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Speech by Christine Lagarde | A new global map: European resilience in a changing world

Keynote speech by Christine Lagarde, President of the ECB, at the Peterson Institute for International Economics | Washington, D.C., 22 April 2022 |

It is a pleasure to be in Washington to speak with you today.
The economic fallout from Russia’s invasion of Ukraine may mark a defining moment for globalisation in the 21st century.
Russia’s unprovoked aggression has triggered a fundamental reassessment of economic relations and dependencies in our globalised economy. And in a post-invasion world, it has become increasingly untenable to isolate trade from universal values such as respect for international law and human rights.
Throughout human history, economic relations and values have fundamentally shaped how we understand and interact with the world. This point is well captured by those world maps from Medieval times.
These mappae mundi, as they are known, depicted world views informed by trade links and value systems. Well-trodden trade routes from ancient times meant that Asia and North Africa figured prominently in them. Mappae mundi, like the famous Ebstorf Map, often portrayed the holy city of Jerusalem at the centre of the world.
Today, rising geopolitical tensions mean our global economy is changing. And once more, fluctuating value systems and shifting alliances are creating a new global map of economic relations.
It is still too early to say how this will play out, but one can already see the emergence of three distinct shifts in global trade. These are the shifts from dependence to diversification, from efficiency to security, and from globalisation to regionalisation.
These shifts have implications for Europe. And we must respond accordingly if we are to thrive in this new and increasingly uncertain global terrain. But that does not mean restricting open trade. Rather, we must work towards making trade safer in these unpredictable times, while also leveraging our regional strength.
That will not be easy. But as Christopher Columbus once said, “You can never cross the ocean until you have the courage to lose sight of the shore.”
Globalisation past and present
The years following the fall of the Berlin Wall marked a golden era for globalisation. The drive for increased efficiency saw global value chains blossoming alongside a rising tide of trade, with production becoming increasingly unbundled across borders. Today, around half of global trade is related to global value chain, or GVC activities.[1]
Europe in particular benefited from the march of globalisation. Trade as a share of GDP rose from 31% to 54% in the euro area between 1999 and 2019, whereas in the United States it rose from just 23% to 26%.[2] Europe’s integration with global value chains was deeper too, with GVC participation roughly 20 percentage points higher than in the United States.[3]
The economic benefits of all this were real. Integration with global value chains led to lower import prices, technology spillovers, and productivity gains from the international division of labour.[4] And when regions were faced mainly with local shocks, trade openness helped buffer the domestic effects, allowing countries to diversify risks and exploit multiple sources of external demand.[5]
But two factors have emerged in recent years that expose the vulnerabilities of this model.
First, the efficiency gains of this unfolding of production have been shown to be prone to risks. As global supply chains have become progressively leaner and more efficient through “just-in-time” production, they have also become extremely vulnerable to disruptions in the face of global shocks that affect multiple sectors at once.[6]
In fact, as we saw during the pandemic, global value chains materially transmitted and amplified global shocks. During the contractionary phase of the pandemic, GVC-related spillovers amplified the decline in global imports and exports by 25%, according to one study.[7] And during the recovery phase, mismatches between burgeoning global demand and restrained supply have contributed to surging industrial goods inflation. Supply bottlenecks are found to have contributed to half of the rise in manufacturing producer price inflation in the euro area.[8]
Second, it has become clear how much global production relies on critical raw materials sourced from just a few countries – an arrangement that can quickly become a vulnerability when geopolitics change and countries with different strategic goals emerge as more risky trading partners. For example, China was estimated to control over half of the global rare earths mining capacity in 2020, and 85% of rare earths refining.[9]
In Europe’s case, the European Commission has found that 34 products used in the EU are extremely exposed to supply chain disruptions given their low potential for diversification and substitution inside the Union.[10] And this vulnerability has become more evident as a result of the Russia-Ukraine war.
The euro area is highly dependent on Russia for, among other things, cobalt and vanadium. These are key inputs for the 3D printing, drone and robotics industries. And Ukraine accounts for around one-fifth of Europe’s supply of wire harnesses for cars.[11] The war has already forced wiring plants in the country to shut down, causing some car manufacturers in the EU to halt production. The export-oriented agricultural sector has also been affected.
Perhaps most importantly, the war has exposed the vulnerability of Europe’s energy supply. In 2020 the EU imported around 60% of its energy, a reliance that has actually increased since 2000, despite a growing share of renewables in energy production.[12] And just four countries accounted for over 70% of the bloc’s natural gas imports, with over 40% coming from Russia alone.[13]
These two factors have underlined that the earlier advance of globalisation largely relied on a “Goldilocks” scenario of relative economic and geopolitical stability. However, economies could be subject to huge volatility if shocks were global and correlated, and if there were excessive dependencies on particular suppliers.
So, many countries are now faced with the question of how to respond to these new vulnerabilities. The answer is not to withdraw within our borders and erect trade barriers. History shows that retreating from global trade comes with substantial costs. One study finds that the United States’ self-imposed embargo on international shipping back in 1808 cost roughly 8% of its gross national product.[14]
Instead of restricting trade, we should work towards making trade safer. And there are signs that three shifts are taking place in world trade in response to this new global map.
Three shifts in global trade
The first shift is from dependence to diversification.
Having learnt the lessons of the pandemic, firms are unlikely to remain dependent on relatively linear global supply chains. But that does not, in the first instance, mean that they will seek to deglobalise and reshore production. Initially we are likely to see a greater focus on diversifying suppliers and stockpiling essential inputs.
Research finds that higher diversification can almost halve a supply shock’s negative impact on a country’s GDP.[15] And indeed, existing supply chains that were more geographically diversified helped to mitigate the effects of domestic shocks during the pandemic.[16] By contrast, greater supply chain concentration is found to increase economic volatility.[17]
This diversification trend is already underway. By late 2021 almost half of companies had diversified their supplier base, in contrast to just 5% that had implemented reshoring measures.[18] At the same time, companies moved away from relying on “just-in-time” supply chain management towards a “just-in-case” approach. Less than 15% of companies were relying on “just-in-time” deliveries by the end of last year.[19]
However, diversification is likely to have limits – and this brings me to the second shift, which is from efficiency to security.
In recent years we have seen a shift towards new industrial policies, mainly led by China and the United States, in which geopolitical biases are being introduced into strategic supply chains at the expense of efficiency considerations. The US administration has explicitly identified “friend-shoring” as a policy goal in its recent supply chain strategy.[20]
Now, the war may prove to be a tipping point for Europe and other regions too, making the alliances to which suppliers’ countries belong more important. International firms will still face strong incentives to organise production where costs are lowest, but geopolitical imperatives might restrict the perimeter in which they can do so.
For strategic industries such as semiconductors or pharmaceuticals, the very limited reshoring of supply chains we saw during the pandemic will probably change as a deliberate result of public policy. Europe, for example, is aiming to double its share of the global market for semiconductor production to 20% by 2030.[21]
But even industries that are not considered strategic are likely to anticipate the fracturing of the global trading order and adjust production themselves. A recent survey found that 46% of German companies receive significant inputs from China. Of those, almost half are planning to reduce their dependency on China.[22] In the United States, almost 40% of members of the US-China Business Council have moved sourcing due to uncertainties about supply.[23]
For energy and critical raw materials, increasing security will require a different strategy. After all, these resources are distributed unevenly around the world, and cannot be substituted with domestic alternatives. Regions will increasingly have to source their critical inputs from a smaller pool of potential suppliers that are deemed reliable and in line with their shared strategic interests. And they will need to do so in the context of a green transition that is making certain raw materials – like copper, cobalt and nickel – increasingly more important than others. A new geopolitical race to secure access to resources is therefore likely.
Achieving greater security will not come without costs, and this is why the third shift – from globalisation to regionalisation – is also likely to gather pace. The price of increased security could in principle take the form of lower international risk-sharing and higher transitional costs.
In this changing geopolitical landscape, global export markets may not be as open or as reliable as before. Therefore, the scope for insuring against business cycle risks by “rotating” demand across multiple trade partners may become more restricted.
This change could particularly affect Europe given its high exposure to world trade. Between 2010 and 2014, when Europe was recovering from the global financial crisis, external demand as a share of euro area GDP more than doubled.[24] But if other regions begin to turn inwards, that escape valve to relieve pressure from shocks is likely to weaken.
Moreover, the transitional costs related to a large-scale reorientation of supply will be significant. For example, establishing fully domestic semiconductor manufacturing supply chains within the United States could cost up to USD 1 trillion, according to one estimate. That is more than twice the value of the global semiconductor market.[25] In addition, a rapid shift from lower-cost to higher-cost suppliers is likely to have implications for price dynamics, at least during the transition.[26]
In this context, the first best option is still to defend the rules-based multilateral trading system that powered the rise of global trade. But as a fallback, regionalisation allows countries to recreate some of the benefits of globalisation on a smaller scale and to limit these costs.
Regionalisation creates an opportunity for deeper regional risk-sharing – both through trade and financial integration. This can to some extent substitute for lower risk-sharing at the global level. It facilitates common funding of strategic priorities and investment in transitions, helping generate economies of scale. And it may also help to offset cost pressures emanating from higher energy prices and the associated elevated transportation costs.
Regionalisation is not a new phenomenon – in recent decades it has gone hand-in-hand with faster globalisation. But now, for the first time, we may see these two forces diverge. Fragmentation at the global level may ultimately spur greater integration at the regional level because the latter can help to manage the costs of a changing world.
European resilience in a changing world
So how should Europe respond to these changes?
Europe’s main challenge today is to achieve “open strategic autonomy” – that is, to strike a careful balance between insuring against risk in areas where our vulnerabilities are excessive and avoiding protectionism. Having spent decades investing in regionalisation, the EU is well placed to succeed in a world where the global order is more fragmented, while still acting as a force for trade openness.
Three advantages stand out.
First, Europe has the world’s largest single market, which gives Member States a strong base in which to establish new supply chains if strategic imperatives require it. In fact, over 70% of the euro area’s participation in global value chains was already regional in 2019.[27]
Second, we have long pursued a form of “managed globalisation” within our single market. Although barriers to commerce and exchange have been steeply reduced, we have set up strong common institutions to police the market and ensure that countries have recourse to binding arbitration in the event of disputes. This is likely to make openness more sustainable within Europe at a time when it could be under threat at the global level.
Third, we have already made considerable headway towards pooling resources, which will be important in managing the ongoing transitions. The investment needs we face are massive, especially if we are to decouple quickly from Russia. But we have already set up innovative European instruments that can help, including the €750 billion Next Generation EU fund established in response to the pandemic. Almost 40% of that spending has been allocated to the green transition.
At the same time, Europe has the potential to implement a positive-sum form of regionalisation that also makes the global economy more robust.
The single market allows the EU to use its economic weight to steer openness in a rules-based direction, and to set values and standards in other parts of the world – which it already does via the so-called Brussels effect.[28] And because regions become more dynamic internally when they integrate further, we could see Europe emerging as another economic engine on which the global economy can rely to sustain growth.
Recent decisions will help in this regard. Next Generation EU investment, for example, could increase real GDP in the EU by 1.5% by 2024.[29] Moreover, were EU leaders to raise military expenditure to 2% of GDP in response to the Russian threat, this would imply an increase in government spending of 0.7% of GDP. That could add another 0.2 percentage points to euro area growth by 2024.
But if Europe is to seize this moment, we cannot afford to stand still. New challenges may require us to design new instruments or repurpose old ones. And there are also existing integration projects that have somewhat stalled but are vital in this new environment.
We are still lacking a complete single market for services, which will become an even greater hindrance to growth in a world of remote work. And European capital markets remain segmented, limiting risk-sharing via cross-border debt and equity holdings. Only around 20% of shocks in the euro area are mitigated in this way, compared with at least 60% in the United States.[30]
Nevertheless, I am optimistic about Europe overall, in large part because the changing dynamics driving integration are likely to make the benefits of the EU more visible to its citizens.
In recent decades integration has been largely internally driven and triggered by economic crises. There have been notable achievements – such as constructing the banking union – but it is questionable how visible these successes are in people’s everyday lives.
But external threats are now becoming more prevalent again, and this is driving integration in areas which arguably inspire stronger feelings in EU citizens. For example, over three-quarters of Europeans are in favour of a common EU defence and security policy.[31]
Therefore, one outcome of this changing global environment could be to make the benefits of European integration more tangible, and thereby increase the legitimacy of the EU overall.
Conclusion
Let me conclude.
The Russia-Ukraine war has not only cast a shadow over Europe, it has also raised several questions about where the global economy is heading in the 21st century. The shifts we are seeing may mean uncertain times lie ahead for trade.
However, being back in Washington, D.C., I am reminded of the words of one of the founding fathers of the United States, Benjamin Franklin. He once wrote: “No nation was ever ruined by trade.”
The benefits of globalisation are indisputable. Open trade should not have to suffer in this global reordering. But that outcome is not guaranteed. It requires us to combine the pursuit of a rules-based international order with a drive to reduce our strategic vulnerabilities. And Europe is well placed to achieve this synthesis, guided by the compass of open strategic autonomy.
Thank you for your attention.
Compliments of the European Central Bank.

