Speech by Isabel Schnabel, Member of the Executive Board of the ECB, at a virtual event series hosted by the Peterson Institute for International Economics |

Last week the Governing Council of the European Central Bank (ECB) published its new monetary policy strategy.[1] It was the ECB’s first review of its strategy since 2003, with most features of the framework still dating back to its founding years.
Since those times, the world economy has changed in fundamental ways.
About half of today’s ten largest global firms by stock market capitalisation did not exist when the euro was launched in 1999. In that year, imports accounted for around 30% of euro area economic activity; on the eve of the pandemic, this share had increased to 45%. And whereas in 2000 there were on average 24 people aged 65 and over for every 100 persons of working age in the euro area, this ratio stood at 32 last year.
These changes reflect three broad macroeconomic trends – digitalisation, globalisation and demographic change – that have had, and continue to have, profound consequences for the conduct of monetary policy.
Amplified by the two deepest economic contractions since World War II – the global financial crisis and the coronavirus (COVID-19) pandemic – they shifted the challenge for monetary policy from fighting too high inflation towards preventing too low inflation, or even deflation, a phenomenon our previous strategy had not envisaged.
In many advanced economies, this challenge was aggravated by central banks approaching the lower bound of policy rates, which severely constrained the space of “conventional” monetary policy to protect price stability. In the euro area, the ECB’s deposit facility rate reached 0% in July 2012 and has been negative since June 2014.
In my remarks today, I would like to set out our motivation for the most important changes to our strategy, and explain how they will guide the ECB’s monetary policy decisions in the years to come.
Understanding low inflation
The ECB’s monetary policy strategy of 2003 was challenged by severe economic and financial crises, as well as deep structural changes in the economy, in particular during the most recent decade.
At the heart of these challenges were two distinct, albeit related, developments.
One was a gradual and persistent decline in the “real equilibrium” interest rate that balances savings and investments (slide 2).
Slow-moving structural factors, such as an ageing society and lower trend productivity growth, have led to an abundant supply of savings facing a muted investment demand, putting downward pressure on interest rates, not only in the euro area but across many advanced economies.
Available estimates of this “equilibrium” rate of interest suggest that, for the euro area, stable inflation is nowadays likely to require a negative real short-term interest rate. While the level of equilibrium rates differs across countries, the downward trend has been a global phenomenon.
The second, and equally widespread, development was a protracted period of disinflation.
Despite years of unprecedented monetary policy accommodation, inflation in the euro area, as measured by the Harmonised Index of Consumer Prices (HICP), has averaged just 1.2% since the global financial crisis (slide 3), well below the aim adopted by the Governing Council in 2003, namely an inflation rate of below, but close to, 2% over the medium term.
In combination, these two developments posed severe challenges for monetary policy, because the zero lower bound on interest rates constrained the available policy space to respond to persistent disinflationary shocks.
As a result, central banks worldwide have been forced to find additional instruments that could provide policy accommodation when their main policy rates were approaching zero.
The ECB, for its part, has introduced a wide range of such novel monetary policy tools in recent years, including negative interest rates, forward guidance, longer-term refinancing operations and asset purchases. Nevertheless, the euro area economy remained caught in the low interest rate, low inflation environment.
In our strategy review, we identified the elements that could break the vicious circle of low inflation and low interest rates by shedding light on the factors explaining why inflation has not accelerated more forcefully in response to the far-reaching measures we took over the years.
Our findings can be summarised in three blocks that have motivated the main adjustments to our strategic framework: first, the definition of price stability, including the scope of the relevant price index; second, the conduct of monetary policy in the vicinity of the effective lower bound, including the toolkit, our reaction function and the broader macroeconomic policy mix; and, third, a more active incorporation of major preconditions for price stability, namely financial stability and the transition to a low-carbon economy.
Let me explain each of these points in turn.
Defining price stability
According to the Treaty on the Functioning of the European Union (TFEU), the ECB’s primary objective is to maintain price stability. The first building block of our strategy is to operationalise this objective.
