Dallas Fed President Lorie Logan delivered these remarks at “The SNB and its Watchers 2025” Conference at the Karl Brunner Institute.
 
Good afternoon.
Thank you to the Karl Brunner Institute for inviting me to participate in this important conference. As always, the views I’ll share are mine and not necessarily those of my colleagues on the Federal Open Market Committee (FOMC).
It is an honor to join this distinguished panel addressing a topic that is both timely and timeless: the role of economic uncertainty in monetary policy.
The topic is timely because this is a moment of substantial uncertainty about the economic outlook. And it is timeless because, really, there’s nothing especially new about that situation. Uncertainty is a pervasive feature of the macroeconomy and monetary policymaking.
Theoretical models in which one knows the precise current state of the economy, fully understands the economic mechanisms and has perfect foresight about the future can sometimes provide useful baseline approximations. But these are merely approximations. The world is complex, multifaceted and ever-changing. A policymaker cannot know with certitude the current state of every relevant aspect of the economy, let alone exactly how every part of the economy works or what shocks may arrive.
Yet policymakers must still make policy decisions. Even a choice not to act is itself a decision. And we cannot let uncertainty paralyze us. Rather, it’s incumbent on policymakers to tackle uncertainty head-on.
First off, policymakers can reduce uncertainty about the state of the economy by gathering economic information from a wide range of sources. For me, those sources include official statistics, private-sector data, financial market conditions, surveys of households and businesses, and reports from business and community leaders and market contacts about what they are seeing in the economy and financial system. Besides sharpening the economic picture, taking on information from a wide range of sources makes the policy process more robust to disruptions in the flow of information from any one source, such as the government shutdown in the United States that recently paused publication of many federal official statistics . But even after thorough information-gathering, some uncertainty will always remain.
Another important area of uncertainty is about how the economy works, and especially the mechanisms through which monetary policy influences the economy. Again, policymakers can work to reduce the uncertainty—for example, by consulting a wide range of models and experts to see where there’s consensus and by investing in research to deepen understanding over time. But as with uncertainty about the state of the economy, uncertainty about the mechanisms can only be reduced, not eliminated.
And we can never know what the future may bring. The shifting winds of geopolitics and technology only add to the range of potential shocks right now.
In the end, therefore, policy decisions must take uncertainty into account. That can mean adjusting a policy decision to reflect risk management considerations instead of doing what would be optimal if the situation were certain. Research shows that how to make these adjustments depends crucially on the source of uncertainty. For example, if policymakers want to provide economic stimulus but are uncertain how much stimulus will come from a specified reduction in interest rates, it can be optimal to move in small steps and learn more about the size of the effect. On the other hand, if policymakers are uncertain about the persistence of shocks to inflation, it can be optimal to move more aggressively than one would under certainty so as to mitigate the danger of unanchored expectations. There are also many cases when policymakers should look through uncertainty, either because there is no benefit to adjusting in one direction or another, or because the key aspects of the economic outlook are certain enough to provide clear counsel even as some uncertainties remain.
In that spirit, I’ll describe the aspects of the U.S. economic outlook and monetary policy strategy that seem relatively certain to me at this time, as well as some key uncertainties I’m continuing to work to resolve. I’ll then briefly discuss the outlook for the Federal Reserve’s balance sheet.
The economic and monetary policy outlook
The FOMC has made two 25-basis-point rate cuts in recent months. While I supported the September rate cut, I would have preferred to hold rates steady at our October meeting.
Congress gave the FOMC a dual mandate: to pursue maximum employment and stable prices. The labor market has remained roughly balanced and cooling slowly. Inflation remains too high, taxing the budgets of businesses and families, and appears likely to exceed the FOMC’s 2 percent target for too much longer. This economic outlook didn’t call for cutting rates.
Payroll job gains fell markedly in 2025. But slow job gains don’t necessarily mean there’s more slack in the labor market. Labor supply has fallen at the same time as demand, particularly due to changes in immigration policy and labor force participation. In consequence, we haven’t seen a rapidly widening gap between the number of jobs available and the number of people who want work. The unemployment rate rose slowly during the year. Unemployment claims have stayed low, although I’m mindful of recent layoff announcements by some employers. And, thanks in part to financial conditions, resilient consumer and business spending continues to support employment.
The risks to the labor market do lie mainly to the downside. In this low-hiring environment, the job market could have difficulty absorbing any significant pickup in layoffs from the current low level. Asset valuations can sometimes snap back without much warning, which might take the wind out of consumer spending. However, the resolution of the federal government shutdown takes one near-term downside risk off the table.
Turning to the price stability side of the mandate, inflation in the United States is still too high and too slow to return to target. The FOMC targets a 2 percent inflation rate as measured by the annual change in the price index for personal consumption expenditures, or PCE. Inflation by that measure exceeded the target in each of the past four years. It’s on track to do so again this year. The index rose 1.8 percent just in the first eight months of the year, and forecasters expect it to end the year up about 2.9 percent.
While inflation has come down significantly from the post-pandemic peak, it’s still not convincingly headed all the way back to 2 percent. I remain concerned about the trajectory of underlying inflation, even after accounting for temporary factors that affect prices in the near term. The Blue Chip Economic Indicators surveys dozens of private-sector forecasters about their economic outlooks. The Blue Chip consensus outlook is for 2.6 percent PCE inflation in 2026 and around 2.4 percent in 2027, followed by fluctuations between 2.1 and 2.2 percent all the way out to at least 2031—never all the way back to target.
The FOMC has repeatedly reaffirmed its commitment to the 2 percent inflation target. Our obligation to the public is to deliver on this commitment, as well as our equally serious obligation to pursue maximum employment.
The FOMC’s long-run strategy calls for a balanced approach to our two objectives. I carefully weigh the potential labor market costs of measures to reduce inflation. But labor demand and supply have remained in rough balance. When the FOMC met in October, it had already mitigated downside risks by cutting rates at its previous meeting in September. The remaining risks to employment are ones the FOMC can monitor closely and respond to if they are becoming more likely to materialize, not ones that currently warrant further preemptive action. For those reasons, I did not see a need to cut rates at the October meeting. And with two rate cuts now in place, I’d find it difficult to cut rates again in December unless there is clear evidence that inflation will fall faster than expected or that the labor market will cool more rapidly.
