Interview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Carla Neuhaus on 17 August and published on 20 August 2021 |
Ms Schnabel, do you see the images of the catastrophic floods in Germany or the forest fires in Greece as a sign that the ECB should also do something to counter climate change?
For me, the latest events have confirmed that we are doing the right thing with our new strategy. Only recently we decided to give more consideration to climate protection in our monetary policy. Climate change is the greatest challenge of the 21st century. Unfortunately, we will likely see extreme weather events, such as those we have just experienced, more frequently in future.
But why is that a topic for a central bank?
Climate change has far-reaching effects on economic developments and therefore also on price stability – which is our main task. For example, it exposes the economy to more frequent macroeconomic shocks, which has an impact on growth and inflation.
Critics say that it is up to governments to respond to that, not the ECB…
Of course governments are primarily responsible for taking action. But we as the central bank cannot just stand on the sidelines and do nothing. Our primary objective is to keep prices stable in the euro area. And climate change has large implications for price stability. That is why we are obliged to act in order to fulfil our mandate.
Does climate change push up prices?
That can happen if firms pass on to customers the higher costs they incur by having to become more environmentally friendly or having to adapt their business models. Think of the transition from combustion engines to electromobility or the energy sector’s changeover to renewable energy sources. Added to that is the increasing price of carbon. Food prices may rise, too, if droughts or floods occur more frequently in the future. Nonetheless, it’s not certain that climate change and the transition to a climate-neutral economy lead to higher inflation.
But rather?
Countervailing effects are also conceivable. For example, the prices for sustainable energy sources may decline if more efficient technologies are developed. It may then become cheaper to generate electricity from renewable energy sources. We will therefore have to see which effects ultimately prevail.
What does that mean for the work of the ECB?
We will need to incorporate climate change considerations into all of our future activities. That starts with us having to redesign the models underlying our forecasts and monetary policy. To do so we need new data that we will have to collect. Climate change will in the future play just as much of a role in banking supervision as in our monetary policy measures, such as our asset purchases.
The ECB is still buying particularly high amounts of bonds from firms with high carbon emissions.
That’s true. When purchasing corporate bonds, we have up to now been guided by the bonds available in the market. That automatically results in us holding a relatively large number of bonds issued by firms with high carbon emissions as part of our portfolio, because such firms usually have considerable financing needs and issue large amounts of bonds. We therefore need to reconsider the principle of market neutrality that we have adhered to up to now. However, it would not make sense to completely exclude climate offenders.
Why not?
We have to focus on accelerating the transition to a climate-neutral economy. Excluding certain sectors or firms from our asset purchase programme would be counterproductive. In order to lower emissions, firms with high levels of carbon emissions are extremely important because they offer scope for making the most progress. If these firms want to become climate-neutral, they are dependent on favourable financial conditions.
But how do you intend to ensure that the firms actually put the funds raised by issuing bonds towards revamping their business model?
To that end we need to draw up new criteria for selecting bonds. For example, we could in the future buy more bonds from firms that commit to the goals of the Paris climate agreement and thus show that they are willing to adapt their business model.
So is exclusively purchasing green bonds not an option?
No, a purely green asset purchase programme would not be realistic at present in any case. Even though the market is growing rapidly, there would still be far too few green bonds. And let’s not forget: we are already buying almost a quarter of eligible outstanding green bonds.
As a central banker you also need to keep an eye on financial stability. Could the climate crisis become a financial crisis?
Climate change is also an unprecedented risk for the financial system – and it is not limited to one country but has a global effect. This is what we call a systemic risk.
What does that mean in practice?
Around a third of the loans that euro area banks have granted to firms are – to a significant or increasing degree − exposed to climate risks from extreme weather events. That emerged from our macroeconomic stress test, for which we recently evaluated data from 2,000 banks and four million firms. We took into account the effects of natural catastrophes such as floods, forest fires and droughts, which entail huge losses for firms and thus also for banks and insurance companies. In addition, the climate transition measures pose a threat to many firms’ business models.
What conclusion can be drawn from your results?
Above all, they tell us that the earlier we react, the better. We can then still shape the transition to climate neutrality in a way that allows firms to adapt. The longer we wait, the faster and more radically we will have to respond. If the transition comes too late and too fast, many firms could become insolvent and banks could face high loan defaults.
Are these climate risks factored in at all right now? Do rating agencies take them into account when assessing the creditworthiness of firms, for example?
Currently, climate-related risks are presumably not yet appropriately reflected in prices. However, rating agencies are aware of the problem and are working hard to take better account of climate-related risks when assessing credit quality.
What is the situation like for banks?
The ECB as European banking supervisor has already made it very clear to banks that they need to consider climate-related risks. However, initial analyses show that not a single credit institution is fully compliant with the outlined requirements. The progress made by individual banks varies greatly: while some have made significant headway, others still have a long way to go. That needs to change.