Including owner-occupied housing in the HICP
The ECB has confirmed the use of the HICP as a timely, reliable, comparable (over time and across countries) and credible inflation measure.
A key requirement for monetary policy is that the underlying consumption basket be representative of people’s actual consumption behaviour. If the index failed to capture relevant consumption expenditures that exhibit large and persistent price changes, then this could, over time, erode people’s purchasing power.
Housing is a case in point.
Although HICP inflation has been subdued in recent years, the costs of housing, which are not fully reflected in the HICP, have increased more forcefully. Over the past four years, residential property prices in the euro area increased, on average, at an annual rate above 4%, and at 6.2% in the first quarter of this year, the fastest pace since 2007 (slide 4).
Rising housing costs are absorbing a growing share of households’ lifetime income and are making housing increasingly unaffordable for some parts of society, in particular younger generations. This concern was expressed widely at our “ECB Listens” events.
In our review, the Governing Council, while praising the quality improvements to the HICP seen over time, recognised shortcomings in the current way of measuring consumer price inflation and decided to recommend a roadmap to include owner-occupied housing in the HICP.
Our roadmap builds on the net acquisition approach that will treat home purchases in much the same way as purchases of other durable goods, such as cars. As it refers directly to observed transaction prices of new dwellings, this approach is likely to reflect housing market conditions more accurately than alternative methodologies.[2]
The augmented HICP will not only better represent actual consumption expenditures by households, it will also better reflect the transmission of our monetary policy.
In particular, while changes in house prices often reflect a wide range of factors, including supply and demand imbalances, monetary policy, through its impact on mortgage rates and risk taking, can also be expected to affect the costs related to residential investment.
Substantial additional work by the European Statistical System, which will stretch over several years, is required before the HICP including owner-occupied housing can become the main index for monetary policy purposes at a monthly frequency.
Until then, we will use gradually improving quarterly owner-occupied housing indices to assess the impact of housing costs on inflation and thus inform our monetary policy deliberations.
A symmetric 2% inflation target
The previous quantitative definition of our inflation aim of “below, but close to, 2%” was subject to ambiguity as some observers considered it to be asymmetric, potentially implying that 2% was a ceiling rather than a target. Staff analysis suggests that such perceptions could, over time, give rise to meaningfully lower inflation and growth outcomes (left chart, slide 5).
While our analysis suggests that low inflation has, to a large extent, resulted from an unfavourable, one-sided distribution of shocks (as explained below), we judged that there was a risk that our previous inflation aim might further entrench expectations of low inflation (right chart, slide 5).
We have therefore replaced our previous aim with a clear 2% inflation target over the medium term, with deviations to the downside and to the upside being considered equally undesirable.
The simplification and clarification of the target, as well as our stronger commitment to symmetry, are crucial to remove any ambiguities and firmly anchor long-term inflation expectations at 2%.
Medium-term orientation and proportionality
The Governing Council confirmed the medium-term orientation of its monetary policy, recognising the difficulty to control inflation in the short run, given the variable and uncertain transmission lags of our measures to the real economy and inflation.
From the start, the medium-term orientation has afforded the Governing Council the required flexibility to tailor policy responses to the size, persistence and type of shock it is facing. For example, supply-side shocks often require a lengthening of the medium-term horizon in order to mitigate negative effects on real economic activity and employment.
The medium-term orientation also allows the ECB to take account of financial stability considerations in view of the interdependence of price stability and financial stability. The use of such flexibility will be subject to a careful proportionality assessment, which has been enshrined in our new strategy.
This assessment comprises a systematic analysis of the evolving balance of the benefits and costs of our actions, taking account of their effectiveness and side effects, as well as risks of a destabilisation of inflation expectations.[3]
Such an assessment is particularly important at the lower bound.
ECB staff analysis suggests that, at the lower bound, there is a risk that the marginal benefit of an additional unit of policy accommodation may diminish, not only in the euro area but across advanced economies (left chart, slide 6). The impact of monetary policy is also likely to be state contingent, with policy most effective in deep recessions (right chart, slide 6).