Uncertainties in the near and longer terms
One key uncertainty is how much more room there may be to reduce rates while still maintaining a restrictive policy stance that can further slow inflation. The gradual cooling in the labor market during 2025, among other evidence, demonstrates that policy was at least modestly restrictive before the September and October rate cuts. At the same time, economic and financial developments raise substantial doubts about whether we entered 2025 with more than 75 basis points of restriction. For example, if policy had been significantly restrictive, I would have expected to see a more rapid increase in labor market slack. And I wouldn’t have expected to see soaring asset valuations in many markets, nor corporate credit spreads compressed to historic lows. That’s not to say labor market and financial conditions are uniformly easy. Some workers are experiencing greater difficulty finding work, and financing is tighter in some sectors, such as housing. But those pockets of pressure are more consistent with modest restriction than significant or severe restriction.
Policy restriction is a function of real interest rates, not nominal ones. Forecasters expect about 2.7 percent inflation over the coming year. That puts the current real fed funds rate around 1.2 percent, which is toward the low end of typical model-based estimates of neutral, although all of these estimates are highly uncertain. Put another way, with inflation running persistently above target, a fed funds rate close to 4 percent isn’t nearly as restrictive as you might have thought.
Policy also has to account for headwinds and tailwinds hitting the economy. Elevated asset valuations and compressed credit spreads aren’t just indications that policy most likely isn’t very restrictive. They’re also indications that the fed funds rate needs to offset tailwinds from financial conditions.
Putting it together, even in September I was not certain we had room to cut rates more than once or twice and still maintain a restrictive stance. And having made two cuts, I’m not certain we have room for more. Monetary policy works with a lag. It’s too soon to directly assess the degree of restriction from the current stance of policy, with two rate cuts already on board. In the absence of clear evidence that justifies further easing, holding rates steady for a time would allow the FOMC to better assess the degree of restriction from current policy. Taking the time to learn more can help us avoid unnecessary reversals that might generate unwanted financial and economic volatility.
Looking further in the future, ongoing structural changes could meaningfully shift the economy’s long-run trajectory. The artificial intelligence (AI) investment boom and elevated valuations for companies involved in AI reflect investors’ hopes that generative AI will transform human work, productivity and economic growth. Should those hopes come to fruition, the implications for inflation and labor markets will be profound—especially for younger workers, who by some accounts are already being affected in some occupations. Federal, state and local agencies around the United States are also seeking to support economic growth by removing or changing regulations. If successful, these efforts could raise productivity and permit more employment growth with less inflation. Meanwhile, to the extent that higher tariff rates change trade flows, patterns of investment and work in the United States could need to adjust.
Over time, any or all of these factors could substantially influence where the FOMC will need to set the policy rate to achieve its dual mandate goals. My team and I are closely analyzing developments in these areas. It’s crucial to identify and react in a timely way to major changes in the economy. For now, though, the potential long-run structural shifts aren’t key ingredients in my near-term monetary policy views. While the AI investment boom is supporting spending and financial conditions, for example, the direct effects on employment and productivity have so far been relatively contained. The nature of the potential labor market transformation from generative AI remains unclear: what kinds of human work will it ultimately replace, and what kinds will it complement? And big bets on new technology don’t always pan out. The sources of financing for these investments bear careful monitoring.
While AI investors may be taking big risks in search of outsized returns, central bankers are famously conservative. I’ll be looking for more concrete evidence on the size, direction and timing of potential long-term structural changes as I consider how to I take them on board in my outlook.
Balance sheet normalization
Let me conclude with a few words on the Fed’s balance sheet. The FOMC decided in October to stop reducing the Fed’s asset holdings as of Dec. 1, ending a phase of balance sheet normalization that began in mid-2022.
Asset runoff reduced not only the asset side of the Fed’s balance sheet but also the bank reserves on the liability side of the balance sheet. This symmetry is important because the Fed implements monetary policy in a regime of ample reserves, which meets banks’ demand for reserves with market rates close to interest on reserves. As I’ve argued elsewhere, ample reserves are efficient. Reserves are the safest and most liquid asset in the financial system and one that does not cost the Fed to create. The Friedman rule therefore says it’s efficient to eliminate banks’ opportunity cost of holding reserves, and that’s what the ample-reserves regime achieves.
In recent months, money market rates moved up toward and sometimes above the interest rate on reserve balances (IORB). After averaging 8 to 9 basis points below IORB in the first eight months of 2025, the tri-party general collateral rate (TGCR) averaged slightly above interest on reserves in the subsequent period. TGCR is a rate on overnight repos collateralized by Treasury securities. It’s a safe rate in a liquid and competitive market, and I view it as the cleanest single measure of money market conditions. The rise in TGCR made it appropriate to end asset runoff, as the FOMC decided to do.
Importantly, ending asset runoff only slows but does not stop the decline in reserves. If the Fed’s assets are held fixed, trend growth in non-reserve liabilities such as currency will absorb more of the balance sheet over time. The demand for reserves will likely also change over time in response to economic growth, changes in the banking and payments businesses, and adjustments in regulation. To maintain ample reserve conditions over time, the FOMC will need to determine when to start adding to its assets.
In an efficient system, market rates should be close to, but perhaps slightly below, interest on reserves on average over time. “On average” is key there. Market rates can fluctuate from day to day. Bringing the average level close to IORB also requires some tolerance for modest, temporary moves above IORB.
Repo rate spreads to IORB have receded only somewhat in recent weeks from the peaks reached in late October and early November. Looking at where TGCR and other rates are settling, I expect it will not be long before it is appropriate to resume balance sheet growth so that money market rates can average close to, but perhaps slightly below, IORB. Those reserve management purchases will be technical steps. By no means will they represent a change in the stance of policy.
However, the size and timing of reserve management purchases should not be mechanical, in my view. While purchases will need to offset relatively predictable trend growth in currency, reserve demand will likely also change over time in response to economic growth, changes in the banking and payments businesses, and adjustments in regulations. Reserve supply will need to roughly track those developments to remain efficient.
Thank you.
 