Isn’t it in the banks’ best interest to know their risks?
Indeed it is; that is why banks are keen to tackle this issue. As early as next year there will be a comprehensive supervisory review of how banks account for climate-related risks in their balance sheets.
Will climate considerations play a role in banks’ future lending decisions?
Yes, it is safe to assume so. Climate-related risks will weigh more heavily in future decisions whether, for example, a company will be granted a loan and at what terms. Climate may also play a role in real estate lending: it might become easier to borrow money to build an energy-efficient property. This would set incentives, making energy-efficient buildings more attractive. This is why banks play a key role in the green transformation.
To what extent is inflation affected by climate policy measures, for example the introduction of a new carbontax in Germany?
At the beginning of the year, prices went up following the introduction of the carbontax in Germany. For now, these are one-off effects. Nevertheless, a gradual increase in carbon prices may well lead to higher inflation rates in the coming years.
In Germany, the inflation rate is already 3.8%. Are you not worried?
We are faced with a very unusual situation and the current high inflation figures are largely due to transitory effects. At the beginning of the pandemic, inflation decreased significantly starting with the first lockdown. This was mostly due to the fall in energy prices and the policy reactions to the crisis – such as the VAT cut in Germany. Now that we are seeing the economy reopen, these effects are reversing. Energy prices are rising, the VAT rate has gone back to its original level, and all of that automatically pushes inflation much higher. In part, this is simply because the high prices of today are set against the very low prices of last year – the inflation rate always shows the change in consumer prices year-on-year.
So the high inflation rate doesn’t bother you?
No, but I do understand why people might be worried. However, if you compare today’s prices with those before the pandemic, it doesn’t look all that dramatic. While we expect inflation to continue rising until the end of this year, especially in Germany, our estimate is that it will fall significantly as of next year.
Does this mean that you see no reason to change your loose monetary policy any time soon?
That’s right, because monetary policy looks at inflation developments in the medium term. And on that horizon, we expect inflation in the euro area to be below our target of two per cent. As surprising as it may sound to some – we are more worried about the inflation rate being too low in the medium term rather than too high. This may change, of course, for example if trade unions were to negotiate higher wages. But appropriate wage adjustments would also be a good sign from our point of view. Increased demand on the back of higher real wages would bring us closer to our inflation target – which we have been falling short of for years – and help us escape the low interest rate environment.
Why exactly did the ECB change its inflation target? It used to be “below, but close to, two per cent”, now the inflation rate is also allowed to moderately exceed it.
The old wording was less clear and had occasionally been misinterpreted. Some had seen it as a ceiling, assuming that while inflation must not exceed it, undershooting it would not be a problem. That is why we made it clear: the target for us is two per cent. And it is symmetric, meaning that too low inflation is considered equally undesirable as too high inflation.
What’s next for the economy? Are we going to see the strong recovery we’re hoping for?
We continue to expect to see a strong recovery. Given the high level of vaccinations, another hard lockdown is unlikely, despite the current rise in incidence rates. The supply-side bottlenecks in some products, such as microchips, are currently the major constraint. This has hit German manufacturers particularly hard. To solve the problem, it would be important for the international community to support developing countries in boosting their vaccination rates in order to successfully contain the virus.
Compliments of the European Central Bank.
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Agency’s amended complaint details how the monopolist survived existential threats by illegally acquiring innovative competitors and burying successful app developers
Today, the Federal Trade Commission filed an amended complaint against Facebook in the agency’s ongoing federal antitrust case. The complaint alleges that after repeated failed attempts to develop innovative mobile features for its network, Facebook instead resorted to an illegal buy-or-bury scheme to maintain its dominance. It unlawfully acquired innovative competitors with popular mobile features that succeeded where Facebook’s own offerings fell flat or fell apart. And to further moat its monopoly, Facebook lured app developers to the platform, surveilled them for signs of success, and then buried them when they became competitive threats. Lacking serious competition, Facebook has been able to hone a surveillance-based advertising model and impose ever-increasing burdens on its users.
“Facebook lacked the business acumen and technical talent to survive the transition to mobile. After failing to compete with new innovators, Facebook illegally bought or buried them when their popularity became an existential threat,” said Holly Vedova, FTC Bureau of Competition Acting Director. “This conduct is no less anticompetitive than if Facebook had bribed emerging app competitors not to compete. The antitrust laws were enacted to prevent precisely this type of illegal activity by monopolists. Facebook’s actions have suppressed innovation and product quality improvements. And they have degraded the social network experience, subjecting users to lower levels of privacy and data protections and more intrusive ads. The FTC’s action today seeks to put an end to this illegal activity and restore competition for the benefit of Americans and honest businesses alike.”
The FTC filed the amended complaint today in the U.S. District Court for the District of Columbia, following the court’s June 28 ruling on the FTC’s initial complaint. The amended complaint includes additional data and evidence to support the FTC’s contention that Facebook is a monopolist that abused its excessive market power to eliminate threats to its dominance.