Borin, A., Mancini M. and Taglioni, D. (2021), “Measuring Exposure to Risk in Global Value Chains”, Policy Research Working Paper Series, No 9785, World Bank, Washington, D.C., September.

Lagarde, C. (2021), “Globalisation after the pandemic”, 2021 Per Jacobsson Lecture at the IMF Annual Meetings, 16 October.

Euro area; data up to 2014; see ECB Working Group on Global Value Chains (2019), “The impact of global value chains on the euro area economy”, Occasional Paper Series, No 221, ECB, Frankfurt am Main.

The World Bank finds that a 1% increase in GVC participation is associated with an increase of more than 1% in per capita income in the long run. See World Bank (2020), “World Development Report 2020: Trading for Development in the Age of Global Value Chains”, World Bank, Washington, D.C.

Caselli, F. et al. (2015), “Diversification Through Trade”, NBER Working Paper Series, No 21498, August.

Baldwin, R. and Freeman, R. (2021), “Risks and global supply chains: What we know and what we need to know”, NBER Working Paper Series, No 29444, October.

Cigna, S., Gunnella, V., and Quaglietti, L. (2022), “Global value chains: measurement, trends and drivers”, Occasional Paper Series, No 289, ECB, Frankfurt am Main, January.

Celasun, O., Hansen, N-J., Mineshima, A., Spector, M. and Zhou. J (2022), “Supply Bottlenecks: Where, Why, How Much, and What Next?”, IMF Working Papers, No 2022/031, International Monetary Fund, February.

The White House (2021), “Building resilient supply chains, revitalizing American manufacturing, and fostering broad-based growth”, June.

European Commission (2021), “Strategic dependencies and capacities”, Commission Staff Working Document, 5 May.

Financial Times (2022), “Europe’s car plants halted by lack of low-cost Ukrainian component”, 16 March.

Data on energy imports dependency can be found on Eurostat; see also European Commission, “From where do we import energy?”.

Figures for 2019. European Commission, “From where do we import energy?”.

See Irwin, D. (2001), “The Welfare Cost of Autarky: Evidence from the Jeffersonian Trade Embargo, 1807-1809”, NBER Working Paper Series, No 8692, December.

International Monetary Fund (2022), “World Economic Outlook”, April.

See Espitia, A., Mattoo, A., Rocha, N., Ruta, M. and Winkler, D. (2021), “Pandemic Trade: COVID-19, Remote Work and Global Value Chains”, Policy Research Working Paper Series, No 9508, World Bank, January; and OECD (2021), “Global value chains: Efficiency and risks in the context of COVID-19”, Policy Responses to Coronavirus (COVID-19).