Compliments of the Federal Reserve Bank of DallasThe post Federal Reserve Bank of Dallas | Economic Uncertainty and the Design and Conduct of Monetary Policy first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Speech by Christine Lagarde, President of the ECB | BratislavAI Forum on artificial intelligence and education as part of an OECD high-level event to mark the 25th anniversary of “Better Policies for Better Lives”, Bratislava
 
It’s a privilege to speak with you today about artificial intelligence.
In 1987 Robert Solow famously remarked that “you can see the computer age everywhere but in the productivity statistics.”
The same observation could be made today. We see AI advancing at remarkable speed. Yet its aggregate impact is still barely visible in the data.
Over the past year global corporate investment in AI reached USD 252 billion, and private AI firms raised a record USD 100 billion.[1] Five leading US investors in terms of capital expenditure are now companies that focus heavily on AI. None of these companies numbered among the top ten investors a decade ago. [2]
Some view this surge as temporary exuberance running ahead of underlying fundamentals. But a debate framed only in terms of short-term ups and downs may miss the bigger picture.
History offers many examples of intense investment waves that – despite swings in the investment cycle – ultimately left behind transformative technologies that reshaped economies for decades.[3]
So the key question is not whether there are cycles – that is almost certain – but how long it will take before the enduring productivity benefits become visible.
And there are reasons to believe AI could spread faster, and deliver tangible economic gains sooner, than previous technology waves.
If that is the path we are on – and I believe it may be – Europe needs to position itself accordingly. We need to remove all the obstacles that stop us from embracing this transformation. Otherwise we risk letting the wave of AI adoption pass us by and jeopardise Europe’s future.
History shows: disruptions first, benefits later
To understand what is at stake, it is useful to look at history.
Earlier general purpose technologies, such as electricity, computers or the internet, followed a recognisable trajectory. Disruption arrived early, with broad-based productivity gains only emerging slowly.[4]
For example, it took around thirty years before the impact of electricity showed up clearly across the economy. Power grids had to be built, factories redesigned and workers reallocated from legacy tasks to new ones.
Computers, too, required long-term investments in hardware, software, skills and new business models before they translated into measurable improvements.
If Europe’s AI wave resembles the spread of electricity in the 1920s, annual productivity growth could be about 1.3 percentage points higher. But if it follows the US digital boom of the late 1990s, the boost would be closer to 0.8 points.[5] Even that lower bound would be significant for Europe, marking a clear step up from recent trend productivity.
Could this time be different?
But AI has features that could compress this cycle and push forward even greater productivity gains. Two features – innovation and diffusion – point to a faster path.
The first is that frontier innovation may accelerate because of the recursive nature of AI.
AI systems can use their own output to enhance their performance in a continuous loop. This can lower not only the cost of producing goods and services, but also the cost of generating new ideas.[6]
For instance, in fifty years, science resolved approximately 200,000 protein structures. AI achieved over 200 million protein structure predictions in about one year, vastly expanding the knowledge frontier.[7]
This represents a significant change in the inputs to research and development. As the knowledge base expands almost overnight, downstream discovery can compound sooner, even before every lab or firm has fully reorganised.
By accelerating the production of ideas, AI can lift not just the level of productivity but potentially the growth rate itself.[8] Some estimates suggest that such AI-augmented R&D could double recent US productivity growth rates to between 1.6 and 2.4% annually – faster than previous technology waves.[9]
Second, the diffusion of AI technologies can be faster because much of the supporting infrastructure already exists.
It is true that there are bottlenecks. The current wave of investment in hyperscalers shows that compute capacity remains a constraint. Training and deploying larger models requires substantial investment in data centres and energy. In Europe we face particular challenges in this respect, given our higher energy costs and longer permitting delays.
But unlike past technologies, such as electricity or computers that required new physical networks or coding skills, AI runs on existing internet devices and communicates with users through human language.
Wide-scale use can therefore proceed even before the infrastructure build-out is complete. Many AI applications already deliver gains on existing hardware. So while a lack of computing capacity holds back the pace of model development, it does not necessarily block diffusion across the wider economy.[10]
Moreover, the infrastructure itself is advancing quickly. While Moore’s Law forecasts a doubling in chip capacity every two years, AI model compute power has been doubling every six months – four times faster.
What Europe stands to gain
What does this mean for Europe?
The stakes could be extraordinarily high.
With the United States and China ahead of the field, Europe has already missed the opportunity to be a first mover in AI. And we still bear the costs of having been slow adopters during the last digital revolution. We cannot afford to make the same mistake again.
Yet the story is far from over. Europe can still emerge as a strong second mover if it acts decisively. Our goal should not be to out-build the leading AI models, but rather to deploy AI across the board. By focusing on rapid adoption and smart use of existing AI technologies across our wide-ranging industries, Europe can turn a late start into a competitive edge.[11]
Our economy is highly diversified. The top ten firms in the US stock market account for roughly 40% of the market across just four sectors, whereas the top ten in the EU account for no more than 18% across almost twice as many sectors.
And European firms are already adopting generative AI on a similar scale to those in the United States. What the ECB is hearing from large European companies confirms this trend: many are investing heavily in databases, cloud solutions and AI, with providers of these services reporting double-digit growth.[12]
But to turn these benefits into a competitive advantage, we need to connect data across sectors. Thanks to industrial-scale data spaces, companies can share operational data and create training sets for AI models that no single firm could assemble alone.[13]
Initiatives like Manufacturing-X and Catena-X in the automotive sector foster collaboration in data sharing, while the European Health Data Space enables interoperable health records, allowing us to leverage the broad anonymised patient datasets generated by our universal healthcare systems.[14]
But these efforts will not be enough on their own.
If our data spaces use technology stacks that are owned and governed outside Europe, we deepen – rather than reduce – our strategic dependencies. We must diversify critical parts of the AI supply chain and avoid single points of failure. In the foundational layers, such as compute capacity based on chips and data centres, we should maintain a minimum capacity.
In the application layer, Europe should leverage the power of the Single Market to enforce interoperability and open standards. This will encourage competition among large models and prevent the kind of “lock-in” that has occurred with technology platforms in the past.
Moreover, we must overcome a familiar set of old barriers that have prevented us from being first movers in the past.
If we allow our energy costs to stay high, if regulations remain fragmented, and if capital markets fail to integrate and channel long-term, risk-bearing funding at scale, AI will diffuse more slowly.
And this time, the consequences extend beyond losing the race in AI models. We would eventually face a further loss of competitiveness for many of our sectors and industries.
Conclusion
Let me conclude.
“It’ll be ten times bigger than the Industrial Revolution – and maybe ten times faster.” These words from Demis Hassabis – joint winner of the 2024 Nobel Prize in Chemistry for his AI research – capture the potential scale and speed of what may lie ahead.
So the question is no longer whether this new frontier will arrive, but how soon – and the pace of progress in recent years suggests it is likely to be sooner than our institutions and regulations are prepared for.
That means acting now to clear the obstacles that would slow AI diffusion and so delay prosperity for all Europeans in the decades ahead.
 
 
Compliments of the European Central Bank.
——————————————————–
Notes:

Stanford Institute for Human-Centered Artificial Intelligence (2025), The 2025 AI Index Report, Chapter “Economy”.
Fox, J. (2025), “The AI spending boom is massive but not unprecedented”, Bloomberg Opinion, 8 October.
Turner, J.D. and Quinn, W. (2020), Boom and Bust: A Global History of Financial Bubbles.
David, P. A. (1990), “The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox”, American Economic Review, Vol. 80, No 2, pp. 355–361.
Aghion, P. and Bunel, S. (2024), “AI and Growth: Where Do We Stand?”, Federal Reserve Bank of San Francisco Working Paper, June.
Aghion, P., Jones, B.F. and Jones, C.I. (2019), “Artificial Intelligence and Economic Growth”, in Agrawal, A., Gans, J. and Goldfarb, A. (eds.), The Economics of Artificial Intelligence: An Agenda, University of Chicago Press, pp. 237–282.
See AlphaFold Protein Structure Database developed by European Bioinformatics Institute (EMBL-EBI) and Google DeepMind.
Aghion, P., Jones, B.F. and Jones, C.I. (2017), “Artificial Intelligence and Economic Growth”, NBER Working Paper, No 23928.
Besiroglu, T., Emery-Xu, N. and Thompson, N. (2022), Economic impacts of AI-augmented R&D.
Duan, J., Zhang, S. and Wang, Z. et al. (2024), “Efficient Training of Large Language Models on Distributed Infrastructures: A Survey”, arXiv preprint, July.
Tony Blair Institute for Global Change (2025), Europe in the Age of AI: How Technology Leadership Can Boost Competitiveness and Security, 17 November.
Kuik, F., Morris, R., Roma, M. and Slavík, M. (2025), “Main findings from the ECB’s recent contacts with non-financial companies”, Economic Bulletin, Issue 7, ECB.
Garicano, L. (2025), “The smart second mover: A European strategy for AI”, Silicon Continent, 9 July.
The Regulation aims to facilitate, through increased standardisation, easier access to new markets for electronic health record systems across different Member States and to increase the availability of anonymised and pseudonymised electronic health data for use in applied research and innovation.

