Blog post by Colm Bates, Vasco Botelho, Sarah Holton, Marc Roca I Llevadot and Mirko Stanislao | The growth of negotiated wages is expected to ease in 2025. This is the information emerging from the ECB wage tracker, which we will publish on a regular basis from now on. The ECB Blog explains the tool and how it can help monitor wage pressures in the euro area.

Wages are an important driver of domestic goods and services inflation. Most wages are negotiated in advance as trade unions and employer associations agree on contracts for one, two or even three years. The ECB and the national central banks of the Eurosystem developed a measurement tool to benefit from this situation. The “wage tracker” – as we call it – allows us to analyse current and future wage pressures in the labour market. It currently covers developments in Germany, France, Italy, Spain, the Netherlands, Greece and Austria.[1] From now on we will publish the results every six to eight weeks, just after the monetary policy decisions of the Governing Council. Here we explain the tracker and how it informs us about upcoming wage pressures.
What is the ECB wage tracker?
The ECB wage tracker uses granular data from collective bargaining agreements – that means it collects and aggregates information from thousands of these agreements between trade unions and employer associations, contract by contract.[2] The set of tracker indicators provides information on negotiated wages, with and without one-off payments, and on the share of employees covered by the tracker at each point in time.[3]
The novelty of the tracker is that it is based on agreements that are already in place.[4] That means that it already provides insights into wage increases that may only take effect in the future. The tracker is not a forecast tool, however, as future wage growth also depends on future wage agreements. But it does complement other sources used to monitor and anticipate wage pressures, which are affected by changes in economic growth, labour market conditions and inflation. Therefore, Eurosystem and ECB staff macroeconomic projection exercises still provide the best forecast for wage developments.
Another benefit of the wage tracker is that it is timelier than other wage growth indicators. Other wage pressure indicators, like compensation per employee or the ECB indicator of negotiated wages, are usually available only with a delay of more than two months. In contrast, the wage tracker data are available within a few days, thanks to the very short processing time. This allows for an almost immediate update. In addition, the forward-looking aspect of the tracker helps to anticipate trends and potential turning points.
Let us put the forward-looking feature aside for a moment and focus on how well the wage tracker captures past developments in other aggregate negotiated wage series. To do so we have constructed monthly indicators of negotiated wages using national sources, either including or excluding one-off payments, for the aggregate of countries.[5] Chart 1 shows that the tracker series (lines in blue and red), though not identical, closely follow the corresponding indicator of negotiated wages (in yellow).[6] That holds true both with or without one-off payments, and adds to the confidence that the wage tracker is a robust measure of wage pressures.
Negotiated wage pressures started increasing in 2022
From 2013 until the end of 2019, all wage tracker indicators suggested mild negotiated wage growth of 1.7% per year on average for the seven countries covered. The subdued wage growth during this period was a pervasive feature of the euro area, thoroughly analysed.[7] The low wage inflation in the euro area was also assessed as part of the last ECB Strategy Review.[8] In a nutshell, the relatively weak wage pressures coincided with low consumer price inflation and strong job creation, with these countries recording 10 million new employees during this period.[9]
The pandemic-related economic shutdown and job retention schemes kept negotiated wage pressures weak in 2020 and 2021.[10] During this time negotiated wage growth averaged 1.4% per year. The subsequent inflation surge gave rise to a gradual increase and a stronger prevalence of one-off payments used to compensate employees for the effects of high inflation. During this period, the ECB tracker suggested accelerated wage growth, to 2.9% in 2022 and 4.2% in 2023, and is currently suggesting wage growth of around 4.7% on average in 2024 so far.[11]

Chart 1
ECB wage tracker: backward looking information and comparison with the indicator of negotiated wages

Including one-off payments
Yearly growth rates, in percentages

Excluding one-off payments
Yearly growth rates, in percentages

Sources: ECB calculations based on data provided by the Deutsche Bundesbank, Banco de España , Ministerio de Empleo y Seguridad Social, Dutch employers’ organization AWVN, Centraal Bureau voor de Statistiek, Osterreichische Nationalbank, Statistik Austria, Bank of Greece, Banca d’Italia, Istituto Nazionale di Statistica (ISTAT), Banque de France, Eurostat, and Haver Analytics. Notes: The ECB wage tracker is based on micro-level data on wage agreements since 2013 for Germany, France, Italy, Spain, and the Netherlands, since 2016 for Greece, and since 2020 for Austria. The indicator of negotiated wages uses national sources since 2013 for Germany, France, Italy, Spain, the Netherlands, and Austria. There is no negotiated wages data available for Greece during this period. Aggregation across countries is based on compensation of employees’ weights for the ECB wage tracker and for the indicator of negotiated wage growth among the available wage tracker countries. Latest observations: November 2024 for the wage tracker indicators (blue and red lines), and September 2024 for the indicators of negotiated wages constructed using national sources (yellow lines).

