Speech by Christine Lagarde, President of the ECB, at ECB Forum on Central Banking “Beyond the pandemic: the future of monetary policy” | Frankfurt am Main, 28 September 2021 |
The economy is back from the brink, but not completely out of the woods. After a highly unusual recession, the euro area is going through a highly atypical recovery.
This atypical recovery is leading to rapid growth, but also to supply bottlenecks appearing unusually early in the economic cycle. It is also causing inflation to rebound quickly as the economy reopens. And it is helping to accelerate pre-existing trends and new structural changes brought about by the pandemic, which could have implications for future inflation dynamics.
But it is important today to take a step back. To understand how monetary policy should operate in this environment, we need to recognise where we have come from and where current trends suggest we are going. As John Maynard Keynes wrote, policymakers must always “study the present in light of the past for the purposes of the future”.
We are coming from a decade of strong disinflationary forces that have depressed the whole inflation process. And while the robust recovery is supporting underlying inflation trends, what we are seeing now is mostly a phase of temporary inflation linked to reopening. Structural changes could create both upward and downward pressures on prices.
So, we still need an accommodative monetary policy stance to exit the pandemic safely and bring inflation sustainably back to 2%.
The inflation process before the pandemic
In the decade before the pandemic, inflation across advanced economies consistently surprised on the downside. The inflation process appeared to have slowed down along the transmission chain: from activity and employment to wages, and then from wages to prices. This was largely down to three factors.
First, gauging the true level of slack in the economy became harder.[1] Estimates of structural unemployment were consistently revised down as the economy strengthened.[2] And even as unemployment came down, many more people were drawn into the labour market, especially women and older people.[3]
Second, structural changes in labour markets meant that receding slack fed more slowly into wage growth. Employment increased rapidly after 2013 but was mainly channelled into lower-paying jobs.[4] In parallel, global forces – such as globalisation and automation – reduced workers’ bargaining power.[5]
Third, when wage growth did eventually pick up, firms were reluctant to pass on cost increases to consumers. Instead, we saw firms squeeze their profit margins.[6] This also reflected broader structural trends such as the digitalisation of services and the expansion of e-commerce.[7]
Recession and reopening
Then, the pandemic hit, which led to a highly unusual recession followed by a highly atypical recovery.
In conventional business cycles, the depth of the slump normally determines the pace of the recovery. After exceptionally deep recessions, both demand and supply are often impaired for many years. From the onset of the great financial crisis, for example, it took seven years for euro area GDP to get back to its pre-crisis level. Growth never reconnected with the trend we thought possible before 2008.
But during the pandemic, though GDP saw its steepest collapse on record, the overall economy has reopened largely intact.[8] We now expect GDP to exceed its pre-pandemic level by the end of this year – three quarters earlier than we forecast last December – and it should come close to reconnecting with its pre-crisis trend in 2023. From its trough, the recovery in GDP is the steepest in the euro area since 1975.
This outcome is largely attributable to the combined response of monetary and fiscal policy, which has preserved both demand and supply. For instance, real labour income fell by 3.6% in 2020, but household real disposable income dropped by only 0.2%, because government transfers filled the gap. This is in stark contrast with the sovereign debt crisis, when disposable income fell by 2% year-on-year.
The atypical nature of the recovery is creating frictions in the economy, which can produce opposing effects on growth and inflation.
In certain sectors, supply shortages are holding back production, which is unusual so early in the business cycle. ECB analysis finds that exports of euro area goods would have been almost 7% higher in the first half of this year were it not for supply bottlenecks.[9] These risks to growth could mount if the pandemic continues to affect global shipping and cargo handling as well as key industries like semiconductors.
At the same time, the reopening is also pushing up inflation, which reached 3% in August and is expected to rise further over the coming months. Higher inflation today is largely the result of two exceptional effects.
First, inflation collapsed last year when lockdowns were imposed, which is creating strong base effects as activity recovers. Half of total inflation in the euro area today is due to energy prices, which are making up the lost ground from 2020. Base effects from last year’s German VAT rate cut and the unusual timing of sales periods are also playing a role.
In fact, the low inflation rate last year and the high inflation rate this year equal, on average, the inflation rate observed in 2019 before the pandemic. So the price level now is roughly the same as if inflation had remained stable at its pre-pandemic level.
Second, imbalances between demand and supply in some sectors are pushing prices up.
Goods inflation rose to 2.6% in August, well above its historical average of 0.6% as – in addition to base effects – global supply chain disruptions met a sharp recovery in demand for durable goods.[10] Consumption of durables is already 1% above its pre-crisis trend,[11] while shipping costs are around nine times higher today than in June last year.
Services inflation has also been rising – to 1.1% in August[12] – and it would have reached 2% using the consumption weights of last year, slightly above its historical average. This is also largely the result of demand returning to the sectors hardest hit by the lockdowns. Inflation in high‐contact services accounts for virtually all of the rise we are seeing in services.
Once these pandemic-driven effects pass, we expect inflation to decline.
Base effects should drop out of the year-on-year calculation early next year, although we are seeing further increases in oil and gas prices.
It is harder to predict how long supply chain disruptions will last, but their ultimate impact on inflation will depend on how persistent they are and whether they feed through into higher than anticipated wage rises. Following the Japanese earthquake and nuclear disaster in 2011, production is estimated to have returned to normal after seven months for Japanese firms.[13] However, given the special nature of the pandemic and the recovery, it cannot be excluded that the resolution of supply-side bottlenecks may take longer now.
Monetary policy should normally “look through” temporary supply-driven inflation, so long as inflation expectations remain anchored. Indeed, we are monitoring developments carefully but, for now, we see no signs that this increase in inflation is becoming broad-based across the economy. A “trimmed mean”[14] of inflation – which removes the items with the highest and lowest inflation rates – stood at 2.1% in August. Furthermore, wage developments so far show no signs of significant second-round effects.
Inflation expectations also do not point to risks of a prolonged overshooting. Long-term market-based measures have risen by around 50 basis points since the start of the year – to around 1.75%[15] – and survey-based measures have risen slightly to 1.8%.[16] This represents a move in the right direction. But it is still some distance away from our symmetric 2% target.
Inflation dynamics beyond the pandemic
In fact, looking beyond the pandemic, we expect inflation to only slowly converge towards 2%.
This is visible in the outlook for underlying inflation, which is a good indicator of where inflation will settle over the medium term. We currently project core inflation – which is one measure of underlying inflation – at 1.5% in 2023. Our survey of monetary analysts also points to a gradual convergence of inflation, which is expected to climb to 2% and stabilise at that level only five years from now.[17]
This partly reflects the continuing pull of the structural factors that depressed inflation before the pandemic. But the pandemic has also created some new trends, which may have implications for the inflation outlook. Let me point to three.
The demand side
The first relates to changes on the demand side of the economy.
Historically, core inflation in the euro area has mostly been driven by services inflation, which has contributed 1.1 percentage points to the long-term average of 1.3 percentage points. This is both because services have a higher weight in consumption,[18] and because goods inflation has been held down by global forces of automation and competition.
Services inflation is closely linked to the strength of the domestic economy. It depends heavily on wage growth, as wages make up around 40% of the inputs for consumer services – double the share for goods. And robust domestic demand is crucial for a strong pass-through from wages to services prices.[19]
So the key question today is whether the transition out of the pandemic could lift the outlook for domestic demand and thereby contribute to more dynamic services inflation. Here we see forces that point in different directions.
First, owing mainly to lockdowns, households are sitting on a large stock of savings that they have accumulated during the pandemic. Our new consumer expectations survey suggests that households are not currently planning to spend those savings. But this might change if the economy continues along a dynamic recovery path, causing people to adjust their risk assessment.