At the same time, the potential costs in terms of financial stability or income and wealth inequality may increase.
The outcome of such proportionality assessment can influence the choice and design of our measures, as well as the intensity with which they are used.
For example, the exclusion of household mortgages from the loans eligible under the targeted longer-term refinancing operations (TLTRO) aims to avoid fuelling house prices. Similarly, the two-tier system of reserves helps to protect the bank lending channel by mitigating the impact of negative interest rates on banks’ profitability.
Monetary policy at the effective lower bound
The second block of our strategy offers solutions to overcome the challenges of protecting price stability in the vicinity of the lower bound. Our review revealed that the presence of the effective lower bound gives rise to three broad requirements for effective macroeconomic stabilisation: an expanded monetary policy toolkit, a changed reaction function and a different macroeconomic policy mix.
A broader toolkit for the future
The ECB responded to the advent of the effective lower bound by substantially expanding its toolkit.
Our review suggests that these additional measures have been effective in stimulating growth and inflation despite a persistent lack of underlying price pressure.
There is compelling empirical evidence that negative interest rates, forward guidance, longer-term refinancing operations and asset purchases have contributed, individually and collectively, to easing the relevant financing conditions for firms and households loosening the constraints on monetary policy imposed by the lower bound on conventional interest rate policies.
For example, since the ECB brought its deposit facility rate into negative territory in 2014, the euro area GDP-weighted sovereign yield curve, which is a good summary indicator of the stance, has shifted measurably lower, and has flattened considerably (left chart, slide 7).
Broader financial conditions in the euro area, too, currently stand close to historically favourable levels (right chart, slide 7).
Our review has also shown that there is no compelling evidence suggesting that inflation has systematically become less responsive to economic activity.
While the euro area Phillips curve is relatively flat, staff analysis shows that its slope has not – in a statistically relevant way – become flatter over time and that economic slack and inflation co-move as expected by economic theory (left chart, slide 8).
Instead, Phillips curve models point to other factors – likely related to structural trends like digitalisation, globalisation and demographic change – putting persistent downward pressure on underlying inflation in recent years, even as slack receded (right chart, slide 8).
While this vindicates the medium-term orientation of our strategy, it also means that, in the vicinity of the lower bound, we can rely on a much broader set of instruments to protect our primary mandate.
We have therefore decided that the range of policy instruments used over the last few years will remain part of our toolkit in the future too, meaning they should no longer be regarded as “unconventional”.
Looking ahead, new and untested instruments will be used if needed and as appropriate.
Especially forceful or persistent action close to the lower bound
The constraints imposed by the effective lower bound affect not only the choice of instruments but also the way they are used.
Because central banks have a limited ability to lower rates deep into negative territory, disinflationary shocks close to the lower bound risk not being fully offset, thereby potentially becoming a more persistent drag on growth, prices and wages over time.
In view of these risks, the Governing Council clarified in its strategy statement that when the economy is close to the lower bound, monetary policy needs to respond especially forcefully or persistently to avoid negative deviations from the inflation target becoming entrenched in expectations.
We also clarified that this may imply a transitory period in which inflation is moderately above 2%. In practice, inflation overshoots may be the result of the Governing Council exercising patience in adjusting its policy stance when faced with an improving outlook.
A long period of low price pressures, and years of repeated overprediction of the future path of inflation, require that higher inflation prospects need to be visibly reflected in actual underlying inflation dynamics before they warrant a more fundamental reassessment of the medium-term inflation outlook.[4]
An appropriate policy mix at the lower bound
The third implication of the lower bound is that – in a world where the observed decline in real interest rates limits the extent to which central banks can stabilise the economy in the wake of demand-side shocks – fiscal and monetary policy need to complement each other.
The past decade suggests that the failure of inflation to accelerate more forcefully in the euro area is also the result of inadequate support from fiscal policy.[5] Before the pandemic hit, and despite weak demand, the euro area primary balance was positive and mostly growing in all years after 2014 (left chart, slide 9). Public investment fell rather than rose (right chart, slide 9).