According to the amended complaint, a critical transition period in the history of the internet, and in Facebook’s history, was the emergence of smartphones and the mobile Internet in the 2010s. Facebook’s CEO, Mark Zuckerberg, recognized at the time that “we’re vulnerable in mobile” and a major shareholder worried that Facebook’s mobile weakness “ran the risk of the unthinkable happening – being eclipsed by another network[.]”
After suffering significant failures during this critical transition period, Facebook found that it lacked the business talent and engineering acumen to quickly and successfully integrate its outdated desktop-based technology to the new era of mobile-first communication. Unable to maintain its monopoly or its advertising profits by fairly competing, Facebook’s executives addressed this existential threat by buying up the new mobile innovators, including its rival Instagram in 2012 and mobile messaging app WhatsApp in 2014, who had succeeded where Facebook had failed. The company supplemented its anticompetitive shopping spree with an open-first-close-later scheme that helped cement its monopoly by severely hampering the ability of rivals and would-be rivals to compete on the merits. By anticompetitively cementing its personal social networking monopoly, Facebook has harmed the competitive process and limited consumer choice.
As described in the amended complaint, after starting Facebook Platform as an open space for third party software developers, Facebook abruptly reversed course and required developers to agree to conditions that prevented successful apps from emerging as competitive threats to Facebook. By pulling this bait and switch on developers, Facebook insulated itself from competition during a critical period of technological change. Developers that had relied on Facebook’s open-access policies were crushed by new limits on their ability to interoperate. Facebook’s conduct not only harmed developers such as Circle and Path, but also deprived consumers of promising and disruptive mavericks that could have forced Facebook to improve its own products and services.
The amended complaint bolsters the FTC’s monopoly power allegations by providing detailed statistics showing that Facebook had dominant market shares in the U.S. personal social networking market. The suit also provides new direct evidence that Facebook has the power to control prices or exclude competition; significantly reduce the quality of its offering to users without losing a significant number of users or a meaningful amount of user engagement; and exclude competition by driving actual or potential competitors out of business.
Facebook’s dominant position is also protected by significant barriers to entry, including high switching costs.  Over time, users of a personal social network build more connections and develop a history of posts and shared experiences, which they cannot easily transfer to another personal social networking provider.
Other significant barriers to entry include user-to-user effects, known as network effects, which make a personal social network more valuable as more users join the service. As the amended complaint notes, it is very difficult for a new entrant to displace an established personal social network in which users’ friends and family already participate.
According to the amended complaint, Facebook continues to monitor the industry for competitive threats to its personal social networking monopoly. Facebook is likely to impose anticompetitive conditions on access to its platform and seek to acquire companies it perceives as potential threats, especially when it next faces “acute competitive pressures from a period of technological transition,” the amended complaint alleges.
The FTC’s Office of General Counsel carefully reviewed Facebook’s petition to recuse Chair Lina M. Khan. As the case will be prosecuted before a federal judge, the appropriate constitutional due process protections will be provided to the company. The Office of the Secretary has dismissed the petition.
The Commission vote to authorize staff to file the amended complaint in the U.S. District Court for the District of Columbia was 3-2. Commissioner Christine Wilson also issued a dissenting statement.
Compliments of the Federal Trade Commission.

The Federal Trade Commission works to promote competition, and protect and educate consumers. You can learn more about how competition benefits consumers or file an antitrust complaint. Like the FTC on Facebook(link is external), follow us on Twitter(link is external), read our blogs, and subscribe to press releases for the latest FTC news and resources.

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The European Commission has decided to open an investigation to assess whether Illumina’s decision to complete its acquisition of GRAIL, while the Commission’s in-depth investigation into the proposed transaction is still ongoing, constitutes a breach of the “standstill obligation” under Article 7 of the Merger Regulation. The standstill obligation prevents the potentially irreparable negative impact of transactions on the market, pending the outcome of the Commission’s investigation. This investigation is separate from the Commission’s in-depth investigation into the substance of the case which will continue in line with the timelines foreseen in the Merger Regulation.
Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “We deeply regret Illumina’s decision to complete its acquisition of GRAIL, while our investigation into the transaction is still ongoing.
Companies have to respect our competition rules and procedures. Under our ex-ante merger control regime companies must wait for our approval before a transaction can go ahead. This obligation, that we call standstill obligation, is at the heart of our merger control system and we take its possible breaches very seriously. This is why we have decided to immediately start an investigation to assess whether Illumina’s decision constitutes a breach of this important obligation”.
Background
On 18 August 2021, Illumina publicly announced that it had decided to complete its acquisition of GRAIL , while the Commission’s review of the proposed transaction is still pending.