Negotiated wage pressures expected to gradually ease
Now let’s look at what the wage tracker signals for the near future. The data currently cover agreements signed up to November 2024. Chart 2 shows the forward-looking information on negotiated wage growth in active agreements until December 2025.[12] All series are expected to ease over the course of 2025. That holds especially true for those series that include base effects stemming from one-off payments that were paid in 2024 and that will not be paid again in 2025. The headline ECB wage tracker is currently anticipated to peak at around 5.4% at the end of 2024 before gradually easing to an average of 3.2% during 2025. The tracker with unsmoothed one-off payments is currently averaging 4.8% in 2024 and implies a decrease to 2.7% in 2025.[13] The tracker excluding one-off payments stands at 4.2% in 2024 and gradually eases to 3.8% in 2025.
The differences between the sub-indicators with and without one-off payments result from more frequent one-off payments to compensate for inflation following the recent inflation surge. These differences are expected to eventually narrow as wage negotiations adapt to lower inflation.
The tracker’s coverage shows the share of employees that are covered by the collective bargaining agreements in the database. That ratio is crucial for understanding how representative the wage signals in the data are. Coverage averaged 47.4% of the total number of employees in the participating countries between 2013 and 2023. The forward-looking coverage decreases as the active agreements followed by the tracker expire over time, from an average of 50.2% in 2023, to 47.4% in 2024, and then to 32% in 2025. As coverage drops, so does the reliability of the wage signals provided by the tracker. This waning reliability is a structural feature and can be quite heterogeneous by country, depending on the contract durations and the timing of wage negotiations.[14]

Chart 2
ECB wage tracker: forward looking information and employees’ coverage

Left hand side: Yearly growth rates, in percentages. Right hand side: share of employees among the participating countries, in percentages.

Sources: ECB calculations based on data provided by the Deutsche Bundesbank, Bank of Greece, Banco de España, Banca d’Italia, Banque de France, Dutch employers’ organization AWVN, Osterreichische Nationalbank, and Eurostat. Notes: The euro area aggregate for the wage tracker is based on micro data on wage agreements since 2013 for Germany, France, Italy, Spain, and the Netherlands, since 2016 for Greece, and since 2020 for Austria. Aggregation across countries is based on compensation of employees’ weights. The coverage series uses the number of employees covered in the wage tracker countries, as a ratio to the total number of employees in these countries. The solid lines correspond to the period for which there is information for both the ECB wage tracker and the indicator of negotiated wages (until September 2024). Dashed lines denote periods in which only the ECB wage tracker is available, including its forward-looking part spanning from December 2024 until December 2025.
Latest observations: November 2024.

Overall, the ECB wage tracker is a valuable tool for understanding negotiated wage dynamics in the euro area, which have reached an all-time high following the post-pandemic reopening and inflation surge but are expected to ease in 2025. The information from the wage tracker informs monetary policy discussions about negotiated wages and their future trajectory. The ECB wage tracker is not a forecast and should be interpreted with caution depending on the employee coverage over time and across countries. While the wage pressures indicated by the forward-looking wage tracker will change as more contracts are agreed and the coverage increases, they still provide a good indication of the direction of wage pressures and confirm the profile in the ESCB staff projections, which foresee easing wage pressures in 2025.
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.
Check out The ECB Blog and subscribe for future posts.
For topics relating to banking supervision, why not have a look at The Supervision Blog?

The euro area countries currently in the wage tracker data comprise on average 87% of the compensation of employees in the euro area and 85% of the euro area employees between the first quarter of 2013 and the third quarter of 2024. Ahead of publication, the wage tracker data infrastructure was upgraded, and the methodology has been thoroughly reviewed.
The ECB wage tracker data can be assessed and downloaded here. Please also see the press release accompanying the launch of the wage tracker.
The headline “ECB wage tracker” aims to track the annual growth of employees’ salaries at any point in time and includes one-off payments smoothed over the twelve months that follow each payment. As one-off payments can make series very volatile, smoothing them renders the series easier to interpret and more aligned to their economic intent (that they cover a period of time even if they are disbursed in one payment). The ECB wage tracker also publishes an indicator with unsmoothed one-off payments.
See Lane, P. (2024), “Underlying inflation: an update”, Speech at the Inflation: Drivers and Dynamics Conference 2024 organised by the Federal Reserve Bank of Cleveland and the ECB, and Bing, M., S. Holton, G. Koester, and M. Roca I Llevadot (2024): “Tracking euro area wages in exceptional times”, ECB Blog post, 23 May 2024 for some examples. Also, see Gornicka, L. and G. Koester (eds) (2024): “A forward-looking tracker of negotiated wages in the euro area”, Occasional Paper Series, No 338, ECB.
The wage tracker with unsmoothed one-offs closely follows the ECB indicator of negotiated wages at the quarterly level.
While in principle both datasets are comparable, there can be differences in the coverage and in the underlying details considered in the micro-level data between the tracker and the national indicators of negotiated wages. At a conceptual level, there is also a key difference is for Italy, where the tracker includes one-off payments, and the indicator of negotiated wages does not.
See Nickel, C., E. Bobeica, G. Koester, E. Lis, and M. Porqueddu (2019), “Understanding low wage growth in the euro area and European countries”, ECB Occasional Paper, No 232, September 2019.
See Koester, G., E. Lis, C. Nickel, C. Osbat, and F. Smets (2021), “Understanding low inflation in the euro area from 2013 to 2019: cyclical and structural drivers”, Occasional Paper, No 280, September 2021.
See Bodnár, K. (2018), “Labour supply and employment growth”, ECB Economic Bulletin, Issue 1/2018 for further details on the role of labour supply for employment growth since 2013.
See Anderton, R., V. Botelho, A. Consolo, A. Dias da Silva, C. Foroni, M. Mohr, and L. Vivian (2020), “The impact of the COVID-19 pandemic on the euro area labour market”, ECB Economic Bulletin, Issue 8/2020.
One-off payments were used to compensate for the inflation surge. The wage tracker with unsmoothed one-off payments was 3.1% in 2022, 4.2% in 2023, and 4.8% in 2024, while excluding one-offs it stood at 2.6%, 3.7%, and 4.2%, respectively.
A collective bargaining agreement is considered to be active from (1) the first date between the signing date, the starting date of the agreement, and the date of the first wage increase, until (2) the last date between the end date and the date of the last non-missing wage increase plus 12 months, to consider all possible base effects from these wage increases. There are two country-specific exceptions. In Italy, in addition to the previous rule, collective bargaining agreements are set to be active until the last date between the end date of the agreement and the current cut-off date for data, which stands for November 2024. This is because wage negotiations might take a relatively long time in Italy and are established for a long period of time; furthermore, expired agreements are still valid until a new agreement is reached. For France, in addition to the rule above, and because contracts need to be re-negotiated every year, but do not need to reach an agreement, a different approach needs to be taken. For this country, the wage tracker extends for 12 months with zero wage increases all contracts that have expired in the current year until the cut-off date for data. Because the underlying data for France is compiled at the quarterly level, as in the indicator of negotiated wages, this cut-off-date is set at the end of the relevant quarter (December 2024). This approach might imply that the wage tracker methodology provides a lower bound for negotiated wage growth in France in some months, which would then be revised upwards by updating the data of those expired contracts that reach an agreement.
This indicator stood at 7.2% in March 2024, at 8.5% in July 2024, and at 6.5% in August 2024, following the strong one-off payments that are compiled from the micro-level data. For July 2024, the strongest one-off payment in the ECB wage tracker dataset came from the retail sector in Germany, which led to an overshooting in comparison to the indicator of negotiated wages. Large one-off payments give rise to negative base effects, which will be displayed one year later. In the current data release, the ECB wage tracker with unsmoothed one-off payments stands at 1.7% in March 2025, at 0.4% in July 2025, and at 1.7% in August 2025.
Information on the coverage at the country-level can be found in the technical details of the ECB wage tracker press release.