A public sector that is largely insensitive to interest rate changes significantly reduces the effectiveness of monetary policy, in particular in the euro area where governments account for nearly half of total spending. An unresponsive fiscal authority also disregards the broad empirical evidence that fiscal policy is particularly effective at the lower bound.
While in normal times the stabilisation role of fiscal policy can be largely confined to the operation of automatic stabilisers, countercyclical discretionary fiscal policy is crucial in crisis times and in the proximity of the lower bound.
The policy response to the pandemic is a remarkable showcase for the power of monetary and fiscal policy interaction to boost confidence, stabilise aggregate demand and avoid a persistent destabilisation of medium to long-term inflation expectations.
Preconditions for price stability
The third building block of our new strategy recognises that some areas merit particular attention in the pursuit of price stability over the medium term.
One is financial stability, which can pose severe risks to price stability, as shown vividly by the global financial crisis. Another is climate change, which is increasingly threatening price stability through both physical and transition risks.
Financial stability and price stability
Our revised framework explicitly recognises potential financial stability risks that may come with our policy measures, in particular with a more forceful or persistent policy response close to the lower bound.
Specifically, in addition to our economic analysis, our price stability assessment and proportionality analysis will now be based on a revised monetary and financial analysis that recognises that financial stability is a precondition for price stability (slide 10), and that macroprudential policies do not yet offer effective protection.
The focus of this analysis will be on the monetary policy transmission mechanism, in particular via the bank lending, risk-taking and asset pricing channels, and will systematically evaluate the longer-term build-up of financial vulnerabilities and imbalances and their possible implications for future tail risks to output and inflation.
Assigning a more prominent role to financial stability does not mean that the Governing Council will conduct policies of “leaning against the wind”, whereby monetary policy is systematically tightened when systemic risk builds up, or of “cleaning”, whereby monetary policy is systematically loosened when systemic risk materialises.
It rather means that we will follow a flexible approach in accounting for financial stability considerations, which is consistent with the medium-term orientation of our strategy.
Climate change and price stability
While the revised monetary and financial analysis will give more room for financial stability considerations, the enhanced economic analysis will give greater prominence to structural trends and their implications for inflation, potential output and the equilibrium real rate of interest (slide 10).[6]
One of the most important structural trends facing humankind in the 21st century is climate change and the economy’s transition to carbon neutrality.
In our strategy review, we analysed in depth the profound implications of physical and transition risks from climate change for both price and financial stability, as well as for the transmission of monetary policy and the value and the risk profile of the assets held on the Eurosystem’s balance sheet.
We acknowledged the growing evidence pointing towards climate change-related risks that could materialise much faster than previously expected. In fact, the physical damages of climate change are already clearly visible (slide 11). Just how severely our lives and economies will be affected by climate change in the future depends on our determination to take decisive global policy action today.
While governments and parliaments have the primary responsibility to act on climate change, the ECB, within its mandate, recognises the need to further incorporate climate considerations into its policy framework.
We have therefore committed to an ambitious climate-related action plan that will be consistent with our price stability objective and guided by market efficiency considerations.[7]
The focus of our activities will be, among other things, on two broad areas.
First, we will significantly enhance our analytical and macroeconomic modelling capacities and develop statistical indicators to measure the carbon footprint of financial institutions, as well as their exposures to climate-related risks, and to foster our understanding of the macroeconomic impact of climate change and carbon transition policies.
Second, we will adapt the design of our monetary policy operational framework.
For example, we will introduce disclosure requirements for private sector assets as a new eligibility criterion, or as a basis for a differentiated treatment, for collateral and asset purchases. We will also consider climate-change risks when reviewing the valuation and risk control frameworks for assets mobilised as collateral.
And we will adjust the framework guiding the allocation of corporate bond purchases to incorporate climate change criteria. These will include the alignment of issuers with the Paris agreement through climate change-related metrics or commitments of the issuers to such goals, with a view to reducing the emission bias induced by the current market neutrality principle in our corporate bond portfolio (slide 12).
Conclusion
Let me conclude.
