Interview with Fabio Panetta, Member of the Executive Board of the ECB, conducted by Karl de Meyer| 24 May 2023 |

To safeguard financial stability, we need to keep central bank money at the heart of the financial system, Executive Board member Fabio Panetta tells Les Échos as the ECB turns 25. And a digital euro would be a risk-free means of payment that Europeans can use anywhere in the euro area.

As the ECB celebrates its 25th anniversary today, where do things stand with the digital euro project that you are responsible for?
We are studying the design of the digital euro, its distribution and its impact on the financial sector. There are around 50 people in the team working on this project. We are in regular contact with the European Commission which is due to present a legislative proposal in June. This will provide the regulatory framework for the digital euro. Then in October the Governing Council will decide whether to launch a preparation phase to develop and test the digital euro. This phase could last two or three years. If the Governing Council and the European legislators – Member States and Members of the European Parliament – agree, we could launch the digital euro in three or four years.
Why does the euro area need a central bank digital currency?
To safeguard financial stability, we need to keep central bank money at the heart of the financial system. And we want to offer citizens a risk-free European digital means of payment that they can use free of charge anywhere in the euro area, in shops, online or for payments between individuals. Such a solution doesn’t exist at the moment. The digital euro will also provide a platform for European financial intermediaries to offer innovative payment services across the entire euro area. At present, services developed in one European country are often not available in others. And the European card payments market is dominated by two non-European companies whose cards are not accepted everywhere. Can you imagine a similar situation in the United States? And this situation would be exacerbated by the growth of big techs, which don’t hesitate to use their customers’ personal data to make money.
Some in the political world or from consumer associations are also worried about how the ECB could use the data collected via the digital euro.
The European Central Bank will not have access to personal data.
As for the financial intermediaries that will distribute the digital euro, a balance will need to be found between ensuring data confidentiality and combating money laundering and terrorist financing.
This balance will be determined by the legislator. In current discussions, some want to prioritise confidentiality, while others want to prioritise the fight against illegal activities.
What can we expect from the digital euro?
The simplicity of a payment instrument that is easy to use, available across the entire euro area and which will strengthen the use of our currency. Increased competition in the payments market and innovation based on this financial “raw material” that we will make available to European financial intermediaries. And greater monetary sovereignty.
In concrete terms, what will people be able to do with their digital euro account?
The ECB will ensure that all users benefit from a basic service that enables payments between individuals, retailers and public authorities. Europeans will, for example, be able to use it to pay online or in shops, to send money to their loved ones or to pay their taxes. And banks will be able to offer additional features such as recurring payments, payments based on usage or access to other financial services.
Some commercial banks are clearly concerned that the ECB might take some of their business.
We have been very clear: the ECB would issue the digital euro but would not distribute it. Citizens will not have an account at the ECB or at the national central banks. We do not have any expertise in dealing with customers, and it would not make sense for us to enter into this business. And we are not looking to gain a large market share. We want to build a presence everywhere, but be dominant nowhere. Europeans will know that they always have the option to use the digital euro, but they will only use it for a fraction of their payments. We are not seeking to expand the role of public money, but rather to preserve it, as in its current form – cash – its use is declining. Making the digital euro available as a complement to cash is a natural development in an increasingly digital economy.
Why will digital euro accounts be capped?
Because we don’t want to create tensions for financial intermediaries that could negatively affect the financing of the economy and the transmission of monetary policy. The digital euro would be a means of payment, not a form of investment or savings. We have at times mentioned a ceiling of €3,000. This amount is close to the average gross salary in the euro area and would not cause problems for financial stability. Larger payments will be possible thanks to a link between digital euro accounts and traditional bank accounts.
Just to make it clear: the idea is not for the digital euro to replace cash is it?
Absolutely not. We are working on issuing a new series of high-tech banknotes with a view to preventing counterfeiting and reducing the environmental impact. We will make banknotes available to citizens for as long as there is demand for them. But it’s possible to imagine that one day the digitalisation of the economy could lead to cash becoming marginalised. We cannot run the risk that central bank money is no longer used. That’s why we need a digital euro.
Will these new banknotes that you just mentioned feature well-known European figures?
We want people to relate to the new series of banknotes we are working on. We are considering a number of themes, including European culture, and we will soon consult the wider public. Personally, I would like to see famous Europeans represented on our future banknotes.
The interoperability of the digital euro with other central bank digital currencies is another important topic…
We are already working closely with the central banks of the United States, the United Kingdom, Switzerland, Canada, Japan and Sweden. We are in a preliminary stage where we compare notes on our progress. But interoperability will require more work. For example, while interoperability is desirable, different national rules on confidentiality would make it more challenging.
The ECB is currently celebrating its 25th anniversary. What progress do you think Europe will make in the next 25 years?
If we, as Europeans, want to continue to play a role on the world stage, we need to act together. We need to make further progress towards closer integration, introduce more efficient decision-making processes, and develop a permanent fiscal capacity at the European level. We need to be able to provide a common response to crises, as we did during the pandemic. A European fiscal policy that complements monetary policy would enable us to avoid many tensions and imbalances.
Compliments of the European Central Bank.The post ECB Interview | ECB, at 25, looking into a digital euro first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The euro is more than a currency, says President Christine Lagarde. It is the strongest form of European integration and stands for a united Europe that works together, protecting and benefiting all its citizens. The ECB, with its commitment to price stability, will always be a cornerstone of that effort.