D’Aguanno, L., Davies, O., Dogan, A., Freeman, R., Lloyd, S., Reinhardt, D., Sajedi, R. and Zymek, R. (2021), “Global value chains, volatility and safe openness: Is trade a double-edged sword?”, Bank of England Financial Stability Paper, No 46, January; McIntyre, A., Li, M.X., Wang, K. and Yun, H. (2018), “Economic Benefits of Export Diversification in Small States”, IMF Working Papers, No 18/86, April.

Economist Impact (2022), “Trade in Transition 2022”.

Economist Impact (2022), “Trade in Transition 2022”.

The White House (2021), “Building resilient supply chains, revitalizing American manufacturing, and fostering broad-based growth”, June.

European Commission (2022), “Digital sovereignty: Commission proposes Chips Act to confront semiconductor shortages and strengthen Europe’s technological leadership”, press release, 8 February.

Baur, A. and Flach, L. (2022), “Deutsch-chinesische Handelsbeziehungen: Wie abhängig ist Deutschland vom Reich der Mitte?”, ifo Schnelldienst, No 4, 31 March.

US-China Business Council (2021), “Member survey”.

Lagarde, C. (2021), “Globalisation after the pandemic”, 2021 Per Jacobsson Lecture at the IMF Annual Meetings, 16 October.

Deloitte (2022), “Government trends 2022: Building resilient, connected, and equitable government of the future”.

I have recently touched on this topic. See Lagarde, C. (2022), “Monetary policy in an uncertain world”, speech at “The ECB and Its Watchers XXII” conference, 17 March.

Cigna, S., Gunnella, V., and Quaglietti, L. (2022), “Global value chains: measurement, trends and drivers”, Occasional Paper Series, No 289, ECB, Frankfurt am Main, January.

Bradford, A. (2015), “The Brussels Effect”, Northwestern University Law Review, Vol. 107, No 1.

Pfeiffer, P., Varga, J. and in ‘t Veld, J. (2021), “Quantifying Spillovers of Next Generation EU Investment”, Discussion Paper, No 144, European Commission, July.

Cimadomo, J., Hauptmeier, S., Palazzo, A.A. and Popov, A. (2018), “Risk sharing in the euro area”, Economic Bulletin, Issue 3, ECB, Frankfurt am Main.

Eurobarometer (2022), “Standard Eurobarometer 96 – Winter 2021-2022”, April.

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Statement by Executive Vice-President Vestager On the decision by Kingspan and European Architectural Systems to abandon the proposed transaction involving the purchase of Trimo

The European Commission takes note of the decision by Kingspan and European Architectural Systems (i.e. the parent company of Trimo) to terminate their proposed agreement according to which Kingspan intended to acquire sole control over Trimo. This marks the end of the Commission’s investigation into this transaction. Kingspan, based in Ireland, is a manufacturer of insulating panels, including mineral fibre sandwich panels, and other building materials and solutions. Trimo, based in Slovenia, is active mainly in the manufacture of mineral fibre sandwich panels. Following the results of the initial enquiry with the market, on 12 April 2021, the Commission opened an in-depth investigation into the proposed transaction. The Commission was concerned that the proposed transaction would negatively affect competition in several national markets for mineral fibre sandwich panels.
Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “Kingspan and Trimo are leading suppliers of high quality mineral fibre sandwich panels. Together, they would have become by far the largest player in Europe.
When we opened our in-depth investigation, we had concerns that the proposed transaction would negatively affect competition in certain building materials markets, leading to higher prices, reduced quality or less choice for customers.
Our preliminary findings set out in our Statement of Objections addressed to Kingspan indicated that indeed the merger was likely to lead to price increases for mineral fibre sandwich panels in several national markets, to the detriment of customers that rely on this material for their activities.
Mineral fibre sandwich panels are used in the construction industry to insulate and make more energy efficient industrial and commercial buildings. These two aspects are key to achieving our European Green Deal objectives. We must therefore ensure that these products remain available to customers at affordable prices”
Background
More information will be available on the Commission’s competition website, in the Commission’s public case register under the case number M.9938.
Compliments of the European Commission.
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Speech by Commissioner Gentiloni at the Peterson Institute for International Economics: Transatlantic economic policy in times of war

