The following is an address by former Italian Prime Minister Mario Draghi, ahead of his recent report titled “The future of European competitiveness – A competitiveness strategy for Europe.” You can read the full report at the link below.
 
Dear Madame President,
Dear Honourable Members of the European Parliament,
Dear Executive Vice-President of the European Commission,
 
Let me start by saying that I’m very honoured to be invited to speak to you in this plenary today.
And I would like to thank the President of the European Parliament, Roberta Metsola, for this invitation and for her continuous support of my work.
Let me also thank the representatives of the political groups whom I had the pleasure to meet some weeks ago. Our exchange was wide-ranging, frank, fruitful and contributed decisively to shaping my thinking as I was finalising the report.
Last week, I presented this report on the future of Europe’s competitiveness to the President of the European Commission.
The starting point is that Europe is facing a world undergoing dramatic change. World trade is slowing, geopolitics is fracturing and technological change is accelerating.
It is a world where long-established business models are being challenged and where some key economic dependencies are suddenly turning into geopolitical vulnerabilities.
Of all the major economies, Europe is the most exposed to these shifts.
We are the most open: our trade-to-GDP ratio exceeds 50%, compared with 37% in China and 27% in the United States.
We are the most dependent: we rely on a handful of suppliers for critical raw materials and import over 80% of our digital technology.
We have the highest energy prices: EU companies face electricity prices that are 2-3 times higher than those in the United States and in China.
We are severely lagging behind in new technologies: only four of the world’s top 50 tech companies are European.
And we are the least ready to defend ourselves: only ten Member States spend more than or equal to 2% of GDP on defence, in line with NATO commitments.
In this setting, we are all anxious about the future of Europe.
My concern is not that we will suddenly find ourselves poor and subservient to others. We still have many strengths in Europe.
It is that, over time, we will inexorably become less prosperous, less equal, less secure and, as a result, less free to choose our destiny.
The European Union exists to ensure that Europe’s fundamental values are always upheld: democracy, freedom, peace, equity and prosperity in a sustainable environment.
If Europe cannot any longer deliver these values for its people, it will have lost its reason for being.
So, this report is not only about competitiveness – it is about our future and the common commitment that we need to reclaim it.
 
The challenges Europe faces are complex and, as such, they present us with difficult choices. But they are choices we must confront.
The purpose of this report is to lay out a strategy for Europe to change course: pinpointing the priorities we should focus on, explaining the trade-offs we face, and offering pragmatic solutions to resolve them.
The report identifies three main areas for action.
The first is aiming at closing the innovation gap with the United States and China.
EU companies spent around EUR 270 billion less on R&D than their US counterparts in 2021, largely because we have a static industrial structure dominated by the same companies and technologies as decades ago.
The top 3 investors in R&D in Europe have been dominated by automotive companies for the last twenty years. It was the same thing in the US in the 2 early 2000s, with autos and pharma leading, but now the top 3 are all tech companies.
The core problem in Europe is that new companies with new technologies are not rising in our economy. In fact, there is no EU company with a market capitalisation over EUR 100 billion that has been set up from scratch in the last fifty years. All six US companies with valuations above EUR 1 trillion have been created in that period of time.
This lack of dynamism does not reflect lack ideas or lack of ambition. Europe is full of talented researchers and entrepreneurs. It is because innovation often lacks synergies, and because we are failing to translate ideas into commercial success. Innovative companies that want to scale up in Europe are hindered at every stage by the lack of a Single Market and an integrated capital market, stopping the cycle of innovation in its tracks.
As a result, many European entrepreneurs prefer to seek financing from US venture capitalists and scale up in the US market. Between 2008 and 2021, close to 30% of the “unicorns” founded in Europe – that is to say, start-ups that went on the be valued at over USD 1 billion – relocated their headquarters abroad.
And these figures do not include the many young, talented Europeans who go to study in the United States and found their companies there. It is a huge loss for our economy in terms of jobs and brain drain.
The innovation gap is at the root of Europe’s slowing productivity growth relative to the US. So, we must bring innovation back to Europe – and the report proposes to do so through reforming the whole innovation ecosystem.
It starts with establishing our universities and research institutions at the frontier of academic excellence, and making it easier for researchers to commercialise their ideas. Only about one-third of the patented inventions registered by European universities are commercially exploited.
The next step is encouraging innovative start-ups to scale up in Europe by removing regulatory hurdles. This is not about deregulation: it is about ensuring the right balance between caution and innovation, and ensuring that regulation is consistently applied within Europe.
A key initiative we propose is the creation of a new EU-wide legal statute: the “Innovative European Company”. This status would immediately provide 3 companies with a single digital identity valid throughout the EU, and it is foreseen that these companies could then have access to harmonised legislation.
We also call for a profound review of how we spend public money on innovation in Europe. If spent wisely, public funds can be a powerful tool to launch breakthrough technologies. These technologies are often too risky or require too much financing for the private sector to undertake alone, especially in an environment like ours is where scaling up is typically difficult.
Yet, even though the public sector in the EU spends about as much on innovation as the United States as a share of GDP, just one-tenth of this spending takes place at the EU level. The report calls for EU spending on innovation to be expanded and refocused on a smaller number of commonly agreed priorities, with a larger allocation for disruptive innovation. In other words, we need to increase the intensity of financing.
The success of these measures will in turn depend on integrating the Single Market and Europe’s capital markets, so that private investment can be reoriented towards hi-tech sectors and the industrial structure can evolve.
Finally, a critical issue for Europe will be integrating new technologies like artificial intelligence into our industrial sector. AI is improving incredibly fast, as the latest models released in the last few days show. We need to shift our orientation from trying to restrain this technology to understanding how to benefit from it.
The cost of training frontier AI models is still high, which is a barrier for companies in Europe that don’t have the backing of US big tech firms. But, on the other hand, the EU has a unique opportunity to lower the cost of AI deployment by making available its unique network of high-performance computers.
The report recommends increasing the capacity of this network and expanding access to start-ups and industry. Many industrial applications of AI do not require the latest advances in generative AI, so it’s well within our reach to accelerate AI uptake with a concerted effort to support companies.
That said, the report recognises that technological progress and social inclusion do not always go together. Major transitions are disruptive. Inclusion hinges on everyone having the skills they need to benefit from digitalisation.
So, while we want to match the United States on innovation, we must exceed the US on education and adult learning. We therefore propose a profound overhaul of Europe’s approach to skills, focused on using data to understand where skills gaps lie and investing in education at every stage.
For Europe to succeed, investment in technology and in people cannot substitute for each other. They must go hand in hand.
 
