Blog | The current energy shock is significant and global, but it is also hitting a euro area economy that is more balanced than when Russia invaded Ukraine in early 2022. History and analysis show that context matters a lot for how shocks propagate to inflation.
Energy prices have risen sharply since early 2026 when war broke out again in the Middle East and the Strait of Hormuz was closed. This big uptick in energy inflation has in turn driven up headline inflation in the euro area, to stand at 3.2% in May.
This blog post takes a close look at two dimensions that are relevant for the propagation of an energy shock: (i) the nature and composition of the shock itself, and (ii) the state of the economy and the broader macro-financial condition at the outset.
This shock is different
The current energy shock differs in nature and composition from the episode that followed Russia’s invasion of Ukraine in February 2022. Unlike in 2022, the Middle East war has sparked more disruption in the supply of oil, rather than of natural gas, to the euro area. Indeed, the upsurge in crude oil prices has been faster and pressure on prices of some refined oil products, like diesel, has been larger in the latest episode than in 2022, while wholesale gas and electricity prices rose much more in 2022 (Chart 1). The difference in the reaction of gas and electricity prices for the most part reflects how Europe was more directly exposed to the shock in 2022 and was less prepared.
Chart 1
Developments in energy prices across components

(panel a: USD/Bbl, panel b: EUR/MWh, panel c: EUR/MWh)

Sources: Refinitiv andECB staff calculations.
Notes: Monthly data over the months of each year. The vertical line indicates Russia’s full-scale invasion of Ukraine and the outbreak of the war in the Middle East. The latest observations are for May 2026.

Moreover, some structural changes in the euro area energy mix since 2022 also imply that the direct sensitivity of consumer prices to a given wholesale energy price shock has declined. The clearest example of this is the increasing cushioning role of electricity generated from renewable sources. While wholesale electricity prices tracked gas prices closely during the 2021-22 energy crisis, their reaction since the start of the war in the Middle East has been far more muted.[1]
While these differences point towards a less broad-based energy shock, other factors point in the opposite direction. In particular, oil supply shocks propagate to consumer inflation faster than gas supply shocks do. Rising crude oil prices transmit rapidly to what consumers pay at the pump, and rising prices tend to pass through stronger than falling prices. By contrast, it can take several months before increases in wholesale gas and electricity prices are reflected in consumers’ utility bills.[2] Seen from another angle, the current shock is more global in nature than the 2022 episode. A global shock has larger indirect effects on inflation, as cost pressures build more broadly along global value chains. This, in turn, causes import prices to rise more sharply and the energy price shock to transmit stronger to the domestic economy.[3]
Initial economic conditions matter
Beyond the nature of the shock itself, the starting macro-financial environment plays a key role in the propagation of an energy shock into underlying inflation. The pass-through tends to be stronger when the level of the inflation rate is higher, demand conditions are more robust, the labour market is tighter and fiscal and monetary policy are more expansionary. Along each of these dimensions, today’s starting point differs substantially from early 2022.
Starting inflation environment
When Russia invaded Ukraine in February 2022, euro area headline inflation, as measured by the Harmonised Index of Consumer Prices (HICP), was growing at between 5% and 6% year on year and was accelerating (Chart 2, panel a). Energy inflation had already been climbing steeply from around 15% since mid-2021 to slightly above 30% in February 2022 due to a combination of surging post-pandemic demand and Russia curtailing gas supplies ahead of the invasion. When the current shock hit in late February 2026, headline inflation stood slightly below 2% − close to the ECB’s medium-term target − with energy and core inflation momentum at moderate levels.
The initial level of inflation when a shock hits matters a great deal. There are several reasons for this. The pass-through of energy price increases to consumer inflation can be amplified when inflation is already high. When price pressures are contained, firms tend to absorb small cost increases rather than reprice. But in a high-inflation environment, waiting too long risks eroding margins excessively. As a result, firms are more likely to increase the frequency of price adjustments, leading to more persistent inflationary pressures.[4] Starting from a position of inflation close to target thus reduces the risk of the initial energy price spike triggering a disproportionate reaction by price- and wage-setters.[5] Furthermore, households and firms may also now be paying closer attention to inflation after the recent experience of a high inflation episode. When attention is high, expectations are more sensitive to developments, potentially amplifying the inflationary impact of the shock.[6]

Chart 2
Developments in overall HICP headline

(annual percentage changes)

Source: Eurostat.
Notes: The vertical line indicates Russia’s full-scale invasion of Ukraine and the outbreak of the war in the Middle East. Core inflation stands for HICP inflation excluding energy and food. The latest observations are for May 2026.

Demand and supply conditions
When Russia invaded Ukraine, global and domestic demand was robust following the lifting of most pandemic restrictions.[7] The composite Purchasing Managers’ Index (PMI) for new orders stood firmly in expansionary territory at the start of 2022 (Chart 3, panel a). When the current shock hit, by contrast, new orders were already hovering around the no-change threshold of 50, pointing towards subdued rather than strong demand. A similar divergence is visible in cost pressures. Input prices were already elevated at the beginning of 2022, amid pandemic-related bottlenecks. In 2026, they started from a much lower base.
The European Commission’s business surveys on the factors limiting production tell a similar story.[8] In 2022, firms overwhelmingly reported shortages of material and equipment as the main binding constraint on the supply side, while insufficient demand was cited only rarely (Chart 3, panel b). In 2026, this pattern essentially reversed. This means that not only are demand-pull and cost-push inflationary forces weaker than in 2022, but the balance had tilted away from a binding supply side towards a more demand-constrained economy before the outbreak of the war in the Middle East.

Chart 3
Business survey indicators for demand and supply developments in 2026 and 2022

a) Composite PMI
(diffusion index around the no-change value of 50)

b) European Commission’s composite business survey
(balance, percentage)

Sources: S&P Global and European Commission.
Notes: The vertical bars separate the observations preceding and those following Russia’s invasion of Ukraine (2022) and the initial strikes on Iran (2026). The European Commission’s composite business survey in panel b) refers to a weighted average of the corresponding indicators for the manufacturing and services sectors. The weighting scheme follows the Commission’s official guidelines (i.e. 40% on manufacturing and 30% on services, rescaled to sum to 100%).

Labour market conditions
Labour demand has eased significantly in the last four years. Firms have reduced the number of job openings to pre-pandemic levels, with the vacancy rate falling to 2.2% in the first quarter of 2026 from its high records at the end of 2021 (Chart 4, panel a). By contrast, labour supply has improved compared with 2022, as more national workers have joined the labour force and immigration of foreign workers has risen. Also, workers are now working slightly more hours on average. The combination of declining labour demand and steadily increasing labour supply has led, in turn, to a marked decline in labour shortages reported by firms.

Chart 4
Labour market conditions

a) Job vacancy rate

b) Labour market tightness indicators

Sources: Eurostat, European Commission, ECB (CES) and ECB staff calculations.
Notes: All indicators in panel b) are scaled such that the outer circle of the radar chart corresponds to the “tightest” and the inner circle to the “least tight” outcome of each indicator. The “tightest” outcome is defined for each variable either as the lowest level recorded since Q1 2005, which applies to all variables related to unemployment, the participation rate, the ratio of active foreign to national working-age-population and average hours worked, or, otherwise, as the highest level recorded since Q1 2005. The “least tight” outcome is defined conversely to the “tightest” outcome. The job-to-job transition rate has been computed on the basis of the CES. Average hours worked and the job-to-job transition rate are smoothed as four-quarter averages.