The post ECB | The Transformative Power of AI: Europe’s Moment to Act first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Executive Summary
The rules of the global economy are in flux. Details of newly introduced policy measures are slowly coming into focus, and growth prospects are shifting along with them. After the United States introduced higher tariffs starting in February, subsequent deals and resets have tempered some extremes. But uncertainty about the stability and trajectory of the global economy remains acute. Meanwhile, substantial cuts to international development aid and new restrictions on immigration have been rolled out in some advanced economies. Several major economies have adopted a more stimulative fiscal stance, raising concerns about the sustainability of public finances and possible cross-border spillovers. The world’s economies, institutions, and markets have been adjusting to a landscape marked by greater protectionism and fragmentation, with dim medium-term growth prospects and calling for a recalibration of macroeconomic policies.
At the onset of trade policy shifts and the surge in uncertainty, the April 2025 World Economic Outlook (WEO) revised the 2025 global growth projection downward by 0.5 percentage point to  2.8  percent. This was predicated on tariffs being supply shocks for tariff-imposing countries and demand shocks for the targeted, with uncertainty being a negative demand shock all around. By July, announcements that lowered tariffs from their April highs prompted a modest upward revision to 3.0 percent. Inflation projections, while little changed overall, went up for the United States and down for many other economies.
After a resilient start, the global economy is showing signs of a moderate slowdown, as predicted. Incoming data in the first half of 2025 showed robust activity.
Inflation in Asian economies was subdued, while it remained steady in the United States. This apparent resilience, however, seems to be largely attributable to temporary factors—such as front-loading of trade and investment and inventory management strategies— rather than to fundamental strength. As these factors fade, weaker data are surfacing. The front-loading is unwinding, and labor markets are softening. Pass-through of tariffs to US consumer prices, previously muted, appears increasingly likely. Advanced economies, traditionally reliant on immigration, are seeing sharp declines in net labor inflows, with implications for potential output.
Global growth is projected to slow from 3.3 percent in 2024 to 3.2 percent in 2025 and to 3.1 percent in 2026. This is an improvement relative to the July WEO Update—but cumulatively 0.2 percentage point below forecasts made before the policy shifts in the October 2024 WEO, with the slowdown reflecting headwinds from uncertainty and protectionism, even though the tariff shock is smaller than originally announced. On an end-of-year basis, global growth is projected to slow down from 3.6 percent in 2024 to 2.6 percent in 2025. Advanced economies are forecast to grow about 1½ percent in 2025–26, with the United States slowing to 2.0 percent. Emerging market and developing economies are projected to moderate to just above 4.0 percent. Inflation is expected to decline to 4.2 percent globally in 2025 and to 3.7 percent in 2026, with notable variation: above-target inflation in the United States—with risks tilted to the upside—  and subdued inflation in much of the rest of the   world. World trade volume is forecast to grow at an average rate of 2.9 percent in 2025–26—boosted by front-loading in 2025 yet still much slower than the
3.5 percent growth rate in 2024—with persistent trade fragmentation limiting gains.
Risks to the outlook remain tilted to the downside, as they were in previous WEO reports. Prolonged policy uncertainty could dampen consumption and investment. Further escalation of protectionist measures, including nontariff barriers, could suppress investment, disrupt supply chains, and stifle productivity growth. Larger-than-expected shocks to labor supply, notably from restrictive immigration policies, could reduce growth, especially in economies facing aging populations and skill shortages. Fiscal vulnerabilities and financial market fragilities may interact with rising borrowing costs and increased rollover risks for sovereigns. An abrupt repricing of tech stocks could be triggered by disappointing results on earnings and productivity gains related to artificial intelligence (AI), marking an end to the AI investment boom and the associated exuberance of financial markets, with the possibility of broader implications for macro financial stability. Pressure on the independence of key economic institutions, such as central banks, could erode hard-earned policy credibility and undermine sound economic decision making, including as a result of reduced data reliability. Commodity price spikes—stemming from climate shocks or geopolitical tensions—pose additional risks, especially for low-income, commodity-importing countries. On the upside, a breakthrough in trade negotiations could lower tariffs and reduce uncertainty. Renewed reform momentum in an effort to navigate the intensifying challenges could give a boost to medium-term growth. Faster productivity growth because of AI could bring economy-wide gains.
The task ahead is to restore confidence through credible, predictable, and sustainable policy actions. Policymakers should establish clear, transparent, and rules-based trade policy road maps to reduce uncertainty and support investment and to reap the productivity and growth benefits that more trade brings. Trade rules should be modernized for the digital age and offer opportunities for stronger multilateral cooperation. Pairing trade diplomacy with macroeconomic adjustment is crucial for correcting persistent external imbalances by addressing their underlying causes and securing lasting gains. Rebuilding fiscal buffers and safeguarding debt sustainability remain a priority.
Medium-term fiscal consolidation should involve realistic, balanced plans that combine spending rationalization and revenue generation. Any new support measures should be temporary, well-targeted, and offset by clear savings. Monetary policy should be calibrated to balance price stability and growth risks, in line with central banks’ mandates. Preserving the independence of central banks remains critical for anchoring inflation expectations and enabling them to achieve their mandates. As Chapter 2 shows, past actions to improve policy frameworks have served emerging market and developing economies well in increasing resilience to risk-off shocks.
Countries should embrace reform without any further delay to enhance resilience as a new global economic landscape takes shape. Efforts on structural reforms—promoting labor mobility, encouraging workforce participation, investing in digitalization, and strengthening institutions—should be redoubled now to lift growth prospects. As Chapter 3 demonstrates, industrial policy may have a role in improving resilience and growth, but full consideration should be given to opportunity costs and trade-offs involved in its use. For low-income countries, mobilizing domestic resources, including through governance and administrative reforms, is essential as external aid declines. In times of uncertainty, scenario planning and predesigned policy playbooks can improve preparedness and credibility, ensuring that policy responses are both effective and timely.
 
