Downside risks to global and euro area economic growth have increased and continue to create financial stability challenges, according to the November 2019 Financial Stability Review (FSR) of the European Central Bank (ECB). Low interest rates should support economic activity in the euro area, but may also encourage excessive risk-taking by some non-bank financial institutions and highly leveraged non-financial corporations, and in some real estate markets.
“While the low interest rate environment supports the overall economy, we also note an increase in risk-taking which warrants continuous and close monitoring”, said Luis de Guindos, Vice-President of the ECB. “Authorities should use available tools to address the build-up of vulnerabilities where possible.”
Non-banks, such as investment funds, insurance companies and pension funds, which play an increasingly important role in the financing of the real economy, have continued to take on more risk and have increased their exposure to riskier segments of the corporate and sovereign sectors. In the event of a sudden repricing of financial assets, growing credit and liquidity risk in some parts of the euro area non-bank financial sector – coupled with higher leverage in investment funds – may lead non-banks to respond in ways that cause stress to spread to the wider financial system.
Pockets of vulnerability also remain in the non-financial corporate sector and some property markets. Low funding costs appear to be encouraging more borrowing by riskier firms. At the same time, property markets in a number of euro area countries have continued to see rising prices. Authorities are using, and should continue to use, targeted macroprudential measures, where available, to address the associated risks to financial stability.
Euro area banks’ profitability prospects have deteriorated further, despite expectations of a modest but continued increase in net interest, fee and commission income. Return on equity of euro area banks is expected to face further pressure from both a weaker economic outlook and persistent cost inefficiencies and overcapacity. Even so, the banking sectors’ solvency position remains robust with a Common Equity Tier 1 ratio of over 14%. And even under an adverse stress scenario, the aggregate solvency ratio is expected to remain above 11%.
This issue of the FSR contains two special features, including one that examines how and where consolidation could help banks to improve their profitability. It also includes eight boxes, including one which looks at the impact of cross-border transactions on real estate markets and one which considers the implications of misconduct costs for banks.
Compliments of the European Central Bank

Ian Steff, Deputy Assistant Secretary for Manufacturing, Performing the non-exclusive functions and duties of the Assistant Secretary of Global Markets and Director General of the United States and Foreign Commercial Service, recently led the U.S. delegation to Berlin, Germany for the U.S.-Germany Informal Commercial Exchange (ICE). The talks were held with senior German officials to discuss ways to further strengthen the substantial U.S.-German economic ties and expand cooperation on the investment environment. The delegation was hosted by Dr. Eckhard Franz, Director General in the German Ministry of Economic Affairs and Energy.
“The United States and Germany enjoy a strong bilateral economic relationship and cooperate well in areas that affect the investment climate, regulatory environment, and workforce development,” said Steff. “American companies look forward to doing more business there and are optimistic that further communication on key issues will strengthen our ties.”
The ICE Talks covered several areas of collaboration and sharing of best practices in emerging technologies and workforce development. The discussion supported U.S. and German companies and highlighted the need for both countries to train and employ highly-skilled labor to support our economies.
In 2018, Germany was our fifth largest trading partner ($183.6 billion); sixth largest merchandise export market ($57.7 billion); and, fifth largest source of merchandise imports ($125.9 billion). The United States also exported approximately $32.7 billion in services to Germany in 2017. Steff underscored the importance of reducing the trade deficit with Germany through increased U.S. exports in a wide range of sectors, as well as a reduction of non-tariff barriers facing U.S. companies there and in the larger European Union market.
The ICE Talks and other Berlin meetings, which included U.S. companies, the American Chamber of Commerce Germany, the Association of German Chambers of Industry and Commerce, and the Federation of German Industries, set the stage for a large U.S. presence at the 2020 Hannover Messe, the world’s largest industrial technology trade fair, and strengthened bilateral relations going forward.
Compliments of the Department of Commerce