Indeed, research suggests that consumption is influenced by people’s past experience of recessions, and the previous recessions in the euro area hit consumers especially hard.[20] From the onset of the great financial crisis and the sovereign debt crisis, it took seven years for consumption to get back to where it was at the start of 2008.
But by the end of 2022, we expect consumption to be almost 3% above its pre-pandemic level. And if that positive outlook is appropriately supported by the right policy mix, it could produce a virtuous circle, where people become more optimistic, upgrade their expectations of future income, and then spend more of the savings they have built up. This would help close the output gap from the demand side and put upward pressures on wages.
At the same time, there are forces that point to a slower pick-up in services inflation.
As I said in my speech here last year[21], there are limits to how much services can be consumed, meaning they are unlikely to benefit from the same kind of pent-up demand as goods. At the end of the second quarter, services consumption was still about 15% below its pre-pandemic trend, even as restrictions were being eased.
The pandemic has also produced considerable slack in the labour market. Employment is now recovering quickly, but we have so far observed that labour force participation is rising even faster. This is good news for the economy, but it also means that we expect unemployment to fall below its pre-crisis level only in the second quarter of 2023, and wages to grow only moderately.
The supply side
The second trend is related to changes on the supply side of the economy.
The pandemic has delivered a major shock to global supply chains and domestic labour markets. It has significantly accelerated the process of digitalisation – by seven years in Europe, according to one estimate.[22] And it may have distributional consequences that lead to changes in social contracts.[23]
In the long run, some of these changes might dampen inflationary pressures.
For example, digitalisation could trigger a second wave of globalisation based on the virtualisation of services. It might lead to higher trend productivity, which could temper unit labour cost growth even as wage growth becomes stronger. And it could also shift activity more towards digital “superstar” firms that have considerable market power and whose pricing is less sensitive to the business cycle.[24]
But over the coming years, there is also a chance that prices will be pushed up.
For instance, today’s supply shortages may induce firms to diversify their supply chains or re-shore some of their production. Previous pandemics like SARS were found to have had this effect.[25] That process could lead to higher cost structures that prioritise resilience over efficiency, which are then passed on to consumers. Geopolitics might also interfere in trade patterns and accelerate these shifts.
In parallel, faster digitalisation in Europe could initially create skill mismatches and scarcities, leading to wage increases even in the presence of persistent slack. The rate of job reallocations in major economies is estimated to double between 2019 and mid-2022.[26] This dynamic could also be reinforced by a renewed focus on inequality, which could lead to upward pressure on wages via rising minimum wages.[27]
The green transition
The third trend – which is probably the most important yet least explored – is the green transition, the shift towards a low-carbon economy.
The pandemic has given the green transition a boost. It could lead to an accelerated increase in auction prices in the EU Emissions Trading System, the introduction of carbon prices covering a wider range of economic activities, and the adoption of a Carbon Border Adjustment Mechanism – all of which could have a direct inflationary impact.
The Network for Greening the Financial System estimates that implementing ambitious transition policies in Europe could gradually increase inflation relative to its previous trend by up to one percentage point over the transition period, before returning to that trend.[28]
The green transition is also likely to make the pass-through of energy prices to consumer prices more complex. As energy supply shifts towards renewable sources, it will no longer be sufficient to look mainly at oil prices: we will also have to understand the energy mix and how the different sources are linked and can be substituted for each other. Renewable energy in the euro area has increased from 5% of total available energy in 1990 to about 15% today. Similarly, the share of natural gas has increased from 17% to 24%. Oil, meanwhile, has dropped from 43% to 38%.
The ongoing rise in natural gas prices is testament to the complexity this creates, as that rise partly reflects unusually low wind energy production in Europe this summer and the need to fill the gap with conventional energy sources that can be mobilised quickly. This, in turn, is having knock-on effects on other industries that rely on natural gas, like fertiliser manufacturing, and the industries that are dependent on by-products of fertiliser production, such as food packaging.
So we will need to understand these various transmission channels better. The impact of the green transition on inflation will ultimately hinge on the development of energy supply and the net effects of fiscal measures.
The increased use of natural gas to stabilise electricity production is only a bridge technology and will over time subside as new technologies for energy storage and distribution are more widely deployed. And the impact of carbon pricing will depend on whether the additional revenue is used to cut other consumption taxes, such as electricity taxes or VAT, directly support vulnerable groups or foster green investment.
If it is not, there is a risk that higher carbon pricing might reduce purchasing power and lead to relative price changes that push down underlying inflation. Research finds that introducing carbon taxes in euro area countries tends to raise headline inflation but lower core inflation.[29]
Policy implications
So how should monetary policy behave in this environment?
The key challenge is to ensure that we do not overreact to transitory supply shocks that have no bearing on the medium term, while also nurturing the positive demand forces that could durably lift inflation towards our 2% inflation target.
Our new forward guidance on interest rates is well-suited to manage supply-side risks. This guidance ensures that we will only react to improvements in headline inflation that we are confident are durable and reflected in underlying inflation dynamics. And the fact that inflation can move moderately above target for a transitory period allows us to be patient about tightening policy until we are certain that such improvement is sustained.
In terms of supporting demand, our monetary policy will continue to provide the conditions necessary to fuel the recovery. Indeed, our forward guidance has already led to a better alignment of rate expectations with our new inflation target, while helping to strengthen inflation expectations, which lowers real interest rates. We expect to see further progress toward an even tighter alignment between the expected time of lift-off for our policy rates and the most likely inflation outlook as markets continue to absorb the rationale and key purpose of our forward guidance.
All this should provide a decisive boost to private spending once the uncertainty brought about by the pandemic fades, especially given the new investment needs created by the green and digital transition. The European Commission estimates that we need to see investment of around €330 billion every year by 2030 to achieve Europe’s climate and energy targets[30], and around €125 billion every year to carry out the digital transformation.[31]
Going forward, the contribution of fiscal policy, and therefore the appropriate policy mix, will remain important. Fiscal policy is likely to stay supportive, with the cyclically-adjusted primary balance expected to be -4.1% this year, -1.6% next year and -1.5% in 2023. But the scope of pandemic-related fiscal transfers will need to change from a blanket-based approach to a more targeted action plan.
Fiscal policy will need to be surgical, meaning focused on those who have suffered particular hardship. It will need to be productivity-enhancing, meaning that it facilitates structural changes in the economy and shifts activity towards future-oriented sectors, and delivers on the agreed reform programmes under the Recovery and Resilience Facility. And, taking a medium-term perspective, fiscal policy will need to follow a rules-based framework that underpins both debt sustainability and macroeconomic stabilisation.
For our part, monetary policy is committed to preserving favourable financing conditions for all sectors of the economy over the pandemic period. And once the pandemic emergency comes to an end – which is drawing closer – our forward guidance on rates as well as purchases under the asset purchase programme will ensure that monetary policy remains supportive of the timely attainment of our medium-term 2% target.
Conclusion
Let me conclude.
The pandemic has caused a recession like no other, and a recovery that has few parallels in history. The inflation response reflects the exceptional circumstances we are in. We expect that those effects will ultimately pass.
But the pandemic has also introduced new trends that could affect inflation dynamics in the years to come. Those trends could produce both upward and downward price pressures. So, monetary policy must remain focused on steering the economy safely out of the pandemic emergency and lifting inflation sustainably towards our 2% target.
Footnotes:

See Jarociński, M. and Lenza, M. (2018), “An Inflation-Predicting Measure of the Output Gap in the Euro Area”, Journal of Money, Credit and Banking, Vol. 50, No 6, pp. 1189-1224; Eser, F., Karadi, P., Lane, P.R., Moretti, L. and Osbat, C. (2020), “The Phillips curve at the ECB”, The Manchester School, Vol. 88, pp. 50-85; Koester, G., Lis, E., Nickel C., Osbat, C. and Smets, F. (eds.) (2021), “Understanding low inflation in the euro area from 2013 to 2019: cyclical and structural drivers”, Occasional Paper Series, No 280, ECB, Frankfurt am Main, September.

In 2013, the European Commission estimated that structural unemployment (measured by the non-accelerating wage rate of unemployment (NAWRU)) in the euro area would rise to 11.6% in 2015. In 2019, after several years of strong demand growth, that rate was estimated at 7.7%.

The employment rate in the euro area rose to 73% by the end of 2019 – the highest on record. The participation rate for women in the euro area reached a record high of 68.7% in the fourth quarter of 2019.

See Kouvavas, O., Kuik, F., Koester, G. and Nickel, C. (2019), “The effects of changes in the composition of employment on euro area wage growth”, Economic Bulletin, Issue 8, ECB.

See Nickel, C., Bobeica, E., Koester, G., Lis, E. and Porqueddu, M. (eds.) (2019), “Understanding low wage growth in the euro area and European countries”, Occasional Paper Series, No 232, ECB, Frankfurt am Main, September.

See Hahn, E. (2019), “How are wage developments passed through to prices in the euro area? Evidence from a BVAR model”, Applied Economics, Taylor & Francis Journals, Vol. 53, No 22, May, pp. 2467-2485;Hahn, E. (2020), “The wage-price pass-through in the euro area: does the growth regime matter?”, Working Paper Series, No 2485, ECB, Frankfurt am Main, October; Bobeica, E., Ciccarelli, M. and Vansteenkiste, I. (2019), “The link between labor cost and price inflation in the euro area”, Working Paper Series, No 2235, ECB, Frankfurt am Main, February.

Anderton, R., Jarvis, V., Labhard, V., Morgan, J., Petroulakis, F. and Vivian, L. (2020), “Virtually everywhere? Digitalisation and the euro area and EU economies: Degree, effects, and key issues”, Occasional Paper Series, No 244, ECB, December.

There is, however, still heterogeneity across sectors. For example, as of the second quarter of 2021 real gross value added in high-contact services was still 10.5% below its level in the fourth quarter of 2019, while the overall economy was only 2.5% lower. See Battistini, N. and Stoevsky, G. (2021), “The impact of containment measures across sectors and countries during the COVID-19 pandemic”, Economic Bulletin, Issue 2, ECB.

Frohm, E., Gunnella, V., Mancini, M. and Schuler, T. (2021), “The impact of supply bottlenecks on trade”, Economic Bulletin, Issue 6, ECB.

Shifts in the timing of seasonal sales are also playing a role.

At the end of the second quarter.

The weights of the Harmonised Index of Consumer Prices (HICP) were updated in January 2021 reflecting the changes in consumption patterns brought about by the pandemic.

See Boehm, C.E., Flaaen, A. and Pandalai-Nayar, N. (2019), “Input Linkages and the Transmission of Shocks: Firm-Level Evidence from the 2011 Tōhoku Earthquake”, The Review of Economics and Statistics, MIT Press, Vol. 101, No 1, March, pp. 60-75.

The trimmed means remove around 15% from each tail of the distribution of price changes in the euro area HICP each month.

Five-year forward five years ahead inflation-linked swap.

ECB (2021), Survey of Professional Forecasters, July.

ECB Survey of Monetary Analysts, September 2021.

Services are 61% of the core HICP basket.

When demand is higher, firms can pass on cost increases over-proportionally, such that profit margins increase. See Gumiel, J. E., and Hahn, E. (2018), “The role of wages in the pick-up of inflation”, Economic Bulletin, Issue 5, ECB, Frankfurt am Main.

See Malmendier, U. and Sheng Shen, L. (2018), “Scarred Consumption”, NBER Working Paper, No 24696.

See Lagarde, C. (2020), “Monetary Policy in a Pandemic Emergency“, keynote speech at the ECB Forum on Central Banking, Frankfurt am Main, 11 November.

See McKinsey (2020), “How COVID-19 has pushed companies over the technology tipping point—and transformed business forever”, October.

See Basso, G., Boeri, T., Caiumi, A. and Paccagnella, M. (2020), “The New Hazardous Jobs and Worker Reallocation”, OECD Social, Employment and Migration Working Papers No. 246.

Kouvavas, O., Osbat, C., Reinelt, T. and Vansteenkiste, I. (2021), “Markups and inflation cyclicality in the euro area”, mimeo.

See Shingal, A. and Agarwal, P. (2020), “How did trade in GVC-based products respond to previous health shocks? Lessons for COVID-19”, EUI RSCAS Working Paper, No 2020/68, Global Governance Programme 415.

Anayi, L., Barrero, J. M., Bloom, N., Bunn, P., Davis, S., Leather, J., Meyer, B., Oikonomou, M., Mihaylov, E., Mizen, P. and Thwaites, G. (2021), “Labour market reallocation in the wake of Covid-19”, VoxEu, 21 August.

CengizDubeLindnerZipperer, D., , A., , A. and , B. (2019), “The Effect of Minimum Wages on Low-Wage Jobs”, The Quarterly Journal of Economics, Vol. 134, Issue 3, August, pp. 1405-1454.

Network for Greening the Financial System (2021), “NGFS Climate Scenarios for central banks and supervisors”, slide deck, June.

McKibbin, W., Konradt, M. and Weder di Mauro, B. (2021), “Climate Policies and Monetary Policies in the Euro Area”, paper for ECB Forum 2021.

European Commission (2020), “Impact Assessment” accompanying the document “Stepping up Europe’s 2030 climate ambition: Investing in a climate-neutral future for the benefit of our people”, 17 September.

European Commission (2020), “Identifying Europe’s recovery needs”, 27 May.

Compliments of the European Central Bank.

The post ECB Speech | Monetary policy during an atypical recovery first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Today, as part of its work to create a future-proof and crisis-resilient regulatory framework for the pharmaceutical sector, the Commission has published a public consultation on the revision of the EU’s pharmaceutical legislation. This is the latest step towards an ambitious reform as announced in the Pharmaceutical Strategy for Europe, adopted in November 2020.
Stella Kyriakides, Commissioner for Health and Food Safety, said: “Today we take an important step for the reform of EU’s pharmaceutical legislation by the end of next year. A regulatory framework for pharmaceuticals, which is modernised and fit for purpose, is a key element of a strong European Health Union and crucial to addressing the many challenges this sector is facing. I call on all interested citizens and stakeholders to help us shape EU rules for the future, responding to patients’ needs and keeping our industry innovative and globally competitive.”
The consultation, which will run for twelve weeks, until 21 December, will gather the views from both the general public and stakeholders to support the evaluation of and the impact assessment for the revision of the EU’s pharmaceutical legislation. Today’s development follows on from the public consultation conducted for the preparation of the Strategy itself.
Since the adoption of the Strategy, the Commission has been working on a number of actions in close cooperation with Member States’ authorities, the European Medicines Agency and with stakeholders’ organisations. A major flagship action is the revision of the general pharmaceutical legislation, foreseen for end 2022, which is also being supported by an ongoing study. Other flagship actions of the Strategy focus on Health Technology Assessment, EU Health Data Space, legislation on rare diseases and medicines for children and strengthening the continuity and security of supply of medicines in the EU.
This public consultation launched today notably addresses:

The performance of the EU’s pharmaceutical legislation;
Unmet medical needs;
Incentives for innovation;
Antimicrobial resistance;
Future-proofing the regulatory framework for novel products;
Improved access to medicines;
Competitiveness of the European markets to ensure affordable medicines;
Repurposing of medicines;
Security of supply of medicines;
Quality and manufacturing of medicines;
Environmental challenges.