On 1 June 1998, the European Central Bank was established to prepare for the launch of the euro – the world’s largest ever currency changeover. As a lawyer at the time, I remember how frantically we were revising contracts based on foreign exchange rates that would soon disappear. Could the common currency really work? Today, as we celebrate the 25th anniversary of this institution, we know that it works and that the euro has brought Europe closer together.
Entrusted by European Union governments to safeguard the euro, our staff in Frankfurt, together with colleagues in the 20 national central banks of the currency union, work tirelessly to achieve our mandate of maintaining price stability. That work is critical for the prosperity of European citizens.
Over the past 25 years, we have welcomed nine new countries to the euro area, bringing us from 11 to 20. And we have taken on new roles, including the supervision of European banks. Today the euro is the second most important currency in the international monetary system, after the US dollar.
There have been some tough times along the way. But through the economic highs and lows steered by my predecessors Wim Duisenberg, Jean-Claude Trichet and Mario Draghi, the ECB has always focused on building a stronger foundation for Europe’s future through delivering on our mandate.
The pandemic and Russia’s unjustified war against Ukraine have shown that stability cannot be taken for granted. And growing geopolitical rivalries may mean that the global economy becomes increasingly volatile in future. In a world of uncertainty, the ECB has been, and will continue to be, a reliable anchor of stability.
We have shown that we can act and adapt quickly in the face of even the most serious challenges. Only a few months after I became President of the ECB, we responded swiftly to the pandemic with an array of measures to support the euro area economy through its most acute phase, avoiding deflationary risks.
Today, we are acting with the same determination to bring inflation down. After years of being too low, inflation is now too high and is set to remain so for too long. That erodes the value of money, reducing purchasing power and hurting people and businesses across the euro area – especially the most vulnerable members of our society.
But we will bring inflation back to our target of 2% over the medium term. That is why we have raised interest rates at a record pace, and why we will bring them to sufficiently restrictive levels – and keep them at those levels for as long as necessary – to return inflation to our target in a timely manner.
As recent events in the banking sector remind us, the task of monetary policy is aided by a robust banking system. Financial stability is a precondition for price stability, and vice versa. Since 2014, when we took over banking supervision, we have worked to keep banks in the euro area sound. And banking supervisors chaired by Andrea Enria will continue our efforts to make sure that banks are well-capitalised and resilient to changing conditions, so that they can keep lending to businesses and households.
Our monetary union has been tested many times in the past quarter century. We have been confronted with crises that could have torn us apart – not least the great financial crisis, the sovereign debt crisis, the pandemic. But on each occasion, we have emerged stronger. We now need to build on that inner strength.
As the world becomes more unpredictable, Europe can foster resilience on two fronts. By integrating its capital markets, Europe can better facilitate investment in the green and digital sectors that are so crucial to powering its future growth. And by completing the banking union, we can ensure that the banking sector helps to dampen risks during future crises rather than amplifying them.
The former President of the European Parliament Simone Veil once said that “we need a Europe capable of solidarity, of independence and of cooperation”.  This captures well what the euro represents. Ultimately, the euro is more than a currency. It is the strongest form of European integration and stands for a united Europe that works together, protecting and benefiting all its citizens.
And the ECB will always be a cornerstone of that effort.
Author:

Christine Lagarde, President of the ECB

This blog was published as an opinion piece in newspapers of all 20 euro area countries
Compliments of the European Central Bank.The post ECB blog post by Christine Lagarde | 25 years of euro unity first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Closer ties allowed Europe to find new natural gas sources after Russia’s supply cutoff, and growing global export capacity can reduce market fragmentation.