The European Commission published today its proposal for an EU-US agreement on conformity assessment for industrial products, in line with its commitment to enhanced transparency in trade negotiations.
A product exported between the two sides often has to undergo an assessment to demonstrate that it complies with the technical and safety requirements of the importing party, a so-called ‘conformity assessment’. This often means additional costs for exporters, which is especially burdensome for smaller companies, who often decide not to export at all because of those costs and complexities.
The EU proposal seeks an agreement under which the EU and the US would accept the conformity assessment results of each other’s assessment bodies, certifying products against the legal requirement of the other side. This would enable exporters to seek certification of their products in their originating country.
The proposal covers all relevant industrial sectors where third-party conformity assessment is required by either side. In addition, the EU proposal addresses the difficulties faced by EU exporters of machinery and electric and electronic equipment in the certification of products sold in the US market.
This would make trade quicker, easier and cheaper, while maintaining a high level of consumer safety. The economic benefits are significant: EU-US trade in goods amounted to €674 billion in 2018, with many products being subject to third-party conformity assessment.
This is an area where we can achieve meaningful results quickly. The EU is ready to conclude an agreement as early as next year.
Background
Conformity assessment is the process of verifying that a product meets all the legislative requirements in order to be sold in a given country. It ensures that the product is safe and complies with relevant regulations.
The joint EU-US work on conformity assessment was one of the actions agreed under the EU-US Joint Statement of 25 July 2018. On 15 April 2019, the EU Council adopted a decision authorizing the launch of negotiations for an agreement with the United States on conformity assessment.
Compliments of the European Commission

The European Parliament will vote on Ursula von der Leyen’s college of Commissioners next Wednesday 27 November, paving the way for the new Commission to start work on 1 December.
The vote will take place during the Plenary session in Strasbourg, following the approval by the Council of the list of 27 Commissioners on Friday 22 November. The UK has declined to nominate a Commissioner before the general election on Thursday 12 December, despite having agreed to do so as part of a deal that postponed the Brexit deadline to 31 January.
Ms von der Leyen’s college suffered a month-long delay when three of her nominees failed to gain the approval of the European Parliament. The three replacement nominees – French (Thierry Breton/Internal Market), Romanian (Adina Vălean/Transport) and Hungarian (Olivér Várhelyi/Neighbourhood and Enlargement) – received parliamentary approval after submitting written answers and going through the committee hearing process.
Although there was uncertainty initially over whether MEPs would approve of Thierry Breton for the Internal Market portfolio based on his previous work with IT services company Atos, he was approved by a two-third majority of party coordinators despite a number of MEPs from the left continuing to have reservations
In his hearing, Mr. Breton stressed to MEPs that he had entirely devolved of his business ties to Atos and would personally recuse himself from any potential future legislative files that may directly impact upon his former employer.
It is expected that Ms von der Leyen will present the new College of Commissioners and their programme before the vote takes place.
Compliments of Vulcan Consulting, a Member of the EACCNY

As in the rest of the world, European trade and manufacturing have weakened. There are some signs that this slowdown is spreading into the rest of the economy. While services and consumption have remained relatively resilient in line with strong labor markets, investment is starting to lose steam.
These developments have slowed economic activity in the region, especially in advanced Europe, according to the IMF’s latest health check of Europe’s economy.
The report predicts growth will moderate from 2.3 percent in 2018 to 1.4 percent in 2019, its lowest rate since 2013. In 2020, growth is projected to recover modestly to 1.8 percent as international trade is expected to rebound. But several risks to the outlook remain.
Here are six charts that tell the story of Europe’s economic health and its prospects.
European trade and industry have weakened, slowing growth. Following global trends, trade and manufacturing in Europe have weakened considerably. This weakness is primarily driven by machinery and transport equipment—sectors that are particularly relevant for Europe. As a result, economic activity in Europe has slowed, especially in advanced economies. Emerging European economies outside of Russia and Turkey were a bright spot, with growth remaining strong
Some signs of spillovers, but still relatively limited. The weakening trade and manufacturing—along with subdued business confidence and elevated trade uncertainty—have started to spill over into investment, especially in many advanced European countries. While the services sector has been relatively buoyant, it too has started to soften. Private consumption, however, has stayed relatively robust.
Labor markets hold the key to the resilience of services and consumption. As long as employment and wage growth remain robust, consumption spending and hence the demand for services will remain buoyant. Labor markets in Europe are still strong—unemployment rates are at or below precrisis levels and wage growth has generally held up. However, signs of a slowdown are also emerging in labor markets. For example, job openings—a measure of labor demand—are not only falling in the manufacturing sector, but vacancy growth for the overall economy has also slowed since the beginning of the year.
Europe’s economic outlook. On balance, Europe’s growth is projected to decline from 2.3 percent in 2018 to 1.4 percent in 2019. A modest and precarious recovery is forecast for 2020 due to an expected rebound in external demand that would limit emerging spillovers into investment and services. This projection, broadly unchanged from the April 2019 World Economic Outlook, masks significant differences between advanced and emerging Europe.
Growth in advanced Europe has been revised down by 0.1 percentage point to 1.3 percent in 2019, while growth in emerging Europe has been revised up by 0.5 percentage point to 1.8 percent. Amid high uncertainty, there are several risks to the outlook, including Brexit-related disruptions, intensifications of protectionism and related uncertainty, abrupt declines in risk appetite, and rising geopolitical tensions.
Policies. Monetary policy in many European countries should remain accommodative given subdued inflationary pressures and slowing economic activity. At the same time, keeping interest rates low for long can create financial sector vulnerabilities, which need to be carefully monitored.
With low levels of unemployment in most countries, fiscal policy should be anchored by medium-term objectives, while allowing automatic stabilizers (that is, spending and revenue that adjust to the ups and downs of the economy) to work fully. Given elevated risks, countries should have contingency plans ready to be implemented in case of a severe downturn.
Structural reforms—such as policies to improve competitiveness and increase labor force participation—remain vital to boost productivity and incomes.
Compliments of the International Monetary Fund