Background
The last comprehensive review of the general pharmaceutical legislation was tabled almost 20 years ago. Since then. societal and scientific changes, as well as new areas of concern such as antimicrobial resistance, environmental challenges and shortages of medicines, have emerged. In that context, the Pharmaceutical Strategy adopted in November 2020 includes an ambitious agenda of legislative and non-legislative actions to be launched over the coming years and has four main objectives:

Ensuring access to affordable medicines for patients, and addressing unmet medical needs (e.g. in the areas of antimicrobial resistance, cancer, rare diseases);
Supporting competitiveness, innovation and sustainability of the EU’s pharmaceutical industry and the development of high quality, safe, effective and greener medicines;
Enhancing crisis preparedness and response mechanisms, and addressing security of supply;
Ensuring a strong EU voice in the world, by promoting a high level of quality, efficacy and safety standards.

Compliments of the European Commission.
The post European Health Union: Towards a reform of EU’s pharmaceutical legislation first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Vaccination is the most effective response to the COVID pandemic. The United States and the EU are technological leaders in advanced vaccine platforms, given decades of investments in research and development.
It is vital that we aggressively pursue an agenda to vaccinate the world. Coordinated U.S. and EU leadership will help expand supply, deliver in a more coordinated and efficient manner, and manage constraints to supply chains. This will showcase the force of a Transatlantic partnership in facilitating global vaccination while enabling more progress by multilateral and regional initiatives.
Building on the outcome of the May 2021 G20 Global Health Summit, the G7 and U.S.-EU Summits in June, and on the upcoming G20 Summit, the U.S. and the EU will expand cooperation for global action toward vaccinating the world, saving lives now, and building better health security.
Pillar I: A Joint EU/US Vaccine Sharing Commitment: the United States and the EU will share doses globally to enhance vaccination rates, with a priority on sharing through COVAX and improving vaccination rates urgently in low and lower-middle income countries. The United States is donating over 1.1 billion doses, and the EU will donate over 500 million doses. This is in addition to the doses we have financed through COVAX.
We call for nations that are able to vaccinate their populations to double their dose-sharing commitments or to make meaningful contributions to vaccine readiness. They will place a premium on predictable and effective dose-sharing to maximize sustainability and minimize waste.
Pillar II: A Joint EU/US Commitment to Vaccine Readiness: the United States and the EU will both support and coordinate with relevant organisations for vaccine delivery, cold chain, logistics, and immunization programs to translate doses in vials into shots in arms. They will share lessons learned from dose sharing, including delivery via COVAX, and promote equitable distribution of vaccines.
Pillar III: A Joint EU/US partnership on bolstering global vaccine supply and therapeutics: the EU and the United States will leverage their newly launched Joint COVID-19 Manufacturing and Supply Chain Taskforce to support vaccine and therapeutic manufacturing and distribution and overcome supply chain challenges. Collaborative efforts, outlined below, will include monitoring global supply chains, assessing global demand against the supply of ingredients and production materials, and identifying and addressing in real time bottlenecks and other disruptive factors for global vaccine and therapeutics production, as well as coordinating potential solutions and initiatives to boost global production of vaccines, critical inputs, and ancillary supplies.
Pillar IV: A Joint EU/US Proposal to achieve Global Health Security. The United States and the EU will support the establishment of a Financial Intermediary Fund (FIF) by the end of 2021 and will support its sustainable capitalization.  The EU and United States will also support global pandemic surveillance, including the concept of a global pandemic radar. The EU and the United States, through HERA and the Department of Health and Human Services Biomedical Advanced Research and Development Authority, respectively, will cooperate in line with our G7 commitment to expedite the development of new vaccines and make recommendations on enhancing the world’s capacity to deliver these vaccines in real time.
We call on partners to join in establishing and financing the FIF to support to prepare countries for COVID-19 and future biological threats.
Pillar V: A Joint EU/US/Partners Roadmap for regional vaccine production. The EU and the United States will coordinate investments in regional manufacturing capacity with low and lower-middle income countries, as well as targeted efforts to enhance capacity for medical countermeasures under the Build Back and Better World infrastructure and the newly established Global Gateway partnership. The EU and the United States will align efforts to bolster local vaccine manufacturing capacity in Africa and forge ahead on discussions on expanding the production of COVID-19 vaccines and treatments and ensure their equitable access.
We call on partners to join in supporting coordinated investments to expand global and regional manufacturing, including for mRNA, viral vector, and/or protein subunit COVID-19 vaccines.
Compliments of the European Commission.
The post An U.S.-EU Agenda for Beating the Global Pandemic: Vaccinating the World, Saving Lives Now, and Building Back Better Health Security first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