On 22 July 2021, the Commission had opened an in-depth investigation into the proposed transaction. The Commission is concerned that the proposed acquisition may reduce competition and innovation in the emerging market for the development and commercialisation of cancer detection tests based on sequencing technologies. Following the parties’ failure to provide essential information for the Commission’s assessment, on 11 August, the Commission stopped the clock in its in-depth investigation into the proposed acquisition. The parties have still not provided the information requested.
On 19 April 2021, the Commission accepted the requests submitted by Belgium, France, Greece, Iceland, the Netherlands, and Norway to assess the proposed acquisition of GRAIL by Illumina under the EU Merger Regulation. The Commission considered that a referral was appropriate, in particular because the transaction threatens to significantly affect competition within the territory of the Member States making the request and GRAIL’s competitive significance is not reflected in its turnover.
With this decision, the transaction falls under the Commission’s jurisdiction.
All transactions falling under the Commission’s jurisdiction need to be notified and approved by the Commission before they can be implemented (“standstill obligation”, under Article 7 of the Merger Regulation, referred to in Article 22(4) of the Merger Regulation).
The Commission can impose fines on companies that, either intentionally or negligently, breach the standstill obligation which may reach up to 10% of the companies’ aggregate turnover, pursuant to Article 14 of the Merger Regulation.
More information will be available on the Commission’s competition website, in the Commission’s public case register under the case number M.10188.
Compliments of the European Commission.
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The European Commission has today disbursed €5.1 billion to France in pre-financing, equivalent to 13% of the country’s financial allocation under the Recovery and Resilience Facility (RRF). The pre-financing payment will help to kick-start the implementation of the crucial investment and reform measures outlined in France’s recovery and resilience plan.
The Commission will authorise further disbursements based on the implementation of the investments and reforms outlined in France’s recovery and resilience plan. The country is set to receive €39.4 billion in total, fully consisting of grants, over the lifetime of its plan.
Today’s disbursement follows the recent successful implementation of the first borrowing operations under NextGenerationEU. By the end of the year, the Commission intends to raise up to a total of €80 billion in long-term funding, to be complemented by short-term EU-Bills, to fund the first planned disbursements to Member States under NextGenerationEU.
Part of NextGenerationEU, the RRF will provide €723.8 billion (in current prices) to support investments and reforms across Member States. The French plan is part of the unprecedented EU response to emerge stronger from the COVID-19 crisis, fostering the green and digital transitions and strengthening resilience and cohesion in our societies.
Supporting transformative investments and reform projects
The RRF in France finances investments and reforms that are expected to have a deeply transformative effect on France’s economy and society. Here are some of these projects:

Securing the green transition: The RRF invests €5.8 billion for the renovation of buildings, financing a large-scale renovation programme to increase the energy efficiency of buildings. The RRF also invests in decarbonised hydrogen, with €1.9 billion for the development of value chains for decarbonised hydrogen.

Supporting the digital transition: The RRF supports the digitalisation of companies with €385 million, by helping business make the best use of digital technologies. The RRF also supports the digitalisation of public administration, improving the efficiency of the public administration and the quality of the working environment of public officials with €500 million.

Reinforcing economic and social resilience: The RRF finances the modernisation of the health system with €2.5 billion for renovating hospitals and healthcare facilities, building outpatient facilities, and modernising medical infrastructure and equipment. The RRF also supports jobs and training for young people, investing €4.6 billion in training opportunities in higher education and targeted hiring subsidies for youth. The RRF also supports reforms to improve the quality and efficiency of public expenditure.

Members of the College said:
President Ursula von der Leyen said: “With this first disbursement, the support of NextGenerationEU becomes now concrete in France. With its recovery and resilience plan, France invests in the economy of tomorrow, with a strong focus on the green and digital transitions, but also on competitiveness and social and territorial cohesion.”
Johannes Hahn, Commissioner for Budget and Administration said: “After three very successful bond issuances under NextGenerationEU over the past few weeks, and the first payments for other NGEU programmes, I am glad that we have now also reached the disbursement stage for the RRF. Intense cooperation with France and solid preparation within the Commission allowed us to pay out the funds in record time. This shows that with the resources raised, we will be able to swiftly deliver on the pre-financing needs of all Member States, thus giving them the initial boost in implementing the numerous green and digital projects included in their national plans.”
Paolo Gentiloni, Commissioner for Economy said: “The first funds we disbursed today will help France emerge stronger from the crisis. France’s recovery and resilience plan is clearly oriented towards the green transition, financing a wide range of projects from building renovations to clean mobility. It also has a very strong digitalisation component, with investments to bring ultrafast broadband to rural areas, support digital skills development and roll out eHealth services. The whole of France stands to benefit from this comprehensive and ambitious plan.”
Compliments of the European Commission.