Thank you Adam for this introduction. It is a pleasure to be in D.C. and to be at the Peterson Institute for the first time in person, even if unfortunately the audience is still virtual. It is right to remain prudent – and to remind ourselves that the pandemic is not yet over. One step at a time!
It is now almost two months since Russia’s unprovoked and unjustified invasion of Ukraine. Two months of indiscriminate killings, bombings of civilian targets and absolutely shocking violence. Two months of a war happening just across from EU and NATO borders, the effects of which are being felt the world over. Indeed, this week’s IMF Spring Meetings are overshadowed by the impact of the war on the world economy.
But the consequences of Putin’s senseless war extend beyond the economy. It is also reshaping the energy landscape and triggering a shift in defence policies. I will focus this morning on the war’s economic impact, while also touching on its broader implications in these two areas – energy and defence – from a European and transatlantic perspective. 
[Economic implications]
This new crisis hit us just as our economies were shaking off the effects of the COVID-19 shock and the global recession of 2020.
We started this year with EU GDP back at pre-pandemic levels. Unemployment had reached record lows. Accumulated savings were high. And business and consumer surveys were painting a picture of growing confidence.
This swift turnaround since 2020 stands in stark contrast with the global financial crisis of 2008. Then, it took about seven years for EU economic output to reach pre-crisis levels.
This success is a testament to the strength and the coordination of our fiscal and monetary policy response, both within Europe but also at G7 and G20 level.
The US economy had a similarly fast and strong recovery, with some differences compared to the EU due to different safety nets and support mechanisms.
Of course, as we entered 2022 we were already facing a number of challenges: notably rising energy prices and supply chain disruptions, both contributing to mounting inflation.
And indeed GDP may have returned to pre-crisis levels, but it had not reached yet its pre-crisis trend. Which is really the key indicator to consider our recovery complete.
Nevertheless, the fundamentals of our economy were solid and our assumption was that these challenges would subside over the course of the year. The European economy was on course to reach its trend level later in 2022. Our Winter Economic Forecast, which I presented on 10 February, projected 4% growth in the EU for this year.
The war in Ukraine has shattered these assumptions and changed the picture dramatically. Surging commodity prices have driven inflation to new records. Broken trade links are exacerbating supply chain strains. And confidence has been damaged. Let me touch on each of these.
First, significantly higher commodity prices, notably oil and gas, but also wheat prices, among others, are putting further pressure on already high consumer inflation.
In the euro area, inflation reached 7.4% in March, the highest level since the introduction of the single currency. However, this number masks significant divergence between the 19 euro area Member States. Four are experiencing double-digit inflation while in a couple it remains more subdued at around 5%.
Inflation has similarly shot up in the US, even though there are some differences when it comes to the main drivers.  The largest driver of inflation in the euro area are energy prices, which reached almost 45% last month. Let me recall that in January 2021, energy inflation was still in negative territory.
In the US, inflation is mostly driven by strong demand and the consumption boom triggered by the policy response to the pandemic.
However, it is also clear that inflation in Europe is becoming more broad-based. The effects of the war are adding to pre-existing drivers of price rises, related to the effects of the post-pandemic recovery. At the same time, it is important to underline that inflation expectations remain anchored and that, for the moment, we see only limited second-round effects.
Second, the war and its consequences – including the successive rounds of sanctions that the EU and the US have imposed on Russia – are exacerbating pressures on already strained global supply chains. This is affecting output in a number of sectors, as well as exerting further upward pressure on prices.
Explicit embargoes, implicit bans and voluntary withdrawal from trade are inevitably having an impact on commerce. This may prove particularly important for some Member States with stronger links to Russia. In the Baltic states, for instance, exports to Russia account for some 5% to 8.5% of total exports, compared to 1.8% for the EU as a whole.
So while we continue to stand by the sanctions decisions which we have coordinated with our allies, we also have to be honest with our citizens: this strategy is not without a price.
These developments increase both the need and the likelihood that supply chains will undergo major reorganisations. Strengthening trade links with other partners will take time and may be costly in the short term. They will however reduce our strategic dependence from Russia.
Third, consumer confidence has dropped markedly since the invasion, while business confidence has so far been less affected. We will need to continue to track this soft data carefully in the coming weeks and months. The first data reflecting the impact of the war will be the preliminary GDP flash for the first quarter, which Eurostat will publish at the end of this month.
My conclusion is crystal clear: we see a significant economic impact from the war. The global impact is particularly deep for the EU. The duration of the war will determine its cost, both humanitarian and economic.
EU Member States have started to adopt a variety of measures to tackle this crisis. These include economic and material support to Ukraine, assistance to refugees, as well as continued support to the economy to deal with high energy prices and disruptions in production.
These initiatives will inevitably weigh on budget deficits. According to our preliminary assessment, the initiatives taken by governments so far will increase budget deficits by at least 0.6% of GDP this year.
Overall, it is clear that the 4% growth we had projected for this year looks out of reach. It is too soon to reveal by how much we will need to trim this forecast. I will be able to provide a first indication on May 16, when I will present our Spring Economic Forecast.
To ensure our economies successfully navigate these troubled waters, we need to maintain agile and responsive fiscal policies, much like we did during the COVID crisis. The Commission will provide updated guidance for fiscal policy in 2023 as part of the European Semester spring package that we will present on 23 May.
We must also continue to implement effectively the national recovery and resilience plans Member States put in place in the wake of the pandemic. This is key to supporting confidence and delivering the investments and reforms our economies need, now more than ever.
Beyond the economic impact of the war, there are – as I mentioned – deeper implications for our policies in other areas and for the transatlantic alliance more broadly.
This crisis has been in many ways a wake-up call for Europe: it is high time to reduce our dependencies in strategic sectors and to strengthen our autonomy.
The pandemic had already prompted this wider rethink, especially with regard to reassessing our supply chains in key areas. But the war has drastically accelerated this process, in particular in the fields of energy and defence.
[Energy]
As Secretary of State Anthony Blinken aptly put it recently, Russia is now using energy as a weapon. This clearly changes everything. It has sparked a seismic shift in the energy landscape.
The US was quick to impose an embargo on Russian energy imports. As you know, in Europe we have banned coal imports from Russia and are actively discussing the possibility of further sanctions involving oil and gas.
This approach reflects the different exposure to Russian energy on the two sides of the Atlantic. The US is a net exporter of energy with low exposure to Russia. In Europe, ninety percent of the gas we consume is imported and Russia provides almost half of those imports, in varying levels across Member States. Russia also accounts for 27% of oil and 46% of coal imports.
Nevertheless, the EU has already taken very bold decisions. We have sent a clear message to the Kremlin: we will not be blackmailed.
In March, the Commission announced the REPowerEU plan, with the goal of slashing EU demand for Russian gas by two thirds before the end of the year, and to make Europe independent from Russian fossil fuels by 2027.
The challenge will be to square the seemingly impossible trilemma of keeping energy prices affordable, ensuring security of supply and pursuing our green goals.
Soaring energy prices are harming the competitiveness of our firms and impacting low income households most severely. We have encouraged Member States to make use of a toolbox of measures to tackle high energy prices, from cutting VAT rates to providing direct support to the most vulnerable groups. This has been followed by a new temporary State aid framework. And we are discussing more far-reaching options, such as setting regulated prices.
Cutting our dependence on Russian energy while securing sufficient gas for next winter means we must increase imports from other suppliers.
Discussions with partners have intensified in recent weeks and have led to the recent deal announced by President Biden and President von der Leyen for the US to provide additional supplies of LNG to the EU. This deal marks an important step in our efforts to diversify gas supplies and is a powerful symbol of the strength of our alliance in times of crisis.
Boosting imports from other suppliers is one way to secure alternatives to Russian gas in the short-term. But make no mistake: the best way to ensure we can meet our energy needs is to diversify our energy sources and reduce our dependency on fossil fuels altogether.
The case for a rapid clean energy transition has never been stronger and clearer. The EU is already a global leader in this respect. But in the current situation, we need to do more, and we need to do it faster. It would be a mistake to put on hold the green transition while we face this crisis and we must avoid doing that.
At the recent summit in Versailles, EU leaders tasked the Commission to present concrete measures to make REPowerEU a reality. One month from now, on May 23, we will present our plan. As you can imagine, work is ongoing and it is too soon to share details. What I can say is that REPowerEU must be backed by the necessary national and European resources. The Recovery and Resilience Facility will have an important role to play.  
[Defence]
Finally, the war in Ukraine also marks a turning point for Europe’s defence policy and for the transatlantic relationship.
Positions that were held for decades have shifted in a matter of days.
For the first time in its history, the EU agreed to deliver arms and other equipment to a country under attack. With the latest announcement from earlier this month we have now pledged 1.5 billion euros in military aid to Ukraine. Unprecedented.
In Versailles, EU leaders committed to bolster our defence capabilities, pledging to: substantially increase defence expenditure; develop joint projects and joint procurement of defence capabilities within the EU; increase investments in technologies and innovation for security and defence; and further develop our defence industry.
Russia’s invasion of a country bordering NATO has also strengthened the transatlantic alliance – and its attractiveness to countries like Finland and Sweden where we have witnessed a sea change in public opinion on this matter in recent weeks. And we will see the consequence in the coming weeks.
The Versailles Declaration stresses that the EU’s efforts in this field are complementary to NATO, which remains the foundation of collective defence for its members.
Indeed, where would we be now if the Baltic states, Poland or Romania were not in NATO? I believe that NATO’s eastward expansion has actually put us in a better place to deal with Putin’s history of aggressing Russia’s neighbours.
Boosting our defence capabilities will require significant investments in our industrial and technological base.
The new defence investment needs come on top of those to deliver on the green and digital transition. We are currently working on an updated analysis of our investment needs in these strategic sectors, which will be ready with our REPowerEU plan later in May.
But we are talking about mobilising hundreds of billions of additional investments each year. While most of these investments will need to come from the private sector, financing them will require a more supportive framework of fiscal rules and potentially new tools at the European level.
[Conclusion]
Two years since the start of the pandemic, Russia’s invasion of Ukraine has plunged us into another crisis.
While its economic impact will only gradually become fully clear, its broader significance was evident from that fateful 24 February.
When Russian tanks rolled across the border, they did not just trample on Ukraine’s sovereignty but on the very notion of the international rules-based order. Ukraine is being shelled for its Western aspirations – for trying to build a liberal democracy based on freedom and the rule of law and for seeking closer ties to the West and the European Union. This is simply unacceptable.
This is why Europe and its allies have taken a strong and united stance: while staying clear from a dangerous direct participation in the war, we are providing full support to Ukraine.
In this confrontation, our economic resilience is crucial not just to protect our citizens, but also our model of Western liberal democracy. That is what is at stake now. This war might drag on for longer than we think. In the weeks and months ahead, we need to maintain the same unity that we have shown over the past two months, both across the ocean and within the EU.
This crisis will also spell the end of globalisation as we have known it and reshape global alliances. The notion of Wandel durch Handel, of bringing about change through trade, has shown its limitations. We need to rethink our relations with autocratic regimes and strengthen our ties with like-minded partners.  We do not need a revival of protectionism. What we need is a new and more secure globalisation. The balance, of course, will not be an easy one to find.
This year marks the 75th anniversary of the Marshall Plan, a project that was decisive in so many ways: it cemented transatlantic solidarity; it kickstarted Europe’s postwar recovery; and it sowed the seeds for economic integration on our continent.
And when peace returns to Ukraine, we will need a new Marshall Plan to rebuild the country – better, stronger, greener, more secure – and to help it along its path towards the European Union. An immense challenge, which together we must turn into an opportunity: for Ukraine, for Europe, and for our transatlantic community of democracies.
Thank you.
Compliments of the European Commission.
The post Speech by Commissioner Gentiloni at the Peterson Institute for International Economics: Transatlantic economic policy in times of war first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

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ESMA postpones the annual calculations of LIS and SSTI for bonds and the quarterly bonds liquidity assessment

The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has decided to postpone the publication of sizes large in scale compared to the standard market size (LIS) and the size specific to the instrument (SSTI) as well as the May quarterly bonds liquidity assessment. The amended regulatory technical standards (RTS 2) and the move to stage 3, will enter into force on 3 May 2022.
ESMA, to ensure that the transparency calculations at the application date set out in RTS 2 reflect the move to stage 3 in the amended RTS 2 for bonds, will:

publish the 2022 annual transparency calculations of LIS and SSTI for bonds on 3 May instead of 30 April under Article 17 of RTS 2. The remaining annual transparency calculations for non-equity instruments other than bonds will be published on 29 April 2022. The application date for the annual transparency calculations of both bonds and other non-equity instruments remains 1 June 2022; and
postpone the publication of the quarterly liquidity assessment for bonds foreseen on 1 May 2022 to 3 May 2022. The application date remains 16 May 2022.