Our strategy review has been a long journey. We have taken stock of how the ongoing secular changes in our economies and societies affect the conduct of monetary policy and our ability to protect price stability in the euro area in such circumstances.
Many elements of our monetary policy strategy have been vindicated by the events of the past two decades. Our shock-based medium-term orientation, for example, has avoided unnecessary volatility in economic activity at times of rising inflation and supported incomes and wages in the face of disinflationary shocks.
Other elements of our strategy have been challenged and required adaptation in the light of the changed macroeconomic landscape that implies a higher probability of hitting the lower bound in the future.
To avoid that low inflation becomes entrenched in expectations and activity, we have changed our definition of price stability to a clear and symmetric 2% target in the medium term. We have also clarified that, when our policy rates are close to the lower bound, we intend to react especially forcefully or persistently to disinflationary shocks. This may also imply a transitory period in which inflation is moderately above target.
Our revised framework explicitly takes into account the potential risks that a prolonged period at, or close to, the lower bound may entail for financial stability and other considerations relevant for medium-term price stability. A revised monetary and financial analysis will facilitate a more systematic evaluation of potential financial vulnerabilities in the future.
Finally, in recognition of the exceptional risks that climate change poses to welfare, growth and price stability, and with a view to accelerating the transition to a more sustainable economy, we have committed to a comprehensive climate-related action plan that will culminate in broad changes to our monetary policy implementation framework.
In a rapidly changing world, and given the potentially significant structural changes that the end of the pandemic may unleash, we intend to assess periodically the appropriateness of our monetary policy strategy, with the next assessment expected in 2025.
Thank you.
Compliments of the European Central Bank.

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Interview with Christine Lagarde, President of the ECB, conducted by Martin Arnold on 11 July 2021 |
It is only a few days since you announced a new strategy. How will this change the ECB?
I think what has changed is how we define price stability and while in the past, we had this vaguely ambiguous and a little bit complex “below, but close to, two per cent”, we now have what I would call a simple, solid, symmetric two per cent target. So we express very firmly that we are determined to deliver two per cent. I think that is a big change.
Number one, it is simple. So we do away with the perceptions, the ambiguity, the variations between what some see as 1.7, others as 1.95. It’s two per cent and it is simple. It is solid because it gives us space to manoeuvre our monetary policy, it is a well-accepted measurement of price stability around the world and it limits the welfare cost of too high inflation.
And maybe the really important third “s” is symmetry, because we affirm very clearly that there may be deviations up or down, either below or above two per cent and we state that we consider both deviations up or down as equally undesirable. At the same time, we know that it’s not going to be a straight two per cent linearly forever once we reach the target and we’ll recognise that it will oscillate around two per cent.
And finally, we also acknowledge and draw the conclusion from the constraints resulting from the effective lower bound, and we know that as we are close to the effective lower bound, it will require an especially forceful or persistent monetary policy response. So those two qualifiers are very important: an especially forceful reaction or a persistent reaction because we are close to the effective lower bound.
So that’s what has changed from a pure monetary policy point of view. I have also some other changes on my mind. And you can obviously understand that having inserted climate change as one of the key components that we take into account going forward is important, is important to us all, because it was unanimously agreed. But it was important to me as one of the goals I had.
It has been an 18-month process and you have done a lot of work and heard from a lot of people. What are the main lessons you’ve drawn from the strategy review?
There are two lessons that I draw from that process. One is that process matters. And bringing together staff from the entire euro system was important, taking time and making sure that we actually spent a full day, sometimes more, with all Governing Council members able to respond, to react, to internalise, to convince all other members of their views and to arrive at some collective thinking. In my view, this was decisive in making sure that we had turned every stone − as I had committed to at the beginning − and that all voices were heard.
Second, we made a point of listening to the people, which I don’t think had ever happened before. So throughout Europe, in 19 countries, and certainly at the ECB, we conducted what we called − copycatting the Fed a little − the ECB Listens. There were multiple events that took place in various countries. I know that, France, for instance, has had 19 different events, not only to listen to what people thought, to hear their concerns, but also to try to explain what monetary policy was doing and what contribution it made to the economy, to investment, to employment with the overarching goal of price stability. So that was a real learning experience for all of us, I think, to understand the Europeans’ concern about monetary policy, what it does, what inflation means to them, what links there are with unemployment, which was a big concern.