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As mobile and electronic payments become the norm, Commission staff advocate for more competition to protect businesses and families from unfair fees
The Federal Trade Commission announced that staff have submitted a comment urging the Board of Governors of the Federal Reserve System (the Fed) to clarify and strengthen the implementation of debit card fee and routing reforms to the Electronic Fund Transfer Act (EFTA) made under the Dodd-Frank Wall Street Reform Act of 2010 (Dodd-Frank).
According to a 2019 study, Americans use debit cards almost twice as often as credit cards. Merchants, including millions of small businesses, must pay fees to card issuers, usually banks, and card networks like Visa and Mastercard, in order to accept debit cards. But merchants cannot select low-fee networks unless the issuer enables those networks. Typically, merchants work with payment processing companies to ensure that they get paid. When merchants pay high fees to accept payments, this can lead to price hikes for customers.
In the Dodd-Frank Act, Congress amended EFTA to promote competition among debit card networks by requiring debit card issuers to enable at least two networks so that merchants have a choice for routing electronic debit transactions. The Fed has rulemaking authority to implement these provisions, and the FTC enforces these rules with respect to card networks.
While mobile and electronic payments have been on the rise since 2010, the COVID-19 pandemic has accelerated that growth, with merchants and consumers shifting increasingly to ecommerce and digital marketplaces. As the Fed’s proposed rule recognizes, issuers do not provide sufficient options to merchants for these types of payments. The FTC staff endorsed the proposed rulemaking by the Fed which clarifies that a 2011 regulation applies both to transactions in which a physical debit card is used, and to “card-not-present transactions” that occur without use of a physical card, such as pay-by-phone or other electronic payments.
The FTC staff also called for rules that would prohibit debit card networks from exploiting an issuer’s position by paying incentives to that issuer based on how electronic debit transactions are routed by merchants using that issuer’s debit cards. According to the FTC staff comment, the Fed should “adopt revisions that ensure that debit card networks do not create incentives for issuers to evade Regulation II’s clear mandate that there be two unaffiliated networks available for each type of debit transaction, with each network a commercially reasonable alternative for merchants.” This addition would ensure that networks do not overburden merchants or consumers.
The FTC staff submitted its comment in response to the Federal Reserve’s proposal to amend Regulation II and clarify that Regulation II applies to card-not-present transactions as well as card-present transactions, issued on May 13, 2021.
The Commission vote authorizing the staff comment to the Federal Reserve was 3-2. Commissioners Noah Joshua Phillips and Christine S. Wilson voted no
The Federal Trade Commission works to promote competition, and protect and educate consumers. You can learn more about consumer topics and report scams, fraud, and bad business practices online at ReportFraud.ftc.gov. Like the FTC on Facebook(link is external), follow us on Twitter(link is external), read our blogs and subscribe to press releases for the latest FTC news and resources.
Compliments of the Federal Trade Commission.
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The European Commission approved, under EU State aid rules, the introduction of a new  product in the the form of guarantees on synthetic securitisation tranches under the European Guarantee Fund managed by the European Investment Bank Group (consisting of the European Investment Bank, “EIB” and the European Investment Fund, “EIF”) to support companies affected by the coronavirus outbreak in the 22 participating Member States. With an envisaged dedicated budget of €1.4 billion, the new product is expected to mobilise at least €13 billion of new lending to small and medium-size enterprises (SMEs) affected by the outbreak. This is a significant contribution to the overall target for the European Guarantee Fund to mobilise up to €200 billion of additional financing in the 22 participating Member States.
Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “This new product will contribute significantly to the European Guarantee Fund’s overall target to mobilise up to €200 billion for the European economy, by helping to originate at least €13 billion of new lending by financial intermediaries to SMEs, which have been severely hit by the coronavirus outbreak. The European Guarantee Fund, which is administered by the European Investment Bank Group, brings together support by 22 Member States and complements the national support schemes. We continue to work closely with Member States and with the other European institutions to find workable solutions to mitigate the economic impact of the coronavirus outbreak, whilst preserving the level playing field in the Single Market.”
Executive Vice-President for an Economy that Works for People, Valdis Dombrovskis, said: “We continue pursuing our goal to support EU businesses, especially SMEs, weather the crisis. Thanks to the new synthetic securitisation product under the European Guarantee Fund, further financing in the form of new lending will flow to EU businesses that really need it. The European Guarantee Fund is the third of the safety nets agreed by the Council. We encourage Member States to continue using all three crisis tools to the maximum to support their workers and businesses.”
In April 2020, the European Council endorsed the establishment of a European Guarantee Fund (the “Fund”) under the management of the EIB Group, as part of the overall EU response to the coronavirus outbreak. It is one of the three safety nets agreed by the European Council to mitigate the economic impact on workers, businesses and countries. So far, the EIB and EIF have approved a total of €17.8 billion worth of projects under the Fund, which are expected to lead to some €143.2 billion in total mobilised investments.