Although job matching has improved since 2022, labour market dynamism has weakened. While the job-to-job transition rate – the share of workers changing jobs each quarter – is marginally higher than at the start of 2022, this indicator is outweighed by the broader evidence of reduced labour market tightness depicted in Chart 4, panel b. By contrast, the overall number of recent job starters is now lower than when Russia invaded Ukraine. This points to a gradual loss of momentum in the labour market over recent years, which has facilitated a sustained moderation in wage growth rates.[9]
Fiscal and monetary policy stance
The euro area headline fiscal positions looked broadly similar at the onset of each of the two energy crises, with governments expected to run deficits of 3.2% of GDP in 2022 and 3.3% in 2026.[10] However, a closer look reveals how different fiscal policy actually is today.
The euro area entered the 2022 energy crisis buoyed by large fiscal stimulus and strong monetary policy accommodation during the pandemic, which helped to sustain demand then and in the subsequent years.[11] By contrast, the fiscal and monetary policy stance was broadly neutral when the 2026 energy crisis erupted.
At the same time, room for fiscal manoeuvre is more limited today than in 2022. Stripping out cyclical and other temporary factors, the structural fiscal deficit projected for 2026 is larger, at 3.3%, than the 2.6% projected for 2022.[12] Moreover, pre-crisis government plans entailed a substantial consolidation in 2022 following the discontinuation of some pandemic-related support.[13] That freed up additional fiscal space that could be used to respond to the energy shock. In 2026, fiscal stances are already loosening in several countries, most notably in those with available fiscal space such as Germany and the Netherlands.[14] In turn, this leaves considerably less room to implement additional measures to support households and firms (Chart 5, panel a). The debt outlook is now also less favourable. Although the aggregated euro area government debt ratio was broadly comparable at the start of the two episodes, the cost of debt refinancing has increased materially. In 2022, sovereign borrowing costs were near historic lows and the interest rate-growth differential was still negative in most euro area countries. By 2026, with policy rates and term premia higher, that fiscal buffer has largely dissipated and medium-to-long-term debt projections now point to significantly more adverse dynamics (Chart 5, panel b).

Chart 5
Fiscal positions prior to 2026 and 2022 energy crises

(panel a: budget balance and structural balance: percentages of GDP, fiscal stance: percentages of potential GDP, interest rate-growth differential (i-g); percentage points; panel b: percentages of GDP)

a) Euro area budgetary indicators

b) Euro area debt outlook

Sources: Eurosystem staff macroeconomic projections for the euro area, December 2021 and December 2025, and related Debt Sustainability Analyses.
Notes: BMPE stands for Broad Macroeconomic Projection Exercise, as reflected in the Eurosystem staff macroeconomic projections for the euro area. The dashed segments in panel b) represent projected values. These replicate the BMPE figures until the end of the BMPE horizons (t+3) and are extended assuming constant structural balances net of ageing costs.

Limited fiscal space requires a more muted and targeted fiscal response to the 2026 crisis. This may, on the one hand, keep the demand-driven inflationary impact of fiscal policy contained. On the other hand, it reduces the scope for measures aimed at mitigating inflation in the near term, such as introducing price caps.
Conclusions
The current energy shock is significant. Headline inflation has moved above target. At the same time, the present episode is unfolding under conditions that are clearly different from those observed during the 2022 crisis.
Some features point towards lower inflationary risks now than they did in 2022. The shock is now predominantly an oil shock rather than a gas shock, and the increase in the share of electricity generated from renewables and nuclear provides a buffer for consumer electricity prices. Inflation was close to target when the current shock struck, and inflationary momentum was not rising. Both demand conditions and supply conditions appear less inflationary now. The labour market looks less tight overall. And the monetary-fiscal policy mix is more neutral while fiscal space is narrower, limiting the capacity that governments have to provide additional support that could stimulate demand.
That said, a number of other initial conditions flag larger inflationary risks now compared with 2022. Constrained fiscal space implies less room to cushion the impact of the energy shock on inflation in the near term. Moreover, the current shock is global, which raises the risk of strong non-linear amplification, should the shock prove larger, broader or more persistent than currently expected.Finally, the recent experience of households and firms with high inflation may shape how strongly the current energy shock feeds through to inflation, albeit with an intensity that is hard to predict.
Overall, the current energy shock is unfolding in a context that differs markedly from four years ago. This calls for close monitoring of its effects on broader inflation dynamics, with particular attention being paid to the specific macro-financial features of the euro area today.
The views expressed in each blog entry are those of the author(s) and do not necessarily represent the views of the European Central Bank and the Eurosystem.
 
 
Compliments of the European Central Bank The post ECB | A Tale of Two Energy Crises – Initial Conditions Matter first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Global steel excess capacity continues to grow, driven by increasing subsidies in some major non-OECD steel-producing economies, while efforts to restore fair competition are increasingly undermined by circumvention of trade measures aimed at levelling the playing field, according to a new OECD report.
The OECD Steel Outlook 2026 projects global steel excess capacity to reach 745 million tonnes by 2028, exceeding the OECD’s current steel production by 319 million tonnes. Planned capacity additions of up to 139 million tonnes through 2028 represent a 5.7% increase from 2025 levels, while demand growth is expected to remain subdued at around 0.9% per year.
Most new capacity is being added outside the OECD, often with government support. In 2024, the median Chinese steel firm received 15 times more in subsidies, relative to their total assets, than producers elsewhere, up from 10 times in 2023. Chinese steelmakers exported a record 131 million tonnes in 2025, a 153% increase from 2020 and more than the European Union’s total steel production in 2025.
“Excess steel capacity creates problems for everyone. It distorts global markets. It hurts economic security and resilience. And it discourages innovation and sustainability,” OECD Secretary-General Mathias Cormann said at the OECD Ministerial Council Meeting. “We need to tackle the root causes – including harmful subsidies and other non-market practices. That means stronger international co-operation. A level playing field for steel producers everywhere.”
The Outlook identifies trade patterns that indicate growing circumvention of trade measures, such as anti-dumping and countervailing duties on certain Chinese steel products. Exports of products like hot-rolled plates and hot-rolled wide coils from China to Southeast Asian countries have increased sharply, alongside increased exports of the same products from Southeast Asia to OECD markets.
The report further highlights a 300% increase in China’s exports of semi-finished steel to Southeast Asia in 2025. This suggests that such products may be processed in third countries before being re-exported to OECD markets, potentially bypassing current trade measures.
Click here to access interactive chart.
The report also highlights growing pressures on raw material supplies. No steel-producing country is fully self-sufficient in the inputs required by its steel industry, and export restrictions on key raw materials for steelmaking are expanding worldwide, with 42 countries now restricting scrap exports. Rising energy costs linked to the conflict in the Middle East are adding further strain, as energy can account for up to 40% of steel production costs. These pressures are weighing on investment decisions across the industry, with several lower-emissions steelmaking projects now postponed.
The OECD Steel Committee and the Global Forum on Steel Excess Capacity are advancing a co-ordinated response by developing a comprehensive framework for joint action on steel, working with 28 major steel-producing economies accounting for almost 70% of global steel imports.
 