What were their biggest concerns?
During the events that I participated in myself, and I heard it from other governors, key concerns revolved around, number one, climate change. Why aren’t you doing more about climate change? Why are you financing some segments of the corporate sector that are not respecting the commitments of the Paris accord or that have no concern for the planet? That we heard loud and clear. The second concern that we heard loud and clear as well, was housing costs. Housing costs us a lot, we Europeans, and this was the case in many countries. Why is it not more taken into account in your measurement of inflation? And that led us to do two things. One is to identify a technical and statistical path to better including housing costs in the Harmonised Index of Consumer Prices (HICP), which is not something that we are responsible for, but that we can recommend and encourage, which is what we’ve done. It would be for Eurostat to hopefully deliver. But second, because we know it’s going to take time, we also agreed to take into account alternative measurements, alternative indexes that are not necessarily published in the same rhythm and in the same sequences as HICP, but which will also inform our decision-making process. Those are the two major, strong inputs that we received from the ECB Listens events.
By ditching the inflation target of below two per cent and diluting the importance of its monetary analysis, are you breaking the final links to the old Bundesbank strategy that shaped the creation of the euro? 
No, I think what we tried to do with the strategy review was to really adapt the ECB to a world that had changed significantly in the last 20 years. The strategy review was not a random or tantrum decision on my part. It was the acknowledgement that since 2003, the world had changed a lot. You know, the natural interest rate, the equilibrium rate had gone down. A lot of factors were having an impact that probably was not as strong in 2003, let alone in 1999 when the euro was launched. So demographics took not a new turn – because it’s a long trend – but certainly became more salient. Productivity was clearly affected as a result of the various crises and the saving trend and behaviour – all that has changed since 2003. And it required that we had a fresh look at the strategy of the central bank to make it fit for purpose for the current circumstances. And I think it’s also a recognition that circumstances will continue to change, possibly at an accelerated pace because of the digital revolutions that will be accelerated because of the greening of our economies that need to take place. It’s in recognition of that, that we agreed that the strategy would have to be looked at again and reassessed in 2025.
Does the new strategy make the ECB more accommodative than it was previously? 
I think the new strategy gives us the ability to be flexible around two per cent, because we recognise that two per cent is not a ceiling and we recognise that there will be oscillation around two per cent. It is more flexible in that we recognise the effect of the effective lower bound and the constraints that it imposes on us. And we define very clearly with the especially forceful or persistent response and the strong response that we are prepared to give. And we also accept that it may imply on a transitory basis, moderate deviations above the target. So in that sense, it is more flexible.
Second, we also recognise the effectiveness of all the tools that we have in the toolbox. And that is not just the first and foremost and traditional tool of the ECB interest rates. But we recognise the effectiveness of those other tools that we had to invent over the course of the last ten years, which are forward guidance, asset purchase programmes, targeted longer-term refinancing operations and negative interest rates. So in that way, I’m not saying that it is more accommodative, but I’m saying that the tools are there and, if they need to be used, we recognise their effectiveness and the fact that some of them, given the effective low bound that we are close to, will have to continue being used.
Do you think the new two per cent target and the acceptance of some overshooting of it in certain circumstances mean that you will be more patient before raising rates in the future, even when you hit your inflation target in the medium term?
I think that what we will have to do now is redefine our forward guidance to align it with the strategy review. When we say that our response has to be especially forceful or persistent, I think persistent is precisely intended to signal that we will not prematurely tighten. But that will have to be a little bit clarified in the forward guidance that we will revise shortly in order to align it with the strategy review. But the use of “persistent” is an indication that there cannot be premature monetary tightening as we have seen it in the past.
That word “persistent” does seem to be key. So do you think it will feature in your forward guidance?