Following the notification by the participating Member States, on 14 December 2020, the Commission authorised, under EU State aid rules, the establishment of the Fund, the    contributions to the Fund by, at the time, 21 participating Member States and the downstream interventions by in the form of guarantees on debt instruments (such as loans) under EU State aid rules. On 16 April 2021, the Commission authorised, under EU State aid rules, the participation to the Fund by Slovenia and its relative contribution in the form of guarantees on debt instruments under EU State aid rules. The Fund also provides guarantees on equity instruments, which are however outside of the scope of the December 2020 decision.
The new product under the Fund
The 22 participating Member States notified to the Commission, under EU State aid rules, the introduction of a new synthetic securitisation product to be implemented by the Fund. The complete notification, with the formal notification from the last participating Member State, was received on 9 August 2021.
Synthetic securitisation is a financial technique whereby an originating entity (e.g. a bank) identifies a pool of existing assets (e.g. a portfolio of loans) which it holds on its balance sheet, creates tranches with different risk/reward profiles against that pool, and subsequently transfers a part of the risk stemming from the pool by buying protection on a specific tranche (for example by getting a guarantee on the relevant risk tranche) from a protection seller. In return, the originating entity pays a premium to the protection seller.
Under the new instrument, the EIB Group, acting as a protection seller, will provide a financial intermediary with protection in the form of a guarantee on a specific risk tranche for a portfolio of existing assets, under the condition that the portfolio in question fulfils certain requirements in terms of maximum size and contains only performing exposures. In exchange for providing the guarantee, the EIB Group will charge the financial intermediary with a subsidised guarantee fee.
The financial intermediary will have to pass on the financial advantage stemming from the transaction, to the maximum extent possible, to the ultimate beneficiaries of the new instrument, i.e. to SMEs that will receive new loans. The financial intermediary will be obliged to use regulatory capital freed up thanks to the Fund’s guarantee to build up a new pool of assets (e.g. a portfolio of loans) to meet the liquidity needs of SMEs, while complying with certain conditions in terms of riskiness, volume and maturity of the new loans. On top of this obligation, the terms of each transaction will also provide incentives to the financial intermediary to generate new lending.
The purpose of the new product is to help originate new, riskier lending by financial intermediaries to SMEs. The aim is to free up lending capacity of financial intermediaries and prevent that their resources are shifted towards lower-risk assets instead of loans to SMEs. The risk of such a shift exists given the economic crisis caused by the coronavirus pandemic, which is expected to lead to downgrades in the financial intermediaries’ existing loan books and therefore to increasing demands for those intermediaries’ regulatory capital.
The Commission’s State aid assessment
The Commission assessed the new synthetic securitisation product under Article 107(3)(b) of the Treaty on the Functioning of the European Union (TFEU), which enables the Commission to approve State aid measures implemented by Member States to remedy a serious disturbance in their economy.
The Commission concluded that the synthetic securitisation product will contribute to managing the economic impact of the coronavirus in the 22 participating Members States. It is necessary, appropriate and proportionate to remedy a serious disturbance in the economy, in line with Article 107(3)(b) TFEU.
On this basis, the Commission approved the Fund’s guarantees on synthetic securitisation tranches under EU State aid rules.
Background
The Fund aims at addressing in a coordinated manner the financing needs of European companies (mainly SMEs) that are expected to be viable in the long-term, but are facing difficulties in the current crisis across Europe. By pooling credit risk across all of the participating Member States, the overall impact of the Fund can be maximised, whilst the average cost of the Fund is significantly reduced compared to national schemes.
All Member States have the option to participate in the Fund. So far, 22 Member States decided to participate and jointly guarantee the Fund’s operations. They take part in the governance of the Fund through the so-called Contributors Committee, which decides on the use of guarantee. The participating Member States are Austria, Belgium, Bulgaria, Croatia, Cyprus, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Lithuania, Luxemburg, Malta, the Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain and Sweden.
In case of particularly severe economic situations, such as the one currently faced by all Member States due to the continuing coronavirus outbreak, EU State aid rules allow Member States to grant support to remedy a serious disturbance to their economy. This is foreseen by Article 107(3)(b) TFEU.
On 19 March 2020, the Commission has adopted a State aid Temporary Framework to enable Member States to use the full flexibility foreseen under State aid rules to support the economy in the context of the coronavirus outbreak.
The Temporary Framework complements the many other possibilities already available to Member States to mitigate the socio-economic impact of the coronavirus outbreak, in line with EU State aid rules. On 13 March 2020, the Commission adopted a Communication on a Coordinated economic response to the COVID-19 outbreak setting out these possibilities. For example, Member States can make generally applicable changes in favour of businesses (e.g. deferring taxes, or subsidising short-time work across all sectors), which fall outside State Aid rules. They can also grant compensation to companies for damage suffered due to and directly caused by the coronavirus outbreak.
The Temporary Framework will be in place until the end of December 2021. With a view to ensuring legal certainty, the Commission will assess before this date if it needs to be extended.