Compliments of the International Monetary FundThe post IMF | World Economic Outlook: Global Economy in Flux, Prospects Remain Dim first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Speech by Christine Lagarde, President of the ECB, at the 35th Frankfurt European Banking Congress
Frankfurt am Main, 21 November 2025
I would like to start with a quote:
“The world around us does not stand still. In recent years, the global environment has been transformed in ways that none of us could have imagined. We have seen the post-war global order fracturing, the rise of new – and some old – powers, rapid changes in technology, and an uncertain outlook for global trade and finance. Uncertainty abounds and conventional wisdom is being challenged, in politics, in diplomacy and in economics. And, unavoidably, this calls on Europe to consider its place in the world and reset its ambitions.”
This may sound like the kind of passage you have heard in many speeches this year. But, in fact, it is from the first speech I gave as ECB President – at this very conference in November 2019.[1] In that speech, I urged Europe to recognise that its old growth model – built on export-led growth – was coming under strain. And I called for a shift: to focus instead on developing our domestic economy as a source of resilience in an uncertain world.
My point was not to argue for protectionism or inward-looking policies. It was about realism: recognising the world as it is. And it was about acknowledging that the solution was already in front of us: the untapped potential of our own internal market. Six years on, that diagnosis has only become clearer and stronger. Europe has become more vulnerable, also due to our dependency on third countries for our security and the supply of critical raw materials. Global shocks have intensified, with rising US tariffs, Russia’s invasion of Ukraine and stiffening competition from China.
At the same time, our internal market has stood still, especially in the areas that will shape future growth, like digital technology and artificial intelligence, as well as the areas that will finance it, such as capital markets. And yet – as Galileo famously said – “it moves.” Europe continues to show resilience, revealing sources of strength that could grow if only we allow them to. So the question I would like to address today is: how do we move from being resilient but vulnerable to being genuinely strong? And what will it take to do so?
Vulnerabilities in Europe’s growth model
Europe’s vulnerabilities stem from having a growth model geared towards a world that is gradually disappearing.
We embraced globalisation more than any other advanced economy. In the two decades before the pandemic, external trade as a share of GDP almost doubled in the EU, while in the United States it barely moved.[2] This deep integration brought significant benefits: the number of jobs supported by EU exports[3] rose by 75%, reaching almost 40 million[4] – and for many years, this was a source of resilience. But today, that same openness has become a vulnerability. Exports have become a far less reliable engine of growth, reflecting the changing global landscape.
In mid-2023, for instance, ECB staff expected exports to grow by around 8% by mid-2025. In reality, they have not grown at all. And looking ahead, exports are projected to subtract from growth over the next two years.[5] This has been felt most acutely in countries with large manufacturing sectors, which have faced a prolonged slump in industrial production. As a result, growth across the euro area has become more uneven.
At the same time, this export-led growth model has resulted in a persistent current account surplus, increasing our reliance on other countries to generate our wealth – especially the United States. Euro area residents now hold nearly 10% of their total equity investments in US stocks, totalling €6.5 trillion – about two times the amount they held at the end of 2015.[6] This has been a rational response: US markets have delivered returns roughly five times higher than Europe’s since 2000. But it has created a vicious circle.
As US markets channel European savings into high-productivity sectors, the performance gap between our economies widens – prompting yet more European savings to flow across the Atlantic. The result is stagnating productivity at home and growing dependence on others. Finally, we now face a new form of vulnerability shared by all major economies: the weaponisation of dependencies on key raw materials and technologies.
ECB analysis shows that more than 80% of large euro area firms are no more than three intermediaries away from a Chinese rare earth supplier.[7] Recent supply shocks – for example, the shortage of automotive chips – have shown how a single chokepoint can stall entire sectors. These vulnerabilities do not trigger dramatic crises. Instead, they erode growth quietly, as each new shock nudges us onto a slightly lower trajectory. Over time, the cumulative effect of this “lost growth” and lost productivity becomes material.
In mid-2023, ECB staff projected that the economy would expand by 3.6% cumulatively by mid-2025. In reality, it has grown by only 2.3% – a shortfall equivalent to an entire year of growth in normal times, and productivity has turned out worse.
Sources of resilience in the domestic economy
Yet even as this changing world has exposed our vulnerabilities, 2025 has revealed Europe’s latent strengths. Our experience this year has shown that a resilient domestic economy can shield Europe against global turbulence. Three sources of domestic strength have helped cushion the impact of global shocks – our people, our potential and our policy.
First, our people.
We have benefited from an unusually strong labour market – one that has remained remarkably resilient even as growth has slowed. Typically, employment tends to grow at roughly half the pace of real GDP. Yet since the end of the pandemic, that relationship has been almost one-to-one in Europe.[8] This strength has created a virtuous circle: rising employment has supported consumption, which in turn has sustained services output and created still more jobs – particularly in labour-intensive sectors.[9]
Second, our potential.
Despite the notion that Europe is lagging behind in AI, European firms are moving quickly through the digital transition – and that is making investment more resilient to global uncertainty. While tangible investment has fallen in the past two years as manufacturing has weakened, intangible investment has risen sharply[10], keeping overall business investment broadly stable. Firms continue to invest in AI and digital infrastructure because, for any company that wants to stay competitive, these are no longer optional.
Third, our policy.
Fiscal policy, in particular, has acted countercyclically, buffering the economy rather than amplifying downturns, as we saw after the financial crisis. The fiscal packages now being implemented for defence and infrastructure – especially here in Germany – are coming at the right time for Europe and will have a measurable effect on growth. ECB staff estimate that higher government investment between now and 2027 will offset around one-third of the trade shock.[11]
The ECB is also playing its part by delivering price stability. We have cut interest rates by 200 basis points from their peak, and this is increasingly feeding through into easier financing conditions, which is helpful to support demand. We will continue to adjust our policy as needed to ensure that inflation remains at our target. Together, these three sources of resilience will help anchor growth at home. Domestic demand is set to become the main engine of expansion in the years ahead.[12] And this shift should also help narrow Europe’s current account surplus, which has already halved since its peak in 2018.[13]
The potential of the domestic market
This experience underlines the power of a resilient domestic economy, strengthened by open strategic autonomy. But it also exposes how much potential Europe continues to leave untapped. Today, despite more than 30 years of the Single Market, trade barriers within the EU remain too high in key areas.
ECB analysis finds that internal barriers in services and goods markets are equivalent to tariffs of around 100% and 65%, respectively.[14] Of course, we should not expect these barriers to disappear altogether: not all products are equally tradeable, and national preferences will always play a role. Policy can reduce certain frictions, but it cannot eliminate them entirely.[15]
But we should expect two things. First, that barriers are low enough for the sectors that will shape future growth to operate in a truly European market. This is clearly not the case for digital services, which will drive future innovation, and capital markets, which must finance it. Second, we should expect that being inside the Single Market offers a clear advantage over being outside it – in other words, that internal barriers are lower than external ones.
But this is also not currently the case for services: over the past 20 years, barriers to cross-border trade within Europe have been declining no faster than those faced by international firms seeking to operate here. This helps explain why, even though services now account for three-quarters of Europe’s economy, trade in services within the EU makes up only about one-sixth of GDP – roughly the same as our trade in services with the rest of the world.
This is a vast waste of potential – especially at a time when we must rely more on ourselves than on others. And the key point is that achieving these gains would not require radical change. Our analysis shows that if all EU countries were merely to lower their barriers to the same level as that of the Netherlands, internal barriers could fall by about 8 percentage points for goods and 9 percentage points for services.[16] If we only did a quarter of that, it would be sufficient to boost internal trade enough to fully offset the impact of US tariffs on growth.[17]
So the question we must now ask is: why are we not taking these steps?
Towards a new governance
The answer comes down to governance.
Fully harmonising all national laws and regulations is not realistic, nor is it always even necessary. But we lack effective tools to overcome barriers in the areas where progress matters most. I believe that three steps can help us move forward. The first is to revive the principle of mutual recognition – the very engine of liberalisation that powered the Single Market in the 1980s. Mutual recognition means that if a good or service is lawfully provided in one Member State, it should be allowed to circulate freely across the EU without the need to comply with every other country’s rules.
For example, in the EU there is a system of automatic recognition of professional qualifications for a number of sectoral professions. Such mutual recognition is also visible in financial services. Today, banks benefit from a passporting system: a single licence granted by the ECB enables them to provide services across Europe. But they still face different rules in foundational elements of the framework they operate in. Completing the banking union and deepening our capital markets would therefore be transformative, accelerating our path towards a truly integrated home market.
The same logic applies to the digital economy. Just as passporting embodies mutual recognition in banking, the mutual recognition of digital identities, trust services and other credentials would dramatically improve interoperability and eliminate hidden costs that are slowing the growth of Europe’s digital markets. The second step is to streamline decision-making – by extending qualified majority voting to the areas on which Europe’s future growth depends.
While qualified majority voting has been instrumental in driving integration, it has now largely reached its limits. In several critical fields, the continued requirement for unanimity in the European Council still prevents meaningful progress towards completing the Single Market. Taxation is the clearest example. Reforms such as harmonising VAT rules or establishing a common consolidated corporate tax base remain stuck because of national vetoes, leaving firms to navigate a maze of fragmented tax regimes. This fragmentation is especially damaging in a world of digital business models and intangible assets, where tax policy cannot be managed within national borders alone. For example, a digital platform providing cloud or software services across Europe must currently comply with 27 different VAT systems, each with its own definition of where value is created for tax purposes.
This complexity tilts the playing field towards large US firms that can absorb the associated costs – exactly the opposite of what Europe needs if it wants to nurture its own digital champions. Moving to qualified majority voting, using the passerelle clause where necessary – which allows the European Council to shift specific areas from unanimity to majority voting without changing the Treaties – could help break this deadlock. The third step is to take a more radical approach to simplification – and I do not mean simply trimming regulations through the Omnibus packages.
The fastest way to achieve genuine simplification is not by repealing existing rules, but by creating new “28th regimes” – optional EU legal frameworks that sit alongside national law rather than replacing it. These frameworks would allow firms to opt into a single European rulebook in specific areas, without requiring full harmonisation across all Member States. A prime candidate is company law[18], as proposed in the Letta and Draghi reports. A European company law regime would provide firms – in particular start-ups and scale-ups – with a simpler path to operate across borders, cutting through the complexity of 27 different national systems.
This approach has worked before. The EU Trademark (1993) and Community Design (2001) were both 28th regimes, offering optional EU-wide intellectual property titles alongside national rights. And both have been widely adopted, especially by firms active across multiple markets. Their success shows how an optional EU framework can reduce fragmentation and even generate healthy “systems competition”: when firms choose the EU rules, national systems are put under pressure to adapt. The European Commission is planning to present a 28th regime proposal as part of its renewed and welcome ambition to set clear deadlines for removing barriers identified in the “Single Market Roadmap to 2028”. But progress will depend on political will.
The first step may be modest – such as creating a digital business identity, giving firms a single trusted profile to register and operate online across the EU – but it could set a powerful precedent for broader reforms to follow. If we get this right, firms that could grow based on genuinely European regimes would also be best placed to access pan-European financing, helping to channel our vast savings into productive investment. Completing the Single Market – in the real economy and in finance – is therefore a mutually reinforcing project, strengthening Europe’s competitiveness and its capacity to invest in the future.
Conclusion
The world will not slow down for Europe – but we can decide how we move forward. If we make our Single Market truly single, Europe’s growth will no longer depend on the decisions of others, but on our own choices. This was my message six years ago. Today, that message has only grown more urgent. Another six years of inaction – and lost growth – would not just be disappointing. It would be irresponsible.
But the experience of this year should also give us confidence. It has shown that our economy has real sources of strength – and that, if we act, those strengths can be multiplied. The steps we need to take are not beyond our reach. They require no new treaties, no radical rewiring of our Union – only the political will to use the tools we already have.
If we can summon that will, Europe can move from being merely resilient to being genuinely strong.