 
Compliments of the European Central BankThe post ECB | The ECB wage tracker: your guide to euro area wage developments first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Europe’s industry has increased its investment in research and development (R&D) by 9.8% in 2023, surpassing the growth of corporate R&D investment in the US (+5.9%) and China (+9.6%) for the first time since 2013, according to the new edition of the EU Industrial R&D Investment Scoreboard published today. In 2023, the EU was second globally in R&D private investment (18.7%), trailing the US (42.3%), but ahead of China (17.1%), Japan (8.3%) and countries in the rest of the world (13.6%). Despite slowing global R&D growth (+7.8% vs. +12.6% in 2022), the top 2000 companies invested a record €1257.7 billion on R&D in 2023. The top 50, among them 11 EU companies, contributed 40.1% of investments, revealing a strong concentration of R&D in the biggest players.
Research and innovation (R&I) will be at the centre of the EU’s economy in the coming years, aimed at boosting innovation and scientific excellence in the race to a clean and digital economy, and contributing to the EU’s sustainable competitiveness and prosperity. This year’s Scoreboard reaffirms that, while European companies are relevant global players, the industrial structure explains the innovation gaps with main competitors. Moreover, the EU must further boost private R&I investments, develop key sectors, such as Information & Communication Technologies (ICT) and health, address disparities among Member States, and promote technology deployment and the creation and growth of EU-based players.
EU leads R&D investments in automotive, which together with ICT and health drive global R&D growth
In the past decade, four sectors – software, ICT hardware, health, and automotive – have accounted for more than three-quarters of global R&D investment. The ICT software sector has grown the fastest across the world, with a 10-year compound annual growth rate of 13.3%, followed by health (7%), ICT hardware (6.9%) and automotive (6.3%). R&D investments in ICT and health are now slowing down from their post-COVID-19 surge.
In the automotive sector, a stronghold for the EU, companies headquartered in the EU accounted for 45.4% of global R&D investment of the sector in 2023 and invested over twice as much as their US and Japanese peers, and more than three times as much as Chinese competitors. On the other hand, the R&D investment of EU ICT software companies remained marginal on the global scale, whereas US-based firms constitute 70% of the sector’s global R&D and China has established significant R&D-investing companies. Companies from the US also account for 43.3% of the total R&D of the ICT hardware sector, where large players from the Republic of Korea and Taiwan are gaining global relevance in semiconductor manufacturing.
At the same time, the health sector has the largest number of companies in the top 2000, with 437 companies, including smaller biotech ones. Among them, 238 US-based companies are leading in health R&D (52% of global total), while the number of Chinese companies in the health sector has increased from 13 to 63 over 10 years, closing in on the EU (64 firms in 2023). Global investment in the energy sector has seen a 21% increase in 2023 to €23.8 billion, surpassing the aerospace and defence and just below the chemicals sector.
A closer look at the EU
Spread across 19 Member States, the top 800 companies based in the EU invested €247.7 billion in R&D in 2023, growing by 8.7% from the previous year. The automotive sector leads the EU-800 list, accounting for 34.2% of EU corporate R&D investments, followed by the health sector (19.3%), ICT hardware (14%) and ICT software (7.8%). Some of the EU companies in the semiconductor, automotive components, and biotech/pharma sectors have seen extraordinary increases in R&D investment, growing between two to fifty times over the past decade. Such investment increases suggest ongoing diversification and significant growth potential in these areas.
Among the top EU-800 companies, there are 99 small and medium-sized businesses (SMEs) with fewer than 250 employees. Most of them (74) are in the health sector and are based in Sweden, France, Denmark, and Germany. French SMEs lead in R&D investment (34% of the total), followed by Sweden (21.3%) and the Netherlands (16.6%). These SMEs invested €2.4 billion in R&D in 2023, a 3.7% increase compared to the previous year.
Lower performing research and innovation countries, the so-called widening countries, are less represented in the Scoreboard ranking. In 2023, of the 2000 top corporate R&D investors in the world, only four have headquarters in one of the EU 15 widening Member States (one each in Portugal, Hungary, Slovenia, and Malta). Over half of the 14000 subsidiaries of Scoreboard companies in EU widening countries are in Czechia (34.1%) and Poland (16.6%), revealing the importance of these top innovators headquartered in other EU countries for some of the widening countries.
Background
The EU Industrial R&D Investment Scoreboard has been published annually since 2004. The 2024 Scoreboard provides economic information from the latest financial accounts (Financial Year 2023) of the world’s top 2000 R&D investors, as well as the top 800 companies based in the EU. These companies account for 85-90% of global private R&D funding.
The Scoreboard has become a reference for analyses and data in science, industry and policymaking, with major publications referring to its findings, such as the recent report by Mario Draghi – The future of European competitiveness, the report Align, act, accelerate, as well as various policy documents in the past 20 years. The Scoreboard data is made available to the public, in accordance with the Commission’s open science practice.
 