The non-confidential version of the decision will be made available under the case numbers SA.63422-SA.63443 in the State aid register on the Commission’s competition website once any confidentiality issues have been resolved.
More information on the Temporary Framework and other action the Commission has taken to address the economic impact of the coronavirus pandemic can be found here.
Compliments of the European Commission.
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For Europe to become the first carbon-neutral continent by 2050, we need to invest massively in electrification of transport, buildings and industry. There are various renewable electricity solutions, such as hydro, wind or solar energy. And there is clean hydrogen.
Hydrogen can be used as a raw material, fuel or energy storage solution. It has many applications in the industrial, transport and construction sectors. Since its use does not cause CO2 emissions, it contributes to the decarbonisation of industrial processes and economic sectors where the reduction of emissions is both urgent and difficult to achieve.
One year ago, we launched the European Clean Hydrogen Alliance. As of today, we already collected more than one thousand projects to create an investment pipeline for hydrogen projects.
This shows that we are at a turning point for this clean technology.
Of course, this is the result of research and development efforts conducted over the last 15 years.
It is a fact: Europe is a leader in the development of many clean hydrogen technologies.
We have developed an important strategic capacity, in particular thanks the Fuel Cell and Hydrogen Joint Undertaking. Since 2008, it has funded projects with a combined public-private investment of nearly €2 billion.
As a result, universities and companies in Europe have increased the efficiencies of electrolysers and fuel cells, reduced the use of critical raw materials, and demonstrated the feasibility of hydrogen-based industrial processes
Too often though, these projects have remained small-scale and isolated.
Now, as the technology matures and the pressure to decarbonise increases, it is time to move to large-scale industrial deployment of clean hydrogen technologies.
Transforming technology leadership into market leadership is not easy. We need to move fast and at continental scale to face our challenges. Addressing strategic dependencies is one of them.
Addressing strategic dependencies
For hydrogen, this means having access to critical raw materials and securing the availability of large amounts of decarbonised electricity.
Via the European Raw Materials Alliance, we are securing access to critical and strategic raw materials by diversifying supply chains, attracting investments to the raw materials value chain, and fostering innovation. We have already identified investment opportunities across 17 European countries worth €10 billion.
Regarding decarbonised energy, we cannot afford to wait for 10 years until renewable energy projects have reached sufficient scale or until the infrastructure is ready and components available on the market. Others will overtake us and will be selling us their technologies.
In the short to medium-term, other forms of low-carbon hydrogen are needed, including based on nuclear energy.
Nuclear energy is available, steady and abundant. We could use this transitional energy to facilitate the deployment of a clean hydrogen industry in Europe.
How would this work? We could use existing nuclear reactors at the scheduled end of their service life, while of course respecting all safety standards. This would mean disconnecting the reactors from the grid and using the energy they produce exclusively to run electrolysers and thus produce clean hydrogen, until the nuclear plant is potentially shut down – before its programmed dismantling. This would allow a new industry to emerge until sufficient renewable energy is deployed.
We have no choice. We need to ramp up our production capacities in electrolysers and fuel cells, build the world’s first hydrogen-based steel plants and bring hydrogen planes to the market.
‘Our chance to shape the future of the hydrogen economy’
This is our chance to shape the future of the hydrogen economy.
Because we are not alone in this race. Look at the United States, but also China, Japan and Korea: they all have strong capacities in the field of hydrogen. This is why the work of the clean Hydrogen Alliance is so essential. We want to shift gears, roll-out our technologies, build integrated EU value chains.
The objective is to present a pipeline of investment projects during the upcoming Hydrogen Forum in November, based on the project proposals we collected this spring. In parallel, we will need to work on two key aspects.
‘Project financing notably for smaller companies’
Project financing is another challenge, notably for smaller companies. EU-wide collaborations and advisory services, for example from the European Investment Bank, can play an important role in overcoming this barrier.
Especially in an initial phase, public funding support will have an important role to play. At EU level, we have important means at hand: research and development programmes, regional development and infrastructure funds, funds to support the demonstration of innovative clean energy technologies, such as the EU Innovation Fund.
Member States too are putting into place important support programmes, many part-funded by the EU Recovery and Resilience Facility. And they are preparing what I hope could be a series of Important Projects of Common European Interest.
It is not just about the amount of available funding. It is also about channelling these resources efficiently. This is why we have developed a new Hydrogen Public Funding Compass: an online tool that guides projects towards the relevant public funding instruments.
‘Paving the way with best regulatory condition’
The second key issue for the large-scale deployment of hydrogen: the policy and regulatory conditions.
The EU Green Deal provides a clear signal supporting the deployment of clean hydrogen.
For instance, new EU-wide certification systems and targets for the deployment of refuelling stations for hydrogen are proposed.