 
Compliments of the Organisation for Economic Co-operation and DevelopmentThe post OECD | Steel Excess Capacity Continues to Weigh on Global Markets, with Subsidies Increasingly Undermining Fair Competition first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The Council today adopted a regulation establishing a new framework to protect the EU steel market from the negative trade-related effects of global overcapacity, as outlined in the Steel and Metals Action Plan of 2025. The new rules will replace the current EU steel safeguard measure, which expires on 30 June 2026, ensuring continued protection for the EU steel sector.
” Steel is indispensable to Europe’s industrial base, its green transition and its security. With today’s adoption, the EU is putting in place a stronger framework to respond to global market distortions, protect fair competition and provide greater certainty for both steel producers and downstream industries.” – Michael Damianos, Minister for Energy, Commerce and Industry of the Republic of Cyprus
The regulation introduces a revised tariff-rate quota (TRQ) system aimed at addressing the negative trade-related effects of structural global overcapacity, including a reduction in import quotas and higher duties on imports exceeding those quotas. It also provides greater flexibility for economic operators through rules allowing the carry-over of unused quotas from one quarter to the next only within the same year, while ensuring adequate supply for downstream industries and maintaining compatibility with the EU’s international trade obligations.
To improve transparency and help prevent circumvention, the regulation also introduces provisions related to the ‘melt and pour’ requirement, which identifies the country where the steel was first melted and poured into its initial solid form.
In addition, it establishes a reinforced review mechanism allowing the Commission to assess the scope and effectiveness of the measure and propose adjustments where necessary in response to market developments and evolving global overcapacity conditions.
In a joint declaration accompanying the regulation, the Council, the European Parliament and the Commission reaffirm their commitment to reducing economic dependencies on Russia, emphasising ongoing efforts to diversify steel imports, with the gradual phase-out of Russian steel products.
Next steps
The regulation will be published in the Official Journal of the EU and will start applying from 1 July 2026.
Background
Steel is an essential material for the EU economy, including for its green transition and strategically important sectors such as defence, and vital for the EU’s economic security and social stability. The EU steelmaking industry is the world’s third largest producer, directly employing around 300,000 people and sustaining regional economies across member states.
This key industry is currently facing significant pressure from unsustainable levels of global overcapacity, which is projected to grow to 721 million tonnes by 2027, more than five times the EU’s annual consumption. This overcapacity, combined with trade-restrictive measures from third countries that limit imports into their markets, has made the EU market the primary recipient of global excess steel. This has led to increasing imports, low-capacity utilisation (67% in 2024), high EU manufacturing costs, and ultimately threatens the industry’s long-term ability to invest in decarbonisation.
To address these critical challenges, including the loss of some 65 million tonnes of capacity and up to 100,000 jobs since 2007, the Commission announced its intention to prepare a new steel measure in March 2025. The proposal was then tabled in October 2025.
 
 
Compliments of the European Council The post EU Council | Steel Overcapacity: Council Greenlights New Rules to Protect the EU Steel Market From Global Overcapacity first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Geopolitical rivalry does not end the need for trade cooperation, but the multilateral system must adapt.
For decades, the global economy rested on the premise that international trade was beneficial despite geopolitical differences. The rules of the multilateral trading system, established with the General Agreement on Tariffs and Trade (GATT) in 1947 and embedded in the World Trade Organization (WTO) in 1995, were crafted for a world where governments rarely used trade to achieve geopolitical goals. That world is now under threat.
The United States and China, whose growing trade integration has shaped the past three decades of globalization, now often refer to each other as geopolitical rivals. They increasingly use trade policy to advance strategic objectives—limiting technology transfers, restricting exports of critical products, pursuing national security goals. Many observers fear that the return of geopolitics will fragment the global economy, unraveling decades of integration.
Yet this pessimistic outcome is not inevitable. Our research shows that even strategic rivals can benefit from trade cooperation. The problem is that the return of geopolitics is at odds with the existing institutional framework, which was designed for a different era. If the trading system is to survive, it must adapt to a world where countries use trade policy to advance geopolitical objectives.
The power problem
Standard economic models assume governments strive to improve the welfare of their citizens. In this setting, a country raises tariffs to increase its real income at the expense of trading partners by improving its terms of trade—the price of its exports relative to imports. Since all countries face the same incentives, uncoordinated tariff policy traps them in a situation of inefficiently high protection and low welfare. Trade agreements exist to escape this trap through coordinated tariff reductions.
Geopolitical rivalry changes the calculation, raising questions about the sustainability of trade cooperation. Drawing on the realist tradition in international relations, we suppose that rival governments care not only about their absolute welfare but also about their relative power—how they stack up against adversaries. Policy decisions are shaped by both economic gain and strategic advantage.
Consider a government seeking dominance in the semiconductor industry. It will design trade policies not only to expand its domestic chip sector but also to shrink its rival’s. A tariff becomes attractive because it damages foreign competitors, transforming trade policy from a tool of economic management into an instrument of strategic competition. Manipulation of the terms of trade is no longer the only reason to use trade policy in a world where countries have geopolitical objectives.
The international relations scholar John Mearsheimer captured this logic in his classic book The Tragedy of Great Power Politics. States motivated by relative power concerns, he writes, are likely to forgo large gains in their own power if such gains give rival states even greater power. This logic has significant implications for trade policy: A country might reject a highly beneficial trade deal if it would make its adversary stronger, or it might implement a damaging trade measure because it would be even more damaging to its adversary.
Cooperation amid rivalry
Does this mean trade cooperation is doomed? Not necessarily. Even in a model where governments care about their relative geopolitical power, the results for trade cooperation are more hopeful than many “realists” would expect.
It is true that the emergence of geopolitical rivalry drives up tariffs in a noncooperative setting. If hurting your rival is part of your objective, protectionist measures become more attractive, even if it lowers income. This results in a noncooperative equilibrium (or Nash equilibrium, in game theory), which features higher tariffs and less trade than in a world without rivalry, because both governments use trade policy to harm the other country.
Nevertheless, geopolitical rivalry doesn’t change the fact that economic efficiency still matters. As long as they care at least somewhat about their citizens’ welfare, governments that start from a position of noncooperation could adopt policies that make both countries better off. Unless rivalry becomes so extreme that governments care only about dominating their adversary, they would still negotiate with each other to increase economic efficiency and thus their citizens’ welfare. Enlightened self-interest—the same force that drove postwar trade liberalization—remains a viable foundation for cooperation, even between strategic adversaries.
The adjustment problem
Yet even if cooperation remains possible, the transition from one equilibrium to another poses serious difficulties. It took decades of negotiations under GATT/WTO rules to move from the high-tariff world that emerged during World War II to a new, low-tariff era. Its two key pillars, reciprocity and nondiscrimination, served the trading system well by helping governments move from a noncooperative to a cooperative equilibrium.
What are the consequences for the trading system of the eruption of geopolitical rivalry today? Governments that care about relative power threaten to impose higher tariffs to hurt their rivals. The old agreement no longer reflects the new reality. A new cooperative equilibrium is needed. The question is how government can get there.
Two paths are possible. The first is what we call “war and redemption.” Countries allow the old agreement to collapse, triggering a trade war that pushes tariffs higher. Eventually, governments negotiate a new agreement through traditional reciprocal tariff reductions. This path is economically costly and would likely require lengthy negotiations but fits within the existing framework of multilateral trade rules.
The second path is more efficient but requires institutional innovation. Countries negotiate an immediate transition, avoiding economic disruption. But this adjustment involves moving along the frontier of possible efficient outcomes (see box). To sustain cooperation, the country for which the geopolitical shock is less severe must make concessions that reduce its welfare relative to the status quo. This is neither reciprocal nor mutually advantageous in the traditional sense, and the WTO’s foundational principle of reciprocity cannot accommodate it.
The challenge deepens in the multilateral world. Along with reciprocity, the principle of nondiscrimination might not facilitate adjustment, as it requires that any trade benefit extended to one member be extended to all. But when two rivals need to transfer economic benefits between each other, third countries are excluded and face consequences.
The 2020 Phase One agreement between the United States and China illustrates the problem. The deal, intended to ease trade tensions, included Chinese commitments to buy specific quantities of US goods. World Bank research at the time of the agreement predicted that although both countries would have gained relative to continued escalation, exporters in Europe, Latin America, and elsewhere would have been hurt if China had redirected imports from those regions to the US. The fact that the agreement was struck outside multilateral trade rules points to a deeper problem: The current system cannot accommodate the adjustments that geopolitical rivalry demands.
A geopolitical exemption
If the multilateral trading system is to remain relevant, it must create space for geopolitical adjustment while protecting third countries. In our research, we propose a geopolitical exemption to the fundamental principles of reciprocity and nondiscrimination that would allow strategic rivals to make discriminatory tariff adjustments under strict conditions.
There is a precedent for such an exemption. The trading system already accommodates certain forms of discrimination—for instance, allowing members to form preferential trade agreements, such as through free trade areas. These agreements advance the goal of liberalizing trade as long as they meet strict conditions: They cover “substantially all trade” among members and do not raise barriers against nonmembers. A geopolitical exemption would serve a different purpose: accommodating rivalry between strategic competitors while minimizing damage to the broader multilateral system.
The exemption would require that any discriminatory adjustments between rivals leave world prices between the rivals and third countries unchanged, thus limiting trade diversion. Implementing such a rule would be technically complex. But the alternative is worse: Geopolitical adjustment happens either outside the multilateral framework, undermining existing trade rules and imposing costs on neutral countries, or doesn’t happen at all, leaving the world trapped in destructive trade conflicts.
Preserving cooperation
We argue that the return of geopolitics does not eliminate the economic case for cooperation. Even countries engaged in strategic rivalry can benefit from negotiated agreements. The fundamental logic that sustained decades of trade opening remains intact. But new mechanisms are needed if geopolitical rivals are to adjust their trade relationships without engaging in disruptive trade wars or imposing undue costs on third countries.
The trading system has adapted before when circumstances changed—adding new agreements as the global economy evolved during multiple rounds of negotiations. The challenge today is to undertake a similar adaptation for geopolitical realities, preserving the core functions of the system while updating its rules for a changed world. The geopolitical exemption we propose would provide such a mechanism, establishing safeguards that maintain the integrity of the multilateral system while acknowledging the reality of strategic competition.

