Our digital footprint generates enormous value, but too much of it ends up in Big Tech silos
Humanity has never been so comprehensively recorded. Smartwatches capture our pulse in real time for a distant artificial intelligence (AI) to ponder the risks of heart disease. Bluetooth and GPS keep track of whether some of us shop at gourmet stores and linger in the candy aisle. Our likes and browsing hours on social media are harvested to predict our credit risk. Our search queries on shopping platforms are run through natural language processors to generate uniquely targeted ads whose unseen tethers subtly remold our tastes and habits.
The generation and collection of data on individual human beings has become a big part of the modern economy. And it generates enormous value. Big data and AI analytics are used in productivity-enhancing research and development. They can strengthen financial inclusion. During the pandemic, data on real-time movements of entire populations have informed policymakers about the impact of lockdowns. Contact tracing apps have notified individuals who have been in potentially dangerous proximity to people infected with COVID-19.
But just as data have helped us monitor, adapt, and respond to COVID-19, the pandemic has brought into focus two fundamental problems with how it flows in the global economy (Carrière-Swallow and Haksar 2019). First, the data economy is opaque and doesn’t always respect individual privacy. Second, data are kept in private silos, reducing its value as a public good to society.
Whose data anyway?
Once the GPS, microphones, and accelerometers in the smart devices located in every pocket and on every bedside table and kitchen counter begin monitoring our behavior and environment, where do the data go? In most countries, they are collected, processed, and resold by whoever can obtain them. User consent is all too often granted by checking a box below lengthy legalistic fine print—hardly a means to serious informed consent. Analysis based on such granular data is a gateway to influencing behavior and has tremendous commercial value. To be sure, this is not a one-way street: consumers get many nice data-driven features for no direct financial cost in exchange. But are they getting enough?
Most transactions involving personal data are unbeknownst to users, who likely aren’t even aware that they have taken place, let alone that they have given permission. This gives rise to what is known in economics as an externality: the cost of privacy loss is not fully considered when an exchange of data is undertaken. The consequence is that the market’s opacity probably leads to too much data being collected, with too little of the value being shared with individuals.
By agreeing to install a weather application and allowing it to automatically detect its current city, people might unwittingly allow an app designer to continuously track their precise location. Users who sign up for a weather forecast with a sleek interface agree to share their location data, believing it’s just to enable the app’s full functionality. What they are providing, in fact, is a data trail about their daily routine, travel itinerary, and social activity. The weather forecaster may never get any better at predicting rain but could end up with a better prediction of the user’s creditworthiness than the scores compiled by traditional credit bureaus (Berg and others 2020).
Privacy paradoxes
Do we care about our privacy or not? Researchers have documented what is known as a “privacy paradox.” When asked to value their privacy in surveys, people frequently rank it as a very high priority. However, in their daily lives, these same people are often willing to give away highly sensitive personal data for little in exchange.
‘Why are people willing to hand over their location data in exchange for a weather forecast, but not to share it to protect their health?’
This paradox should have heralded good news for contact tracing apps, which rely on widespread usage to be effective (Cantú and others 2020). Unfortunately, in many countries where use of these tools is voluntary, take-up has been very low. Why are people willing to hand over their location data in exchange for a weather forecast, but not to share it to protect their health while helping fight a global pandemic that has killed over 2 million people? One reason may be that—unlike the weather app makers—public health agencies have designed their contact tracing apps to transparently announce how they will be collecting and using data, and this triggers concerns about privacy. Another reason is that authorizing governments to combine location information with data on a disease diagnosis may be seen as particularly sensitive. After all, knowledge of someone’s preexisting condition could lead to their exclusion from insurance markets in the future or open the door to other forms of stigma or discrimination.
How to use responsibly
The data generated by our smart devices are essentially a private good held by Big Tech companies that dominate social media, online sales, and search tools. Given how valuable these data are, it is not surprising that companies tend to keep them to themselves (Jones and Tonetti 2020). As more data beget better analysis, which in turn attracts more usage, more data, and more profits, these swollen data war chests fortify their platform networks and potentially stifle competition.
This finders keepers model tends to lead to too much data being collected, but the data are also insufficiently utilized exactly when they could be most helpful, kept in private silos while public needs remain unmet. Data sharing can support the development of new technologies, including in the life sciences. Consider how epidemiological research can benefit from scaling up big data analytics. A single researcher analyzing the experience of patients in their home country may be a good start, but it cannot rival the work of many researchers working together and drawing on the experience of many more patients from around the world—the key to the success of a number of cross-border collaborations.
How can data be made more of a public good? Commercial interests and incentives for innovation must be balanced with the need to build public trust through protection of privacy and integrity. Clarifying the rules of the data economy is a good place to start. Significant advances have resulted, for example, from the 2018 implementation in Europe of the General Data Protection Regulation (GDPR), which clarified a number of rights and obligations governing the data economy. EU residents now have the right to access their data and to limit how it is processed, and these rights are being enforced with increasingly heavy fines. But even as researchers have started to see the impact of the GDPR on the digital economy, there are still concerns about how to operationalize these rights and keep them from being simply a box-checking exercise.
People should have more agency over their individual data. There could be a case to consider the creation of public data utilities—perhaps as an outgrowth of credit registries—that could balance public needs with individual rights. Imagine an independent agency tasked with collecting and anonymizing certain classes of individual data, which could then be made available for analysis, subject to the consent of interested parties. Uses could include contact tracing to fight pandemics, better macroeconomic forecasting, and combating money laundering and terrorism financing.
Policies can also help consumers avoid becoming hostage within individual ecosystems, thus contributing to market contestability and competition. The European Union’s late-2020 proposals for the Digital Markets Act and the Digital Services Act have many new features. These include third-party interoperability requirements for Big Tech “gatekeepers”—including social media and online marketplaces—in certain situations and efforts to make it easier for their customers to port their data to different platforms.
Policies also have a role to play in keeping data secure from cyberattacks. An individual company does not fully internalize the harm to public trust in the entire system when its customers’ data are breached, and may thus invest less in cybersecurity than what would be in the public interest. This concern has special resonance in the financial system, where maintaining public confidence is crucial. This is why secure infrastructure, cybersecurity standards, and regulation are essential pillars of the open banking policies many countries have adopted to facilitate interoperability in sensitive financial data.
Global approach
Many countries have been developing policies aimed at a clearer, fairer, and more dynamic data economy. But they are taking different approaches, risking greater fragmentation of the global digital economy. These risks arise in many data-intensive sectors, ranging from trade in goods to cross-border financial flows. In the context of the pandemic, differing privacy protection standards make it harder to collaborate on crucial medical research across borders—true even before the pandemic—because of the difficulty of sharing individual results of biomedical trials (Peloquin and others 2020).
Global coordination is always a challenge, especially in an area as complex as data policy, where there is a multitude of interests and regulators even within individual countries, let alone across borders. Dealing with the fallout of the pandemic has spurred a new opportunity to ask hard questions about the need for common minimum global principles for sharing data internationally while protecting individual rights and national security prerogatives.
The current moment also affords an opportunity to explore innovative technological solutions. Consider whether jump-starting the recovery in international travel could be facilitated by a global vaccine registry. This could leverage old-fashioned paper-based international health cards but would call for development of standards and an interoperable data management system for reporting and consulting on people’s vaccination status—potentially linked to digital identity—as well as agreements on protection of individual privacy and barriers to access for other purposes.
There is a strong case for international cooperation to ensure that the benefits of the global data economy can build a more resilient, healthier, and fairer global society. To find a way forward together, we can start by asking the right questions.
Authors:

Yan Carrière-Swallow, Economist in Strategy, Policy, and Review Department, IMF

Vikram Haksar, Assistant Director, Monetary and Capital Markets Department, IMF

Compliments of the IMF.
The post IMF | Let’s Build a Better Data Economy first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Six countries remain subject to potential action while broader international tax negotiations continue
WASHINGTON – The United States Trade Representative (USTR) today announced the next steps in its Section 301 investigations of Digital Service Taxes (DSTs) adopted or under consideration by ten U.S. trading partners.  In January, USTR found that the DSTs adopted by Austria, India, Italy, Spain, Turkey, and the United Kingdom were subject to action under Section 301 because they discriminated against U.S. digital companies, were inconsistent with principles of international taxation, and burdened U.S. companies.  USTR is proceeding with the public notice and comment process on possible trade actions to preserve procedural options before the conclusion of the statutory one-year time period for completing the investigations.
“The United States is committed to working with its trading partners to resolve its concerns with digital services taxes, and to addressing broader issues of international taxation,” said Ambassador Katherine Tai.  “The United States remains committed to reaching an international consensus through the OECD process on international tax issues.  However, until such a consensus is reached, we will maintain our options under the Section 301 process, including, if necessary, the imposition of tariffs.”
The remaining four jurisdictions – Brazil, the Czech Republic, the European Union, and Indonesia – have not adopted or not implemented the DSTs under consideration when the investigations were initiated.  Accordingly, USTR is terminating these four investigations without further proceedings.  If any of these jurisdictions proceeds to adopt or implement a DST, USTR may initiate new investigations.
Federal Register notices seeking public comment on proposed trade actions in the six continuing investigations, and terminating the remaining four investigations, may be found here.
###
Background
On June 2, 2020, USTR initiated investigations into DSTs adopted or under consideration in ten jurisdictions:  Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom.  Following comprehensive investigations, including consultations with the countries subject to investigation and consideration of public comments, in January 2021 USTR issued reports on DSTs adopted by Austria, India, Italy, Spain, Turkey. and the United Kingdom.
The reports detail unreasonable, discriminatory, and burdensome attributes of each of these countries’ DSTs.  In addition, USTR issued a status update in the investigations of the DSTs under consideration by Brazil, the Czech Republic, the European Union, and Indonesia.  The update discusses the status of each jurisdiction’s consideration of a possible DST, and notes U.S. concerns that DSTs may be adopted in the future.  The status updates are available here.
Termination of Section 301 Digital Services Tax investigations of Brazil, the Czech Republic, the European Union, and Indonesia, may be found here.
Proposed Action in Section 301 Investigation of Austria’s Digital Services Tax
Proposed Action in Section 301 Investigation of India’s Digital Services Tax
Proposed Action in Section 301 Investigation of Italy’s Digital Services Tax
Proposed Action in Section 301 Investigation of Spain’s Digital Services Tax
Proposed Action in Section 301 Investigation of Turkey’s Digital Services Tax
Proposed Action in Section 301 Investigation of the United Kingdom’s Digital Services Tax
Compliments of the Office of the United States Trade Representative (USTR).
The post USTR Announces Next Steps of Section 301 Digital Services Taxes Investigations first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Blog post by Christine Lagarde, President of the ECB |
One year ago, we launched our pandemic emergency purchase programme (PEPP). Since then, the PEPP has provided crucial support to euro area citizens in difficult times. It stabilised financial markets by preventing the market turbulence in the spring of last year from morphing into a full-blown financial meltdown with devastating consequences for the people of Europe. And it has ensured that financing conditions have remained favourable, helping households and families to sustain consumption, firms to remain in business and governments to undertake the necessary fiscal actions.
We launched the PEPP on 18 March 2020, with an initial envelope of €750 billion, as a targeted, temporary and proportionate measure in response to a public health emergency that was unprecedented in recent history.[1] The rapid spread of the coronavirus (COVID-19) and the far-reaching containment measures constituted an extreme economic shock, effectively switching off large parts of the economy. Public life came to a standstill.
Conditions in financial markets deteriorated sharply as liquidity dried up and investors sought the safety of the least risky assets, causing acute fragmentation in the single currency area. Equity prices dropped by nearly 40% in a matter of weeks, sovereign bond yields surged in most countries and corporate bond spreads widened to levels last seen during the global financial crisis.
In short, a perilous macro-financial feedback loop threatened to impair the smooth transmission of our monetary policy, putting at risk the achievement of the ECB’s price stability mandate. Indicators of stress across different market segments reflect the severity of the situation in global financial markets at the onset of the crisis (Chart 1).