Compliments of the European CommissionThe post European Commission | EU companies top US and China counterparts in R&D investment growth, breaking decade-long trend first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

WASHINGTON, D.C. – This week, Assistant Secretary of Commerce for Industry and Analysis Grant T. Harris traveled to New York City to advance the U.S. Department of Commerce’s efforts to strengthen U.S. supply chains. During his visit, he participated in the Financial Times: Investing in America Summit and met with industry leaders to advance the Department’s mission.  
At the Financial Times Summit, Assistant Secretary Harris delivered the keynote address, where he highlighted the Biden-Harris Administration’s efforts to develop stronger supply chains and outlined proactive actions that the U.S. Government and industry should take to drive further resilience. He also participated in a fireside chat where he discussed the Industry and Analysis business unit’s leadership on critical national security and economic competitiveness matters.
In addition to his Summit engagements, Assistant Secretary Harris met with industry stakeholders, underscoring the Department of Commerce’s commitment to fostering public-private collaboration to bolster U.S. economic competitiveness.
“Under Secretary Raimondo’s leadership, the Department of Commerce has taken bold steps to help strengthen supply chains that underpin our economic and national security,” said Assistant Secretary Harris. “Through the Department of Commerce’s Supply Chain Center and innovative tools like SCALE, we are helping the U.S. Government to be more proactive and strategic in addressing critical supply chain matters. These efforts are attracting investment, boosting U.S. industry competitiveness, creating jobs, and strengthening America’s technological leadership.”
The Supply Chain Center, housed in the Industry and Analysis business unit, acts as a central node for driving American supply chain resilience. It integrates industry expertise and data analytics to develop innovative supply chain risk assessment tools, coordinates action-oriented analyses on select critical supply chains, and collaborates with international partners on mutual supply chain priorities. One of its flagship initiatives, the SCALE tool, is a first-of-its-kind supply chain risk assessment system that leverages comprehensive indicators to proactively identify and assess structural risks in supply chains across the entire U.S. goods economy, with a particular focus on economic and national security risk.
Read Assistant Secretary Harris’s full remarks on “Next Generation Supply Chains,” from the Investing in America Summit here: https://www.trade.gov/feature-article/financial-times-investing-america-summit-assistant-secretary-grant-t-harris-remarks
 
Compliments of the United States Department of CommerceThe post DoC | Assistant Secretary Grant Harris Advances U.S. Supply Chain Resilience Priorities in New York City first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The success of government interventions depends not just on how much is spent, but on spending it well.

Blog post by: Alfred Kammer, Andrew Hodge, Roberto Piazza | Industrial policy is having a moment in Europe, as countries increasingly turn to sectoral policy interventions to address the challenges of geopolitical fragmentation and economic security, enhance productivity, and accelerate the green transition. State aid spending by European Union countries has tripled in the last decade, reaching 1.5 percent of GDP. Much of this aid flowed into green technologies and energy efficiency, with major economies like France, Germany, Italy, and Spain driving the surge. As the recent report from Mario Draghi suggests, there is a growing consensus that even more such spending is necessary to spur growth.