From 26 September to 1 October, EU Executive Vice-Presidents Margrethe Vestager and Valdis Dombrovskis will be in the United States, where they will meet senior U.S. officials and participate in the first-ever meeting of the EU-U.S. Trade and Technology Council (TTC).
Executive Vice-President Dombrovskis will first travel to Washington, D.C., where he is speaking at an event on transatlantic cooperation organised by the Johns Hopkins University School of Advanced International Studies.(link is external) Executive Vice-President Vestager will first be in Los Angeles on Tuesday for a keynote at the Code Conference 2021.
While in Washington, Dombrovskis will also meet with International Monetary Fund Managing Director Kristalina Georgieva; Janet Yellen, Secretary of the Treasury; Jerome Powell, Chair of the Federal Reserve; Katherine Tai, United States Trade Representative; and Gina Raimondo, Secretary of Commerce. He will hold meetings with Ron Wyden, Chairman of the Senate Finance Committee, and Richard Neal, Chairman of the House Ways and Means Committee.
The Executive Vice-Presidents will then travel to Pittsburgh, where they will participate in the inaugural meeting of the EU-U.S. Trade and Technology Council, which was launched earlier this year by European Commission President Ursula von der Leyen and U.S. President Joe Biden.
Executive Vice-President Vestager will then head to New York where she will meet with UN Secretary General António Guterres before giving a keynote speech at the Fordham’s 48th Annual Conference(link is external) on International Antitrust Law and Policy. She will then meet with the acting assistant attorney general of the U.S. Department of Justice, Richard Powers. Dombrovskis will finish his visit in New York, as well, where he will participate in a Ministerial Meeting of the Global Forum on Steel Excess Capacity, as well as hold meetings with Special Envoy on Climate Michael Bloomberg and senior business leaders.
Compliments of the Delegation of the European Union to the United States.
The post EVPs Vestager, Dombrovskis Visit U.S. for Launch of Trade and Technology Council first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Introductory statement by Christine Lagarde, President of the ECB, at the Hearing of the Committee on Economic and Monetary Affairs of the European Parliament (by videoconference) | Frankfurt am Main, 27 September 2021 |
Madam Chair,
Honourable members of the Economic and Monetary Affairs Committee,
Ladies and gentlemen,
It is a pleasure to be with you again today for the third regular hearing of the year.
In my confirmatory hearing before this Committee back in September 2019, I set out a goal: to ensure that the ECB engaged in a reflection on whether its monetary policy framework was sufficiently robust to meet future challenges.[1]
With the successful conclusion of our strategy review in July,[2] I believe we have achieved that goal. The review took the ECB’s mandate and primary objective of price stability, which is conferred by the Treaty, as a given. At the same time, we thoroughly looked at key aspects of citizens’ lives. We have recommended a roadmap to include the costs of owner-occupied housing in the Harmonised Index of Consumer Prices to better represent the inflation rate that is relevant for households. We have also developed a climate-related action plan to address the profound implications of climate change for price stability. Finally, we have modernised our external communication to make it more understandable to all citizens.
The review has been an 18-month-long journey involving an immense collective effort by staff across the Eurosystem, and I am particularly happy that this work has now been published in 18 Occasional Papers which were made available to the public on our website last week.[3] I would also like to reiterate my gratitude to this Committee for the important input it provided during the strategy review process.
In my remarks today, I will outline some of the key elements of our new strategy and provide an update on the outlook for the economy and for inflation, together with some reflections on our current monetary policy stance. Then, at the explicit request of this Committee, I will discuss the topic of financial dominance.
The ECB’s new monetary policy strategy in practice
Starting with our price stability objective, the new strategy incorporates two key innovations.
First, we have adopted what I would call a simple and clear symmetric inflation target of two per cent over the medium term. It is simple, easy to communicate and clear because it gives a well-defined yardstick to help us steer our monetary policy. And it is symmetric because both negative and positive deviations of inflation from the target are equally undesirable. We are convinced that this new formulation will avoid misperceptions about our reaction function when medium-term inflation is above or below the target and that it will better anchor inflation expectations.
The second important change is the recognition that, to maintain symmetry, the Governing Council needs to take into account the implications of the effective lower bound on nominal interest rates. In proximity to the lower bound, an especially forceful or persistent monetary policy response will be required.
In July we also revised our forward guidance on interest rates to bring it into line with the new strategic framework. The new formulation stipulates that the Governing Council will not consider raising rates unless three conditions have been met: first, we need to see inflation reaching two per cent well ahead of the end of the projection horizon; second, after convergence, inflation should be seen to be stabilising durably at the target through the end of the projection horizon; and third, realised progress in underlying inflation should, in our judgement, be sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term. Achieving these conditions may imply a transitory period in which inflation is moderately above our target.
Against the background of our new strategy, let me now focus on recent economic developments. In summary, it is evident that the economic recovery in the euro area is increasingly advanced. This is partly due to successful vaccination campaigns across Europe, which have prompted the easing of restrictions. This, in turn, has supported the rebound in economic activity, particularly in the services sector, which was hardest hit by the containment measures.
Consequently, the euro area economy rebounded by 2.2 per cent in the second quarter of the year, which was more than had been anticipated. We expect continued strong growth in the second half of 2021, enabling euro area output to exceed its pre-pandemic level by the end of the year. This positive short-term outlook is reflected in the September ECB staff projections, which foresee annual real GDP growth at 5.0 per cent in 2021, 4.6 per cent in 2022 and 2.1 per cent in 2023. The growth outlook continues to be uncertain and heavily dependent on the evolution of the pandemic, but risks to growth are broadly balanced.
Turning to inflation developments, which you have selected as a topic for this hearing, euro area inflation rose to 3.0 per cent in August and we expect it to rise further this autumn.
Nonetheless, we continue to view this upswing as largely temporary. A range of factors are currently pushing up inflation. Chief among them are the strong increase in oil prices since around the middle of last year, the reversal of the temporary VAT reduction in Germany, and cost pressures arising from temporary shortages of materials and equipment. The impact of these factors should dissipate in the course of next year. Although underlying price pressures have edged up over the summer, this is consistent with the opening up of the economy, which remains some distance away from operating at full capacity. As a result, the September ECB staff projections foresee annual inflation at 2.2 per cent in 2021 then moderating to 1.7 per cent in 2022 and 1.5 per cent in 2023.
While inflation could prove weaker than foreseen if economic activity were to be affected by a renewed tightening of restrictions, there are some factors that could lead to stronger price pressures than are currently expected. For example, if the temporary shortages of materials and equipment constrain production more persistently than we currently foresee, they could feed through more strongly along the pricing chain. Persistently high inflation could also result in higher than anticipated wage demands. But we are seeing limited signs of this risk so far, which means that our baseline scenario continues to foresee inflation remaining below our target over the medium term.
Favourable financing conditions are essential for the economy to continue its recovery and for inflation to converge durably to our target. We saw market interest rates ease over the summer but recently they have reversed this decline somewhat. However, bank lending conditions have remained very accommodative. Overall, this has left financing conditions for the economy remaining very favourable.
Thus, following a joint assessment of the inflation outlook and financing conditions, the Governing Council decided earlier this month to set a moderately slower pace of net asset purchases under the pandemic emergency purchase programme. We remain entirely committed to preserving these favourable financing conditions, which are necessary for a robust recovery that will restore inflation to its pre-pandemic level.
Financial stability considerations in our new monetary policy strategy
I will now turn to the second topic which you have selected for this hearing, namely the risk of financial dominance.
Financial dominance occurs when central banks delay the removal of monetary policy accommodation for longer than appropriate, in order to avoid market turmoil. Let me be clear on this. The ECB has a very clear primary mandate which is stipulated in the Treaty: price stability. As stipulated by the Treaty, any other consideration should be subordinate and without prejudice to delivering on our primary mandate.
Regarding the stability of the financial sector, our new strategy explicitly considers the interactions of price stability and financial stability, reflecting our belief that each is a precondition for the other.
To start with, the strategy recognises that macroprudential policy, along with microprudential supervision, is the first line of defence against the build-up of financial imbalances. Indeed, effective macroprudential policy can address such risks more directly in a targeted fashion, and thereby reduce the burden that would be placed on monetary policy.
Nonetheless, given that the macroprudential framework in the euro area is incomplete, and given the interaction between macroprudential and monetary policy, the Governing Council monitors and analyses financial stability risks and their potential to jeopardise price stability over the long haul. Indeed, a careful analysis of the potential side effects of our monetary policy for the health and stability of financial intermediaries is an integral part of the proportionality assessment that we regularly conduct to test whether the policy measures in place remain appropriate.
Let me give you a concrete example of how we consider the linkages between financial stability and price stability. Household mortgages have been excluded from the pool of loans considered eligible for use as collateral under the targeted longer-term refinancing operations (TLTROs). These operations allow us to support bank lending – a key condition in the current circumstances for a durable return of inflation to the target – while containing the risk that credit extension might fuel unsustainable house price increases.
In synthesis, a systematically proportionate response to shocks is a precondition for minimising financial stability risks and, as a result, threats of financial dominance. At the same time, a coordinated macroprudential policy response across the euro area remains vital to strengthen the impact of policy actions and to support monetary policy.
Conclusion
Let me conclude. Our new strategy addresses the challenges that have emerged since the ECB announced the outcome of its previous strategy review in 2003, including the decline in the equilibrium real interest rate, the expectation that this rate will remain low and the deflationary bias induced by the effective lower bound.
And it also responds to other structural changes in the economy – an important one being climate change, as this Parliament has continuously reminded us in its Resolutions on the ECB Annual Reports. The Governing Council agreed on the need to take climate change risks into account when designing and implementing our monetary policy. That will help us make better decisions. The detailed action plan sets out an ambitious timeline and outlines a wide range of actions, encompassing many areas of the ECB’s activity, and ultimately aims to consistently integrate climate change considerations in all aspects of the ECB’s monetary policy.[4]
Moreover, to further enhance our transparency and ensure that we are aware of citizens’ expectations and concerns in relation to our policies, we have modernised our communication policy and we will make outreach events a structural feature of our interaction with the public. But our efforts to ensure that we are accountable to European citizens do not stop there. This Parliament will continue to be our main interlocutor and your role in making sure that the people’s voices are heard by the ECB and that the ECB’s voice is heard by the people remains crucial to foster understanding of and trust in our policies.
Finally, two years after my first appearance before this Committee, I remain fully convinced of the need for an “open mind” to ensure that the ECB keeps delivering on its mandate in rapidly changing circumstances. We therefore intend to assess the appropriateness of our monetary policy strategy periodically, with the next assessment expected in 2025.
Thank you for your attention. I now stand ready to take your questions.
Compliments of the European Central Bank.
The post ECB Speech | Hearing of the Committee on Economic and Monetary Affairs of the European Parliament first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, today launches a consultation on proposals for improvements to the MiFID II framework on best execution reports. These proposals aim at ensuring effective and consistent regulation and supervision and enhancing investor protection.