Chart 1
Composite indicator of systemic stress for the euro area and the United States(0 = no stress, 1 = high stress)
Source: Working Paper Series, No 1426, ECB.
Notes: The composite indicator of systemic stress aggregates stress symptoms across money, bond, equity and foreign exchange markets and is computed from time-varying correlations among individual asset returns. The latest observation is for 18 March 2021.

The launch of the PEPP acted as a powerful circuit breaker. Market conditions stabilised before we bought even a single bond. Our commitment to do everything necessary within our mandate to support the euro area economy throughout the pandemic was understood and internalised by markets from day one.
Flexibility in the way asset purchases can be conducted under the PEPP underlined our commitment. To this day, this flexibility remains the PEPP’s most precious asset. It has allowed our purchases to fluctuate over time, across asset classes and among jurisdictions to stave off risks to the transmission of our policy where and when they were most pressing.
In the first months of the programme, when the risk-bearing capacity of private investors was severely constrained, we frontloaded purchases to help restore orderly liquidity conditions, absorbing assets at a pace well in excess of €100 billion every month, on top of the monthly purchases under the asset purchase programme, which we decided to also step up with an additional envelope of €120 billion. We also shifted a large share of our purchases to the commercial paper market to help euro area corporates manage their rising short-term cash needs. And we distributed our purchases across the euro area in a way that succeeded in reducing fragmentation and ensuring that all sectors and countries benefited from our monetary policy response.
By the summer, buttressed by the establishment of three European safety nets for households, firms and governments and the launch of the EU Recovery and Resilience Facility, euro area bond markets had largely been restored to normal, as also evidenced by the strong revival of the primary market for corporate bond issuance.
Additional wide-ranging measures targeted at ensuring that banks remained reliable carriers of our monetary policy protected corporate funding conditions well beyond capital markets. Our recalibrated targeted longer-term refinancing operations (TLTRO III), together with easier collateral standards, provide strong incentives for banks to maintain their lending to the real economy throughout the crisis, benefiting in particular small and medium-sized companies. After the operation settling later this week, we will have extended more than €2 trillion in loans to banks under TLTRO III at historically favourable rates, an unprecedented level of support.
Renewed stability in financial markets was a precondition which allowed the Governing Council to switch the focus in the calibration of PEPP from crisis relief mode to its second modality, that of contributing to an appropriate monetary policy stance. Price pressures in the euro area had softened considerably on account of paralysed activity and weak demand. Headline inflation was rapidly approaching negative territory, also due to temporary factors, and was expected to remain exceptionally weak for a considerable period of time.
Further decisive action was therefore needed to ensure that the PEPP could provide sufficient support to the euro area economy to help offset the pandemic-related downward shift in the projected path of inflation. In June 2020 we expanded the PEPP envelope by €600 billion, to a total of €1,350 billion, and announced that we expected purchases to run for at least another year.
By the end of last year, however, given the sharp resurgence in new COVID-19 infections, it had become clear that the economic fallout from the pandemic would be even more prolonged. The December Eurosystem staff macroeconomic projections pointed to a more protracted weakness in inflation than previously envisaged.
But the environment that the Governing Council faced towards the end of last year differed in two fundamental aspects from the challenges we faced in the early stages of the crisis.
One was the concrete prospect of the rollout of multiple vaccines bringing a solution to the health crisis, which provided some much-needed light at the end of the tunnel.
The other was the lasting success of our measures, and the PEPP in particular, in delivering a degree of monetary accommodation that was historic on various levels. The euro area GDP-weighted sovereign yield curve was firmly in negative territory and well below pre-crisis levels (Chart 2). The dispersion across euro area long-term sovereign yields had reached a new low for the period since the global financial crisis. And bank lending rates were at, or close to, historical lows.