The second area for action is a joint plan for decarbonisation and competitiveness.
If Europe’s ambitious climate targets are matched by a coherent plan to achieve them, decarbonisation will be an opportunity for Europe. But if we fail to coordinate our policies, there is a risk that it could run contrary to competitiveness – and ultimately be delayed or even rejected.
The first priority is to lower energy prices.
Over time, decarbonisation will help shift power generation towards secure, low-cost, clean energy sources. But without a European plan, it will take a long t ime before end users see the full benefits.
In 2022, at the peak of the energy crisis, natural gas was the price-setter 63% of the time, despite making up only 20% share of the EU’s electricity mix. Even if our renewable targets are met, fossil fuels will still set energy prices for much of the time for at least the remainder of this decade.
We must transfer the benefits of decarbonisation faster to Europeans by making energy prices lower and less volatile in Europe. And the report puts forward a set of – several initiatives – to achieve this goal.
In parallel, we call for pressing ahead with clean energy installation in a technology-neutral way. This approach should include renewables, nuclear, hydrogen, bioenergy, and carbon capture, utilisation and storage.
Increasing the pace of permitting and raising investment in grids will be key – the key – to unlocking this potential. Otherwise, by 2040 we could lose up to 10 t imes more renewable energy generation than we lose today owing to grid constraints. From a European perspective, rapidly increasing the deployment of interconnectors should be the focus.
Decarbonisation is also an opportunity for the EU industry.
The EU is a world leader in clean technologies like wind turbines, electrolysers and low-carbon fuels. We are also strong in green innovation. More than onef ifth of clean and sustainable technologies worldwide are developed here.
Yet, it is not guaranteed we will seize this opportunity. Chinese competition is becoming acute, driven by a powerful combination of subsidies, innovation and scale. By 2030 at the latest, China’s annual manufacturing capacity for solar photovoltaic is expected to be double the level of global demand, and for battery cells it is expected to at least cover the level of global demand.
Europe faces a trade-off. Increasing reliance on China may offer the cheapest route to meeting our climate targets. But China’s State-sponsored competition represents a threat to otherwise productive industries, and to the promise that the green transition will bring “good green jobs”.
We will not be able to manage this challenge with black-and-white solutions. This is why the report proposes a differentiated approach according to sectors and technologies.
There are some technologies, like solar panels, where foreign producers are too far ahead and attempting to capture production in Europe will only set back decarbonisation. Even if those countries are using subsidies, we should let foreign taxpayers finance cheaper installation of clean energy in Europe. There are other sectors, however, where we are open to using foreign technology and to increasing inward investment.
There are still other sectors, like batteries, where we do not want to be fully dependent on foreign technology for strategic reasons, and so it is key to keep the know-how in Europe. Determining strategic value should take place according to rigorous criteria which avoid protecting vested interests.
Finally, there are the so-called “infant industries” where Europe has an innovative edge that we need to nurture until companies are ready to compete internationally.
To be clear: this should not be read by anyone as a call for blanket protectionism. Our priority is to do everything possible to make all partners comply with the WTO rules, including those who presently do not. Although 6 some of the proposals in the report will require negotiations, they are generally aligned with the spirit of those rules.
Insofar as we use trade measures, they should be careful, defensive and especially designed only to level the playing field. We should clearly distinguish between innovation abroad – which is good for Europe – and State-sponsored competition, which harms our workers.
The proposals should also not be seen as a programme for defending national champions or “picking winners”, like some of the failed industrial policies of the past. In fact, the report argues for returning to the normal State aid regime, while foreseeing State aid for investment projects of common European interest.
 
The third area for action is increasing security and reducing dependencies.
Peace is the first and foremost objective of Europe, at home and abroad. And we must continue in this steadfast effort. But security threats are rising and we must prepare.
For Europe to remain free, we must be more independent. We must have more secure supply chains for critical raw materials and technologies. We must increase production capacity at home in strategic sectors. And we must expand our industrial capacity in defence and space.
But independence comes at a cost.
Securing critical raw materials will mean diversifying away from countries that were the cheapest suppliers in the world of yesterday. Strengthening the supply chain for semiconductors will require major new investments. The cost of developing our defence capability will be substantial.
These costs will be much more manageable if we have a strategy to reduce our dependencies and increase our security together.
The report recommends developing a genuine EU “foreign economic policy”, coordinating preferential trade agreements and direct investment with resource-rich nations, building up stockpiles in selected critical areas, and creating industrial partnerships to secure the supply chain of key technologies.
It also sets out a strategy to enhance Europe’s domestic presence in the most advanced chips segments.
This “foreign economic policy” should reflect European values and reconcile our security interests with solidarity towards middle and low-income countries, helping them to develop and decarbonise as we do.
For defence, our key weakness is excessive fragmentation of the industrial base, compounded by lack of coordination among Member States, unnecessary duplication and lack of interoperability of equipment. In the defence sector, common planning comes before common expenditure.
EU countries are, collectively, the second largest military spenders in the world, but we do not help our defence and space industries to build up scale. Collaborative procurement accounted for less than a fifth of spending on defence equipment procurement in 2022. Almost four-fifths of total procurement spending went to non-EU suppliers.
The report therefore recommends increasing substantially the aggregation of demand between groups of Member States, as well as raising the share of joint defence procurement and common R&D spending.
In the defence sector, this consolidation of spending should be matched by selective integration and consolidation of EU industrial capacity, with the explicit aim of increasing scale, standardisation and interoperability.
However, at the same time, higher scale should not lead to lower competition. Europe has many highly sophisticated SMEs in the defence sector that could make an exceptional contribution to our common defence.
 