But before rushing ahead, it is important to take stock. A new IMF working paper shows that the success of industrial policy depends not just on how much is spent, but on spending it well: targeting the right priorities and avoiding costly missteps. When poorly designed and targeted, industrial policies tend to fail.
Good intentions aren’t enough
Under the right circumstances, industrial policy can deliver tangible economic gains and strengthen economic resilience. By being focused on addressing market failures—such as by fostering innovation in sectors with knowledge spillovers (think of green technology) or enabling regional clustering (think of Silicon Valley)—it can boost productivity and incomes.
However, even the best-intentioned policies can backfire if poorly coordinated. Powerful interventions, such as subsidies or tax breaks, that expand production and lower costs in a particular sector in one country will have the opposite effect in another, undermining comparative advantages and creating inefficiencies.
Model simulations offer cautionary lessons. Unilateral industrial policies are a losing strategy for most EU countries, given their openness to trade. Without careful design, unilateral policies risk triggering powerful spillovers and spillbacks across the region that outweigh their benefits. As another IMF working paper shows, this is already a concern: European state aid benefits recipient firms but is often detrimental to others.

Why coordination matters
The solution is clear: Europe’s industrial policies need a unified, coordinated framework. When countries align their efforts, the benefits of industrial policy can outweigh the costs. Coordinated policies preserve the gains from trade, ensure a level playing field, and make full use of the EU’s single market.

Simulations underscore this point. In a scenario where the EU acts as an integrated region and adopts a well-targeted industrial policy, better outcomes are obtained than under fragmented, country-specific approaches. Coordination prevents costly distortions of production patterns and trade prices between EU countries. As workers and firms are assumed to move freely across the single market, this can maximize the policy’s benefits. Importantly, coordination can help cushion any adverse impact on regions that might otherwise lose out, including through potential use of intra-EU fiscal transfers, fostering solidarity across the bloc.
Building a better framework
Existing EU state aid rules provide a starting point but fall short of what is needed to guide strategic industrial policies across Europe. Better data sharing and unified programs could enhance transparency and trust among member states. A centralized decision-making body could streamline priorities and better allocate resources to areas of mutual benefit.
The creation of the Airbus venture almost half a century ago showed that coordination at scale can work: this collaborative, multi-country initiative combined resources and expertise to create a globally competitive player. Similar efforts could unlock the potential of Europe’s green and tech transitions.
Deeper integration is an essential part of the equation. A stronger single market for goods, services, and capital with more labor mobility would amplify the effectiveness of industrial policies, allowing firms to scale up (see also Regional Economic Outlook for Europe, October 2024). An ambitious EU budget or centralized fiscal capacity could further support shared priorities.
Europe and beyond
Europe’s industrial policies have global implications. Subsidies and trade adjustments don’t stop at the EU’s borders, underscoring the need for engagement with multilateral fora such as the World Trade Organization.
The right industrial policies can help where markets fall short. By embracing coordination and integration, the EU can ensure its policies foster growth, innovation, and productivity—while avoiding costly pitfalls.
—This blog is based on the IMF Working Paper “Industrial Policy in Europe: A Single Market Approach”, by A. Hodge, R. Piazza, F. Hasanov, X. Li, M. Vaziri, A. Weller, and Y.C. Wong of the IMF’s European Department.

 
Compliments of the International Monetary FundThe post IMF | Europe Needs a Coordinated Approach to Industrial Policy first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Ladies and gentlemen,
It is a privilege to address you today as we celebrate two remarkable milestones. First, congratulations to Lithuania on 10 successful years in the euro area. This is a testament to your commitment to European integration and stability. Second, let us celebrate 25 years of the Euro itself, a currency that has become a global symbol of unity and resilience.
And speaking of success, European policymakers deserve recognition for their extraordinary responses to the recent crises. Their swift and coordinated actions during the pandemic and the Russian gas shut-off have laid the foundation for the recovery that is getting traction.
Yet, while inflation is nearing target levels across most countries, we must acknowledge the enduring scars of the cost-of-living crisis—the pain that it is still causing—and, of course, we must confront the challenges that lie ahead. Europe’s external environment is becoming increasingly complex. More fundamentally, Europe must address two critical imperatives, durably raising growth and building a resilient shock-proof economy.

Europe’s Productivity Problem
Let’s start with a look at productivity, the engine of growth and the basis for shared prosperity.
Europe’s productivity story is both inspiring and sobering. In the decades following World War II, Europe significantly narrowed the productivity gap with the United States—the global frontier. By the 1990s, advanced European economies were as productive as the US.
However, starting in the 2000s, Europe began falling behind. Structural deficiencies prevented the continent from fully benefitting from the ICT revolution. As a result, Europe’s advanced economies now lag the US by 15 percent in terms of labor productivity. This gap is the main reason that per capita income in the European Union today is about 30 percent below that of the United States.
This is not just a statistic. It represents untapped potential—potential that Europe cannot afford to leave on the table if it wants to maintain and expand shared prosperity.

Mounting challenges
Our projections suggest that without significant policy action, Europe’s income gap with the United States will remain virtually unchanged through 2030. This stagnation reflects a series of mounting headwinds:

Uncertain external and domestic environments. Russia’s war in Ukraine has reshaped trade patterns, increased energy costs, and heightened geopolitical uncertainty.
Demographic decline. Europe’s shrinking labor force poses long-term challenges to innovation and growth.
Fiscal pressures. High public debt levels may rise further as countries face growing demands for defense, climate action, and aging populations. In many cases, fiscal consolidation will be unavoidable.

Together, these challenges represent formidable obstacles to growth. They demand bold, coordinated action.

Policies for Revitalizing Dynamism
Despite these headwinds, Europe has the tools to chart a different course. Projections are not destiny. The key is to start revitalizing economic dynamism which is essential to boosting productivity.
To achieve this, policymakers must focus on three priorities.