Chart 2
Euro area GDP-weighted sovereign yield curve(percentages per annum)
Source: Refinitiv and ECB calculations.

Against this backdrop, the Governing Council committed to preserving favourable financing conditions for as long as needed in order to bridge the gap until vaccination allowed the recovery to build its own momentum.[2]
The pledge to use the PEPP to preserve favourable financing conditions relies on its inbuilt flexibility. It means that we can purchase less if financing conditions can be maintained on favourable terms even with a lower volume of bond purchases. And it means that we need to purchase more when we see a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation.
To underpin our commitment, in December 2020 the Governing Council decided to expand the PEPP envelope by an additional €500 billion, to a new total of €1,850 billion – more than 15% of pre-pandemic euro area GDP. Our promise to conduct net asset purchases until at least March 2022 strengthened public confidence in our commitment to remain a reliable and steady source of support even as vaccines are rolled out.
Two broad aspects are crucial to understanding how our commitment works in practice. The first is how we define financing conditions. And the second is how we assess favourability.
We think of financing conditions in a holistic and multifaceted way.
A holistic approach means taking a perspective that covers the entire transmission chain – from “upstream” to “downstream” stages. “Upstream” refers to the interest rates that are at the start of the transmission process: risk-free interest rates and sovereign yields. We say they are located upstream because, on the one hand, they respond fairly well to adjustments in the pace of PEPP purchases and, on the other, they influence, with a lag, the downstream financing conditions for companies and households seeking funding in the capital markets or via bank loans.
A multifaceted approach allows us to study each indicator in its own right rather than basing our assessment on composite measures of financing conditions. This ensures that we take a perspective that is sufficiently granular to allow us to detect movements in specific market segments in a timely manner.
This matters because not all shocks to financing conditions may occur in the upper stages of transmission. Changes in the conditions for government loan guarantee schemes, for example, may affect bank lending conditions without impinging on upstream indicators. Our multifaceted approach assigns an adequate weight to such indicators, also reflecting the importance of bank lending for growth and employment in the euro area.
How, then, do we assess the favourability of financing conditions?
Such an assessment cannot be conducted in isolation. It requires a joint test that appraises the prevailing financing conditions against the euro area’s economic and inflation outlook. That test is conducted incrementally: we assess the drivers, the pace and extent of the change in financing conditions since our last favourability assessment, and the impact of that change on progress towards countering the downward impact of the pandemic on the projected path of inflation.
The quarterly updates of the Eurosystem/ECB staff macroeconomic projections provide an appropriate platform for incorporating all the information that is relevant for us to conduct such a joint assessment. At the same time, we retain the option to adjust the pace of purchases at any point in time in response to potential changes in market conditions, as we have done in the past. In other words, we will continue to purchase flexibly over time, across asset classes and among jurisdictions.
At our Governing Council meeting on 11 March, we assessed recent changes in financing conditions against the latest ECB staff macroeconomic projections.
Downstream indicators, such as bank lending rates, had remained stable and close to historical lows. Upstream indicators, by contrast, had increased measurably since our December meeting. The 10-year euro area overnight index swap rate and the 10-year GDP-weighted sovereign yield had both increased by around 30 basis points, in large part reflecting prospects of a stronger global economic recovery.
A joint assessment of the evolution of financing conditions and the inflation outlook, however, concluded that there was a risk that the repricing in long-term bond yields could be inconsistent with offsetting the negative pandemic shock to the projected inflation path.
While inflation rose at the start of the year and is expected to increase further over the course of 2021, these developments largely reflect transitory factors. Underlying inflation is predicted to increase only moderately in the coming years as slack will continue weighing on price formation in the euro area.
Moreover, uncertainty around the inflation outlook remains considerable, and the latest staff projections suggested a medium-term inflation outlook that was broadly unchanged from the December 2020 projections, foreseeing inflation at 1.4% in 2023, still below the projected path seen before the pandemic.
In this environment, a sizeable and persistent increase in market-based interest rates, if left unchecked, could translate into a premature tightening of financing conditions for all sectors of the economy at a time when preserving favourable financing conditions still remains necessary to underpin economic activity and safeguard medium-term price stability.
Based on this joint assessment, the Governing Council expects purchases under the PEPP over the next quarter to be conducted at a significantly higher pace than during the first months of this year. We will purchase flexibly according to market conditions and with a view to preventing a premature tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation.
The overall crisis response has powerfully illustrated how monetary, supervisory and fiscal policies can be mutually reinforcing, within their respective mandates. Looking back over the past year, the Governing Council has been resolute in its commitment to supporting the citizens of the euro area through this extraordinary crisis. The PEPP has been, and remains, at the core of our policy response to the crisis. And just as the pandemic and the macro-financial landscape have evolved over time, so has the PEPP. Its flexibility has allowed us to respond swiftly to the rapidly changing financial and macroeconomic landscape. Overall, it is fair to say that, without the PEPP, the euro area would presumably have experienced a severe economic and financial crisis with devastating consequences for society as a whole.
And while much progress has been made and we can see light at the end of the tunnel, we cannot be complacent. The near-term economic outlook is subject to uncertainty, relating in particular to the dynamics of the pandemic and the speed of vaccination campaigns. We therefore stand ready to adjust all of our instruments, as appropriate, to ensure that inflation moves towards our aim in a sustained manner, in line with our commitment to symmetry.
Compliments of the European Central Bank.
The post ECB | One year of the PEPP: many achievements but no room for complacency first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The OECD, in its capacity as Depositary of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the MLI), has today published the Arbitration Profiles of 30 jurisdictions applying Part VI on Arbitration of the MLI and an opinion of the Conference of the Parties to the MLI.
Arbitration Profiles
Part VI of the MLI allows jurisdictions choosing to apply it to adopt mandatory binding arbitration for the resolution of tax treaty disputes. The Arbitration Profiles have been developed to provide taxpayers with additional information on the application of Part VI of the MLI for each jurisdiction choosing to apply that Part. The Arbitration Profiles also allow those jurisdictions to make publicly available clarifications on their position on the MLI Arbitration. Each of the Arbitration Profiles includes:

Links to the competent authority agreements (CAAs) concluded by each jurisdiction choosing to apply Part VI of the MLI to settle the mode of application of that Part (which the OECD, as the Depositary of the MLI, needs to maintain and make publicly available);
Lists of certain reservations made by those jurisdictions, governing the scope of cases eligible for arbitration; and
Further clarifications that those jurisdictions wish to make publicly available on their position on the MLI arbitration.

Opinion of the Conference of the Parties to the MLI
On 15 March 2021, the Conference of the Parties to the MLI approved an opinion that clarifies the interpretation and application of Article 35 of the MLI on the entry into effect of its provisions. In particular, the opinion clarifies a question that had arisen with respect to the entry into effect of the MLI for taxes withheld at source where the latest of the dates of entry into force of the MLI for a pair of Contracting Jurisdictions is on 1 January of a given calendar year. An early version of this opinion, which was initially prepared by the Secretariat in 2018, was published on the OECD website on 14 November 2018.
The MLI so far covers 95 jurisdictions and has been ratified by 64 jurisdictions. It is the first multilateral treaty of its kind, allowing jurisdictions to swiftly transpose results from the OECD/G20 BEPS Project into their existing tax treaties, transforming the way tax treaties are modified. Once ratified by all Signatories, the MLI will modify over 1700 tax treaties, giving effect to the tax-treaty related BEPS measures on hybrid mismatch arrangements, treaty abuse and permanent establishment. The MLI will also strengthen provisions to resolve treaty disputes, including through mandatory binding arbitration, which has been taken up by 30 Parties.
The text of the MLI, its Explanatory Statement and background information are available at: http://oe.cd/mli.
Contact:

Pascal Saint-Amans, Director, OECD Centre for Tax Policy and Administration | Pascal.Saint-Amans[at]oecd.org or ctp.communications[at]oecd.org.

Compliments of the OECD.
The post Tax treaties: OECD publishes 30 country profiles applying Arbitration under the multilateral BEPS Convention first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

A robust post-COVID-19 recovery will depend on banks having sufficient capital to provide credit. While most European banks entered the pandemic with strong capital levels, they are highly exposed to economic sectors hit hard by the pandemic.
A new IMF study assesses the impact of the pandemic on European banks’ capital through its effect on profitability, asset quality, and risk exposures. The approach differs from other recent studies—by the European Central Bank and European Banking Authority—because it incorporates policy support provided to banks and borrowers. It also incorporates granular estimates of corporate sector distress, and examines a larger number of European countries and banks.

‘With the right policies, banks will be able to support the recovery with new lending.’

The analysis finds that, while the pandemic will significantly deplete banks’ capital, their buffers are sufficiently large to withstand the likely impact of the crisis. And with the right policies, banks will be able to support the recovery with new lending.
Using the IMF’s January 2021 projectios as a baseline, euro area banks will remain broadly resilient to the deep recession in 2020 followed by the partial recovery in 2021. The aggregate capital ratio is projected to decline from 14.7 percent to 13.1 percent by the end of 2021 if policy support is maintained. Indeed no bank will breach the prudential minimum capital requirement of 4.5 percent, even without policy support.

But at least three important caveats are worth noting.
First, effective policies matter.
Supportive policies are extremely important in reducing both the extent and variability of banks’ capital erosion. They substantially weaken the link between the macroeconomic shock and bank capital, and lower the chances that banks cut back lending to conserve capital. Aside from regulatory capital relief, these policies include a wide range of borrower support measures, such as debt moratoria, credit guarantees, and deferred insolvency proceedings. They also include grants, tax relief, and wage subsidies to firms.