A key question that has arisen in the last few days is how to finance the massive investments that transforming Europe’s economy will entail.
Europe has set itself a series of ambitious objectives that have been endorsed by EU institutions and the Member States.
We have enshrined becoming carbon-neutral by 2050 in EU law. We have committed to raise public spending on innovation to 3% of GDP a year. Member States that are part of NATO are committed to invest at least 2% of GDP on defence per year. Over the past months, this House and the EU leaders 8 have discussed and agreed on the urgent, immediate and medium-term defence needs for Europe. And they have also set out targets for upgrading our digital infrastructure as part of the Digital Decade.
The report contains a bottom-up analysis by Commission staff of the investment needs to carry out these objectives. And they reach the conclusion that EUR 750-800 billion in additional investment will be required each year. Analysis by the European Central Bank arrives at similar figures.
These investments are vital to carry out the objectives of the report. But let me be clear: they are not new investment needs that the report has identified. They are the needs required to deliver on the EU’s existing objectives. Once these objectives were agreed, the numbers followed.
However, it is a massive volume of investment. And we calculate that, to marshal investment on this scale, the share of investment in GDP would have to rise to levels not seen in Europe since the 1960s and 70s. The effort would be more than double that of Marshall Plan.
So, we must ask the question of how we will finance it.
Historically, investment in Europe has been financed about 80% privately and 20% publicly. We asked staff from the Commission and the International Monetary Fund to conduct simulations to see whether we could maintain that split for such a large investment push.
The results show that to finance this volume of investment, we must make progress on Capital Markets Union, so that private savings can be channelled into investment across the whole EU. But even with mobilising private finance, public support will still be required.
Two key conclusions emerge.
First, if the EU carries out the strategy outlined in the report and productivity rises, capital markets will be more responsive to the flow of private savings, and it will be much easier for the public sector to finance its share. Faster productivity growth could reduce the costs for governments by one-third.
Second, to lift productivity, some joint investment in key projects – such as breakthrough research, grids, defence procurement – will be critical, and these projects could be funded through common debt.
It is natural that these large numbers create worries about rising debt levels. It is also legitimate to be concerned about common debt issuance.
But it is important to remember that this debt is not for general government spending or subsidies. It is to carry out the objectives that are critical for our future competitiveness, and that – and I stress this – we have all already agreed upon.
If one objects to building a true Single Market, to capital market integration, and objects to debt issuance, one objects to our EU objectives.
 
This report has come out at a difficult time for our continent.
On many key questions, we are divided about what to do. There is discontent in large parts of Europe about the direction in which we are heading. And there is considerable unease about the future.
My role, as set out by the European Commission, is to present you with a diagnosis of where Europe stands and to offer you recommendations on how to move forward. But it is for you, our elected representatives, to turn this agenda into actions.
We will only overcome division in Europe if the will to change receives broad democratic backing. The choices we face are too important to be settled by technocratic solutions. Our elected institutions must be at centre of the debate on Europe’s future – and on the actions that will shape it.
I trust that we can find consensus, if only because the alternatives look progressively bleaker.
As I observed some time ago, Europe faces a choice between paralysis, exit or integration. Exit has been tried and has not delivered what its proponents hoped for. Paralysis is becoming untenable as we slide towards greater anxiety and insecurity.
So, integration is our only hope left.
It is important that all of us understand that the size of the challenge we face far exceeds the size of our national economies. And we are facing a world where we risk losing not just peace, but also our freedom.
In this world, it will be only through unity that we will be able to retain our strength and defend our values.
Thank you.
Read full report here.
 
Compliments of the European CommissionThe post European Commission | Address by Mr. Draghi – Presentation of the report on the Future of European competitiveness – European Parliament – Strasbourg – 17 September 2024 first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

By Luca Nocciola and Alejandro Zamora-Pérez[1]
What factors could drive transactional demand for central bank digital currency (CBDC)? We analyse payment survey data to arrive at a framework for understanding the role of adoption frictions and design strategies in shaping CBDC demand. The results of our analysis show that, while consumers may initially prefer to use more traditional payment methods, a design tailored to their specific needs could significantly increase CBDC uptake. Raising awareness and capitalising on network effects could also boost demand for CBDC.
Public money: “too much” versus “too little” demand
Central banks are at various stages in investigating and developing central bank digital currencies (CBDCs) alongside cash. While cash use is losing ground to digital private payment methods, the role of public money in payments remains crucial. The potential implications of a society without public money has long been a topic of debate[2], highlighting concerns about maintaining its key role in payments. In the digital era, these discussions have resurfaced in central banking and academia. The Eurosystem is now preparing for the potential development of a digital euro alongside cash, the use of which is declining. One of the main motivations for introducing a CBDC is to consolidate the role of public money as the anchor of the monetary system (Lagarde and Panetta, 2022), a sentiment not confined to the euro area alone. In 2022 the Bank for International Settlements conducted a survey of 86 central banks, which revealed that the main reason for introducing a CBDC was to enhance payment efficiency and safety (Kosse and Mattei, 2023). Central banks’ ongoing efforts in CBDCs reflect global momentum and interest in the future of public money in payments.
While there is considerable interest in issuing CBDCs, one challenge lies in striking the right balance between “too much” and “too little” consumer demand (Ahnert et al., 2022). Extensive research has already tackled situations in which a CBDC might become too popular, potentially undermining the banking system (Burlon et al., 2024; Assenmacher et al., 2024). However, much less research has gone into ensuring there is sufficient interest in a CBDC for it to be used as a regular means of payment. Despite being universal to any CBDC, this challenge has been identified and qualitatively assessed in the euro area (Bindseil et al, 2021; Panetta, 2022 and Kantar Public, 2022). Here, drawing on Nocciola and Zamora-Pérez (2024), we shed further light on this “too little” scenario. Using a model based on survey data, we quantitatively examine some of the potential drivers and barriers to CBDC adoption and discuss strategies to overcome these obstacles.
Assessing potential transactional demand for CBDC
Advances in the digital payments landscape underscore the importance of understanding the extent to which consumers might use a CBDC as a new form of digital currency and the need for comprehensive data on consumers’ current payment methods. To that end, the study on payment attitudes of consumers in the euro area (SPACE)[3] collects survey data on current consumer behaviour and preferences concerning payment methods. The 2022 edition of SPACE spanned 17 euro area countries with over 40,000 respondents. The survey includes a payment diary, in which respondents recorded their transactions and respective means of payment, together with a questionnaire asking them to rank different payment instruments according to their most important attributes, such as transaction speed and convenience.
Using this data and on the basis of a model, we study how consumers’ payment choices are related to current preferences for certain attributes of payment instruments.[4] We simulate a CBDC that resembles existing means of payment and assess the transactional demand for it. Payment methods, including CBDC, are distilled into various attributes, encompassing features like ease of use, transaction speed and safety. Additionally, we exploit consumers’ preferences for features such as budgeting usefulness and privacy protection.[5] Comparing these attributes with familiar benchmarks such as cash and cards offers a framework for exploring the different designs of a CBDC.
To this end, it is important to differentiate between adoption and usage when discussing the uptake of new payment methods. We cannot assess novel payment technologies like a CBDC on the same playing field as entrenched methods like cash and cards. First, there is the adoption phase: this is when consumers decide to include a new payment method in their repertoire. But adopting a method does not necessarily translate into using it regularly. For instance, some consumers might prefer the idea of a CBDC and choose to adopt it, but if they have a deeply ingrained habit of using cash, they might not use the CBDC often in practice.
We find that adoption costs play a pivotal role in determining the success of new payment methods. Introducing a novel payment method presents an inherent “cost” to consumers, and this is not purely a monetary cost – it also encompasses the effort, time and adjustments required of consumers when adapting to a new payment method. Previous qualitative findings show that some consumers are satisfied with current methods based on familiar technologies and prefer less complexity rather than adopting new methods (Kantar 2022; Kantar Public 2023). In contrast to those studies, we gauge this cost quantitatively by exploiting the SPACE survey and delving into the adoption patterns of mobile payment apps – a technology that, despite being available for some time, has only gained traction in the sampled countries relatively recently.[6] The idea behind our approach is straightforward: if those accustomed to cash and cards hesitate to embrace mobile payments due to the perceived cost of switching, they might exhibit similar reluctance towards another newly introduced means of payment, such as a CBDC. Our findings show that consumers generally face a substantial adoption cost, revealing a preference for established payment methods like cash or cards and a tendency to stick to familiar habits.[7] However, pinpointing the reasons for this cost offers avenues to lowering it.
Evidence on the drivers of demand for CBDC as a means of payment
Key among the strategies that central banks may consider is addressing those factors that drive CBDC adoption. We identify three potential drivers – design alignment with consumer preferences, effective information dissemination, and leveraging network effects from emerging payment technologies.
For a start, a CBDC’s design attributes can heavily influence how attractive it is to users. Our study suggests that CBDC demand could be influenced by merging the perceived top qualities of cards (like speedy transactions and ease of use) with the benefits of cash (such as tracking expenses and preserving privacy). The left panel of Chart 1 offers a glimpse into the potential impact of a CBDC tailored to consumer preferences, compared with one that is not. While it is essential to view these findings as indicative results rather than fixed outcomes – given the interplay of various factors – the chart does seem to suggest that a well-designed CBDC would enjoy more substantial adoption and regular usage.