 
 
Compliments of the International Monetary Fund The post IMF |Trade Cooperation in an Age of Geopolitics first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

BOLSTERING DOMESTIC MANUFACTURING OF STRATEGIC METALS: Today, President Donald J. Trump signed a Proclamation adjusting certain metals tariffs to more effectively address national security threats, spur investment in American agriculture, housing, and manufacturing, and facilitate U.S. production of related products.  

The Proclamation adjusts the tariffs on agricultural equipment, like combines and harvesters, as well as certain other equipment, from 25% to 15%.
The Proclamation also expands the existing category of industrial equipment subject to a 15% tariff to include mobile industrial equipment, like bulldozers and forklifts, when imported from trade deal countries that are entitled to such treatment.
The Proclamation encourages foreign companies to use more U.S. steel and aluminum by allowing them to qualify for a 10% duty rate, if their capital equipment include at least 85% U.S. melted and poured or smelted and cast steel or aluminum by weight.
These tariff changes are temporary, lasting until December 31, 2027, to spur near–term investments that will rebuild the Nation’s industrial base.

STRENGTHENING CRITICAL AMERICAN INDUSTRIES: President Trump has utilized tariffs on imported aluminum, steel, and copper to protect the national security of the United States, the economic resilience of vital industries, and the financial position of American families, communities, and businesses from the threat of low-priced foreign imports.

In 2025, the United States became the third largest steel producing nation in the world, surging past rival economies—thanks to President Trump’s Section 232 tariffs program. New steel plants are being built in America, for the first time in a generation, revitalizing our great steel communities and providing good-paying jobs for American workers.

Over 4 million tons of new crude steelmaking capacity is expected to become operational in the next two years, including in West Virginia, Arkansas, and South Carolina, with additional investments underway across the country.

New investment in U.S. aluminum and copper smelting is also underway across America. Earlier this year, Century Aluminum and Emirates Global Aluminum announced a joint venture to build the first new aluminum smelter in the United States in decades, in Oklahoma. Companies such as Highland Copper, Ivanhoe Electric, Rio Tinto, and Wieland are expanding U.S. copper mining, smelting, and fabrication facilities.
This buildout — and the continued health of these vital American industries — is only possible through the continued implementation and strengthening of the President’s Section 232 tariff programs. These tariffs ensure domestic producers and workers can compete on a level playing field with foreign producers.

PUTTING AMERICAN PRODUCTION FIRST: Today’s action builds on the previous actions taken by President Trump utilizing Section 232 to strengthen national security while uplifting the economic position of American workers, families, and communities.

In his first term, President Trump revolutionized international trade by using Section 232 to address decades of short-sighted, globalist trade policies that had allowed domestic steel and aluminum industries to weaken, impairing our national security.
This term, President Trump has continued taking actions under Section 232 to protect and strengthen domestic manufacturing critical for our national and economic security, including imposing tariffs and directing negotiations with trading partners covering a variety of goods, including steel, aluminum, copper, trucks and automobiles, timber, lumber, semiconductors, critical minerals, and pharmaceuticals.

These actions strengthen these essential U.S. industries and the U.S. industrial base, ensure domestic producers and workers can compete on a level playing field, protect American jobs, and bolster American national security and public health.

In May 2026, U.S. manufacturing grew at its fastest rate in four years, its fifth straight month of expansion — nearly tripling expectations. President Trump’s America First trade policies continue to deliver and strengthen the economy and national security of the United States.
Through negotiations and the strategic use of tariffs, President Trump has secured trillions in private and foreign investment to bring jobs and manufacturing back to the United States and the American people.

 
 
Compliments of The White HouseThe post The White House | Fact Sheet: President Donald J. Trump Updates Tariffs on Steel, Aluminum, and Copper Imports first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Keynote speech by Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, at the Goldman Sachs European Financials Conference 2026