Lagarde, C. (2019), “The future of the euro area economy”, speech at the Frankfurt European Banking Congress, Frankfurt am Main, 22 November.
External trade as a share of GDP rose from 26% to 43% in the EU, whereas it increased from 23% to just 26% in the United States.
To non-EU countries.
Rueda-Cantuche, J.M., Piñero, P. and Kutlina-Dimitrova, Z. (2021), EU Exports to the World: Effects on Employment, Publications Office of the European Union, Luxembourg.
See footnote 12 for details.
ECB (2025), “Euro area quarterly balance of payments and international investment position:fourth quarter of 2024”, statistical release, 4 April.
Banin, M., D’Agostino, M., Gunnella, V. and Lebastard, L. (2025), “How vulnerable is the euro area to restrictions on Chinese rare earth exports?”, Economic Bulletin, Issue 6, ECB.
Between the end of 2021 and mid-2025, cumulative employment rose by 4.1% – an increase of 6.3 million of people in employment – while real GDP increased by 4.3%. See Lagarde, C. (2025), “Beyond hysteresis: resilience in Europe’s labour market”, opening panel remarks at the annual Economic Policy Symposium “The policy implications of labour market transition” organised by the Federal Reserve Bank of Kansas City in Jackson Hole, 23 August.
Anderton, R., Aranki, T., Bonthuis, B. and Jarvis, V. (2014), “Disaggregating Okun’s law: decomposing the impact of the expenditure components of GDP on euro area unemployment”, Working Paper Series, No 1747, ECB, December.
Excluding volatile Irish assets.
Lagarde, C. (2025), “Trade wars and central banks: lessons from 2025”, keynote speech at the Bank of Finland’s 4th International Monetary Policy Conference, Helsinki, 30 September.
Cumulatively, ECB staff expect domestic demand to add 3.1 percentage points to growth between the second quarter of 2025 and the fourth quarter of 2027, while exports are projected to subtract 0.6 percentage points. See ECB (2025), ECB staff macroeconomic projections for the euro area, September.
Lagarde, C. (2025), “Opening remarks”, remarks at the panel on the “Global Economic Outlook” at the 40th Annual G30 International Banking Seminar, Washington DC, 18 October.
Bernasconi, R., Cordemans, N., Gunnella, V., Pongetti, G. and Quaglietti, L. (2025), “What is the untapped potential of the EU Single Market?”, Economic Bulletin, Issue 8, ECB (forthcoming). These “tariff equivalents” should be understood as measures of estimated trade frictions rather than actual policy-imposed tariffs. They reflect a combination of policy-related barriers and structural or cultural factors – such as consumer preferences and taste differences – that cannot be directly addressed through policy alone.
Head, K. and Mayer, T. (2025), “No, the EU does not impose a 45% tariff on itself”, VoxEU column, Centre for Economic Policy Research, 13 November.
Bernasconi, R. et al (2025), op. cit.
According to ECB simulations, this reduction in barriers would raise trade within the EU by around 3%, offsetting the 0.7 percentage point reduction in GDP growth between 2025 and 2027 caused by US tariffs and the related uncertainty.
So far, most legal reforms aimed at improving the business environment have relied on soft coordination, voluntary standards or limited harmonisation directives. This approach reflects national sensitivities in certain areas (e.g. company law, tax law and labour law) that remain primarily a Member State competence. However, previous attempts at soft convergence have only led to modest results.

 
Compliments of the European Central BankThe post ECB | From resilience to strength: unleashing Europe’s domestic market first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

70 projects are receiving over €600 million in EU grants to electrify and decarbonise road, maritime, inland waterway and air transport along the trans-European transport network (TEN-T). These projects will deploy alternative fuels supply infrastructure such as electric recharging stations, hydrogen refuelling stations, electricity supply and ammonia and methanol bunkering facilities across 24 EU countries.
Europe’s transport network will be electrified through the installation of more than 1 000 electric recharging points for light-duty vehicles with a capacity of 150 kW. 2 000 new recharging points for heavy-duty vehicles will deliver a capacity of 350kW and 586 recharging points with a 1 MW power output. Additionally, 16 European airports will electrify their ground handling services, making a key contribution towards reducing aviation emissions.
The hydrogen economy will also be boosted through the installation of 38 hydrogen refuelling stations for cars, trucks and buses. Finally, 24 maritime ports will benefit from the integration of greener technologies, including Onshore Power Supply (OPS), electrification of port services and ammonia bunkering facilities to fuel maritime vessels.
Commissioner for Sustainable Transport and Tourism Apostolos Tzitzikostas said:
“We are currently supporting 70 projects with €600 million in EU funding to accelerate the deployment of alternative fuels infrastructure across Europe. These investments will strengthen our competitiveness and help make the transition to zero-emission mobility easier and more accessible for all citizens.”
Paloma Aba Garrote, Director of the European Climate, Infrastructure and Environment Executive Agency added:
“This significant EU support for public and private organisations will accelerate the transport sector’s transition toward a sustainable future. With these new projects, more than €2.5 billion in EU grants has been allocated to alternative fuels projects through AFIF since 2021. This demonstrates EU’s ambition to make zero-emission mobility an everyday reality.”
Next steps
Following the approval of the 70 selected projects by the EU Member States on 13 November 2025, the European Commission will adopt the award decision. The European Climate, Infrastructure and Environment Executive Agency (CINEA) is starting the preparation of the grant agreements with the successful projects.
Due to the exhaustion of funds, the third cut-off will be cancelled. The Commission will now assess the potential reflows and subsequently prepare a new work programme and call for proposals in the coming months.
Background
The projects have been selected under the second cut-off of the 2024-2025 AFIF call which closed on 11 June 2025. The total awarded grant for these projects is €600 million: €505 million under the General envelope and €95 million under the Cohesion envelope.
A total budget of €1 billion was available under this Call: €780 million under the General envelope and €220 million under the Cohesion envelope. This call supports the objectives for publicly accessible electric recharging pools and hydrogen refuelling stations across the EU’s main transport corridors and hubs as set out in the Regulation for the deployment of alternative fuels infrastructure (AFIR), in the ReFuelEU aviation regulation and in the FuelEU maritime regulation.
AFIF also aims to improve alternative fuels infrastructure in ports by investing strongly in OPS. This facilitates the transition to renewable and low-carbon fuels by ships, which is also a main priority outlined in the Sustainable Transport Investment Plan. Regarding heavy-duty vehicle charging infrastructure, the Automotive Action Plan encourages the adoption of zero-emission vehicles by speeding up the deployment of necessary infrastructure.
 