ESMA’s proposals include technical changes to:

 the reporting obligations for execution venues:

aimed at simplifying the reporting requirements by reducing the granularity and volume of data to be reported; and
moving to a set of seven indicators aimed at disclosing meaningful information to help firms to assess venues’ execution quality; and

the reporting requirements for firms: focusing mainly on clarifying the requirements for firms that transmit client orders or decisions to deal to third parties for execution.

In addition, it proposes amendments to the relevant provisions of the MiFID II legislative framework to enable these technical changes to come into effect in the future.
Stakeholders are invited to provide their responses by 23 December 2021.
Next Steps
Since ESMA’s technical proposals can only be implemented after the relevant provisions of MiFID II have been amended, the outcome of this consultation will not lead to any immediate change of the existing RTSs 27 and 28 which currently regulate best execution reporting by execution venues and investment firms.
However, ESMA will consider the input received in supporting the European Commission in its assessment of the adequacy of the best execution reporting obligations, and any subsequent technical work to shape a well-functioning reporting regime.
Compliments of ESMA.

The post ESMA consults on proposals for a review of the MiFID II best execution reporting regime first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

At the UN High-Level Dialogue on Energy this week in New York, Executive Vice-President for the European Green Deal, Frans Timmermans and Commissioner for Energy, Kadri Simson presented three Energy Compacts, in partnership with the International Energy Agency and the International Renewable Energy Agency. In their roles as Energy Access Champion and Just Transition Champion in this UN process respectively, the Executive Vice-President and the Commissioner highlighted the EU’s willingness to lead the global efforts to reach universal energy access by 2030 and accelerate the clean energy transition, and showed concretely how the European Green Deal plays a role on the global stage.
Executive Vice-President Frans Timmermans, said: “Clean energy is more affordable now than ever, so the time is ripe to break the global dependence on fossil fuels. Recovery from the pandemic gives us an opportunity to transition faster and to build new energy systems based on renewables. It is important that we address these issues at this moment of recovery and cooperate to accelerate the global energy transition.”
Commissioner for Energy, Kadri Simson, said: “The EU is supporting the global dialogue on just transition based on our own experience in moving away from coal. We are inviting other donors, International Financial institutions and investors to take these steps with us, to turn roadmaps and strategies into projects which bring clean energy and sustainable jobs.”
The three UN Compacts which the Commission announced will contribute to mobilising the investments necessary to reach universal energy access and to accelerate the clean energy transition around the world.

Firstly, a new project with the International Energy Agency (IEA) will prepare zero emission energy roadmaps for countries dependent on coal. The roadmaps will propose inclusive pathways for energy system decarbonisation that ensure a just, socially fair transition that leaves nobody behind, while ensuring security of energy supply and growing energy access.
Secondly, we will cooperate with the International Renewable Energy Agency (IRENA) to prepare Regional Energy Transition Outlooks for Africa, Latin America and the Caribbean and Europe. They will provide a thorough analysis of the regions’ potential and options in terms of renewable energy, energy efficiency, infrastructure, energy access and cross-border cooperation, as well as an assessment of investment needs and socio-economic impact. They will include concrete policy recommendations to achieve the Sustainable Development Goal on energy, in line with the 1.5 degree Paris objective.
Thirdly, we will work with Denmark, Germany, IRENA and other partners on a Green Hydrogen Compact Catalogue. This will be designed to give a boost to green hydrogen worldwide, including a commitment to cooperate on renewable hydrogen development with the African Union in the framework of the Africa-Europe Green Energy Initiative.

The three Compacts are strongly linked to EU’s climate and energy priorities, in particular universal energy access, just transition, and the promotion of renewable energy, including green hydrogen. The Compacts will contribute to achieving the global clean energy transition and complement the EU’s commitments on climate finance.
The roadmaps and regional energy transition outlooks to be developed by the IEA and IRENA with targeted countries and regions will provide opportunities for guiding EU’s further energy policy orientations and investment cooperation. The roadmaps and outlooks will also support the Africa-EU Green Energy Initiative, to be launched next year.
Background
The UN High-Level Dialogue on Energy, taking place from 22 to 24 September 2021 (virtual), is the first UN gathering on energy since 1981. It aims at accelerating the achievement of Sustainable Development Goal 7 in support of the Decade of Action ahead of COP26. The main outcomes of the dialogue will include a global roadmap based on the recommendations of the Working Groups to achieve universal global access by 2030 and net zero emissions by 2050, and a series of “Energy Compacts” that present multi-stakeholder partnerships and voluntary commitments from Member States and non-state actors. The High-Level Dialogue is structured around five themes, supported by global champions, including EVP Timmermans (energy access) and Commissioner Simson (enabling the SDGs through inclusive and just energy transitions).
On the first day of the High-Level Dialogue, Executive Vice-President Timmermans delivered a speech during the panel on “Energy as a golden thread: a means to deliver on domestic and international priorities and goals”. Today, 24 September, he also participates in the leadership dialogue “Accelerating action to achieve universal energy access and net zero emissions.”
On 22 September, Commissioner Simson intervened with a speech at the session “Knowledge into Action: Advancing a just and inclusive energy transition that also addresses achieving universal energy access.”
In both keynote interventions, they outlined the European Green Deal ambition to make Europe the first climate-neutral continent by 2050 and to achieve a 55% reduction in greenhouse gas emissions emissions in the EU by 2030, presented in an ambitious package of legislative proposals on 14 July 2021.
Compliments of the European Commission.
The post Energy Transition: EU Commission announces three Energy Compacts at UN High-Level Dialogue in New York first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Speech by Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, at the 8th Conference on the Banking Union, Goethe University, Frankfurt am Main |