Deepening the single market.
If pursued, industrial policy needs to be smarter and coordinated. And
Implementing domestic structural reforms.

These priorities are interconnected and, importantly, they are within Europe’s control. The choice is yours to make.

Realizing a True Single Market
The single market is one of Europe’s greatest, and most unappreciated achievement, but its potential remains underutilized. The hard truth is that the EU is still far from operating as a true single market.
Intra-EU trade barriers remain significant. Our estimates suggest that these barriers might be as high as a tariff equivalent of about 44 percent on average for goods trade—three times higher than trade barriers between US states. For services, these estimates barriers are even steeper, equivalent to a 110 percent tariff. Just to give a sense of the magnitude of these remaining non-tariff barriers, the EU’s effective external tariff rate is of around 3 percent. This shows how much more needs to be done on the internal front, where the largest share of EU countries’ trade takes place.
Indeed, reducing these barriers would deliver significant benefits. Our analysis suggests that by just lowering these intra-EU trade barriers to US levels, the direct impact could raise productivity by nearly 7 percentage points in the long term. This would halve the current productivity gap between advanced EU economies and the US.
Reducing barrier to trade requires:

Investing in cross-border infrastructure.
Liberalizing protected sectors.
Pursuing meaningful intra-EU trade liberalization.
Harmonizing regulations across member states.

Enhancing Factor Mobility
Lower barriers to trade will allow large firms to reach scale, and thereby also be able to afford larger innovation efforts.
But innovations that push the productivity frontier come not just from large and established firms. They also come from disruptive new entrants that challenge incumbents and may themselves become the future leading firms. These young promising firms in particular need talent agglomeration, and they need risk capital.
In short, the single market is not just about trade: It is also about the movement of people and capital.  Yet, barriers to factor mobility remain also stubbornly high.
For example, labor movement costs between EU countries are estimated to be eight times higher than between US states. These barriers prevent talent from flowing to where it is most needed, stifling innovation.
Similarly, Europe’s venture capital ecosystem is underdeveloped with investments at just one-quarter the level seen in the US. A vibrant venture capital market is critical for supporting startups and fostering disruptive innovation. Our research shows that venture capital injections lead recipient firms to double their intangible investments within a year.
Lowering barriers to both trade and factor mobility would amplify gains, creating a virtuous cycle of innovation and growth.

The Single Market and Productivity as Pillars of Economic Resilience
Raising productivity through a deeper single market would not only drive growth, but also strengthen economic resilience.
In a fully integrated single market:

Banks would operate seamlessly across borders.
Households would hold equity issued by firms in other member states. And,
Centrally provided public goods would also play a larger role.

These dynamics would smooth out national shocks and increase the resilience of the EU as a whole.
Contrast this with the current state of risk sharing in the Euro area. According to recent ECB research, around 70 percent of an income shock hitting an individual Euro area economy must be borne domestically, compared to just 25 percent in the US.
This limited risk-sharing has real world consequences. We observed recently a divergence in electricity prices between Southeastern and Western Europe when Ukraine increased its electricity imports following Russia’s attacks on its electricity generation capacity.
An EU-wide Energy Union, supported by an EU Climate and Energy Security Facility that we are advocating, would help lower energy costs and deliver Europe’s climate and energy security goals more cost effectively.
More generally, shocks will only become more frequent in the future. And the proposition of self-insuring against risks will become increasingly costlier.

Smarter Industrial Policy
To fully exploit the business-dynamism benefits of the single market, policymakers also need to be smart about industrial policy.
Industrial policy is back in vogue. State aid in EU countries now accounts for approximately 1.5 percent of EU GDP, up one percentage point from a decade ago.
Let me first state the obvious: Using industrial policy to protect mature industries is a losing proposition. Europe should think ahead, not backwards.
Industrial policy must be coordinated and:

Laser-focused on addressing market failures.
Time bound to contain fiscal costs. And
Accompanied by a strong governance framework to avoid institutional capture.

Coordination at the EU level is essential. Without it, national-level policies risk creating negative spillovers to other member countries, distort trade, undermine comparative advantage and disrupt production patterns in the single market.
In research published today, we show that unilateral industrial policies can be harmful even if they target externalities at the national level (first bar).
Acting simultaneously in a coordinated way, the losses from unilateral industrial policy can be more than halved for the average European country (second bar). Moreover, coordination can help cushion any adverse impact on regions that might otherwise lose out, including through potential use of intra-EU fiscal transfers.
Should the EU significantly lower remaining internal barriers to labor and capital mobility, the losses can be turned into gains (third bar). In other words, a deeper single market can not only deliver higher productivity and resilience—it is also essential to boost the effectiveness of EU-level policies for all its members.
The start of the new European Commission earlier this month provides a good time to step up these coordination efforts.

Domestic Reforms to Complement EU Efforts
EU-level reforms must be complemented by domestic reforms to improve economic dynamism.
Key reforms include:

Easing administrative barriers to entry for firms.
Improving insolvency frameworks to facilitate the exit of unproductive firms.
Enhancing labor market flexibility while protecting workers, as seen in Denmark’s flexicurity model. Such an approach would combine more flexible layoff procedures with adequate unemployment benefits and strong active labor market policies that support job search and employability.