Looking beyond the euro area, banks in Europe’s emerging economies are likely to see a higher capital erosion of 2.4 percentage points. In many of these countries, tighter government budgets meant a lower level of support.
Second, market-based capital thresholds are the more relevant benchmarks.
For many larger banks, hybrid capital—which contains elements of both debt and equity—is likely to be an important source of funds at a time when the cost of capital remains high. But investors in hybrid capital typically rely on interest payments.
If policies are not effective, several banks might struggle to meet their so-called “maximum distributable amount” (MDA) capital thresholds, which are higher than their current regulatory minimum requirements. This would lead to restrictions on dividend distributions and interest payments to hybrid capital, possibly spooking investors. Larger banks, which hold about 25 percent of capital in such instruments, could come under funding pressure.
Third, the speed of the recovery is critical.
A protracted recovery could result in much larger credit losses and higher provisions for bad loans. If GDP growth in 2020–21 is 1.2 percentage points below the baseline forecast, the erosion of bank capital could become more pronounced. Over 5 percent of all banks would risk breaching their MDA thresholds, even with policies in place. And this share would double if policies do not work as projected (see above chart).
Policies to keep banks healthy
These results suggest a strategy that focuses on the following areas:
Continue pandemic support policies until the recovery is firmly established. A premature winding down of borrower support could create “cliff edge effects” and risk choking off credit supply just when it is needed most. As the recovery gains momentum, eligibility criteria should be tightened and be better targeted. Some direct equity support could also be considered for viable firms.
Clarify supervisory guidance on the availability and duration of capital relief. Supervisors should clarify the timetable for bank’s capital buffers. Banks should be allowed to build back capital buffers gradually to preserve lending capacity. Restrictions on dividend payouts and share buybacks should be maintained until the recovery is well underway.
Support balance sheet repair by strengthening nonperforming loan management and the bank resolution framework. As policy measures expire, delayed loss recognition will likely trigger a wave of loan defaults. The EU authorities should use the current system-wide stress test, due in July 2021, to assess the need for precautionary recapitalizations. Insolvency regimes should be strengthened by addressing administrative constraints and establishing fast-track procedures to restructure debt.
Address structurally low bank profitability. Banks will take several years to build back capital organically through retained earnings unless their profitability improves. Banks should therefore enhance non-interest revenues and streamline operations to improve their cost structures, including through greater use of digital technologies. And consolidation could improve banks’ efficiency, while facilitating a better allocation of capital and liquidity within banking groups.
Authors:

Mai Chi Dao, Senior Economist, IMF

Andreas (Andy) Jobst, Senior Economist, IMF

Aiko Mineshima, Senior Economist, IMF

Srobona Mitra, Senior Economist, IMF

Compliments of the IMF.
The post IMF | How European Banks Can Support the Recovery first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The EU Commission today adopted the first annual work programme of Erasmus+ 2021-2027. With a budget of €26.2 billion, (compared to €14.7 billion for 2014-2020), complemented with about €2.2 billion from EU’s external instruments, the new and revamped programme will fund learning mobility and cross-border cooperation projects for 10 million Europeans of all ages and all backgrounds. It will seek to be even more inclusive and to support the green and digital transitions, as set out in the European Education Area. Erasmus+ will also support the resilience of education and training systems in the face of the pandemic.
Vice-President for Promoting our European Way of Life, Margaritis Schinas, said: “I welcome the launch of the new Erasmus+ programme, which has affirmed itself as one of the great achievements of the European Union. It will continue to offer learning opportunities to hundreds of thousands of Europeans and beneficiaries from associated countries. While providing a life-changing experience of mobility and common understanding amongst fellow Europeans, the programme will also help us to deliver on our ambitions for a more fair and greener Europe.”
Commissioner for Innovation, Research, Culture, Education and Youth, Mariya Gabriel, said: “The fact that the Erasmus+ budget for the next seven years has almost doubled shows the importance given to education, lifelong learning and youth in Europe. Erasmus+ remains a unique programme in terms of its size, scope and global recognition, covering 33 countries, and accessible to the rest of the world through its international activities. I invite all public and private organisations active in the fields of education, training, youth and sport to look at the newly published calls for proposals and apply for funding. Thanks to Erasmus+, we will make the European education area a reality.”
Today’s adoption of the annual work programme paves the way for the first calls for proposals under the new Erasmus+, also published today. Any public or private body active in the fields of education, training, youth and sport can apply for funding, with the help of Erasmus+ national agencies based in all EU Member States and third countries associated to the programme.
The new Erasmus+ programme provides opportunities for study periods abroad, traineeships, apprenticeships, and staff exchanges in all fields of education, training, youth and sport. It is open to school pupils, higher education and vocational education and training students, adult learners, youth exchanges, youth workers and sport coaches.
In addition to mobility, which counts for 70% of the budget, the new Erasmus+ also invests in cross‑border cooperation projects. These can be between higher education institutions (e.g. the European Universities initiative); schools; teacher education and training colleges (e.g. Erasmus+ Teacher Academies); adult learning centres; youth and sport organisations; providers of vocational education and training (e.g. Vocational Centres of Excellence); and other actors in the learning sphere.
The main features of the Erasmus+ 2021-2027 programme are:

Inclusive Erasmus+: providing enhanced opportunities to people with fewer opportunities, including people with diverse cultural, social and economic backgrounds, and people living in rural and remote areas. Novelties include individual and class exchanges for school pupils and mobility for adult learners. It will be easier for smaller organisations, such as schools, youth associations and sports clubs to apply, thanks to small-scale partnerships and the use of simplified grants. The programme will also be more international, to cooperate with third countries, building on the successes of the previous programme with exchanges and cooperation projects around the world, now also expanding to sport and the vocational education and training sectors.

Digital Erasmus+: The pandemic highlighted the need to accelerate the digital transition of education and training systems. Erasmus+ will support the development of digital skills, in line with the Digital Education Action Plan. It will provide high-quality digital training and exchanges via platforms such as eTwinning, School Education Gateway and the European Youth Portal, and it will encourage traineeships in the digital sector. New formats, such as blended intensive programmes, will allow short-term physical mobility abroad to be complemented with online learning and teamwork. The implementation of the programme will be further digitalised and simplified with the full roll-out of the European Student Card.