Compliments of the European CommissionThe post European Commission | EU awards over €600 million to alternative fuel projects to boost zero-emission mobility first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

WASHINGTON, Nov. 18, 2025 – The World Bank Group today announced the appointment of Paschal Donohoe as Managing Director and Chief Knowledge Officer. Donohoe has served as Ireland’s Minister for Finance since January 2025, and as President of the Eurogroup of finance ministers since July 2020. His extensive experience spans both the public and private sectors, including nearly a decade at Procter & Gamble.
“Paschal brings more than twenty years of public service, and knows firsthand how good policies can unleash private capital mobilization, boost growth, and generate jobs,” said World Bank Group President Ajay Banga. “He also brings extensive knowledge of how investors, private sector, financial companies, technology firms, and others operate – from his near decade of experience in the private sector. This combination will be invaluable at ensuring the World Bank Group delivers more impact at scale.”
As Chief Knowledge Officer, Donohoe will lead on shaping, managing, and leveraging the institution’s Knowledge Bank—a force multiplier in the mission to fight poverty and improve quality of life in emerging markets and developing economies. He will ensure that the World Bank Group offers its sovereign and private clients proven solutions that can be used at scale, based on the best combination of expertise in regulations, technological advances, and development innovations. He will also be responsible for the World Bank Group’s strategic engagement with governments, civil society, foundations and philanthropies.
“It is a tremendous honor to take up this role at the World Bank, as Managing Director and Chief Knowledge Officer,” said Paschal Donohoe. “In more than twenty years as a public representative, my motivation has been to improve the lives of all of the people I represent and to foster engagement and cooperation as the best means of progressing vital issues.”
“By encouraging collaboration with, and between, governments and global institutions we can make progress and meet the challenges we face head-on. This has been a key and continuous theme of my public life and the work that I have done. The need for this has never been greater than it is today. I look forward to playing a central role at the World Bank in making the case for this cooperation at a time of great change in our world.”
Donohoe has been recognized with several honors, including European of the Year by the European Movement of Ireland, and the prestigious Chevalier de la Légion d’Honneur from the French Government.
He will start in the new role on November 24.
 
Compliments of the World Bank GroupThe post World Bank Group Appoints Paschal Donohoe as Managing Director and Chief Knowledge Officer first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

By Alessandro De Sanctis, Roberto A. De Santis, Daniel Kapp and Francesca Vinci
To bridge Europe’s investment gap, we need both public and private funding. Well-designed EU investment programmes can act as a major catalyst for private capital. As this blog post shows, every euro invested by the EU is matched by private finance, thereby doubling its impact.

Europe is facing an unprecedented need for investment to support its green, digital and defence transitions. On current estimates, this will require additional spending of around €1,200 billion a year between 2025 and 2031. That is a significant increase from the €800 billion estimated just one year ago.[1]
To meet this challenge, public and private financing are both essential.[2] Even under optimistic assumptions, the combined national fiscal space available for additional government spending and the existing EU resources would still leave a substantial funding gap of over €100 billion a year. EU investment programmes can play a decisive role in bridging this gap. In this blog post, we look at how these programmes can help unlock private investment and boost productivity. Among other findings, we show that every euro invested by the EU is matched by private capital, more than doubling its impact.
The role of EU programmes
Amounting to just 1% of the total gross national income of all the Member States, the EU budget is modest compared with its national counterparts. Its effectiveness in supporting investment thus depends on its ability to harness additional resources. With this in mind, various budget instruments have been designed not only to finance public investment but also to mobilise private capital.
The European Structural and Investment (ESI) funds are central to these efforts. For over 25 years, they have served as the EU’s primary investment instrument. These funds help drive progress by supporting infrastructure, innovation and business development across the Union. ESI funds fulfil a dual purpose. First, they promote regional convergence by channelling more resources to less developed regions. Second, they enhance competitiveness by financing investments aligned with key policy priorities, such as fostering innovation, advancing digital technologies and accelerating the green transition.
Moreover, ESI funding is designed to leverage additional financial resources thanks to mandatory national co-financing. This ensures that EU investments are consistently complemented by domestic funds.[3]
“Crowding in” versus “crowding out”
When a government increases investment, the effects can ripple across the economy. Projects such as high-speed rail systems, digital networks and renewable energy grids can enhance productivity and stimulate additional private investment. This phenomenon of public investment attracting private activity is known as “crowding in”. However, large-scale public investment can also increase the demand for resources, potentially leading to higher prices and greater borrowing costs. This can discourage private sector initiative – a phenomenon referred to as “crowding out”.
The actual outcome ultimately depends on the economic setting and the quality of the public investment. Well-planned and carefully executed projects can yield lasting productivity gains that outweigh possible short-term pressures on demand. Conversely, poorly designed investment projects are more likely to raise the risk of crowding out, thus undermining the intended economic benefits.
Evidence from recent research
In a recent study, De Santis and Vinci (2025)[4] provide empirical evidence on the impact of ESI funds on private investment across EU regions between 2000 and 2021. Using advanced econometric methods, their research finds significant crowding-in effects. Over a two-year period, every euro of ESI funding generated €1.10 of private investment and €0.10 of business research and development (R&D) (see Chart 1). These findings underscore the effectiveness of ESI funds as a catalyst for private investment and innovation. European investment contributes significantly to long-term economic growth, while also advancing the EU’s green and digital transitions.

Chart 1
Impact of ESI funds on private investment and R&D

a) Private Investment

b) Business R&D

(estimated effect of €1 of ESI funds)

(estimated effect of €1 of ESI funds)

Source: De Santis, R.A. and Vinci, F. (2025), “Private investment, R&D and European Structural and Investment Funds: crowding-in or crowding-out?”, Working Paper Series, No 3098, ECB, Frankfurt am Main, August. Illustrations replicate the results presented in Tables 4 and 5.
Notes: The estimation entails a local projection, regressing the change in ESI funding on the change in private investment and business research and development (both scaled by regional gross value added (GVA), with an instrumental variable approach. The change in predicted ESI funding is employed as the instrument. This is constructed, for a given region, as the average ESI funds absorption rate in a given year in regions with similar characteristics but located in other countries, multiplied by the ESI funds allocation to the region at the beginning of the programming period. The specification controls for previous-year regional GVA growth, the one-year lag of the dependent variable, contemporaneous changes in government spending (normalised by previous-year real GDP) and changes in each country’s ten-year sovereign yield, as well as year and region fixed effects. The top and bottom 2% of observations are winsorised. The sample covers 24 EU Member States over the period 2000-21. Confidence intervals are reported at the 90% level.