Chart 1
Indicative results for central bank strategies to influence CBDC adoption and usage

Effect of consumer-tailored design

Effect of effective information campaign

(rate of change of adoption and usage shares from baseline)
(rate of change of adoption and usage shares from baseline)

Sources: SPACE survey (European Central Bank, 2022) and authors’ calculations.
Notes: Both panels illustrate the normalised effects of two distinct central bank strategies on CBDC adoption and usage, relative to a baseline simulation. The left panel assesses the impact of a consumer-tailored design (blue bars), while the right panel examines the outcomes following an information campaign (yellow bars). “Adoption” and “usage” stages are plotted on the x-axis. The values represent the rate of change from the baseline in each situation, with results at 95% confidence intervals displayed. The consumer-tailored design exploits specific user preferences on CBDC features (against a baseline not accounting for preferences), whereas the information campaign leverages information strategies (against a baseline without an effective information campaign). These results highlight the indicative influence of targeted policy interventions on CBDC design and implementation.

Second, ensuring consumers have the right information can make it easier for them to embrace new payment methods, such as a CBDC. The literature often highlights the crucial role that raising awareness plays in boosting the appeal of novel technologies, including payment methods. To gain a clear and causal understanding of how new information influences payment choices, we need to look at an unexpected event or “exogenous shock” that might change the usual consumer behaviour. The COVID-19 pandemic provides such an opportunity. This unforeseen event significantly altered many consumers’ habits. The SPACE survey delves into these changes, specifically asking participants if discovering new payment methods due to the pandemic influenced their payment choices even two years later. Our model exploits this information from the SPACE survey, and we find that discovering new payment options, like mobile apps, can significantly reduce the barriers people face when adopting a new means of payment. Based on this fact, we model what might happen if there was a targeted campaign to raise consumers’ awareness of a CBDC as a prospective means of payment. The results depicted in the right panel of Chart 1 suggest that with the right targeted information, consumers might find it easier to make the switch to a CBDC. However, it is important to note that these results should not be seen as an attempt to make an accurate inference, but rather as indicative insights illustrating the potential influence of effective information dissemination on consumer behaviour towards CBDCs.
Network effects fuelled by the spread of emerging payment technologies can substantially boost CBDC adoption. The diverse landscapes within the sampled countries, as captured by the SPACE survey, reveal differences in both payment habits and available payment options across different countries. This variation can be exploited to analyse the relevance of an environment that is favourable to new payment methods.[8] Chart 2 shows the importance of an environment in which new payment technologies are gaining traction, because the collective adoption of a method can be self-reinforcing. As more people use new payment methods, like mobile apps, their popularity snowballs, creating an environment where the adoption of new payment technologies – including CBDC – becomes more likely. We find that network effects can act as powerful multipliers, making markets receptive to emergent payment technologies fertile grounds for promoting CBDC.

Chart 2
Network effects: indicative impact of current diffusion of novel payment means on CBDC adoption

(x-axis: percentage of consumers using novel means of payment (exemplified by mobile payment apps); y-axis: percentage of consumers in a country adopting CBDC)

Source: SPACE survey (European Central Bank, 2022) and authors’ calculations.
Notes: The chart illustrates how the simulated CBDC adoption rates (y-axis, represented in percentages) relate to the spread of novel payment technologies in different countries, exemplified by the use of mobile apps for peer-to-peer and point-of-sale payments in various countries (x-axis, represented in percentages). The yellow confidence intervals are at the 95% level. As mobile apps are not used widely in most euro area countries, usually accounting for below roughly 10% of total transactions, the values above this 10% threshold are estimated. Although the confidence intervals are wide due to a lack of data, all estimates point to the same finding: more extensive diffusion of mobile payments in a country generally results in higher CBDC adoption rates among consumers.