ESMA also reminds stakeholders that Article 17 of RTS provides for an automatic phase-in for the determination of the liquidity of corporate and covered bonds that are newly admitted to trading or first traded on a trading venue. The liquidity status is determined on the basis of the issuance size. From 3 May 2022 the applicable threshold for corporate and covered bonds will be EUR 500,000,000 (stage 3).
Market participants are invited to:

monitor the release of the transparency calculations for newly traded bonds and derivatives on a daily basis; and
refer to Q&A #10 and #15 (for bonds) #20 (for instruments other than bonds) in Section 4 Non-equity transparency, for the temporary parameters to be applied in the case one or more of the transparency parameters are not published.

The amended RTS 2 submitted by ESMA in July 2021 to the European Commission, proposing the move to stage 3 for bonds, has been published in the Official Journal on 13 April 2022.
Compliments of the European Security and Markets Authority.
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IMF | Governments Need Agile Fiscal Policies as Food and Fuel Prices Spike

‘Spending imperatives from pandemic and war meet high debt and tight budget constraints.’
Just as increasing vaccinations offered hope, Russia’s invasion of Ukraine disrupted the global economic recovery. One of the most visible global effects has been the acceleration of energy and food prices, triggering concerns about episodes of food shortages and increasing the risks of malnutrition and social unrest. World food prices surged by 33.6 percent in March from a year earlier, according to the Food and Agriculture Organization of the United Nations.
Our latest Fiscal Monitor discusses how governments, faced with record debt and rising borrowing costs, can best respond to the urgent needs. It stresses the call for greater global cooperation.
Highly uncertain fiscal outlook
Economies around the world have accumulated layer upon layer of legacies from past shocks since the global financial crisis. Extraordinary fiscal actions in response to the pandemic led to a surge in fiscal deficits and public debt in 2020.
Moreover, the outlook remained uncertain as the world navigated an unprecedented environment, with rising inflation and increasing divergence in recoveries—and then Russia invaded Ukraine, pushing geopolitical risks sharply up.
Global deficits and debt are falling from record levels, but the risks around the outlook are exceptionally high and vulnerabilities are rising. Global public debt is expected to fall in 2022 and then stabilize at about 95 percent of gross domestic product over the medium term, 11 percentage points higher than before the pandemic. Large inflation surprises in 2020-21 helped reduce debt ratios, but as monetary policy tightens to curb inflation, sovereign borrowing costs will rise, narrowing the scope for government spending and increasing debt vulnerabilities.
In advanced economies, deficits are projected to decline and policies are shifting from pandemic support to structural transformation. Fiscal outlooks in Europe face exceptional uncertainty given the war in Ukraine and its spillovers. In most emerging markets, deficits will narrow, but with large variations across countries. Low-income countries, already suffering with scarring from the pandemic, have very limited fiscal space as they are hard hit by spillovers from the war.
The different shocks have also brought new risks to public finances. Governments are under pressure to deal with the rising energy and food prices. To alleviate the burden on households, ensure food security, and preempt social unrest, most governments have announced measures to limit the rise in domestic prices. However, such actions could have large fiscal costs and exacerbate global demand and supply mismatches, putting further pressure on international prices and possibly leading to energy or food shortages. This would further hurt low-income countries that rely on imported energy and food.
Moreover, the fight against poverty has suffered a setback, especially in emerging markets and low-income countries. Relative to pre-pandemic trends, the COVID-19 crisis pushed 70 million more people worldwide into extreme poverty in 2021. In many advanced economies, households were protected by direct government support or job-retention schemes. Households spent less and saved more because of social distancing, mobility restrictions, and uncertainty about the future. These excess savings are an important buffer but, if spent quickly, they could further add to the inflation momentum. The situation is much more dire in other countries with large numbers of poor people—where rising inflation could push more into poverty and exacerbate the food crisis.
Managing crisis upon crisis
Governments face difficult choices in this highly uncertain environment. They should focus on the most urgent spending needs and raise revenue to pay for them.
We recommend agile fiscal strategies tailored to individual country circumstances:

In the economies hardest hit by the war in Ukraine and sanctions on Russia, fiscal policy needs to respond to the humanitarian crisis and economic disruptions. Given rising inflation and interest rates, fiscal support should be targeted to those most affected and priority areas.
In nations where growth is stronger and inflation pressures remain elevated, fiscal policy should continue its shift from support to normalization.
In many emerging markets and low-income economies facing tight financing conditions or the risk of debt distress, governments will need to prioritize spending and raise revenues to reduce vulnerabilities.
Commodity exporters that benefit from higher prices should seize the opportunity to rebuild buffers.

Government responses to the surge in international commodity prices should give priority to protecting the most vulnerable. A critical objective is to avoid a food crisis while keeping social cohesion. Countries with well-developed social safety nets could deploy targeted and temporary cash transfers to vulnerable groups while allowing domestic prices to adjust. This will limit budgetary pressures and create the right incentives to increase supply (such as investing in renewable energy). Other countries could allow a more gradual adjustment of domestic prices and use existing tools to help the most vulnerable during this crisis, while taking steps to strengthen safety nets.
Fossil-fuel price hikes further highlight the urgency in accelerating the transition to clean and renewable energy, which would increase energy security and help meet the urgent climate agenda—we are dramatically off-track to limit global warming to 2 degrees Celsius.
About 60 percent of low-income countries are either at high risk of debt distress or already experiencing it. They face persistent scarring from COVID-19. They are especially vulnerable to food price rises, given the large share of food spending in their households’ budgets. These countries need support from the international community.
But the need for collective action is broader. Global cooperation is necessary to tackle pressing and urgent problems that the world is facing: energy and food crises, current and future pandemics, debt, development, and climate change.
Authors:

Jean-Marc Fournier
Vitor Gaspar
Paulo Medas
Roberto Accioly Perrelli

Compliments of the IMF.
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IMF | Private Debt to Weigh on Global Economic Recovery