ESI funds boost firms’ productivity
A small share of ESI funds is allocated directly to firms. This gives us a unique opportunity to assess their impact on firm-level outcomes and see how effective the EU programmes are in improving firm performance.
So just how effective are ESI funds in enhancing investment and productivity?
An ECB paper by De Sanctis, Kapp, Vinci and Wojciechowski (2025)[5] looks at these questions, focusing on firms’ performance during the 2014-2020 programming period for EU funding. Their research reveals that ESI-funded firms steadily increased their capital stock by 15%. In other words, they continued to invest in and expand their fixed assets year after year. These firms also experienced long-lasting gains in productivity, which rose by 3% over four years (Chart 2, panels a and b). Moreover, the study finds that financially constrained firms increased their debt and capital to a greater extent. These findings suggest that ESI funds do indeed play a pivotal role in facilitating access to finance (Chart 2, panels c and d).

Chart 2
Impact of receiving ESI funds on firms’ outcomes

a) Capital

b) Total factor productivity

(percentage)

(percentage)

c) Heterogeneity: impact on capital for financially constrained vs non-financially constrained firms

d) Heterogeneity: impact on leverage ratio for financially constrained vs non-financially constrained firms

(percentage)

(percentage)

Source: De Sanctis, A., Kapp, D., Vinci, F. and Wojciechowski, R. (2025), “Unlocking growth? EU investment programmes and firm performance “,Working Paper Series, No 3099, ECB, Frankfurt am Main, August.
Notes: The estimation uses a local projection difference-in-differences approach to evaluate the impact of receiving EU funding through the ESI funds on firms’ outcomes, specifically changes in capital and total factor productivity. The control group consists of firms who have not yet received funding, with time measured relative to the year of first funding within the 2014–20 programming period. A coefficient of 0.01 corresponds to a 1% growth effect. Confidence intervals are reported at the 99% level. The regression includes controls for the lagged values of total assets, sales growth, current ratio, capital-to-labour ratio, sales-to-assets ratio and firm age, as well as year, sector and region (NUTS 2) fixed effects. The variable “finc” indicates financial constraints: “finc = 1” denotes constrained firms and “finc = 0” unconstrained firms. The leverage ratio is defined as the ratio of a firm’s debt to its total assets.

Policy takeaways
As we have seen, synergies between private investment and targeted public investment are critical to addressing Europe’s significant investment needs. ESI funds have proven to be an effective public investment tool, not only in driving infrastructure and regional development but also in enhancing firms’ investment capacity and productivity. Admittedly, there is still room for improvement, particularly in areas such as governance, the timely allocation of resources and the promotion of cross-border investment. And yet, the positive overall experience offers valuable lessons for future initiatives, and ESI funds can serve as an important benchmark when designing new programmes. As the EU prepares its 2028-34 budget, it is vital to prioritise investment programmes that crowd in private capital and boost productivity across Europe.
The views expressed in each blog entry are those of the author(s) and do not necessarily represent the views of the European Central Bank and the Eurosystem.
Check out The ECB Blog and subscribe for future posts.
For topics relating to banking supervision, why not have a look at The Supervision Blog?

See Bouabdallah, O., Dorrucci, E., Nerlich, C., Nickel, C. and Vlad, A. (2025), Time to be strategic: how public money could power Europe’s green, digital and defence transitions, The ECB Blog, ECB, 25 July.
While private capital remains a cornerstone of investment, the additional burden on national and EU budgets has risen sharply to €510 billion a year. It now accounts for 43% of total investment needs, largely owing to a heavier dependence on public budgets for defence spending.
The EU also uses other instruments to finance investment and innovation, many of which are based, to some degree, on the ESI model. The Next Generation EU programme, launched in response to the pandemic crisis, scaled up EU support for investment. The InvestEU programme, which started operating in 2021, aims to reduce the risks of financing innovative or long-term projects through the European Investment Bank and other partners by leveraging EU budget guarantees. The Horizon Europe programme, in place since 2021, supports frontier research and innovation that is often too risky for private finance alone.
De Santis, R.A. and Vinci, F. (2025), “Private investment, R&D and European Structural and Investment Funds: crowding-in or crowding-out?”, Working Paper Series, No 3098, ECB, Frankfurt am Main, August.
De Sanctis, A., Kapp, D., Vinci, F. and Wojciechowski, R. (2025), “Unlocking growth? EU investment programmes and firm performance“, Working Paper Series, No 3099, ECB, Frankfurt am Main, August.

 
Compliments of the European Central BankThe post ECB | Unlocking private investment and boosting productivity with EU programmes first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The OECD has released an update to the Model Tax Convention on Income and on Capital, providing new and detailed guidance on short-term cross-border remote work and on the taxation of income from natural resource extraction. The update, approved by the OECD Council, aims to provide greater certainty for governments and businesses worldwide.
The 2025 Update to the OECD Model Tax Convention on Income and on Capital clarifies when remote work across borders, such as from a home office, creates a taxable presence for business. This responds to the rise in such arrangements following the COVID-19 pandemic. The update also introduces a new alternative provision setting out how income from activities connected with the extraction of natural resources such as oil, gas and minerals should be taxed, a measure that is particularly relevant for developing and other resource-endowed economies. These changes aim to enhance tax certainty and support fair and efficient cross-border business taxation.
• Remote working: Clear guidance on how cross-border “home office” arrangements are treated under tax treaties, providing certainty for employers and employees.
• Natural resources: A new alternative tax treaty provision to ensure that income from activities connected with natural resources extraction is taxed where it occurs, reinforcing source-country rights and supporting resource-endowed developing economies.
• Other improvements: Additional refinements to enhance consistency in treaty interpretation and strengthen tax certainty.
“By clarifying the rules for remote work and reinforcing source taxation for extractive industries, this update helps countries and businesses navigate a rapidly evolving global landscape,” said OECD Secretary-General Mathias Cormann. “It also demonstrates the importance and continued relevance of multilateral co-operation in delivering practical solutions to modern tax challenges.”
Used by governments, tax authorities, businesses, and practitioners in both OECD and non-OECD Member countries, the OECD Model Tax Convention is a cornerstone of the international tax system, helping to reduce tax obstacles and promote cross-border trade and investment. These updates reflect the realities of a global economy where remote work and digital mobility are here to stay. They also underline the importance of multilateral co-operation in addressing shared challenges and ensuring that tax systems keep pace with economic change.
The updates published today will be reflected in revised condensed and full editions of the OECD Model Tax Convention to be released in 2026. A webinar presenting the 2025 Updates will be hosted by the OECD on 10 December featuring Manal Corwin, Director of the OECD Centre for Tax Policy and Administration, alongside OECD experts.
 
Compliments of the Organisation for Economic Co-operation and DevelopmentThe post OECD updates Model Tax Convention to reflect rise of cross-border remote work and clarify taxation of natural resources first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.