Finally, although we lack the data necessary to produce the relevant simulation, it is likely that other important factors could boost CBDC adoption, such as the role of legislation in ensuring its distribution and obliging merchants to accept it at the point of sale, as found in Kantar Public (2022). These two components of the role of legislation could be important in accelerating these network effects, as suggested by Bindseil et al. (2021). Additionally, the universality of use cases could further enhance adoption.[9]
Conclusions
We assess potential drivers for the adoption of CBDC as a means of payment, providing insights which could contribute to the design of adoption strategies. In the digital age, the role of public money in our daily transactions is evolving, and it is important to ensure that CBDCs can effectively fit into this changing landscape. Drawing on the SPACE survey data, we develop a framework to quantitatively measure how likely consumers are to use CBDC as a means of payment in everyday transactions, by accounting for individuals’ preferences for payment method attributes. We distinguish between the initial decision to adopt a CBDC and the subsequent decision to use it, emphasising that the costs and barriers associated with the initial adoption phase are vital in understanding overall demand. Building on insights from previous qualitative research, our analysis confirms that three drivers are key to consumer demand: how CBDC is designed, the level of consumer awareness and the growth of current new payment technologies. However, we do not cover all potentially relevant factors, such as the role of legislation in exploiting network effects, ensuring efficient distribution, and boosting adoption through universal use cases. In sum, our research provides a framework for understanding the role of adoption costs and design strategies in shaping demand for CBDC.
 

References
Ahnert, T., Assenmacher, K., Hoffmann, P., Leonello, A., Monnet, C. and Porcellacchia, D. (2022). “Cold hard (digital) cash: the economics of central bank digital currency”, ECB Research Bulletin, No 100, Frankfurt am Main.
Assenmacher, K., Ferrari Minesso, M., Mehl, A., and Pagliari, M. S. (2024). “Managing the transition to central bank digital currency“, ECB Working Paper Series, No. 2907, Frankfurt am Main.
Bindseil, U., Panetta, F. and Terol, I. (2021), “Central Bank Digital Currency: functional scope, pricing and controls”, ECB Occasional Papers, No 286, Frankfurt am Main.
Black, F. (1987), “Banking and interest rates in a world without money” in F. Black, Business Cycles and Equilibrium, Oxford: Basil Blackwell, pp. 1-20.
Burlon, L., Muñoz, M. A. and Smets, F. (2024), “The Optimal Quantity of CBDC in a Bank-Based Economy,” American Economic Journal: Macroeconomics (forthcoming).
European Central Bank (2020), The Eurosystem cash strategy.
European Central Bank (2022), Study on the payment attitudes of consumers in the euro area (SPACE) – 2022, European Central Bank, Frankfurt am Main.
Friedman, B. M. (1999), “The future of monetary policy: The central bank as an army with only a signal corps?” International Finance, Vol 2 No. 3, pp. 321-338.
Huynh, K. P., Molnar, J., Shcherbakov, O. and Yu, Q (2020), “Demand for payment services and consumer welfare: the introduction of a central bank digital currency”, Bank of Canada Staff Working Paper, No 2020-7, Bank of Canada, Ottawa.
Kantar Public (2022), Study on new digital payment methods, March.
Kantar Public (2023), Study on digital wallet features, March.
King, M. (1999), “Challenges for monetary policy: new and old”, Quarterly Bulletin, Bank of England, Vol. 39, pp. 397-415.
Kosse, A. and Mattei, I. (2023), “Making headway-Results of the 2022 BIS survey on central bank digital currencies and crypto” BIS Paper, No 136, Bank for International Settlements, Basel.
Lagarde, C. and Panetta, F. (2022), “Key objectives of the digital euro”, The ECB Blog, 13 July.
Li, J. (2022), “Predicting the demand for central bank digital currency: a structural analysis with survey data” Journal of Monetary Economics, Vol. 134, pp. 73-85.
Nocciola, L. and Zamora-Pérez, A. (2024) “Transactional demand for central bank digital currency”, ECB Working Paper Series, No 2926, Frankfurt am Main.
Panetta, F. (2022), “A digital euro that serves the needs of the public: striking the right balance”, Introductory statement at the Committee on Economic and Monetary Affairs of the European Parliament, Brussels, 30 March.
Wicksell, K (1936), Interest and prices, Ludwig von Mises Institute.
Woodford, M. (2000), “Monetary policy in a world without money”, International Finance, Vol. 3, No 2, pp. 229-260.
Zamora-Pérez, A. (2021), “The paradox of banknotes: Understanding the demand for cash beyond transactional use”, ECB Economic Bulletin, Issue 2, European Central Bank, Frankfurt am Main.

This article was written by Luca Nocciola (Directorate General Market Infrastructures and Payments, European Central Bank) and Alejandro Zamora-Pérez (Directorate Banknotes, European Central Bank), drawing on selected results of Nocciola and
Zamora-Pérez (2024). The authors gratefully acknowledge the comments by Ulrich Bindseil, Piero Cipollone, Ignacio Terol, Anton van der Kraaij, Claudia Lambert, Livio Stracca, Gareth Budden, Alexander Popov and Luc Laeven. The views expressed here are those of the authors and do not necessarily represent the views of the European Central Bank or the Eurosystem.
Historical discussions on the challenges of a cashless economy – and, by extension, an economy without public money in payments – date back to Wicksell (1936), who inquired as to whether private banks could control price fluctuations in a credit-only system. Over time some economists (Black, 1987; King, 1999; and Friedman, 1999) have expressed concerns about the overall effectiveness of the central bank’s policies in such scenarios, while others have downplayed potential risks (Goodhart, 2000; and Woodford, 2000).
See European Central Bank (2022).
There are similar studies by Huynh et al (2020) and Li (2023).
According to previous qualitative surveys, these attributes also play an important role for consumers when considering the prospective adoption of new means of payment (Kantar Public, 2023).
Despite over two decades of mobile payment availability, usage remains limited, particularly at the POS. In 2022, mobile apps accounted for just 3% of POS payments on average, with usage ranging from 1% in Slovenia to 10% in the Netherlands, according to the latest SPACE survey data. However, mobile payments are increasingly being used for person-to-person (P2P) transactions, averaging 10% in 2022, up from 3% in 2019, from 1.5% in Austria to 43% in the Netherlands.
Our findings should not be interpreted as a direct extrapolation of demand for any specific CBDC.
Although our analysis primarily assesses the impact at the point-of-sale, we also address the potential influence of the
person-to-person (P2P) use case, in line with findings that highlight its relevance (Kantar Public, 2023). Hence, our simulation includes data on the aggregate usage of both P2P and POS transactions with novel means of payment, such as mobile payments, to estimate the potential level of adoption of a CBDC.
Our data primarily focus on established payment features and do not explicitly capture preferences for innovative features identified in the referenced qualitative surveys which still have a low adoption rate, such as QR code payments, offline payments, conditional payments or the benefit of integrated payment solutions. While these innovative features are among the unobservable factors that influence consumer behaviour in our model, the absence of specific data on them precludes detailed policy simulations.