The potential growth dividends of these domestic reforms are substantial.
For instance,

EU countries lag global best practices in business regulation by 33 percent. Closing half of this gap to the global frontier could increase GDP by about 2 percent in the medium term for Euro area countries, and by 3 percent for countries in Central, Eastern and Southeastern Europe.
And the gap in labor market regulation to global best practices is 31 percent. If anything, slightly larger gains can accrue from labor market reforms.

Rising to the Challenge
The challenges facing Europe are significant but they are not insurmountable.
History has shown that Europe rises to the occasion when confronted with crises. This was true during the pandemic and it was true during the energy crisis. With the right policies, it can be true now.
The path forward requires a more integrated single market, smarter industrial policy, and bold domestic reforms. These are the policies for growth and economic resilience.
The choice is Europe’s to make. Let us seize this moment to build a stronger, more dynamic, and more resilient Europe.
Thank you.
 
Compliments of the International Monetary FundThe post IMF | Europe’s Choice: Policies for Growth and Resilience first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Tomorrow, the new rules under the General Product Safety Regulation enter into application, ensuring that all non-food consumer products, sold offline or online on the EU market, are safe. The rules also clarify the obligations for businesses and help ensuring a level-playing field. The new Directive replaces the current General Product Safety Directive  and the Food Imitating Product Directive, which will bring significant improvements for consumers and authorities.
Michael McGrath, Commissioner for Democracy, Justice, the Rule of Law and Consumer Protection, said: “The volume of online sales has increased very significantly in recent years and this trend is likely to continue. Alongside the undoubted benefits for consumers, this has also presented challenges. The new rules reflect this new reality in a number of ways, including by addressing the safety of the products being purchased online. From tomorrow, consumers in the EU will be safer and better suited to seek remedy should they encounter non-compliant products.”
The Regulation will better address the challenges posed by the growth of online sales and direct imports from third countries. It will guarantee a better enforcement of the rules and improve the effectiveness of recalls of dangerous products. It also brings consumers the right to remedy for unsafe products and better communication channels to report safety issues. The new rules are also expected to allow considerable savings for society and consumers, as the preventable damages from injuries and deaths caused by unsafe products amounts to €11.5 billion each year.
The Commission proposed the General Product Safety Regulation in June 2021, and the rules entered into force on 12 June 2023.
(For more information: Stefan de Keersmaecker — Tel.: + 32 2 298 46 80; Cristina Torres Castillo – Tel.: +32 2 299 06 79)
 
Compliments of the European CommissionThe post European Commission | New EU rules to ensure the safety of consumer products enter into application tomorrow first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Today, in Valencia, the CitiVerse European Digital Innovation Consortium (EDIC) was officially established during its inaugural general assembly. This milestone marks a new era in cooperative smart city development, setting a new global benchmark in this area.
The CitiVerse EDIC will deliver AI-based solutions to enhance urban planning in European cities. These solutions will provide reusable tools for essential urban management, such as for improved management of traffic, energy, and water. The EDIC will develop immersive, virtual worlds-based technologies to transform how citizens shape their cities and engage with local authorities. For example, residents will have access to virtual tours of planned city improvements. The CitiVerse EDIC will offer a toolbox to participating cities, enabling them to create their digital twins or virtual replicas and simulate urban projects. Advanced tools will allow cities to model extreme, unpredictable events like the recent floods in the Valencia region. These tools will also help identify conditions to prevent such events.
The CitiVerse EDIC will bring together 14 EU Member States and is rapidly expanding. A Smart Cities Network, formed by city associations, is connecting with cities across Europe to showcase EDIC opportunities. The EDIC aims to onboard about 100 cities within two years and develop a common platform for Local Digital Twin technologies. This will drive industry partnerships and provide solutions for cities’ common challenges.
The CitiVerse EDIC is an excellent example of a multi-country project that supports the EU’s Digital Decade targets and its strategy on virtual worlds. Over €80 million has been invested in the Local Digital Twins and CitiVerse initiative from the Digital Europe Programme.
This initiative, supported by the EU AI Office, is a key deliverable of the AI Innovation Package. Next steps of the initiative include connecting cities with existing digital twins, incorporating collaborative project results, and developing AI training programmes.
(For more information: Thomas Regnier — Tel.: + 32 2 299 10 99; Nika Blazevic — Tel.: + 32 2 299 27 17)
 