Natural gas might be the same commodity everywhere in the world, but prices can vary dramatically because of the complex network of infrastructure needed to transport it.
The result is a partially fragmented global market, mainly because most natural gas moves by pipeline—unlike the market for crude oil, which is more integrated and tends to trade at a single price in most places. Such fragmentation in the natural gas market means not only that prices differ across regions, but also that high prices in one part of the world don’t necessarily transmit to buyers in other places.
Russia’s invasion of Ukraine provided a stark illustration of the effects of segmentation. Pipeline flows to Europe from Russia dropped by 80 percent since mid-2021, sending the continent’s gas prices up 14-fold to a record level in August 2022.  Prices for globally traded liquefied natural gas saw a similar jump. But LNG prices in the United States merely tripled, remaining several times below Europe and Asia.

The disparity in prices, and the US insulation against global gas-market shocks, stems from the idiosyncrasies of gas extraction and transportation. Historically, the US market was linked to crude oil prices because gas was mostly a byproduct of oil drilling, but this relationship, sometimes called artificial integration, has been unwinding over the past decade, mainly because of rising shale gas production. And as gas production surged in the US, which surpassed Russia in 2012 as the world’s largest producer, and export terminals were built, it became easier to sell into markets beyond North America.
Another important factor for gas prices is the technology needed to liquefy and ship the fuel, which must be converted into a compact form—about 600 times smaller by volume than in its gas form—called liquefied natural gas before it can be loaded onto specially designed carriers for transport by sea or road.
LNG export capacity is fixed in the short-term. Facilities for the liquefaction, exporting, importing, and regasification require major investment, so a regional shock, such as Russia’s invasion of Ukraine, can send regional prices moving in different directions.
After the invasion last year, Europe turned to LNG to replace pipeline imports of Russian gas, and US shipments emerged as a key substitute. Why was that possible when US LNG export capacity is fixed? With gas in Europe commanding a temporary price premium during the spring and summer of 2022, Asian customers of US LNG decided to reroute their cargoes to sell in Europe.

There is another important quirk of the natural gas market at play. Pricing formulas for long-term delivery contracts with US companies usually use US prices. That meant Asian customers with long-term deals could buy more cheaply from the US, then reroute tanker ships at sea to sell cargo at the much higher European spot market price.
Despite an increasing reliance on LNG as a substitute for Russian pipeline gas, European LNG import capacity turned out not to be a binding constraint on market integration. European import terminals had plenty of spare capacity before Russia’s invasion of Ukraine, and with the addition of mobile floating storage regasification units, Europe has the necessary infrastructure to accommodate higher volumes of LNG imports.
On the other hand, the United States and other gas producers are exporting at the limits of their capacities, and expansions to global LNG export capacity are needed to bring European and Asian prices back to historically normal levels over the longer term. In the United States, these capacities are poised to keep growing, even after already rapid gains. The first LNG export terminal in the country opened in 2016, followed by many more.

Sizable expansion projects already under construction in the United States, Africa, the Middle East, and elsewhere are likely to increase global LNG export capacity by 14 percent by 2025. Other planned projects could bring export capacity to around 1 trillion cubic meters, roughly a quarter of last year’s global gas consumption.
Securing financing to build new terminals, however, can face major hurdles. Companies need 15- to 20-year contracts to obtain bank financing for construction. Terminals usually cost $10 billion to $15 billion and take two to four years to complete. Timelines are less certain for projects without long-term sales contracts, and some may never be built.
Ultimately, expanded LNG export capacity for the United States and other producers may prove crucial to creating truly global gas markets that are balanced across regions. As advanced economies increase reliance on weather-dependent renewable energy from wind and solar, they will likely see critical periods of increased demand for supplemental natural gas to meet power generation needs. Integrating global gas markets and building needed infrastructure allows prices to stimulate demand and supply reactions in larger, more integrated markets. This helps to buffer global energy markets against supply shocks.
Authors:

Rachel Brasier, Research Officer in the Commodities Unit in the Research Department of the International Monetary Fund

Andrea Pescatori, Chief of the Commodities Unit in the IMF Research Department and associate editor of the Journal of Money, Credit and Banking

Martin Stuermer, Economist at the Commodities Unit of the IMF’s Research Department

Compliments of the IMF.The post IMF | How Natural Gas Market Integration Can Help Increase Energy Security first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

How to handle China is a major political issue for the EU, one that is more complex than dealing with Russia. Certainly, the EU’s political and economic systems have profound differences with both Russia and China. Unlike Russia, China is a real systemic actor, approaching 20% of the world economy and growing while Russia represents around two percent and decreasing.
The economic, political, and financial influence of China is considerable, and its military power continues to grow. Its ambition is clearly to build a new  world order, with China at the centre, becoming by the middle of the century the world’s leading power.
The EU must be aware that many countries see the geopolitical influence of China as a counterweight to the West and therefore to Europe. And in a world that is becoming more fragmented and multipolar, most of the emerging countries are becoming hedgers, strengthening their room for manoeuvre without picking sides.
In this context the EU has to recalibrate its policy towards China for at least three reasons: the changes inside China with nationalism and ideology on the rise,; the hardening of US-China strategic competition; and the rise of China as a key player in regional and global issues.
This is putting growing pressure on the EU and sometimes creating uncomfortable dilemmas. Europe was built on the idea of shared prosperity and today is a power of peace. So we do not want to block the rise of emerging nations, be it China or India or others.  But logically we want to ensure that it does not harm our interests, does not threaten our values nor jeopardize the international rules-based order.
Last week we discussed EU-China relations with EU Foreign Ministers and we agreed that there is no viable alternative to the triptych of treating simultaneously China as a partner, competitor and systemic rival, depending on the issue. But it is necessary to adjust the relative weights among these three items and this adjustment depends in large part on China’s own behaviour and the issue concerned. EU ministers underscored that we must continue to engage with China wherever possible, and at the same time reducing strategic risks and vulnerabilities by re-calibrating our stance across three clusters of issues: values, economic security and strategic security.
On values, our differences are hardening. In all international fora, China has constructed a narrative subordinating fundamental rights to the right to development. The EU must counter this discourse and uphold the universality of human rights.
In spite those substantial differences, European and Chinese societies need to know each other better. The obstacles to the free flow of ideas and to the presence of Europeans in China must be removed. Otherwise China and Europe will become more foreign to each other.
On economic security, it is obvious that our trade relations are unbalanced. At over €400 billion a year, the EU’s trade deficit is at an unacceptable level. This is not due to the EU’s lack of competitiveness, but to China’s deliberate choices and policies. European companies face persistent obstacles and discriminatory practices. Moreover, the EU faces a growing risk of excessive dependencies on certain products and critical raw materials.
Hence, the importance of reducing risks and building up resilience, also for reasons of national security. This will require the diversification and reconfiguration of EU value chains, a more effective export control system, the control of inbound investment and possibly outbound investment, and the smart use of the anti-coercion instrument.  But our international partners can rest assured that all measures we take will remain in line with WTO rules. The multilateral system must be revitalized, not abandoned.
The third cluster concerns essentially Taiwan and China’s position on Russia’s war against Ukraine. On Taiwan, the EU’s position remains consistent and based on its ‘One China policy’. Any unilateral change of the status quo and any use of force would have massive economic, political and security consequences. The EU must prepare for all scenario’s and engage with China –  in maintaining the status quo and work to de-escalate tensions.
On Ukraine, our message is clear:  EU-China relations have no chance of developing if China does not push Russia to withdraw from Ukraine. Faced with a conflict involving the territorial integrity and sovereignty of an independent state, any so-called neutrality amounts in reality to taking the side of the aggressor. We welcome positive moves from China aiming at finding a solution to contribute to a just peace in Ukraine.
The message of all 27 Foreign Ministers last week was clear: the best way to shape China’s choices is through robust engagement and by reducing strategic risks.
Author:

Josep Borrell, High Representative of the European Union for Foreign Affairs and Security Policy / Vice-President of the EUROPEAN COMMISSION

Compliments of the European External Action Service, European Commission.The post HR/VP Josep Borrell | How to deal with China first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.