 
Compliments of the European Central BankThe post ECB | Consumer demand for central bank digital currency as a means of payment first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

“Check against delivery”
Today, I have met with the Conference of Presidents of the political groups in the European Parliament. In this meeting I have presented to the Parliament the planned structure of the new college, based on my political guidelines, on which we worked together; intensive weeks of negotiations with the Member States.
I know that you are very interested in the structure but allow me to speak first about the content that defines the structure. Together, we have defined core priorities. They are built around prosperity, security, democracy. The backdrop is: competitiveness in the twin transition, and they are very much intertwined and cross-cutting.
The whole college is committed to competitiveness! We have dissipated the former rigid stovepipes.
This is one of the main recommendation of the Draghi report. Strengthening our tech-sovereignty, security and democracy. Building a competitive, decarbonised and circular economy, with a fair transition for all. Designing a bold industrial strategy with innovation and investment at its heart. Boosting European cohesion and regions. Supporting people, skills and our social model. Ensuring Europe can assert its interests and lead in the world. And this is reflected in the titles of the six Executive Vice-Presidents.
Another principle: as the treaty says, each Member of the College is equal – and each Commissioner has an equal responsibility to deliver on our priorities. That means that all Commissioners must work together. In this spirit, each Executive Vice-President will also have a portfolio to focus on – for which they will have to work with other Commissioners. Because what affects security affects democracy, what affects the economy affects society, and what affects climate and environment, also affects people and business.
This is also why we do not have the extra layer of Vice-Presidents. Leaner structure, more interactive and interlinked.
Another topic is balance in general. Be it gender or topic or geography.
As you will see, we now have 11 women in the College I propose today. That is 40%. When I received the first set of nominations and candidates, we were on track for around 22% women and 78% men. That was unacceptable. So I worked with the Member States and we were able to improve the balance to 40% women and 60% men. And it shows that – as much as we have achieved – there is still so much more work to do. And with this in mind I assigned six Executive Vice-presidents.
Six Executive Vice-Presidents: four women, two men. Three from Member States that joined before the fall of the Iron Curtain. And three from Member States that joined after Europe was reunited. From the Baltics, Nordics and Eastern Europe. Ministers and Prime Ministers. Different backgrounds. But all with one common goal – and that is to make Europe stronger.
So allow me to introduce them.
Teresa Ribera will be Executive Vice-President of a Clean, Just and Competitive Transition. She will also be responsible for Competition policy. She will guide the work to ensure that Europe stays on track for its goals set out in the European Green Deal. And that we decarbonise and industrialise our economy at the same time.
Henna Virkkunen will be the Executive Vice-President for Tech-Sovereignty, Security and Democracy. She will also be responsible for the portfolio on digital and frontier technologies. I will ask Henna to look at the internal and external aspects of security. But also to strengthen the foundations of our democracy, such as the rule of law, and protect it wherever it comes under attack.
Stéphane Séjourné will be the Executive Vice-President for Prosperity and Industrial Strategy. He will also be responsible for the Industry, SMEs and the Single Market portfolio. He will guide the work to put in place the conditions for our companies to thrive – from investment and innovation to economic stability and trade and economic security.
As you already know, Kaja Kallas will be our High Representative and Vice-President. We are in an era of geostrategic rivalries and instability. Our foreign and security policy must be designed with this reality in mind and it must be more aligned with our own interests. I know that I can count on her to bring all of this together – and be the bridge between our internal and external policies. And to ensure we stay a Geopolitical Commission.
I am also very happy to entrust the role of Executive Vice-President for People, Skills and Preparedness to Roxana Mînzatu. She will have the responsibility for skills, education and culture, quality jobs and social rights. This is under the umbrella of demography. Roxana will notably lead on a Union of Skills and the European Pillar of Social Rights. She will focus on those areas which are crucial to unite our society.
Raffaele Fitto will be Executive Vice-President for Cohesion and Reforms. He will be responsible for the portfolio dealing with cohesion policy, regional development and cities. We will draw on his extensive experience to help modernise and strengthen our cohesion, investment and growth policies.
This is the team of Executive Vice-Presidents which will work hand in hand with each other and with all Commissioners.
And I would now like to introduce them to you all.
I will start here with Maroš Šefčovič, to whom I am very happy to give two roles. He will be Commissioner for Trade and Economic Security. This is a new portfolio which also includes customs policy. I have also entrusted him with a second role: Commissioner for Interinstitutional Relations and Transparency. For this second role, he will report directly to me.
Valdis Dombrovskis will also have a double role. He will be the Commissioner for Economy and Productivity. I have also given him the role of Commissioner for Implementation and Simplification. He will report directly to me on this part of his work.
Dubravka Šuica will be the Commissioner for the Mediterranean. I am entrusting her with this new role. She will also be responsible for the wider southern neighbourhood. She will work closely with Kaja Kallas – and many other Commissioners – to develop our shared interests with the region.
Olivér Várhelyi will be Commissioner for Health and Animal Welfare. He will be responsible for building the European Health Union and continuing the work on beating cancer and on preventive health.
Wopke Hoekstra will be the Commissioner for Climate, Net Zero and Clean Growth. He will continue to work on implementation and adaptation, on climate diplomacy and decarbonisation. And he will also be responsible for taxation.
Andrius Kubilius will be the Commissioner for Defence and Space. He will work on developing the European Defence Union and boosting our investment and industrial capacity.
Marta Kos, it should be noted that the Government of Slovenia has suggested Marta Kos as Member of the College. The nomination procedure which involves the consultation of the national Parliament for a non-binding opinion is ongoing. She will be Commissioner for Enlargement – also responsible for our Eastern neighbourhood.
She will work on supporting Ukraine – and continuing the work on reconstruction, and support candidate countries to prepare them for accession.
Jozef Síkela will be the Commissioner for International Partnerships. He will lead the work on Global Gateway – and ensure that we develop mutually beneficial partnerships which invest in a common future.
Costas Kadis will be the Commissioner for Fisheries and Oceans. I count on his experience to help build a resilient, competitive, and sustainable sector and present the first European Oceans Pact.
Maria Luís Albuquerque will be the Commissioner for Financial Services and the Savings and Investment Union. This will be vital to strengthen and complete our Capital Markets Union and ensure that private investment powers our productivity and innovation.
Hadja Lahbib will be the Commissioner for Preparedness and Crisis Management. This is another new portfolio which will look at resilience, preparedness and civil protection. She will be responsible for leading our efforts on crisis management and humanitarian aid.
Magnus Brunner will be the Commissioner for Internal Affairs and Migration. He will of course focus on the implementation of the Pact on Asylum and Migration – but also on strengthening our borders and developing a new internal security strategy.
Jessika Roswall will be the Commissioner for Environment, Water Resilience and a Competitive Circular Economy. She will have an important job to help preserve our environment and put nature on the balance sheet. She will help develop a more circular and more competitive economy. And she will lead the work on water resilience which is a big priority for the years ahead.
Piotr Serafin will be the Commissioner for Budget, Anti-Fraud and Public Administration. He will report directly to me and notably focus on preparing the next long-term budget and ensure we have a modern institution to deliver for Europeans.
Dan Jørgensen will be the Commissioner for Energy and Housing. His work will help to bring down energy prices, invest in clean energy and ensure that we cut our dependencies. He will be the first ever Commissioner for Housing – looking at all aspects from energy efficiency to investment and construction.
Ekaterina Zaharieva will be Commissioner for Research and Innovation. We must put research and innovation, science and technology at the centre of our economy. She will help ensure that we invest more and focus our spending on strategic priorities and on groundbreaking innovation.
Michael McGrath will be Commissioner for Democracy, Justice and the Rule of Law. I have entrusted him with the responsibility to take forward the European Democracy Shield. He will also lead our work on the rule of law, anti-corruption and consumer protection.
Apostolos Tzitzikostas will be Commissioner for Sustainable Transport and Tourism. He is responsible for mobility of goods and people. These are essential sectors for our competitiveness but also for our transitions, for connecting people and driving local economies.
Christophe Hansen will be the Commissioner for Agriculture and Food. He will have the task to bring to life the report and recommendations of the Strategic Dialogue. And based on the Strategic Dialogue he will develop a Vision for Agriculture and Food in the first 100 days of the mandate.
Glenn Micallef will be Commissioner for Intergenerational Fairness, Culture, Youth and Sport. Intergenerational fairness is a cross cutting topic. It affects all of us – and especially young people. It is about the right balance in a society. And I have entrusted Glenn to watch over it.
The key message is that wherever we come from, whatever our job title: we must all work together. We will have open debates. We will all be independent in thought and action. And we will all take ownership of what is agreed. This is the team that I am putting forward today.
On this basis, once the European Parliament has received the official letter of the Council in agreement with the President of the Commission, it may proceed with the formal proceedings for the nomination of the new college. Always in accordance with its rules of procedure.The post European Commission | Press statement by President von der Leyen on the next College of Commissioners first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