‘A record rise in private debt could slow the economic recovery, but the drag on growth will vary across countries and within them.’
Governments succeeded in lessening the economic pain of the pandemic by providing plenty of liquidity to stricken consumers and businesses through credit guarantees, concessional lending and moratoriums on interest payments.
But although these policies proved effective in supporting balance sheets, they also led to a spike in private debt, extending a steady increase in leverage spurred by supportive financial conditions since the global financial crisis of 2008.
Global private debt surged by 13 percent of the world’s gross domestic product in 2020—faster than the rise seen during the global financial crisis and almost as fast as public debt.
We estimate that recent levels of leverage could slow economic recovery by a cumulative 0.9 percent of GDP in advanced economies and 1.3 percent in emerging markets on average over the next three years.
Greater debt drag
Aggregate figures do not tell the whole story, however. The impact of the pandemic on the finances of households and firms has varied across countries and within them, reflecting differences in their policy responses and the sectoral composition of their economies.
For example, contact-intensive services such as entertainment contracted as people stayed at home, but production and exports of computers, software and other goods expanded as consumers spent more on appliances. The impact on consumer and business balance sheets, especially those most exposed to the pandemic, differed greatly depending on the support provided by governments.
Our analysis shows that the post-pandemic drag on growth could be much larger in countries where (1) indebtedness is more concentrated among financially stretched households and vulnerable firms, (2) fiscal space is limited, (3) the insolvency regime is inefficient, and (4) monetary policy needs to be tightened rapidly.
Low-income households and vulnerable firms (highly indebted and unprofitable businesses that are struggling to make interest payments) are typically less able to withstand a high level of debt. As a result, they are likely to make sharper cuts to consumption and investment spending in the future. The drag on future growth is therefore expected to be greatest in countries that experienced the largest increases in indebtedness among low-income households and vulnerable firms during the pandemic.
Consumers in China and South Africa saw the largest increases in household debt ratios among the countries for which detailed data are available. But the experience of households in these two countries was very different: in China leverage increased the most among lower-income households whereas households with higher incomes accounted for most of the increase in South Africa.
Among advanced economies, low-income households in the United States, Germany, and the United Kingdom saw comparatively larger increases in debt than those in France and Italy, where leverage actually declined for poorer households.
The impact of the pandemic on businesses varied, too. Vulnerable firms—highly concentrated in contact-intensive services—often borrowed to survive the drop in revenues caused by the pandemic. Future investment is therefore likely to be lower in countries with a higher share of contact-intensive sectors.
Rising inflation and interest rates
As economies recover and inflation accelerates, governments should take account of the impact of fiscal and monetary policy tightening on the most financially stretched consumers and businesses when pacing the exit from extraordinary support policies.
For example, we estimate that a surprise tightening of 100 basis points would slow investment by the most leveraged firms by a cumulative 6.5 percentage points over two years—four percentage points more than for the least leveraged.
Where the recovery is well underway and balance sheets are in good shape, fiscal support could be reduced faster, facilitating the work of central banks. Elsewhere, governments should target fiscal support to the most vulnerable in the transition to recovery while keeping within credible medium-term fiscal frameworks.
To prevent rapid tightening of monetary policy from causing large and potentially long-lasting disruptions, policymakers should pay close attention to adverse developments in the financial sector.
This is especially important in countries where a wave of bankruptcies in sectors heavily hit by the pandemic could spill over to the rest of the economy. Governments in these countries could incentivize restructuring over liquidation and, where necessary, extend solvency support.
Insolvency, restructuring regimes
Authorities should also enhance restructuring and insolvency mechanisms (through dedicated out-of-court restructuring, for instance) to promote a rapid reallocation of capital and labor toward the most productive firms.
Similarly, if large household debts threaten recovery, governments should consider cost-effective debt restructuring programs aimed at transferring resources to relatively vulnerable individuals who are more likely to spend their income. These programs should, by their design, seek to minimize moral hazard.
In short, the recent surge in indebtedness of households and firms poses risks to the pace of recovery. Yet this risk is not equally distributed. Careful, real-time monitoring of the balance sheets of low-income households and vulnerable firms is key to calibrating the unwinding of support measures. This could prevent sudden distress when financial conditions tighten.
Authors:

Silvia Albrizio
Sonali Das
Christoffer Koch
Jean-Marc Natal
Philippe Wingender

—This blog, based on Analytical Chapter 2 of the April 2022 World Economic Outlook, “Private Sector Debt and the Global Recovery,” also reflects support from Evgenia Pugacheva and Yarou Xu.
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IMF | Tax Coordination Can Lead to a Fairer, Greener Global Economy

Cooperation across countries can raise revenue, tackle inequality, and fight climate change.
Technology, globalization, and global warming have changed the world, and taxation must keep pace. With a mouse click, individuals can move money across borders and corporations can transact with their affiliates across global supply chains. Production depends on intangible know-how assets that can be located anywhere. Employers and their employees can work in different countries. As income and factors of production become more mobile, and with climate change threatening our planet, countries face tax challenges that know no national borders.
Tax evasion and avoidance cause the loss of revenue that could have financed social spending or infrastructure investments. They also exacerbate inequality and perceptions of unfairness. Self-serving national policies of one country can affect others in damaging ways. If each sets its own tax policy without regard for the adverse effects elsewhere, all countries can end up worse off.
Our new Fiscal Monitor shows how better international coordination in three areas—taxing large corporations, sharing information on offshore holdings, and enacting fair carbon pricing—can benefit everyone.
Coordinating on corporate taxation
Widespread dissatisfaction with low tax payments by the world’s major multinationals (despite annual profits of 9 percent of global gross domestic product) spurred a groundbreaking agreement to modernize the existing and century-old international system. In 2021, 137 countries reached a breakthrough on coordination: the Two Pillars Solution under the Inclusive Framework. With 2022 set to be a crucial year for implementing the agreement—the object of live political debate in several countries—the Fiscal Monitor gauges its potential benefits.
Pillar 1 of the agreement says that a portion of multinationals’ profits must be taxed where the firms’ goods or services are used or consumed. This means that tech companies can be taxed where their customers are located, even if their employees are far from their customer base. In a world where digital commerce is now commonplace, this is a welcome development. While our report finds that the agreed reallocation of tax revenue covers only 2 percent of global profit of multinationals, this new taxation principle sets the stage for a more efficient tax than unilateral digital services taxes.
Pillar 2 establishes a global minimum corporate tax of 15 percent. By doing so, it puts a floor on competition, reducing incentives for countries to compete using their tax rates and for firms to shift profits across borders. Some nations will top up their tax on “undertaxed” profit to the minimum level, increasing corporate tax revenues by up to 6 percent globally. By reversing the downward trend of income corporate income tax rates, reduced tax competition could raise revenue by another 8 percent, bringing the total effect to 14 percent. Work should continue, however, to better adapt to low-income countries’ circumstances—for example, to simplify some aspects of corporate taxation, strengthen withholding taxes on cross-border payments, and share more country-by-country information on multinationals. For low-income economies to reap the benefits of recent changes, they need to adopt complementary reforms, such as removing wasteful tax incentives.
Coordinating on personal taxation
Much like corporations, the taxation of individuals (especially the wealthiest) also requires coordination across borders. Recent leaks of documents such as the Panama Papers and Paradise Papers revealed a massive stock of offshore wealth and widespread tax loopholes. And with the rise of digital assets that allow for even greater anonymity, the sharing of information is becoming more and more vital. Beyond the revenue loss, opaque offshore accounts designed to hide wealth facilitate the transnational transfer of corrupt proceeds.
Coordination can deliver tangible results, and 163 countries have agreed to exchange information under the Global Forum on Transparency and Exchange of Information for Tax Purposes. Yet, more can be done to improve the reliability of the information, our report notes. Countries should do more to promote beneficial ownership registries—information about who really owns or controls a company.
Some countries have already established such mechanisms. But how they are implemented matters—information from the registries should be centralized in a public database. Effective use of the information remains critical for enforcement and low-income countries will need to develop more know-how to realize the benefits from transparency.
Another recent phenomenon that calls for greater coordination is the increasing mobility of the labor force. Opportunities for cross-border remote work have expanded, along with the number of economies offering digital-nomad visas targeted at high-skilled individuals. Estimates suggest that cross-border remote work—given existing differences in tax rates across countries—reallocates personal income tax revenue between countries by 1.25 percent of global personal income tax revenue. Coordination will gain importance in the future to ensure a consistent tax treatment between countries where employers and employees reside.
Coordinating on carbon pricing
Concrete coordinated action is even more urgent to fight climate change, because the rapid increase in greenhouse gas emissions is causing us to speed toward disastrous global warming of more than double the limit that scientists consider tolerably safe.
An international carbon price floor is analogous to a global minimum corporate tax. But here a few key emitting countries can speed up coordination and make an important start. Such a floor would discourage emissions and alleviate competitiveness concerns. It would limit global warming to 2 degrees Celsius or less while accommodating alternative approaches (such as regulation, through the calculation of equivalent prices). An international carbon price floor could also allow differentiated responsibilities for nations depending on the income level.
As governments grapple with an acceleration of energy prices caused by the war in Ukraine, they should support people (ideally through targeted transfers or lump-sum utility bill discounts) rather than subsidizing fossil fuel consumption. And near-term responses should not detract from efforts to invest in renewable energy and greater energy efficiency. Countries that have already set a gradual rising path for carbon taxation should stay the course—the envisaged increases are far smaller than recent gyrations in prices, which stem from global shocks. Revenues should be used to ensure that all workers and communities benefit from the green transition. At the international level, agreeing on a carbon price floor (or equivalent measures) remains urgent.
History tells us that the value of collaboration is even greater as we counteract the economic consequences of pandemics or conflicts. In the same cooperative spirit of scientists working together across borders to fight COVID-19, now is the time to better tax corporations, fight tax evasion, and act for a greener and fairer world.
Authors:

Vitor Gaspar
Shafik Hebous
Paolo Mauro

Compliments of the IMF.
The post IMF | Tax Coordination Can Lead to a Fairer, Greener Global Economy first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

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Intellectual property: EU Commission boosts protection of European craft and industrial products in the EU and beyond

Today, the Commission has proposed a first-ever framework to protect the intellectual property for craft and industrial products that rely on the originality and authenticity of traditional practices from their regions. This framework will cover products such as Murano glass, Donegal tweed, Porcelaine de Limoges, Solingen cutlery and Boleslawiec pottery. While these products benefit from a European and sometimes global reputation and standing, producers have so far lacked an EU indication protection linking their products’ origin and reputation to their quality.
Drawing on the success of the geographical indication system for wine-spirit drinks and agricultural products, with today’s proposal for a Regulation, the Commission aims to enable producers to protect craft and industrial products associated with their region and their traditional know-how, with effects in Europe and beyond. The Regulation, providing for an EU indication protection, will make it easier for consumers to recognise the quality of such products and make more informed choices. It will help to promote, attract and retain skills and jobs in Europe’s regions, contributing to their economic development. The proposal would also ensure that traditional craft and industrial products are put on an equal footing with protected geographical indications that already exist in the agricultural area.
Executive Vice-President Margrethe Vestager for A Europe Fit for the Digital Age said: “Many European regions hold an untapped potential for jobs and growth. Notably in the crafts and industrial sector, many SMEs have developed and refined manufacturing skills over generations, but lack incentives and resources to project them, especially across borders. The protection granted by geographical indications for craft and industrial products will encourage both regions and producers in their competition at a continental and global level.”
Commissioner Thierry Breton, responsible for the Internal Market, said: “Europe has an exceptional legacy of world-renown crafts and industrial products. It is time that these producers benefit from a new intellectual property right, like food and wine producers, that will increase trust and visibility for their products, guaranteeing authenticity and reputation. Today’s initiative will contribute to the creation of skilled jobs especially for SMEs and to the development of tourism also in the more rural or economically weak areas.”
Today’s proposal for a Regulation will:

Establish an EU-wide protection for geographical indications of craft and industrial products to help producers protect and enforce the intellectual property rights of their products across the EU. The new Regulation will also facilitate action against fake products, including those sold online. It will address the currently fragmented and partial protections that exist at national level.

Enable simple and cost-efficient registration of GIs for craft and industrial products by establishing a two-level application process. This would require producers to file their GI applications to designated Member States’ authorities, who will then submit successful applications for further evaluation and approval to the European Union Intellectual Property Office (EUIPO). A direct application procedure to EUIPO will also be possible for Member States that do not have a national evaluation procedure in place. The proposal also offers the possibility for producers to self-declare compliance of their products with the product specifications, making the system lighter and less costly.

Allow full compatibility with international GI protection by enabling producers of registered craft and industrial GIs to protect their products in all countries that are signatories of the Geneva Act on Appellations of Origin and Geographical Indications under the World Intellectual Property Organisation (WIPO), to which the EU acceded in November 2019 and which covers craft and industrial GIs. At the same time, it will now be possible to protect corresponding GIs from third countries within the EU.

Support the development of Europe’s rural and other regions by providing incentives for producers, especially SMEs, to invest in new authentic products and create niche markets. The proposed Regulation will also help to retain unique skills that might otherwise disappear, particularly in Europe’s rural and less developed regions. Regions would benefit from the reputation of the new GIs. This can contribute to attracting tourists and to creating new highly skilled jobs in the regions, thereby boosting their economic recovery.

Background
Today’s proposal follows the Intellectual Property Action Plan adopted in November 2020, where the Commission announced that it would consider the feasibility of a GI protection system for craft and industrial products at EU level. This built on calls from producers, regional authorities, the European Parliament and the Committee of Regions, asking the Commission to create a regulatory framework for the protection of craft and industrial products. In November 2019, the EU’s accession to the Geneva Act of the Lisbon Agreement on Appellations of Origins and Geographical Indications, a treaty administered by the World Intellectual Property Organization (‘WIPO’) brought further impulse.
Current Union law protects GIs for agricultural products, food and wines. Today’s proposal would create a complementary protection system, aiming as well for high intellectual property protection, improved consumer information and boosting regional recovery. The new system will offer the same level of protection as the existing GIs, while taking into account the different nature of craft and industrial products.
Compliments of the European Commission.
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IMF | The Right Labor Market Policies Can Ease the Green Jobs Transition

Measures include job training, tax credits for lower-income workers, green infrastructure and R&D investment push, and a carbon tax.
Consensus on the need to build a greener economy often founders on concern over potential job losses. It’s one thing to agree that a transition away from fossil fuels is needed. But how easily can a coal miner, say, shift to a job installing solar panels?
The answer shouldn’t be a surprise: for some workers, the change will be difficult. But there is good news. With the right mix of policies, countries should be able to achieve net-zero greenhouse-gas emissions by 2050—while easing the pain for workers in more emissions-intensive industries such as utilities. These policies include job-training programs and investment in green technologies, according to our recent analysis in Chapter 3 of the IMF’s World Economic Outlook.
Achieving emissions objective
Limiting the average global temperature increase to well below 2 degrees Celsius over pre-industrial levels, an objective endorsed by policy makers in the 2015 Paris Agreement, will require a dramatic reduction in net emissions of greenhouse gases. This green transformation will also entail a transformation of the labor market, with jobs moving between occupations and sectors. But the overall magnitude of that shift won’t necessarily be as dramatic as it might seem.
For advanced economies, a policy package designed to put the economy on a path for net zero emissions by 2050 would shift about 1 percent of employment from higher to lower-emissions work over the next decade, our analysis shows. The shift is bigger for emerging markets at about 2.5 percent. Still, those figures are smaller than the shift from manufacturing to services in advanced economies since the mid-1980s. That has come to almost 4 percent of jobs each decade.
As our analysis shows, part of the reason why the employment shifts in advanced economies could be modest is that a minority of jobs are either green-intensive, meaning they improve environmental sustainability (like electrotechnology engineers), or pollution-intensive, meaning they are particularly predominant in highly polluting sectors (like paper mill operators). Most jobs are neutral—neither green- nor pollution-intensive.
Higher wages on greener jobs could also help ease the transition. In our analysis of advanced economies, we find that the average green-intensive job earns about 7 percent more than the average pollution-intensive job, even when skills, gender, and age profiles are controlled for. This is good news, as the premium could attract workers to greener jobs.
Policies to ease adjustment
Nevertheless, workers may still face significant challenges during the transition. Indeed, the data suggest that it is tough to become greener. Our analysis estimates that the probability of an individual moving from a pollution-intensive to a green-intensive job is between 4 percent and 7 percent.
The odds are slightly better for someone moving from neutral to green—9 percent to 11 percent. In contrast, the chance of finding a green-intensive job, if your last job was also green, is much higher at around 41 percent to 54 percent. This doesn’t mean that workers in pollution-intensive jobs have no chance of finding greener employment, but they may need some help.