Thank you for inviting me to speak today.
Europe is facing a set of unprecedented challenges.
The geopolitical environment is becoming increasingly fragmented. Europe remains overly dependent on external providers for energy, technology, security and key financial infrastructures such as payment systems and capital markets. Reducing these dependencies is no longer a choice, but a necessity to safeguard the European way of life.
Ensuring that our future is not determined elsewhere demands investment on an unprecedented scale. Consider that the green, digital and defence transitions will require an additional €1.2 trillion of spending per year between now and 2031.[1]
No single actor, no single sector and no single country can meet these challenges alone.
As fiscal space tightens, much of Europe’s investment needs will have to come from private investment, with capital markets playing a pivotal role.
In a bank-based financial system like Europe’s, strong, competitive and resilient banks are even more indispensable than they are elsewhere. They sustain the flow of finance to businesses, households and the broader real economy. It is therefore no surprise that the competitiveness of European banks has moved to the heart of the policy debate.[2]
Yet the competitiveness of the banking sector is not solely determined by capital, market integration, scale or regulation. It also hinges on whether banks can continue to serve their clients and provide critical services when disruption strikes. That is why today I will focus on operational resilience.
Resilience goes far beyond capital
When some people hear supervisors speak about resilience, they immediately think of financial resilience.
However, in a world of more frequent, sophisticated and disruptive cyber incidents, technology failures and growing dependencies on third parties, a bank can be well capitalised and highly liquid and yet still unable to operate.
A striking example of the importance of non-financial resilience is the ransomware attack that hit the New York branch of the Industrial and Commercial Bank of China in 2023 – the largest bank in the world by assets. Despite the bank’s financial strength, the incident disrupted the settlement of trades in the US Treasury market, one of the most systemically important markets globally. The bank had to rely on manual workarounds – including reportedly dispatching a courier with a USB stick across downtown Manhattan – to meet its obligations.
Another example is the CrowdStrike incident in 2024, when systems using a major operating platform crashed and displayed the “blue screen of death”. The disruption affected firms across sectors, including financial services.
At the same time, the threat environment is evolving rapidly with the rise of AI. One telling example involved criminals using AI-generated identities to create thousands of fake customers in order to obtain loans, causing millions in losses for the bank concerned.
We have also seen an increase in the number of cyberattacks reported by banks under our supervision in recent years.[3]
All these examples illustrate a fundamental point: a bank can have ample capital and liquidity but still face severe operational issues, or even fail, if it lacks preparedness and robust contingency planning for operational shocks. Today, resilience is not only about absorbing losses, but also about maintaining critical services – even under severe operational stress.[4]
This imperative to maintain operational resilience is all the more critical in banking – a sector built on trust in which cybersecurity failures can have profoundly damaging consequences.
Operational resilience firmly on the agenda of banks and supervisors
The good news is that banks and supervisors are not starting from scratch.
Over the past decade, cyberattacks on critical infrastructure – including energy and telecommunications providers, as well as banks – have become more frequent, more targeted and more sophisticated.[5]
Although cyberattacks are occurring everywhere, every day and at any time, and while notable incidents have affected financial services, we have not yet seen such events escalate into widespread disruption or threaten the viability of a major bank.[6]
This is not a coincidence.
The fact that financial services are among the sectors best prepared to deal with cyberattacks reflects years of capacity building in banks: in defence, detection and incident response and reporting. Moreover, governance arrangements have improved and there is a greater awareness of cyber risks, particularly among banks’ management bodies.[7]
Importantly, banks’ efforts have evolved in tandem with a stronger and sustained supervisory focus. Operational resilience and cyber risk have been a priority for European banking supervision for several years[8], during which we have worked closely with banks in both ongoing and on-site supervision.
For example, in 2024 we conducted a cyber resilience stress test on 109 banks, 28 of which underwent a more thorough assessment of their ability to respond to, and recover from, a severe but plausible cybersecurity incident. While the exercise confirmed that banks have frameworks in place to respond to and recover from severe cyber incidents, it also highlighted areas for improvement for certain banks. Since then, almost three-quarters of our findings identified by the stress test have been addressed, with banks notably strengthening their cyber resilience.
The Digital Operational Resilience Act (DORA), which entered into force last year, provides a regulatory framework that requires banks to foster a culture of continuous improvement in IT and cyber risk management. It has also enhanced the oversight of critical third-party providers, such as cloud service providers.[9]
In addition, DORA gave supervisors the task of testing whether a financial institution can detect, respond to and recover from sophisticated attacks that mirror real-world threats, thereby providing a more systemic and enforceable framework for resilience.[10]
Taken together, these efforts have raised the cost and complexity of successful attacks, effectively pushing up the “price of admission” and prompting many threat actors to target less well-prepared sectors instead.
There is, however, no room for complacency.
Advancements in AI are reshaping the threat landscape, fundamentally altering the balance and asymmetry between defenders and adversaries.
Put bluntly, if ensuring operational resilience was already critical a few years ago, it certainly is today – amid a rapidly evolving threat landscape shaped by frontier AI models.
Artificial intelligence: a structural shift in the cyber threat landscape
AI adoption is already widespread among Europe’s significant banks. Our annual data collection on banks’ use of innovative technologies shows that more than 85% of banks under European banking supervision use artificial intelligence.
Used responsibly, AI can help banks strengthen their operations, improve risk management and enhance IT security. But AI also vastly improves the capabilities available to malicious actors.
Until very recently, launching a sophisticated cyberattack required deep technical expertise, extensive reconnaissance and coding, and often weeks – or even months – of trial and error.
Not anymore.
A new generation of large-scale AI models is emerging, with increasingly advanced cybersecurity capabilities. If these tools become more widely accessible, they could enable a much broader range of malicious actors to carry out complex attacks with greater speed and precision.
Our current understanding is that tools of this kind are not simply another incremental improvement; they are a structural shift in the economics of cyber risk. Tools like Mythos appear to be significantly more advanced than existing tools in three important ways. First, they can discover and exploit vulnerabilities at a speed and scale far beyond what we have seen before. Second, they can combine seemingly minor vulnerabilities into serious attacks. And third, they can help reverse-engineer patches into exploitable vulnerabilities and, again, do so at unprecedented speed.
Together, these characteristics suggest that the “price of admission” will fall. The marginal cost of identifying and exploiting vulnerabilities in IT systems will decline, possibly by orders of magnitude. Cyberattacks that previously required significant expertise, time and resources may in future be achieved more quickly, at scale, and by a much broader set of potentially malicious actors. Current evidence suggests that these models may be effective not only against environments with weak levels of defense but also against standards that were once previously considered state of the art.
The direction of travel is unmistakable: the speed, scale and accessibility of advanced cyber capabilities are increasing, and the time available to defenders is shrinking.
Banks therefore need to prepare more quickly, more effectively and more consistently across the sector. In musical terms, andante may have previously been good enough, but now we need to move to presto.
The pivotal role of management bodies in addressing this strategic challenge
Most importantly, the challenges posed by new generations of AI models should not be viewed solely as a cybersecurity issue – they are a firm-wide strategic challenge with potential implications for banks’ safety and soundness. It is therefore essential that banks’ management bodies take clear ownership of the issue, ensuring that resources and tools are commensurate with its scale. This approach is vital to close cyber resilience gaps, enable timely patching and maintain strong cyber hygiene.
Moreover, the critical infrastructure on which banks depend – including cloud providers, telecommunications networks, payment systems and electricity and water supplies – could also become targets. As a result, scenarios that were once considered tail risks may become more likely, such as vulnerabilities in a single, widely used infrastructure quickly escalating into disruption across an entire sector, with knock-on effects on banks’ ability to operate. This makes it all the more important to both strengthen the oversight and monitoring of third-party dependencies and enhance information sharing across the financial system. Given that many of these threats are similar in nature, the timely exchange of information on vulnerabilities, incidents and mitigation measures is a cornerstone of collective resilience.
Considering that some banks’ preparedness is still weak this is also where we, as supervisors, have a role to play. The SSM will use its system-wide perspective to support institutions by pointing out areas of attention and good practices, which could prove particularly beneficial for smaller banks with less sophisticated IT environments[11].
In this spirit, last week we brought together supervised banks to discuss the implications of frontier AI models for banks’ resilience and the practical actions needed in response. As a next step we will send a so-called ‘’dear CEO letter’’ to all banks in which we aim to ask banks to take proactive measures to ensure the continued robustness and security of their systems in the face of these transformative challenges and will follow up with individual banks in a targeted manner.
Our aim is straightforward: to ensure that banks take the necessary steps now, before these technologies are more widely used by threat actors.
Strengthening operational resilience requires investment
Operational resilience is not a stand-alone issue that is separate from the current debate on banking sector competitiveness. It is part of the foundational elements that shape banks’ competitiveness.
If banks are unable to maintain their customers’ trust by providing a reliable service, their ability to compete in an increasingly digitalised financial system will be undermined. Ensuring operational resilience is therefore not only a safeguard – it is also key to remaining competitive, both today and in the years ahead.
Strengthening operational resilience requires multi-year investment in people, systems and governance. In short, it is not a quick fix, it is a moving target which calls for continuous effort and ongoing improvement.
Banks should therefore give careful consideration to bolstering operational resilience in their investment strategies. The currently strong bank profitability provides an opportunity to continue investing.
At the same time, the banking sector’s defensive capabilities are not evenly distributed, leaving parts of the system more exposed than others. While some larger banks have a size advantage when it comes to having the IT budgets that match the scale of the task, this may admittedly be more difficult for small and medium-sized banks.
This is, however, no reason for inaction. In a diverse banking system, where banks of different sizes and business models thrive and support the real economy, all banks must be able to ensure a sufficient level of operational resilience. This point is particularly important at a time in which further embracing proportionality in supervision and regulation has become a topical issue in the debate. There are undoubtedly areas where a more proportionate approach is worth pursuing.[12] Such enhanced proportionality, however, cannot come at a cost of prudent risk management.
Conclusion
Let me conclude.
Europe is facing enormous financing needs to boost its autonomy. We must finance the transition to a cleaner economy, strengthen our collective defence, build the industries of the digital age and support societies that are growing older.
To do so, we need strong and competitive banks. But banks can only play their role if they are resilient, including to operational threats.
Frontier AI models are changing the cyber threat landscape. They are lowering barriers for attackers, increasing the speed of exploitation and exposing weaknesses that were too often tolerated for too long.
This is not about creating a sense of alarm, but rather a sense of urgency
Because we cannot afford to be complacent. Our message as supervisors is simple: act early, invest decisively now, and do not wait for the next incident to reveal where your vulnerabilities lie.
Such a proactive approach will contribute to a thriving, diverse banking system that is capable of supporting the real economy through the digital, green and defence transitions.
A resilient and thriving banking system is not simply a nice to have. It will be imperative to tackle the challenges we are facing both today and in the years ahead.