EU companies grow and innovate less than American counterparts
Blog post by Diego Cerdeiro, Gee Hee Hong, Alfred Kammer | In the European Union, income per person, one of the main gauges of living standards, is on average one-third less than in the United States, mostly because of lower productivity—as emphasized by Mario Draghi’s Sept. 9 competitiveness report for the European Commission. But what is the cause of the problem? As we show in the forthcoming Regional Economic Outlook, Europe’s aggregate productivity problem can be traced back to performance differences at the firm level.
Among large, leading companies, productivity and innovation have diverged markedly across both sides of the Atlantic. Market valuations of US-listed firms have more than tripled since 2005, while Europe’s have grown by only 60 percent. While valuations can reflect expectations that end up unmet, our analysis suggests that the divergence stems also from a productivity gap across all industries and is particularly pronounced in technology sectors. Productivity for US technology firms has surged by nearly 40 percent since 2005, yet it’s little changed for European companies. This significant difference is underpinned by much greater innovation efforts among enterprises in the United States, where research and development spending as a share of sales is more than double that of Europe.

Europe also suffers from a broader lack of business dynamism beyond large corporations. There is a lower number of startups, and too few among them grow fast and eventually become large firms. In the United States, the fastest growing young companies employ six times more people (as share of total employment) than their European counterparts. With fewer successful young firms, there are also fewer large and highly productive companies later on. There is, instead, an overabundance of small and low-growth firms.
Europe’s weaker business dynamism is partly due to constraints to scaling up—particularly in innovation. Two key factors are a smaller market size and access to finance:

Market size: While the EU and US markets are comparable in terms of purchasing-power parity gross domestic product, the EU’s is still highly fragmented. Trade intensity between EU countries is less than half the level between US states. That means a European business doesn’t benefit from economies of scale and network effects the way an American one does—which is especially harmful in tech, where scaling up quickly is critical.

Access to finance: In the last two decades, US-listed firms have issued about twice as much equity relative to their size as their European counterparts. Equity is crucial to finance intangible investments like patents or trademarks that can’t be pledged as collateral for bank credit, and to protect these investments against short-term economic fluctuations. Funding through debt also bears higher interest rates, especially for younger businesses. Venture capital investment could help these firms, but the size of that market in the EU as a share of the economy is only around a quarter what it is in the US.