Compliments of the European CommissionThe post European Commission | EU-funded AI innovation powers a new era in cooperative smart city development first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The Commission intends to issue up to €90 billion of EU Bonds in the first half of 2025 (H1), from January to June 2025. The Commission’s funding plan for H1 2025 continues the 2024 issuance programme, during which the EU raised €138 billion in long-term funds.
Funds raised by the European Commission through EU-Bond issuances continue to drive the EU’s recovery from the coronavirus pandemic, strengthen the resilience of its economy, and support the EU’s neighbouring partners, notably Ukraine and the Western Balkans.
These wide-ranging borrowing operations will strengthen the EU Bond market while guaranteeing continuous support to policies funded through EU-Bond issuances. Besides long-term funding operations, the Commission will continue issuing short-term EU-Bills to complement its financial operations.
2024 marked the highest annual issuance volume ever executed by the EU, in line with the announced planning. Additionally, in 2024, the EU became the fifth largest issuer of green bonds globally with over €68 billion outstanding in NextGenerationEU (NGEU) Green Bonds, and is now on track to become the largest global green bond issuer.
The recently published NGEU Green Bond Impact and Allocation report confirmed the EU’s role as a global leader in sustainable finance. As demonstrated in the report, the full implementation of green investments financed through NGEU Green Bonds could result in a reduction of 55 million tons of greenhouse gas (GHG) emissions in the EU annually, equivalent to 1.5% of all GHG emissions.
For 2025 as whole, the Commission anticipates issuing approximately €160 billion in EU Bonds, ensuring consistent support for its borrowing-based programmes.
Background
On the basis of mandates under several borrowing programs, the Commission borrows funds on international capital markets on behalf of the EU and disburses them to Member States and third countries. Under the EU Treaties, all Member States are legally obligated to contribute to the EU budget, which guarantees EU borrowing.
Instead of issuing bonds for specific programs with separate labels, in 2023 the Commission began issuing EU-Bonds under a single brand (unified funding approach). The allocation of proceeds from these single-branded bonds is based on processes outlined in the applicable agreements for the relevant programs.
The outstanding stock of EU-Bonds now stands at over €580 billion, with more than €420 billion under the EU’s unified funding approach. The successful execution of EU issuances has been greatly aided by the growing market acceptance of EU-Bonds as large, liquid, and high-quality assets. In October 2024, the EU took another significant step to support the market ecosystem for EU-Bonds and secondary market liquidity with the opening of the repurchase (repo) facility, which helps EU Primary Dealers post prices in EU-Bonds in support of their liquidity.
By early December 2024, a total of almost €330 billion of funds raised from borrowing operations have been disbursed under the NGEU programme. 2024 also saw borrowing operations financing Ukraine under the Ukraine Facility (over €10 billion of funds were disbursed until 2024), as well as the approval of an exceptional Macro-Financial assistance (MFA) loan by Member States within the agreement with G7 partners. Additionally, new policies funded via the issuance of EU-Bonds were agreed upon to support candidate States under the Western Balkan Investment Facility and neighbouring countries (such as Egypt and Jordan).
The EU has also continued issuing EU-Bills on a regular basis, with maturities of three and six months, complementing long-term borrowing activities.  The amount of short-term debt now stands at €25.3 billion.
While new net debt issuance for the largest borrowing-based programme – NGEU – will conclude by the end of 2026, the combination of refinancing maturing debt and bond-financing for other policies, will ensure a strong EU market presence in the foreseeable future. The Commission will also continue issuing NGEU Green Bonds, which currently total €68 billion, to fund the green component of the Recovery and Resilience Facility.
For more information, please contact:

Balazs Ujvari, Spokesperson, EUROPEAN COUNCIL

Francisca Marçal Santos, Press Officer, EUROPEAN COUNCIL

 
Compliments of the European CommissionThe post European Commission to issue €90 billion in long-term EU-Bonds in the first half of 2025 first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The Council today reached a political agreement on a new directive paving the way for the introduction of an electronic tax certificate for VAT exemptions.
“As part of the EU’s efforts to update VAT systems, I’m glad that after the VIDA package last month, we are taking another modernising step with this agreement on the electronic VAT exemption certificate, that will put an end to paper certificates to be signed by hand.”

– Mihály Varga, Hungarian minister for finance

The directive will provide for an electronic certificate to replace the existing paper certificate that is used when goods are to be exempt from VAT, for example because they are imported for embassies, international organisations or armed forces. The exact electronic format, including the necessary IT specifications, will be discussed in expert groups and determined in Commission implementing acts.
In a transitional period member states will be able to use both electronic and paper versions.
Member states brought a number of amendments to the Commission’s initial proposal. In particular they limited the scope of the mandatory use of the electronic VAT exemption certificate to situations where two member states are involved and the exemption is not granted by way of a refund.
The Council also added to the Directive a number of key elements of the future electronic certificate that the Commission will take into account when designing the format, in the text of the directive. Furthermore, the Council shortened the transition period, originally planned to last 4 years (2026-2030), to just 1 year (2031-2032). The delayed starting date should help tax authorities spread in time the necessary IT developments, which will coincide with the significant investments needed to implement the VIDA package.
Next steps
The agreements will now go through technical and linguistic check before being presented to the Council for formal adoption. The texts will then be published in the EU’s Official Journal and enter into force.
Background
On 8 July 2024, the Commission published two proposals with the aim of replacing the current paper VAT exemption certificate with an electronic VAT exemption certificate:

a proposal for a Council Directive amending Directive 2006/112/EC as regards the electronic value added tax exemption certificate (the Council Directive); –
a proposal for a Council Implementing Regulation amending Implementing Regulation (EU) No 282/2011 as regards the electronic value added tax exemption certificate (the Council Implementing Regulation).

The proposal to amend the VAT Directive creates the legal conditions for the development of the electronic certificate by the Commission through implementing measures, while the proposal to amend the Implementing Regulation provides for the alternative use of both paper and electronic certificates during a transition phase.
The Council today agreed on both these proposals. The European Parliament was consulted on the proposal for a directive and delivered its opinion on 13 November 2024.
For more information, please contact:

Johanna Store, Press officer, COUNCIL OF THE EU

 
Compliments of the Council of the EUThe post Council of the EU | Taxation: Council introduces electronic VAT exemption certificate first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.