 
 
Compliments of the European Central Bank 

Bouabdallah, O. et al. (2025), “Time to be strategic: how public money could power Europe’s green, digital and defence transitions”, The ECB Blog, ECB, 25 July.

The ECB has actively contributed to this debate, including through its recent response to the European Commission’s consultation on banking sector competitiveness; see ECB (2026), Eurosystem response to the EU Commission’s targeted consultation on the competitiveness of the EU banking sector, April. For more details on the importance of overcoming fragmentation to boost competitiveness, see Elderson, F. (2026), “Boosting prosperity through deeper integration”, keynote speech at the conference “Financing Europe: a new era of strategic investment”, Brussels, 12 May.

The number of cyber incidents reported by banks to the ECB rose sharply up to the end of 2024. The data for 2025 is not directly comparable because the incident reporting thresholds were changed following the entry into force of the EU’s Digital Operational Resilience Act (DORA). As a result of DORA, the ECB now receives ICT (non-cyber but operational) incident reports as well as ICT cyber incident reports. However, the latter are smaller in number than before because the reporting thresholds differ from those under the ECB’s former cyber incident reporting framework.

In practice, this means being able to prevent, withstand, respond to, recover and learn from operational shocks The Basel Committee on Banking Supervision defines operational resilience as follows: “the ability of a bank to deliver critical operations through disruption. This ability enables a bank to identify and protect itself from threats and potential failures, respond and adapt to, as well as recover and learn from disruptive events in order to minimise their impact on the delivery of critical operations through disruption. In considering its operational resilience, a bank should assume that disruptions will occur, and take into account its overall risk appetite and tolerance for disruption.” See paragraph 11 of the Basel Committee’s principles for operational resilience.

See Tuominen, A. (2025), “Improving banks’ resilience to hybrid threats”, speech at the conference “The Current Hybrid Threat Environment and Financial Stability”, jointly organised by Commerzbank and the European Centre of Excellence for Countering Hybrid Threats, Frankfurt, 18 November; Klaus, B. and Wendelborn, J. (2025), “Cyber threats to financial stability in a complex geopolitical landscape”, Financial Stability Review, ECB, May. At a global level, finance and insurance companies rank approximately fourth among the top ten industries affected by cyberattacks in volume terms, jointly with the educational services industry, and below the public administration, healthcare and technology industries; see the University of Maryland’s CISSM Cyber Events Database. In the European financial sector as a whole, banks are by far the entities experiencing the greatest number of cyberattacks. See European Union Agency for Cybersecurity (2025), ENISA threat landscape: finance sector, February.

Some incidents have disrupted payment channels, delayed customer services and, in a few cases, caused notable financial losses. But none has threatened the viability of a major bank or produced a systemic shock.

Some 86% of CROs cite cybersecurity and technology risk as a top priority for the next 12 months, whereas only 62% cite credit risk. Institute of International Finance (2026), Annual EY/IIF Global Bank Risk Management Survey – Shifting priorities: CRO agendas in a time of uncertainty and innovation, IIF, 24 February.

In addition to working with banks on their own preparedness. starting in 2023 the SSM organized cyber dry-runs to test our own preparedness to respond to large-scale cyber incidents. The simulations focused on detection, escalation, information sharing, and coordination capabilities during a systemic crisis, possibly when the ECB’s and the NCAs own ICT systems are also affected. This kind of activity is key for improving our own operational resilience, strengthening contingency plans and identifying areas where cooperation should be improved.

This is essential because banks increasingly rely on external providers for some critical functions that are difficult or impossible to replace, thereby exposing them to cascading effects from cyber incidents in the supply chain, even if they themselves have not been directly targeted.

Threat-led penetration testing (TLPT) under the EU’s Digital Operational Resilience Act (DORA).

Good practices do not describe or establish new regulatory requirements and have no legally binding effect. This means that a bank may be fully compliant with the applicable legal framework without implementing any of the good practices pointed by the ECB, provided that it follows other practices that are more appropriate to its particular risk profile, business model and circumstances.

Even if proportionality is already embedded in the European regulatory and supervisory approach, we see room to embrace it further. The small and non-complex institutions (SNCIs)regime, is the natural starting point, while maintaining the Single Rulebook, which ensures the risk-based nature of the prudential framework is retained for all banks. One could consider, for example, increasing the scope of eligible small banks through an increase of the €5 billion threshold of the SNCI regime as well as extending the scope of the simplified rules. Any simpler regime for smaller banks also needs to be accompanied by a credible, flexible and efficient crisis management framework for these institutions: See Elderson, F. (2026), “Boosting prosperity through deeper integration”, keynote speech at the conference “Financing Europe: a new era of strategic investment”, Brussels, 12 May; and ECB (2026), Eurosystem response to the EU Commission’s targeted consultation on the competitiveness of the EU banking sector, April.

The post ECB | Strengthening operational resilience for the age of AI first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

On Tuesday, the International Trade Committee gave its green light to two pieces of legislation implementing EU tariff commitments under the August 2025 EU-US Joint Statement.
MEPs on the International Trade Committee (INTA) approved the provisional agreement, reached on 2 May 2026 with the EU Council, implementing EU tariff commitments under the August 2025 EU-US Joint Statement.
The two legislative acts were adopted by 31 votes in favour, 6 against, and with 3 abstentions (adjustment of customs duties and opening of tariff quotas for the import of certain goods originating in the US); and 32 votes in favour, 6 against, and with 3 abstentions (non-application of customs duties on imports of certain goods).
The revised legislation strengthens several elements of the Commission proposals. It introduces a sunset clause, establishing that tariff preferences on industrial and agri-food imports will expire on 31 December 2029 unless renewed. It also includes safeguard mechanisms to protect the EU’s industrial and agricultural sectors, reinforces the suspension clause provisions, and sets clear conditions for tariff reductions on steel and aluminum derivatives.
Next steps
Parliament as a whole will vote on the two regulations on Tuesday 16 June in Strasbourg. It will then be the turn of Council to approve the agreed texts.
Once formally approved by the EU co-legislators, the new legislation will enter into force on the day after its publication in the EU’s Official Journal.
Background
On 27 July 2025, in Turnberry, Scotland, US President Donald Trump and European Commission President Ursula von der Leyen reached a deal on tariff and trade issues, outlined in a joint statement published on 25 August. On 28 August, the Commission published two legislative proposals aimed at implementing the tariff-related aspects of the statement. The first provides preferential access for US goods to the EU; the second extends the existing zero-tariff regime on imports of certain types of lobster.
 