The results of a special Eurobarometer survey published today by the European Commission show that 60% of Europeans feel that they personally benefit from international trade, 16 percentage points more than 10 years ago at the time of the previous poll. The survey also revealed that 71% of respondents believe that the EU is more effective in defending their countries’ trade interests than these countries acting on their own.
Commissioner for Trade, Cecilia Malmström said: ”When I took office five years ago, there was a lot of criticism against international trade and how the Commission conducted trade negotiations. We therefore decided to reform the way we do trade policy. Through increased transparency, we wanted to create trust. This Eurobarometer survey proves that we were successful. Citizens feel more positive about trade today than ten years ago. A majority of citizens considers that trade benefits them directly, and that the commission is transparent in its negotiations. This is very positive in times of growing protectionism and trade conflicts around the globe!”
Today’s report covers a whole range of aspects related to awareness, perceptions and attitudes of European citizens towards international trade, among others:
Objectives and priorities for EU trade policy: 54% of respondents suggest that the main priority of the EU trade policy should be to create jobs in the EU. Defending EU environment and health standards has also become important to Europeans, half of the respondents consider it a priority. This is 20 percentage points more than in 2010. More than half of Europeans recognise at the same time that the EU trade policy has already been taking into account the social, environmental and human rights impacts within the EU and worldwide.
Need for international trade rules: Three quarters of Europeans agree we need international trade rules.
Trust and transparency: Six in ten say that they trust the EU to conduct its trade policy in an open and transparent manner.
Benefits of trade: 54% of those considering international trade beneficial for them put it on awider choice of products, while 36% sees price reduction as the most important advantage. These benefits seem to be more tangible for younger respondents and those with a higher level of education and income.
Fairness in international trade: one third of those questioned think that it is naïve to expect that other countries will follow trade rules. More than half of the respondents think that the EU should increase import duties on non-EU countries or businesses that do not play by international trade rules.
The findings of the survey confirm therefore a good match between the priorities formulated by EU citizens and those set out in the EU “Trade for All” strategy followed over the last five years. Over that period, the EU has seen 16 new trade agreements enter into force, including major ones with Canada and Japan. International trade supports today 36 million EU jobs, 5 million more than in 2014. There has been an increased focus on transparency and sustainable development, with environment and labour rights becoming a cornerstone of EU trade policy. Unilateral protectionist measures increased the need for the EU to step up and defend Europeans against unfair and illegal trade measures by others. Currently more than 130 EU trade defence measures are in force, which help protecting 343,000 European jobs.
The data presented in the report will also serve as an important basis for definition of objectives and trade policy practices for the years to come.
Compliments of the European Commission