The Energy Taxation Directive also sets preferential tax rates for the use of renewable and low-carbon hydrogen for end-consumers
Later this year, we will complement this package with a review of EU legislation on gas markets, which I believe they will reinforce the momentum for hydrogen deployment.
We all agree on the potential of clean hydrogen to achieve our climate goals, create jobs and make Europe more competitive.
We will continue to work together in this spirit.
Author:

Thierry Breton, European Commissioner for Internal market

Compliments of the European Union Delegation to the US.
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Washington, DC: The Board of Governors of the IMF has approved a general allocation of Special Drawing Rights (SDRs) equivalent to US$650 billion (about SDR 456 billion) on August 2, 2021, to boost global liquidity. [1]
“This is a historic decision – the largest SDR allocation in the history of the IMF and a shot in the arm for the global economy at a time of unprecedented crisis. The SDR allocation will benefit all members, address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy. It will particularly help our most vulnerable countries struggling to cope with the impact of the COVID-19 crisis,” IMF Managing Director Kristalina Georgieva said.
The general allocation of SDRs will become effective on August 23, 2021. The newly created SDRs will be credited to IMF member countries in proportion to their existing quotas in the Fund.
About US$275 billion (about SDR 193 billion) of the new allocation will go to emerging markets and developing countries, including low-income countries.
“We will also continue to engage actively with our membership to identify viable options for voluntary channeling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve resilient and sustainable growth”, Ms. Georgieva said.
One key option is for members that have strong external positions to voluntarily channel part of their SDRs to scale up lending for low-income countries through the IMF’s Poverty Reduction and Growth Trust (PRGT). Concessional support through the PRGT is currently interest free. The IMF is also exploring other options to help poorer and more vulnerable countries in their recovery efforts. A new Resilience and Sustainability Trust could be considered to facilitate more resilient and sustainable growth in the medium term.
Compliments of the IMF.
The post IMF Governors Approve a Historic US0 Billion SDR Allocation of Special Drawing Rights first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Our action plan lays out an ambitious roadmap to take the effects of climate change into account. On this path, we will pass three major milestones that guide our commitment to do our part to tackle climate change.
What’s our roadmap to greening monetary policy?
We at the ECB are doing our part to tackle climate change within our mandate.
As a result of our strategy review, we’ve agreed on an ambitious roadmap on how to integrate climate change considerations into our work. What are the milestones on our road ahead?
First milestone: Paving the way with reliable data
1. We will gather data needed for climate change risk analyses
Climate-related policies and measures depend on reliable data. That’s why we work on new indicators that help to assess banks’ carbon footprints. We will look at how to measure their vulnerability to climate-related physical risks and will work to improve our indicators, in line with progress at EU level on environmental sustainability disclosure and reporting.
2. We will adapt our models and make them fit for climate change
Macroeconomic models are at the heart of our analyses and decisions. We will enhance our models to better take into account the effects of climate change. This will help us to assess the impact of climate change and related policies on the economy, on the financial system and on how our monetary policy feeds through to people and businesses.
Second milestone: Knowledge is the driving force
1. We will check our own exposure to climate risks
We will be carrying out stress tests of our own balance sheet in 2022 to check how exposed it is to climate risks.
2. We will check firms’ and banks’ exposures to climate risks
Our economy-wide climate stress test that was conducted in 2021 showed that the costs to banks and companies of adapting swiftly to green policies are much lower than the costs of doing nothing and dealing with severe natural disasters in the future. In 2022, we will carry out a separate supervisory climate stress test of individual banks to figure out how well they are prepared for climate risks that might materialise.
3. We will make disclosure of climate risks a priority
To effectively assess climate risks and how they could affect us as well as banks and businesses, we need to know much more about those risks. That’s why we will introduce climate-related disclosure requirements for using private sector assets as collateral in our monetary policy operations and for our private sector asset purchases. We will announce further details in 2022.
4. We will review how credit ratings reflect climate risks
Ratings provided by credit rating agencies are a key tool to understand the overall riskiness of assets. Therefore we are checking how ratings agencies include climate risks in their ratings. Additionally, we will consider developing minimum standards to ensure that those risks are consistently included in our own internal assessments.
Third milestone: Action based on reliable data and best knowledge
1. We will include climate risks into our collateral framework
We will consider climate risks when evaluating assets that banks want to use as collateral to get loans from us. This means that assets with higher climate risks could be treated differently than assets with lower climate risks. We will keep supporting innovation in the area of sustainable finance. Since the beginning of 2021, we accept certain sustainability-linked bonds as collateral and for our asset purchases.
2. We will make our asset purchases greener
We will further include climate-related criteria when guiding our corporate asset purchases. This could include looking at how issuers are complying with the Paris Agreement or how they are committed to similar goals. Additionally, as of 2023 we will start disclosing climate-related information on our corporate asset purchases.
Compliments of the European Central Bank.
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