 
Compliments of the European Parliament The post European Parliament | Trade Committee Approves Deal on EU-US Trade Agreement first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Watch the live webcast of the press conference.
The evolving conflict in the Middle East has become the dominant force shaping global economic prospects, prompting an energy shock that is driving inflationary pressures and is projected to have adverse impacts on growth, according to the OECD’s latest Economic Outlook.
Due to the uncertainty around the evolution of the conflict, the Outlook sets out two scenarios: a time-limited disruption scenario, in which energy production and trade in the Gulf economies progressively return to pre-conflict levels starting mid-2026, leading to a gradual unwinding of the disruptions; and a prolonged disruption scenario, which assumes that the current disruptions to energy production and exports in the Gulf economies persist well into 2027, with higher energy prices, intensifying risks of supply shortages and a tightening of global financial conditions, all of which carry broader and more long-lasting consequences for the global economy.
“The global economy entered 2026 with robust momentum, but the outlook has weakened significantly since the start of the conflict in the Middle East, with effects likely to be felt for some time. The longer the disruptions last, the larger the economic and social costs become,” OECD Secretary-General Mathias Cormann said. “Any fiscal support that countries provide in response to the shock need to be targeted towards those most in need and temporary, to avoid a further increase in public debt and preserve incentives to save energy. More broadly, countries need to lay the foundations for stronger growth and productivity by improving the business environment, enhancing skills, and unlocking the benefits of AI and other transformative technologies.”
Under the assumption of a lasting resolution of the conflict – the “time-limited disruption” scenario –the OECD projects global growth slowing from 3.4% in 2025 to 2.8% in 2026 before picking up to 3.1% in 2027.
GDP growth in the United States is projected at 2.0% in 2026 before slowing to 1.8% in 2027. In the euro area, growth is projected to remain modest at 0.8% in 2026 before picking up to 1.2% in 2027. China’s growth is projected to slow to 4.5% this year and 4.3% in 2027.
Under the “prolonged disruption” scenario, global growth slows to 2.1% in 2026 and 1.8% in 2027, leaving a lasting mark on many countries, especially in Asia, Europe and developing economies most vulnerable to the energy and food price shock. Growth in the OECD is projected at 0.9% in 2026 and 0.5% in 2027 (versus 1.5% in 2026 and 1.7% in 2027 under the “time-limited disruption” scenario).
Inflationary pressures are rising in both advanced and emerging market economies. The energy shock is leading to higher commodity prices, while indirect effects are boosting prices across the economy, notably for agricultural inputs and food. In the time-limited disruption scenario, annual consumer price inflation in the G20 economies is collectively expected to rise to 4.0% in 2026, from 3.4% in 2025, before easing to 3.1% in 2027 as energy and food price pressures fade. Inflation would rise significantly higher in the prolonged disruption scenario.

Throughout this uncertain period, central banks must remain vigilant, but the supply-driven rise in prices need not trigger a policy response, as long as inflation expectations remain well anchored. However, a monetary policy response may become necessary if broader price pressures intensify, or if growth weakens significantly. Governments face multiple spending pressures and need to take stronger efforts to ensure long-term debt sustainability. Energy price relief measures should be targeted and temporary and preserve incentives to reduce demand. Countries should also intensify efforts to diversify energy supply and improve energy efficiency to reduce vulnerabilities to future shocks.
“Governments have a range of near-term options for mitigating the effects of the energy supply crunch, particularly on the most vulnerable households and small firms,” OECD Chief Economist Stefano Scarpetta said. “But this crisis also demonstrates that the need to wean our economies off the dependency on fossil fuel imports is increasingly urgent.”
For the full report and more information, consult the Economic Outlook online.

 
 
Compliments of the Organisation for Economic Co-operation and Development

The post OECD | Global Economic Outlook Weakens Amid Energy Shock and Rising Inflationary Pressures first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Blog | The euro’s international use has grown in recent years, but largely by circumstance rather than by design. In a more contested global monetary system, Europe needs to act deliberately to strengthen the role of its currency – building on solid foundations, keeping pace with global shifts and matching policy ambition with concrete steps.
The international monetary system is becoming more contested. Major economies that once trusted the system to work on its own are now actively shaping the use of their currencies. Europe has so far been an exception. The global role of our currency has gradually gained ground in recent years, but largely by circumstance rather than by choice. This is no longer enough. In a changing global environment, the euro should serve a clearer purpose for Europe, and Europe should be willing to act to make this happen.
The international monetary system is becoming more contested. Major economies that once trusted the system to work on its own are now actively shaping the use of their currencies. Europe has so far been an exception. The global role of our currency has gradually gained ground in recent years, but largely by circumstance rather than by choice. This is no longer enough. In a changing global environment, the euro should serve a clearer purpose for Europe, and Europe should be willing to act to make this happen.
The starting point is favourable. Since the mid-2010s the composite measure of the euro’s international role has risen by around 1.5 percentage points. The euro’s share in global reserves is around 20%, much as it has been for two decades. But international debt issued in our currency reached close to €1 trillion last year, the highest annual level since the single currency was introduced. During several episodes in 2025, when investors looked for safety they bought euros and euro-denominated assets at the same time as they sold US dollars and Treasuries.
This progress rests on two foundations.
The first is structural. Europe is the most open major economy in the world, with exports of close to €4 trillion last year. Our resolve to uphold the rule of law even under unprecedented pressure, the independence of our central bank, our robust fiscal framework and the openness of our single market are structural qualities no longer universally on offer.
The second is that in the areas where Europe has acted with intent, results have followed. A consistent European framework on green and sustainable finance led to market leadership: the euro has overtaken the dollar to become the leading currency in the global green bond market for the first time. And instant payments are taking off at an exponential speed, underpinned by EU legislation and the pan-European fast payment system operated by the Eurosystem.
Where we have made choices, we have made progress. But more is now needed.
Nearly a third of China’s external trade is settled in renminbi, up from almost nothing a decade ago. The currency’s share in global trade financing has reached 8%, ahead of the euro. And more than 20% of French trade with China is now invoiced in renminbi. These developments reflect a deliberate policy by China to expand the role of its currency in the areas where it has economic weight to bring to bear.
And that shift is not confined to China. In the United States, recent legislation on dollar-denominated stablecoins underpins a deliberate effort to extend the currency’s network into the digital realm. US dollar stablecoins are marginal in international payments today, accounting for a fraction of a percent of cross-border flows. But the intent is to use new technology to further entrench an already dominant currency. The world’s largest economies are taking deliberate action. Europe cannot afford to be the one that does not.
The ECB is doing its part within its remit by contributing to macroeconomic stability – price stability, financial stability and a sound banking sector – and by ensuring the availability of euro liquidity. We have recently decided to expand EUREP, our repo facility for central banks, to support the smooth transmission of our monetary policy: starting this year, we will provide standing access to euro liquidity against high-quality euro-denominated collateral. Allowing a wider set of central banks around the world to address risks of euro liquidity shortages swiftly will boost confidence in using the euro globally.
We are also leading the way in ensuring central bank money is fit for the future. We will start issuing tokenised central bank money in September this year for the settlement of wholesale transactions. We are preparing to complement cash with its digital equivalent – the digital euro – for day-to-day payments. And for cross-border payments, we are working on interlinking our own fast payment system with those of other countries, in a way that respects their sovereignty. Together, these initiatives will ensure the euro remains at the technological frontier.
But boosting the broader determinants of a currency’s standing – economic strength, geopolitical weight and legal certainty – is down to the EU legislators. Delivering a genuine single market, a savings and investments union, higher productivity and the necessary capability to protect Europe’s external and energy security would boost confidence in its growth potential and resilience. The EU could also support the role of the euro in invoicing and trade finance, consistent with its leading role in global trade.
A stronger international role for the euro will not come about by itself. We will have to choose it, and put words into action.
 
