in the world, fully sovereign, free to make its choices and master of its destiny.
Emmanuel Macron, President of the French Republic. Presentation of the French presidency of the Council of the European Union at the Élysée Palace, 9 December 2021.

French presidency website
Priorities of the French presidency
Calendar of meetings and events under the French presidency

The tasks of the presidency
The presidency is responsible for driving forward the Council’s work on EU legislation, ensuring the continuity of the EU agenda, orderly legislative processes and cooperation among member states. To do this, the presidency must act as an honest and neutral broker.
The presidency has two main tasks:
Planning and chairing meetings in the Council and its preparatory bodies
The presidency chairs meetings of the different Council configurations (with the exception of the Foreign Affairs Council) and the Council’s preparatory bodies, which include permanent committees such as the Permanent Representatives Committee (Coreper), and working parties and committees dealing with very specific subjects.
The presidency ensures that discussions are conducted properly and that the Council’s rules of procedure and working methods are correctly applied.
It also organises various formal and informal meetings in Brussels and in the country of the rotating presidency.
Representing the Council in relations with the other EU institutions
The presidency represents the Council in relations with the other EU institutions, particularly with the Commission and the European Parliament. Its role is to try and reach agreement on legislative files through trilogues, informal negotiation meetings and Conciliation Committee meetings.
The presidency works in close coordination with:

the President of the European Council
the High Representative of the Union for Foreign Affairs and Security Policy

It supports their work and may sometimes be requested to perform certain duties for the high representative, such as representing the Foreign Affairs Council before the European Parliament or chairing the Foreign Affairs Council when it discusses common commercial policy issues.
Compliments of the Council of the EU.
The post French presidency of the Council of the EU: 1 January – 30 June 2022 first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.