Many thanks for your kind introduction and for having me here today at this 8th Conference on the Banking Union. I am especially happy to be here, for this is the first time since I joined the European Central Bank last December that I am joining in a conference on site. It shows that we are indeed making progress in moving closer towards a world after the pandemic, which is the topic of this session of the conference. That being said, we are not there yet, and we are all certainly mindful of the many risks to global public health that currently still remain. This is also the first speech that I am making in a more traditional conference setting since moving to Frankfurt. And I am proud and humbled to deliver it in the university named after Frankfurt’s most renowned son and standing alongside the many past board members of the European Central Bank who have visited this house of Goethe over the years.
When preparing this address, I went back as far as April 1999 when, for the first time, a member of the ECB’s Executive Board spoke at Goethe University. The board member was Tommaso Padoa-Schioppa, and he was delivering the address on the occasion of his being appointed honorary professor of the University ‒ a position he held until his passing in late 2010. The ECB had just been founded, and the Governing Council had adopted the institution’s first monetary policy strategy. At Goethe University, Professor Padoa-Schioppa spoke of “new challenges for old missions”, referring to a number of daunting developments that the newly born central bank of the euro area would be facing.[1] In my address today, I will not dwell on the challenges that Professor Padoa-Schioppa identified back in 1999. They were certainly topical and some continue to carry relevance even today.[2] What I want to emphasise here is the notion he conveyed that central bankers – and I would add supervisors – should always be mindful of the circumstances in which they will pursue their tasks and fulfil their responsibilities in the years to come. This message resonates strongly in the activities through which the ECB delivers on its mandate, in particular with respect to the key challenge that we are facing today and that will be the key topic of my address: the ongoing climate and environmental crisis.
The challenge of climate change and environmental degradation
While many of our societies have been gradually reopening over the past months, the summer still sent us stark reminders of another ongoing crisis. And, just like the pandemic, it is a global one. Unfortunately, unlike the pandemic, we are not even close to start thinking about a world after the climate and environmental crisis. We have barely seen the beginning. We have seen major flooding in north-western Europe, the north-eastern United States and China, as well as extreme heatwaves and wildfires in North America and southern and eastern Europe. Each of these events is yet another tragic confirmation that the climate and environmental crisis is already upon us. Confirmation that the associated consequences are materialising to an increasing extent. Confirmation that significant efforts will be required to achieve an effective transition to a net zero global economy in a window of time that is all too rapidly narrowing.
The recent analysis of the Intergovernmental Panel on Climate Change (IPCC), which was also published this summer, adds to the existing overwhelming evidence that climate change is real and caused by humans.[3] The report’s findings and conclusions emphasise the need for urgent action. It concludes that unless there are immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting global warming to close to 1.5 or even 2 degrees Celsius will be beyond reach. Note that the report also finds that, even when keeping within the 2 degrees bound, the incidence of extreme weather events is already set to double or triple compared with now. If we manage to limit global warming to only 1.5 degrees Celsius, a very big if, the incidence of such events would increase less dramatically, but still by a massive 50% to 75%. A report by the UN’s climate agency released last week suggests that, based on current commitments, the global economy is on a path to a warming not of 1.5 or 2, but of a whopping 2.7 degrees Celsius.[4] This is clearly too high. This clearly shows more needs to be done. Governments clearly need to step up their efforts to keep the impact of the climate crisis within the bounds of what is manageable.
The IPCC report is expected to play a fundamental role at the 26th UN Climate Change Conference of the Parties (COP26) that is taking place in Glasgow in November this year, bringing countries together to update their plans for reducing emissions. And the challenge goes beyond our climate. As I have advocated on various occasions over the years and as was stated also by the ECB’s President, Christine Lagarde, at a recent conference: “Climate and biodiversity are two sides of the same coin; it is vital that we look at them together”.[5]
The climate and environmental challenge and the missions of central banks and supervisors
To understand why and how all this is of importance for central banks and supervisors like the ECB, it is useful to imagine a frame for thinking about the economic consequences of the climate and environmental crisis. Typically, when thinking about climate change and environmental degradation we distinguish between physical risks and transition risks.
Physical risks refer to all risks resulting from the changing climate, that is, from more frequent extreme weather events and gradual changes in climate to environmental degradation, such as air, water and land pollution, water stress, biodiversity loss and deforestation. For example, extreme weather events – which have been steadily increasing over recent decades – can harm borrowers’ ability to repay their debts and thus make the loan portfolios of banks much riskier. These risks can be further heightened if extreme weather events also depreciate the value of the assets used as collateral in those loans.
But there are also risks associated with a transition to a low-carbon and more environmentally sustainable economy. This adjustment would be triggered by legislation that will be adopted, such as carbon-pricing ‒ where Germany has been leading compared with other European countries ‒ or banning of carbon-intensive activities. In addition, the transition is supported by shifting consumer preferences towards goods and services that are more sustainable. These changes will have a significant impact on climate-sensitive economic sectors and the broader economy and financial system, in particular in the case of an abrupt transition to a low-carbon economy.
Whatever combination of physical and transition risks will materialise, the macroeconomic consequences and financial risks of the climate and environmental crisis will be profound. This is confirmed by an ECB Occasional Paper that was published earlier this week in the context of our monetary policy strategy review.[6] These consequences place the need to act squarely within the traditional mandates of central banks and supervisors. Sharing this insight, many central banks and supervisors have joined forces in the Network for Greening the Financial System (NFGS). The NGFS is a coalition of the willing that brings together 95 central banks and supervisors from all continents. It is a network that I have been proud to chair since its foundation by – at that time – eight central banks and supervisors in late 2017. The network is committed to developing climate and environmental risk management in the financial sector, as well as to mobilising mainstream finance to support the transition to a sustainable economy. It pushes frontiers and ensures that best practices are shared in and implemented by our policy community, covering all the tasks and responsibilities of central banks and supervisors.
ECB activities to address the climate and environmental crisis
In this context, the ECB has been systematically and consistently integrating climate and environmental considerations into the activities through which it carries out its tasks and fulfils its responsibilities. Or ‒ to be more specific ‒ in monetary policy, banking supervision, our non-monetary policy-related balance sheet management and in all our operational duties. Let me outline some of the main steps that we have set and are currently taking.
In November of last year, ECB Banking Supervision published a guide on climate-related and environmental risks.[7] In that guide, we make clear that we expect banks to take a comprehensive, strategic and forward-looking approach to disclosing and managing all climate-related and environmental risks – which also include, for example, the risks of biodiversity loss and pollution. We then asked banks to conduct a self-assessment relating to the expectations we set out in that guide and to draw up action plans for how they intend to comply with them. This supervisory exercise has begun with, but will not be limited to, taking stock of banks’ self-assessments.
We are now in the process of benchmarking the banks’ self-assessments and action plans and will then challenge them as part of our ongoing supervision. The preliminary results show that no bank has the full picture on climate risks yet. None of the banks under our supervision meet all the expectations. But the good news is that many pieces of the climate and environmental risk puzzle can already be found scattered across the banking union. Almost all banks have developed implementation plans and many have started to progressively improve their practices. The progress that we have identified can be observed in banks from different countries, with different business models and different asset volumes. This confirms that what we are asking of the banks can be done. The ECB will see to it that every bank is making expeditious progress in embedding climate and environmental risks into their institution by following up with supervisory requirements where needed. This supervisory exercise will also offer banks a strong incentive to bolster their ability to identify and quantify their exposures to climate and environmental risks and their tolerance of these risks. To give you a sense of the magnitude of this exercise, we are reviewing plans covering €24 trillion worth of banking assets.
Next year, we will conduct a full supervisory review of banks’ practices for incorporating climate risks into their risk frameworks, as we gradually roll out a dedicated Supervisory Review and Evaluation Process (SREP) methodology that will eventually influence banks’ Pillar 2 capital requirements. In addition, ECB Banking Supervision will conduct a supervisory stress test with a focus on climate-related risks for which the methodology will soon be shared with the banks under our supervision. Let me reiterate here that the reflection of the outcome of our supervisory exercises next year will be of a qualitative nature. A possible impact – if any – will be indirect, via the SREP scores on Pillar 2 requirements and no bank-specific results will be published. But let me stress that it is unlikely that in the years to come things will stop here. This is not the endgame. In an analytical report published earlier this year by the Basel Committee on Banking Supervision it was concluded that climate-related risks can be captured in risk categories that are already used by financial institutions, for example credit risk, market risk, liquidity risk and operational risk.[8] The ECB treating climate-related and environmental risks as any other risk, with a reflection in all relevant supervisory requirements, would be in line with this conclusion. Gradually we will start doing just that.
On the intersection between the macro and micro levels, yesterday we published the outcome of an ECB economy-wide stress test.[9] Unlike the stress test that will be conducted next year, this was a top-down exercise relying on data, assumptions and models developed by ECB staff. It was a granular exercise relying on counterparty-level climate and financial information collected for millions of companies to which euro area banks are exposed via loans and securities holdings. To the best of our knowledge, this data collection is the most comprehensive set of backward and forward-looking climate and financial information available to a central bank.
The results of the analysis show that the short-term costs of a green transition pale in comparison to the costs of unfettered climate change in the medium to long-term. The costs of a transition are always more than compensated by long-term benefits in terms of investing in sustainable technologies. By contrast, if policies on transitioning towards a greener economy are not introduced, physical risks become increasingly higher over time. It is thus of the utmost importance to transition early and gradually to mitigate the costs of both the green transition and the future impact of natural disasters. The results of this exercise show that the impacts of climate-related and environmental risks on average will increase moderately until 2050 if climate change is not mitigated, and they are concentrated in some geographical areas. The impact on banks’ expected losses is shown to be mostly driven by physical risk and is potentially severe over the next 30 years.
Acknowledging the climate-related and environmental risks for our own balance sheet, in February 2021 the Eurosystem – encompassing the ECB and all the national central banks of the euro area – announced a common stance for applying climate change-related sustainable and responsible investment principles in their asset portfolios not related to monetary policy.[10] The common stance prepares the ground for the measurement of greenhouse gas emissions and other sustainable and responsible investment-related metrics of these portfolios. With this, we aim to start making annual climate-related disclosures on our portfolios of this type within the next two years.
Finally, in July 2021 the Governing Council of the ECB concluded the 18-month process – delayed by around six months because of the pandemic – in which it reviewed its monetary policy strategy.[11] The outcome of the strategy review included an action plan to incorporate systematically environmental sustainability considerations in the ECB’s monetary policy. The Governing Council acknowledged that climate change has profound implications for its mandate to maintain price stability in the euro area through its impact on the economy and the financial system. Accordingly, the Governing Council has committed to an ambitious climate-related action plan. In addition to the comprehensive incorporation of climate factors in its monetary policy assessments, the ECB will adapt the design of its monetary policy operational framework in relation to disclosures, risk assessment, corporate sector asset purchases and the collateral framework.
As a concrete follow-up, the ECB will accelerate its work on new models that enable us to analyse and monitor the implications of climate change and transition policies on the economy, the financial system and the transmission of our monetary policy to households and firms. With regard to our monetary policy instruments, we will introduce disclosure requirements as an eligibility criterion or as a basis for differentiated treatment for collateral and asset purchases. We will consider climate risk in our valuation and risk control frameworks for assets that are submitted as collateral for lending operations. And we will adjust the framework guiding the allocation of corporate bond purchases to incorporate climate change criteria. Ultimately, where two different monetary policy instruments are equally conducive to maintaining price stability, the ECB will set out to choose the option that best supports addressing climate change. Finally, inspired by the economy-wide stress test and consistent with the upcoming ECB Banking Supervision bottom-up stress test, in 2022 we will conduct a climate stress test of the Eurosystem balance sheet.
Connected dots enabling connected action
The conclusion of the strategy review marks the ECB connecting the final, crucial dots to confirm its commitment to incorporating systematically and consistently the climate and environmental crisis in carrying out its tasks and fulfilling its responsibilities: monetary policy, banking supervision, our non-monetary policy-related balance sheet management and in all our operational duties. And we have announced concrete measures, expectations and action plans on how we intend to follow up on these commitments. This is not a crisis that the ECB can resolve by itself. Fortunately, we are not the only ones connecting dots, as evidenced by the activities of other central banks and supervisors, both individually and jointly in the NGFS. And the call to action is also being brought to the institutions that they supervise. In fact, not acting may even expose financial institutions to liability risks.
We are mindful that many of the steps proposed are no easy undertaking. But, to paraphrase Tommaso Padoa-Schioppa speaking here back in the ECB’s early days, identifying a challenge implies not only acknowledging the difficulty of fulfilling a task, but also its necessity. For addressing the climate and environmental crisis we know this to be true. We know we must act. Let us draw confidence from Goethe: “Unsere Wünsche sind Vorgefühle der Fähigkeiten, die in uns liegen, Vorboten desjenigen, was wir zu leisten imstande sein werden.” It will be difficult, but we know we are up to the challenge. We must be.