Addressing these root causes behind the underperformance of European businesses will require significant action at both the EU and domestic levels.
Deepening the European single market would lift constraints to growth for Europe’s most productive firms. Removing remaining barriers to trade within the EU and advancing the capital markets union would incentivize firms to undertake R&D and other investments that only pay off with a large customer base. For example, investing more in physical infrastructure to connect EU countries and deeper services trade liberalization can expand firms’ market access within Europe. Easing the constraints that inhibit venture capital would increase the availability of equity financing for startups and young firms. Measures include harmonizing regulations that hinder investments in larger venture funds; and having the European Investment Fund play a catalytic role by providing a quality seal, including through due diligence as a public good.
Improving business dynamism also requires strong domestic efforts that match EU-level ambitions. Easing remaining administrative barriers to entry would help more people start businesses, especially in services sectors. Facilitating the entry of new, innovative firms also calls for labor market regulations that protect workers, not jobs. This means combining more flexible layoff procedures with adequate unemployment benefits and strong active labor market policies that support job search and skill development. Tax and regulatory incentives for small firms should be made temporary to incentivize firm growth. Finally, supporting tertiary education and addressing skill mismatches are critical to foster ideas creation through new firms and technology adoption by existing businesses.
The EU must find common ground for removing barriers to goods, services, capital, and labor flows within the single market. The efforts will need to span multiple areas, opening protected sectors, lowering regulatory costs of operating across borders, expanding the capital market for innovative ventures, and investing in education. A thriving business sector is key to reducing Europe’s large productivity and income per capita gap.
See full post here.
 
Compliments of the IMFThe post IMF | How to Awaken Europe’s Private Sector and Boost Economic Growth first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

NEW YORK—The Federal Reserve Bank of New York’s Center for Microeconomic Data today released the August 2024 Survey of Consumer Expectations, which shows inflation expectations remained unchanged at the short- and longer-term horizons, and rebounded somewhat at the medium-term horizon after a sharp decrease last month. Labor market expectations were mixed, but largely stable. Households were more optimistic about the availability of credit a year from now. Delinquency expectations rose slightly again, to the highest level since April 2020.
The main findings from the August 2024 Survey are:
Inflation

Median inflation expectations at the one- and five-year horizons remained unchanged in August at 3.0% and 2.8%, respectively. Median inflation expectations at the three-year horizon rebounded somewhat from the low July reading, increasing from 2.3% to 2.5%. The survey’s measure of disagreement across respondents (the difference between the 75th and 25th percentile of inflation expectations) increased at all three horizons.
Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—was unchanged at the one-year horizon and declined at the three- and five-year horizons.
Median home price growth expectations increased to 3.1% from 3.0% in July.
Median year-ahead expected price changes increased by 0.1 percentage point to 3.6% for gas, by 0.2 percentage point to 7.3% for rent, and 0.4 percentage point to 8.0% for medical care, but declined by 0.3 percentage point to 4.4% for food and 1.3 percentage points to 5.9% for the cost of a college education.

Labor Market

Median one-year-ahead expected earnings growth increased to 2.9% from 2.7%, just above its 12-month trailing average of 2.8%. The increase was most pronounced for respondents in households with less than $50,000 annual income.
Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—increased to 37.7% from 36.6% in July.
The mean perceived probability of losing one’s job in the next 12 months decreased by 1.0 percentage point to 13.3%, falling below the 12-month trailing average of 13.7%. The mean probability of leaving one’s job voluntarily in the next 12 months also decreased, to 19.1% from 20.7%, falling slightly below the 12-month trailing average of 19.4%.
The mean perceived probability of finding a job if one’s current job was lost decreased by 0.2 percentage point to 52.3%, remaining below the 12-month trailing average of 53.9% and well below its year-ago reading of 55.7%.

Household Finance

Median expected growth in household income increased by 0.1 percentage point to 3.1%, remaining within the narrow range of 3.0% to 3.1% the series has maintained for the past year.
Median household spending growth expectations increased by 0.1 percentage point to 5.0%. The series has moved within a narrow range of 4.9% to 5.2% since November 2023, remaining well above its February 2020 level of 3.1%.
Perceptions of credit access compared to a year ago improved with a smaller share reporting tighter conditions compared to a year ago. Expectations about future credit access also improved, with a smaller share of respondents expecting tighter credit conditions a year from now, and a larger share expecting easier conditions. The shares reporting or expecting worse credit conditions are at their lowest levels since early 2022, while the share expecting improved credit availability is at its highest level since September 2021.
The average perceived probability of missing a minimum debt payment over the next three months increased by 0.3 percentage point to 13.6%, its third consecutive increase. The current reading is the highest since April 2020.
The median expected year-ahead change in taxes at current income level declined by 0.1 percentage point to 3.9%.
Median year-ahead expected growth in government debt decreased to 9.1% from 9.3%.
The mean perceived probability that the average interest rate on saving accounts will be higher in 12 months increased by 1.5 percentage points to 26.6%.
Perceptions about households’ current financial situations deteriorated slightly with fewer respondents reporting being better off than a year ago and more respondents reporting being worse off. Year-ahead expectations also deteriorated somewhat, with a larger share of respondents expecting to be worse off. Overall, respondents remain considerably more optimistic about their financial situation compared to a year ago.
The mean perceived probability that U.S. stock prices will be higher 12 months from now remained unchanged at 39.3%.

About the Survey of Consumer Expectations (SCE)

The SCE contains information about how consumers expect overall inflation and prices for food, gas, housing, and education to behave. It also provides insight into Americans’ views about job prospects and earnings growth and their expectations about future spending and access to credit. The SCE also provides measures of uncertainty regarding consumers’ outlooks. Expectations are also available by age, geography, income, education, and numeracy.
The SCE is a nationally representative, internet-based survey of a rotating panel of approximately 1,300 household heads. Respondents participate in the panel for up to 12 months, with a roughly equal number rotating in and out of the panel each month. Unlike comparable surveys based on repeated cross-sections with a different set of respondents in each wave, this panel allows us to observe the changes in expectations and behavior of the same individuals over time. For further information on the SCE, please refer to an overview of the survey methodology, the interactive chart guide, and the survey questionnaire.
 
For more information, please contact:

Connor Munsch, Corporate Communications Analyst, FEDERAL RESERVE BANK OF NEW YORK
The post NY Fed | Consumers’ Inflation and Labor Market Expectations Remain Largely Stable first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.