This explains why it is so important to craft labor-market policies that can help shift the balance toward greener jobs and ease the transition for workers. That means boosting workers’ ability to find greener jobs—through offering training programs—and reducing the incentives to stay in more pollution-intensive occupations. This includes gradually rolling back the job retention support introduced early in the pandemic as the recovery takes hold, since such policies can weaken incentives to change jobs.
Which brings us back to the policy package that, our model-based analysis suggests, can help economies achieve net zero emissions by 2050. It has four elements:

An initial green infrastructure and R&D investment push starting in 2023, with spending gradually reduced after 2028. This would support a modest productivity increase in less emissions-intensive sectors.
A tax on carbon emissions rising gradually from 2023, with a sharper increase from 2029 onwards. This raises the relative price of more emissions-intensive goods and spurs growth in less emissions-intensive sectors.
A training program to help less-skilled workers move to greener sectors, starting in 2023. The training would help address distributional concerns by increasing the productivity of lower-skilled workers in low-emissions sectors, encouraging firms to hire them and raise their wages.
An earned-income tax credit (EITC), which reduces taxes owed by lower-income workers. This would start in 2029 and offset the impact of the carbon tax on those workers. It would also encourage more people to enter the workforce.

For the representative advanced economy, we estimate that the policy package generates a labor reallocation to greener industries of about 1 percent over 10 years. It also increases total employment by 0.5 percent and boosts after-tax income for lower-skilled workers, reducing inequality.
Emerging markets
The impact would be somewhat different for emerging-market economies, where a higher proportion of workers are employed in sectors such as mining. It would generate a shift of 2.5 percent of the workforce over 10 years. There would be an overall increase in employment in the near term as green investments kick in, but that would change to a 0.5 percent decline by 2032.
Also, emerging economies generally have more employment in so-called informal sectors, where income taxes aren’t always paid. Therefore, the package would have to be supplemented by direct cash transfers to low-income workers starting in 2029, alongside the EITC and the carbon tax.
Policy actions are essential to provide incentives for the transition to a net-zero economy by 2050. Correctly timed and implemented, these actions can ease the switch to greener jobs for a relatively modest segment of the workforce while also boosting skills and incomes for the lowest paid workers and reducing inequality. This will ensure that the path towards a greener economy is also an inclusive one.
Authors:

John Bluedorn
Niels-Jakob Hansen

—This blog, based on Chapter 3 of the World Economic Outlook, “A Greener Labor Market: Employment, Policies, and Economic Transformation,” also reflects research by Diaa Noureldin, Ippei Shibata, and Marina M. Tavares.
Compliments of the IMF.
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IMF | Global Trade Needs More Supply Diversity, Not Less

Countries with trade partners that implemented more stringent lockdowns had a sharper drop in imports. Though trade flows have adjusted, more diversified global value chains could help lessen the impact of future shocks.
The demand and supply shocks unleashed by the pandemic were expected to lead to a dramatic collapse in trade, but international commerce has proven more resilient than during previous global crises.
While goods trade fell sharply in the second quarter of 2020, it bounced back to pre-pandemic levels later in the year. The decline for services in 2020 (such as tourism) was worse, and has recovered more slowly, given persistent restrictions to contain infection in some countries.
International spillovers
Factors specific to the pandemic help explain these trade patterns.
First, goods imports were larger in 2020 than would be predicted by demand (and relative prices) alone, more so in countries with stringent lockdowns or severe outbreaks.
Second, lockdowns had significant—if unintended—international spillovers. Countries with trade partners that implemented more stringent lockdowns experienced larger declines in imports of goods. Trade partner lockdowns accounted, on average, for up to 60 percent of the decline in imports in the first half of 2020. These impacts were larger in industries that rely heavily on global value chains, and are further downstream in the production process (such as electronics).
The effects were short-lived, however, suggesting that global supply chains were resilient. And remote work also lessened the trade spillovers from lockdowns.
Even so, disruptions wrought by the pandemic led to calls for more domestic production of goods (reshoring). Our latest World Economic Outlook shows that dismantling global value chains is not the answer—more diversification, not less, improves resilience.
Global value chains adapted
Trade data affirm this. By mid-2020, Asian countries, which were hit early by COVID-19 but then managed to contain it (just when many European countries imposed severe mobility restrictions) saw an increase in their market share of GVC-related products of 4.6 percentage points in Europe, and 2.3 percentage points in North America. These gains were large and quick by historical standards but as countries adjusted to the pandemic, they’ve partially unwound, suggesting that the changes were likely temporary.Though global value chains have adjusted, some industries such as automobiles have faced large supply disruptions, pointing to the need to enhance resilience. We analyze two options for building supply chain resilience: diversifying inputs across countries, and greater substitutability of inputs.
Boosting trade resilience
We simulated the effects of disruptions in a global economic model and compared outcomes under higher levels of diversification, or higher substitutability (how easily a producer can switch inputs from a supplier in one country to another). We considered two scenarios: supply disruption in a single, large, input supplier country; and supply shocks to multiple nations.
Our analysis shows that diversification significantly reduces global economic losses in response to supply disruptions. Following a sizable (25 percent) labor supply contraction in a single, large global supplier, gross domestic product for the average economy falls by 0.8 percent under the baseline. In the high-diversification scenario, this decline is reduced by almost half.
Higher diversification also reduces volatility when multiple countries are hit by supply shocks. We estimate that the volatility of economic growth in the average country is reduced by around 5 percent in this scenario. Diversification offers little protection, however, when a major disruption hits all economies at the same time, like the first four months of the pandemic.
Countries can diversify by sourcing more intermediate inputs from abroad. Currently there is a significant “home bias” in the sourcing of such supplies. Firms in the Western Hemisphere, for example, source 82 percent of their intermediates domestically. Re-shoring of production would thus lower diversification further.
Substitutability can be achieved in two ways: through greater flexibility in production, such as when electric vehicle maker Tesla Inc. rewrote software to enable its cars to use alternative semiconductors in response to the semiconductor shortage; or by standardizing inputs internationally. For example, General Motors Co. recently announced that it is working with semiconductor suppliers to reduce the number of unique chips that it uses by 95 percent, down to just three families of microcontrollers. This standardization would replace a host of chips, eliminating the costs of substituting between them.
Considering again the scenario of a 25 percent labor supply contraction in a large global supplier of intermediate inputs, we find that with greater substitutability, GDP losses in all countries (other than the source country) are reduced by about four-fifths.
Policy implications
Ensuring equitable access to vaccines and treatments remains the first policy priority. Recent targeted lockdowns in China are a reminder that pandemic-related restrictions continue to have an impact far beyond the affected country. It is in the self-interest of all countries, including those with high vaccination rates to end the acute phase of the pandemic everywhere.
Amid rising concerns regarding global economic fragmentation and “friendshoring” following the war in Ukraine, our analysis also shows that greater diversification and substitutability in inputs can enhance resilience. While corporate decisions will predominantly shape the future resilience of global value chains, government policies can help by providing a supportive environment and lowering the costs.
One obvious area is improved infrastructure. The pandemic has shown that infrastructure investments in certain areas are critical to mitigate supply disruptions related to trade logistics. For example, upgrading and modernizing port infrastructure on key global shipping routes would help reduce global chokepoints. Better digital infrastructure to facilitate telework can also help mitigate spillovers to other countries.
Governments can also help to make information more widely available, so firms can make more strategic decisions. For example, automobile manufacturers on average conduct business directly with about 250 Tier1 suppliers, but this number rises to 18,000 suppliers in the full value chain. Improving access to information on inter-firm transactions and supply chain networks, by for example, digitalizing firms’ document filings, such as tax returns, can be helpful, especially for smaller firms with fewer resources.
Finally, reducing trade costs can help diversify inputs. There is room to reduce non-tariff barriers, which would give a significant medium-term economic boost, especially in emerging markets and low-income developing countries. In addition, reducing trade policy uncertainty, and providing an open and stable, rules-based trade policy regime, can support greater diversification.
Authors:

Davide Malacrino
Adil Mohommad
Andrea Presbitero

— This blog, based on Chapter 4 of the April 2022 World Economic Outlook, “Global Trade and Value Chains During the Pandemic,” includes research by Galen Sher and Ting Lan, under the guidance of Shekhar Aiyar, and support from Shan Chen, Bryan Zou, Youyou Huang, and Ilse Peirtsegaele. The analysis was concluded in early 2022, prior to Russia’s invasion of Ukraine, and does not focus on the implications of the war for global trade and value chains.
Compliments of the IMF.
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