Compliments of the European Central Bank.
The post ECB Speech | Integrating the climate and environmental challenge into the missions of central banks and supervisors first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Today, the Commission takes legal action against 19 Member States failing to deliver the benefits of EU digital legislation in the area of audio-visual media and telecommunications. These Member States are required to transpose into their national laws two new sets of rules, without further delay: the Audio-Visual Media Services Directive and the European Electronic Communications Code, and inform the Commission about this transposition. Both Directives are crucial for the EU’s digital transition, after having been commonly agreed by Member States, and had to be transposed by end-2020.
Audio-Visual Media Services Directive
The Audio-Visual Media Services Directive (AVMSD) aims to ensure a fair single market for broadcast services that keeps up with technological developments. To this end, the Directive was revised in 2018 to create a regulatory framework fit for the digital age, leading to a safer, fairer and more diverse audio-visual landscape. It coordinates EU-wide legislation on all audio-visual media, including both traditional TV broadcasters and on-demand video services, and lays down essential protection measures with regard to content shared on video-sharing platforms.
Due to the delayed transposition, citizens and businesses in Czechia, Estonia, Ireland, Spain, Croatia, Italy, Cyprus, Slovenia and Slovakia may not be able to rely on all the provisions of the AVMSD, which:

Create a level playing field for different types of audio-visual media services;
Guarantee the independence of national media regulators;
Preserve cultural diversity by, for example, requiring video on demand services to have at least 30% of European works on offer;
Protect children and consumers by laying down rules for the protection of minors against harmful content in the online world, including protections on video-on-demand services; and
Combat racial, religious and other types of hatred by having reinforced rules to combat the incitement to violence or hatred, and the public provocation to commit terrorist offences.

European Electronic Communications Code
EU action in the area of electronic communications has led to greater consumer choice, lower phone bills, and higher standards of telecommunications service. The European Electronic Communications Code modernises EU telecoms rules, making them fit for the digital era. Due to the delayed transposition, consumers and businesses in Estonia, Spain, Croatia, Ireland, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Austria, Poland, Portugal, Romania, Slovenia, Slovakia and Sweden may not benefit from rules, which provide for:

Clear and inclusive end-user rights rules: the same rules apply all over Europe towards an inclusive single market;
Higher quality of services: consumers can enjoy higher connection speeds and higher coverage; since the Code fosters competition for investments, in particular in very high capacity networks, including 5G networks;
Harmonisation of rules: the Code enhances regulatory predictability, including in radio spectrum assignment;
Consumer protection: the Code benefits and protects consumers, irrespective of whether end-users communicate through traditional (calls, text message) or app-based services;
Fair play: the Code ensures equality of treatment of all players in the telecom services sector, whether traditional or app-based.

In particular, consumers should benefit from enhanced protection through rules that ensure clarity of contractual information, quality of service and facilitating provider switching between networks to drive fairer retail prices. Operators and providers can take advantage of pro-investment rules, such as those incentivising co-investments in very-high capacity networks and wholesale-only networks or regulatory and investment predictability including in radio-spectrum assignment procedures.
Background
Enshrined in the EU treaties, the infringement procedure provides that the Commission may take legal action against Member States who fail to ensure the timely and accurate transposition of directives into their national legislation.
The deadline for transposing the Audio-Visual Media Services Directive was 19 September 2020. In November 2020, the Commission launched infringement proceedings against 23 Member States for failure to notify complete transposition of the revised Audio-Visual Media Services Directive. So far, 15 Member States have notified transposition measures declaring their notification complete and 3 additional Member States have communicated partial notification. The Commission is now following up by sending reasoned opinions to Czechia, Estonia, Ireland, Spain, Croatia, Italy, Cyprus, Slovenia, and Slovakia (9 Member States).
The deadline for transposing the European Electronic Communications Code into national legislation was 21 December 2020. The Commission sent letters of formal notice to 24 Member States on 4 February 2021. Only Bulgaria and Denmark notified the full transposition by the end of August (joining Greece, Hungary, and Finland who had already transposed before). Recently Belgium and Germany also notified complete transposition and their notification is under assessment. During the summer, Czechia, and recently also France, notified a great number of measures in view of partially transposing the Directive, which are also assessed. The Commission is now following up by sending reasoned opinions to Estonia, Spain, Croatia, Ireland, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Austria, Poland, Portugal, Romania, Slovenia, Slovakia and Sweden (18 Member States), requesting them to adopt and notify the relevant measures.
The Member States concerned have two months to remedy the situation and adopt national transposing measures for these pieces of EU legislation. Otherwise, the Commission may decide to refer their cases to the Court of Justice of the European Union.
Compliments of the European Commission.
The post Stepping up legal action: EU Commission urges 19 Member States to implement EU digital and media laws first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.