Green Erasmus+: In line with the European Green Deal, the programme will offer financial incentives to participants using sustainable modes of transport. It will also invest in projects promoting awareness of environmental issues and facilitate exchanges related to mitigating the climate crisis.

Erasmus+ for young people: DiscoverEU now becomes an integral part of Erasmus+ and gives 18 year-olds the possibility to get a rail pass to travel across Europe, learn from other cultures and meet fellow Europeans. Erasmus+ will also support exchange and cooperation opportunities through new youth participation activities, to help young people engage and learn to participate in democratic life, raising awareness about shared European values and fundamental rights; and bringing young people and decision-makers together at local, national and European level.

The Erasmus+ resilience effort in the context of the pandemic will mobilise hundreds of thousands of schools, higher education institutions, vocational training institutes, teachers, young people, youth and sport organisations, civil society and other stakeholders. The programme will help accelerate new practices that improve the quality and relevance of education, training and youth systems across Europe, at national, regional and local level.
Background
Known as Erasmus+ since 2014, when it enlarged its scope of activities, this emblematic programme is ranked by Europeans as the EU’s third most positive result, just after free movement and peace. Over the last three decades, more than 10 million people have participated in the programme, in 33 countries (EU plus Iceland, Liechtenstein, North Macedonia, Norway, Serbia and Turkey). The international arm of Erasmus+ will offer mobility and cooperation in education, training, youth and sport around the world.
Compliments of the European Commission.
The post Erasmus+: over €28 billion to support mobility and learning for all, across the European Union and beyond first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

New rules on transparency and sustainability are set to transform the way EFSA carries out its role as risk assessor in the EU food safety system.
A new regulation passed by the European Parliament and Council of the EU, which will apply from 27 March, will bolster the Authority’s ability to carry out its risk assessments in accordance with the highest transparency standards.
The regulation will strengthen the reliability and transparency of the scientific studies submitted to EFSA and reinforce the governance of the Authority to ensure its long-term sustainability.
Bernhard Url, EFSA’s Executive Director, said: “This is a pivotal moment for the assessment of risks in the food chain in the EU. EFSA is grateful to the European Parliament, to the European Commission and to the EU Member States for giving us this opportunity to bring citizens and stakeholders closer to our work and to benefit from greater scrutiny of our working  processes and practices.”
Among other initiatives to support implementation of the regulation, EFSA has rolled out new tools and a dedicated web portal to help stakeholders adapt to the new arrangements. The new portal will be live from 30 March.
A series of training sessions and webinars has also been organised.
The implementation process has been executed in collaboration with EFSA’s stakeholders and partners such as the European Chemicals Agency (ECHA) and Member States .
The new arrangements will apply to new mandates and applications and cannot be implemented retroactively. This means that there will be a period of adjustment during which much of EFSA’s ongoing work will continue to be carried out under the previous rules and legal provisions.
Mr Url said: “This is a big logistical challenge, and we have committed significant resources to ensuring that the transition to the new system is as smooth and inclusive as possible for our stakeholders.”
What is the Transparency Regulation?
The regulation was developed in response to a European Citizens’ Initiative on pesticides and the findings of the review of the General Food Law Regulation that was completed in January 2018.
Among other things, the new regulation:

Allows citizens access to scientific studies and information submitted to EFSA by industry early in the process of risk assessment.

Embeds public consultations in the process for assessing applications for approval of regulated products.

Ensures that EFSA is notified of all commissioned studies in a particular area to guarantee that companies applying for authorisations submit all relevant information.

Gives the European Commission the option of asking EFSA to procure additional studies.