 
Compliments of the European Central Bank 
 The post ECB | Europe Needs to Act to Strengthen the Role of its Currency first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

US policymakers are rebalancing economic efficiency with national security amid rising geopolitical risk. 

When it comes to international trade, countries have always weighed economic efficiency against national security. After World War II, they pursued free international trade through low tariffs in the belief that it was both economically efficient and politically stabilizing. World trade tripled as a share of GDP between 1950 and its peak in 2008, with about half of this trade in intermediate goods, reflecting the importance of cross-border production relationships. Although conflict continued, there were no global-scale wars like those that characterized the first half of the 20th century. Globalization and stability had won out.
The world is now reevaluating the role of economic interconnectedness in global affairs, mindful that more interconnection means more dependencies that adversarial nations can leverage to get their way in other areas of international relations. Resilient economies must be the response. A country must have access to the resources it needs to fight a protracted war. It must have a reliable supply of medicines, microchips, critical minerals, and other vital inputs, regardless of changing global alignment. And it must be able to rapidly increase production in response to an emergency such as COVID-19.
In the United States, President Donald Trump’s administration is working to de-risk supply chains and build domestic capacity in key industries to enhance economic resilience. This implies a modification of the policy of near unconditional openness that characterized the past.
These policies will, in some cases, reduce economic efficiency relative to a world in which we ignore geopolitical risk. These are the necessary costs of resilience. Economic modeling that recognizes the trade-off can guide policymakers. The challenge is to minimize the costs and ensure that crude protectionism is not enacted in the guise of national security.
Decades of fragility
For decades, international trade and investment progressed largely unchecked. In search of efficiencies, supply chains—and entire industries—moved abroad to their lowest-cost locations. Trade policy played a role, as did technological advances in communications, transportation, and logistics that made long-distance production relationships feasible. Differences in environmental and labor standards incentivized firms to relocate production to places that valued the environment and workers’ rights less.
The US-led international order provided the stability that helped these complex networks flourish. As supply chains stretched and concentrated, fragilities accumulated. These fragilities were always present but often manifested in limited or idiosyncratic ways.
A series of recent events raised awareness of these vulnerabilities and renewed interest in how economics and national security fit together.
COVID-19 supply-chain disruptions made it obvious to all that critical goods—things like pharmaceuticals, semiconductors, and medical supplies—came from a handful of countries and that major disruptions were both possible and painful. Supply-chain vulnerabilities surprised some companies. A Deloitte survey found that only 15 percent of chief procurement officers could see the risks beyond their direct suppliers.
Europe’s dependence on Russian energy reminded the world of the long-understood idea that economic integration can bind countries together in mutual restraint, but it produces leverage, too. In 2022 Russia accounted for 27 percent of EU oil imports and 45 percent of gas imports, according to the European Commission. By 2025, Russia accounted for 3 percent of oil and 13 percent of gas imports. Decoupling from Russian energy came at the cost of higher energy prices and slower economic growth. Higher energy bills cut incomes by about €1,000 per person in 2021–22, the Commission estimates.
Chinese export licensing controls imposed in April 2025 led to a shortage of rare earths and derivatives that threatened to shutter automotive, defense, electronics, and other production lines in the US and elsewhere. Six months later, China threatened to expand the scope and scale of its export controls in a stark reminder to the US of its vulnerability.
The US must now grapple with the national security risks that accompany key supply chains dominated by their adversaries. The geopolitical considerations of what we trade, and who we trade with, have become a priority.
This does not repudiate comparative advantage and the gains from trade; it is an acknowledgment that free trade is not always appropriate. Free trade in well-functioning markets is still the ideal and should be pursued wherever possible, particularly with allies. Yet many of the problems the US faces are the result of deliberate nonmarket forces, which distort production and consumption despite prevailing low tariff rates.

“The geopolitical considerations of what we trade, and who we trade with, have become a priority.”

Dangerous forces
Strategic state direction, subsidies, financial repression, protectionism, and regulatory arbitrage are political forces, not economic fundamentals. These policies are particularly dangerous when deployed by large adversarial countries. Economic thinking must account for more of these forces, and economists can increase their engagement with them.
Policymakers need frameworks to analyze the strategic considerations of their choices. Does a policy build leverage for the US or vulnerability? How can we identify which goods should be controlled for national security reasons while avoiding unnecessary protectionism? Which goods must be sourced domestically, and which can be imported from allies? How do we restart a domestic industry as efficiently as possible? Perhaps most important is the development of tools that clearly identify the trade-offs between economic efficiency and strategic objectives.
Economists already have many of the analytical tools needed, and these can inform decision-makers about the trade-offs and unintended consequences of policies. Tariffs and sanctions are perhaps the most studied policy levers, but price floors, stockpiles, export restrictions, and investment agreements are just some of the relevant policy instruments available. Tax policy, industrial policy, and regulatory infrastructure may appear to be domestic policy, but they are instruments of economic statecraft as well, and should be studied in that context.
There have always been economists studying geoeconomics, and more work is underway. The flagship conferences of The National Bureau of Economic Research and the American Economic Association regularly feature sessions on geoeconomic topics. The same is happening in academic and policy circles abroad. Economic research tends to lag large, fast-moving events, but it catches up quickly.
A new focus
This is the beginning of a long-term, broad-based change in focus for policymakers and analysts. The field of geoeconomics is all-encompassing, extending beyond international trade and national security. Controlling international payment networks and the dollar are geopolitical strengths for the US, yet nonaligned countries, having learned a lesson from sanctions on Russia, are creating alternative payment networks and finding ways to insulate themselves from a potential loss of access to the US-led financial system.
Countries are racing to lock down critical mineral assets across the world—sometimes competing with allies for resources. Future-defining technologies such as AI, quantum computing, and biotech are up for grabs and will continue to be subject to policy, both good and bad.
The change needed will not happen quickly. Redirecting supply chains and relocating production across countries will take decades. In the short term, changes in policy may cause prices to rise, cause some goods to become scarce, and require costly investments. These short-term costs exist, even if the long-term objective is worthwhile. The structure of US democracy creates further complications. Commitment to a long-term policy is difficult when a future administration can undo the policy of its predecessors, especially when the short-term costs accumulate.
A changing world has brought the trade-offs between economic efficiency and national security back to the forefront of political thought. A clear-eyed reappraisal of national security is welcome, but we must not abandon the economic principles that have made the US economy great, particularly free and competitive markets. Striking the right balance requires a continued effort from policymakers and the researchers who support them.

 
 
Compliments of the International Monetary Fund The post IMF | Rethinking Free Trade first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.