Further down the line, the regulation will also transform the way EFSA is governed by adding Member State representatives to its Management Board. Work is also under way to make assessment and management of risks in the food chain more accessible to EU citizens by improving communication and engagement tools and practices.
Compliments of the European Food Safety Authority.
The post Transparency in risk assessment: a new era begins first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Today, the Commission presented an Action Plan for the development of organic production. Its overall aim is to boost the production and consumption of organic products, to reach 25% of agricultural land under organic farming by 2030, as well as to increase organic aquaculture significantly.
Organic production comes with a number of important benefits: organic fields have around 30% more biodiversity, organically farmed animals enjoy a higher degree of animal welfare and take less antibiotics, organic farmers have higher incomes and are more resilient, and consumers know exactly what they are getting thanks to the EU organic logo. The Action Plan is in line with the European Green Deal and the Farm to Fork and Biodiversity Strategies.
The Action Plan is designed to provide the already fast growing organic sector the right tools to achieve the 25% target. It puts forward 23 actions structured around 3 axes – boosting consumption, increasing production, and further improving the sustainability of the sector – to ensure a balanced growth of the sector.
The Commission encourages Member States to develop national organic action plans to increase their national share of organic farming. There are significant differences between Member States regarding the share of agricultural land currently under organic farming, ranging from 0.5% to over 25%. The national organic action plans will complement the national CAP strategic plans, by setting out measures that go beyond agriculture and what is offered under the CAP.
Promote consumption
Growing consumption of organic products will be crucial to encourage farmers to convert to organic farming and thus increase their profitability and resilience. To this end, the Action Plan puts forward several concrete actions aimed at boosting demand, maintaining consumer trust and bringing organic food closer to citizens. This includes: informing and communicating about organic production, promoting the consumption of organic products, stimulating a greater use of organics in public canteens through public procurement and increasing the distribution of organic products under the EU school scheme. Actions also aim, for example, at preventing fraud, increasing consumers’ trust and improving traceability of organic products. The private sector can also play a significant role by, for example, rewarding employees with ‘bio-cheques’ they can use to purchase organic food.
Increase production
Presently, about 8.5% of EU’s agricultural area is farmed organically, and the trends show that with the present growth rate, the EU will reach 15-18% by 2030. This Action Plan provides the toolkit to make an extra push and reach 25%. While the Action Plan largely focuses on the “pull effect” of the demand side, the Common Agricultural Policy will remain a key tool for supporting the conversion. Currently, around 1.8% (€7.5 billion) of CAP is used to support organic farming. The future CAP will include eco-schemes which will be backed by a budget of €38 – 58 billion, for the period 2023 – 2027, depending on the outcome of the CAP negotiations. The eco-schemes can be deployed to boost organic farming.
Beyond the CAP, key tools include organisation of information events and networking for sharing best practices, certification for groups of farmers rather than for individuals, research and innovation, use of blockchain and other technologies to improve traceability increasing market transparency, reinforcing local and small-scale processing, supporting the organisation of the food chain and improving animal nutrition.
To raise awareness on organic production, the Commission will organise an annual EU ‘Organic day’ as well as awards in the organic food chain, to recognise excellence at all steps of the organic food chain. The Commission will also encourage the development of organic tourism networks through ‘biodistricts’. ‘Biodistricts’ are areas where farmers, citizens, tourist operators, associations and public authorities work together towards the sustainable management of local resources, based on organic principles and practices.
The Action Plan also notes that organic aquaculture production remains a relatively new sector but has a significant potential for growth. The upcoming new EU guidelines on the sustainable development of EU aquaculture, will encourage Member States and stakeholders to support the increase in organic production in this sector.
Improve sustainability
Finally, it also aims to further improve organic farming’s performance in terms of sustainability. To achieve this, actions will focus on improving animal welfare, ensuring the availability of organic seeds, reducing the sector’s carbon footprint, and minimising the use of plastics, water and energy.
The Commission also intends to increase the share of research and innovation (R&I) and dedicate at least 30% of the budget for research and innovation actions in the field of agriculture, forestry and rural areas to topics specific to or relevant for the organic sector.
The Commission will closely monitor progress through a yearly follow-up with representatives of the European Parliament, Member States and stakeholders, through bi-annual progress reports and a mid-term review.
Members of the College said
Executive Vice-President for the European Green Deal, Frans Timmermans, said: “Agriculture is one of the main drivers of biodiversity loss, and biodiversity loss is a major threat to agriculture. We urgently need to restore balance in our relationship with nature. This is not something farmers face alone, it involves the whole food chain. With this Action Plan, we aim to boost demand for organic farming, help consumers make informed choices, and support European farmers in their transition. The more land we dedicate to organic farming, the better the protection of biodiversity in that land and in surrounding areas.”
Agriculture Commissioner, Janusz Wojciechowski, said: “The organic sector is recognised for its sustainable practices and use of resources, giving its central role in achieving the Green Deal objectives. To achieve the 25% of organic farming target, we need to ensure that demand drives the growth of the sector while taking into account the significant differences between each Member State’s organic sectors. The organic Action Plan provides tools and ideas to accompany a balanced growth of the sector. The development will be supported by the Common Agricultural Policy, research and innovation as well as close cooperation with key actors at EU, national and local level.”
Commissioner for Environment, Oceans and Fisheries, Virginijus Sinkevičius, said: “Organic farming provides many benefits to the environment, contributing to healthy soils, reducing pollution of air and water, and improving biodiversity. At the same time, with demand growing faster than production over the last decade, the organic sector brings economic benefits to its players. The new Organic farming Action Plan will be a crucial instrument to set the path to achieve the targets of 25% of agricultural area under organic farming and of significant increase of organic aquaculture enshrined in the Biodiversity and the Farm to Fork Strategies. In addition to that, the new Strategic Guidelines for the sustainable development of EU aquaculture to be adopted by the Commission soon, will promote organic aquaculture further.”
Background
The Action Plan takes into account the results of the public consultation held between September and November 2020, which attracted a total of 840 replies from stakeholders and citizens.
It is an initiative announced in the Farm to Fork and Biodiversity strategies, published in May 2020. These two strategies were presented in the context of the European Green Deal to enable the transition to sustainable food systems and to tackle the key drivers of biodiversity loss.
In the recommendations to Member States on their CAP strategic plans published in December 2020, the Commission included the target of a 25% organic area in the EU by 2030. Member States are invited to set national values for this target in their CAP plans. Based on their local conditions and needs, Member States will then explain how they plan to achieve this target using CAP instruments.
The Commission presented its proposals for the CAP reform in 2018, introducing a more flexible, performance and results-based approach that takes into account local conditions and needs, while increasing EU level ambitions in terms of sustainability. The new CAP is built around nine objectives, which is also the basis upon which EU countries design their CAP strategic plans.
Compliments of the European Commission.
The post European Green Deal: EU Commission presents actions to boost organic production first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.