The forward guidance will have to align with the strategy, as we have agreed upon. I’m sure that we will try to shed some light while reserving enough judgement, discretion and capacity to adapt to circumstances. But I don’t want to prejudge on that because that’s going to be debated around 21 and 22 July.
Critics say that the new strategy has done nothing to convince them you’re better equipped to hit your new target more than you have done in the past. Why should they believe you this time? 
Three points. One is we will remove any ambiguity. Below, but close to, two per cent is ambiguous. You can sit down on either side of 1.8 or 1.7 or 1.9. And those decimals actually matter. So we remove the ambiguity. It’s two per cent full stop. Second, I think our commitment is strongly affirmed. We are committed to delivering on our target, which is two per cent. The strategy, which I regard as a sort of constitutional foundational framework chart for future monetary policy determination, is a strong signal. We are all on the same page. There’s a unanimous agreement. There is a total consensus around that foundational document, that constitution of ours. And third, there is also a commitment to better communicate around the strategy review, which I hope we are doing, but also to better communicate on an ongoing basis so that the ambiguity that we have removed from the “below, but close to” does not resurface with ambiguous communication. So I think that, of course, proof of the pudding will be in the eating, but we need to be very clear in our communication of our commitment to deliver our 2 per cent target
The first test will be in changing your forward guidance in just over a week and a half. 
It will be tested every six weeks from now on. But I’m not under the illusion that every six weeks we will have unanimous consent and universal acceptance because there will be some variations, some slightly different positioning. And that is fine.
The ECB said in its strategy review that it discussed new instruments. Did you discuss things like buying other types of assets, like equities and bank bonds, or even doing direct distributions of cash like helicopter money? 
As I said, we tried to leave no stone unturned, so out of intellectual integrity, we looked at the whole range of anything that you can think of. But that was as part of the intellectual exercise of looking at the whole realm of possibilities. But it didn’t go further than that.
Did you reach any conclusions on the possibility of those being in your tool box at a future date? 
We certainly concluded that all the unconventional and new instruments were actually part of the toolbox and could be used under the circumstances of the effective lower bound and the need to be persistent in our response.
Did you assess as part of the review whether further loosening of monetary policy is less effective when interest rates are already at or close to their effective lower bound? What was your conclusion? 
What we reaffirmed very clearly is the principle of proportionality, of measuring the efficiency, the effectiveness, of calculating the possible side effects and doing what I call a cost-benefit analysis. We are committed to doing it each and every time, as we should. And that was the high-level strategy platform that we agreed on. It’s then a monetary policy decision, a mechanism to actually apply that reasoning to each and every tool that we possibly recalibrate one way or the other.
People have said your new strategy doesn’t mention the elephant in the room, which is fiscal policy. Why not come out and say that to hit your inflation target you need more help from fiscal policy, for instance, a permanent borrowing facility at the EU level and more flexible fiscal rules at the EU? 
It is actually extensively mentioned, but not in the two-pager. In the 15-page accompanying document, you have quite a bit on fiscal policy and on the close bond between fiscal policy and monetary policy. And, yes, you’re completely right that in this environment of low interest rates and when there is the slack that we still have, fiscal policies are very effective and fiscal multipliers are higher and both of them working in tandem is actually much more efficient. So it is not that we were completely oblivious to the fiscal policy impact. Quite the contrary, we did actually have one special seminar on fiscal and monetary policy and there is a lot of hard work that was put into it.
A big worry for some Governing Council members is monetary financing and the idea that you will end up being unable to tighten policy when needed, even under your new strategy, because it would be too painful for the heavily indebted countries of southern Europe in particular. Did you examine this potential problem in the review? 
This is a matter that was obviously raised and discussed when we looked at fiscal and monetary policy and how one actually multiplies or leverages the other, and how different it has been this time around from the great financial crisis and the immediate years after that. I think there are sufficient safeguards both on the monetary front and on the fiscal front and obviously, they’re going to return and come back into the debate on the fiscal front in particular. But as far as monetary policy is concerned, we have a clear and unambiguous prohibition to do monetary financing. And we have to absolutely respect that, whatever format, whatever clothes it takes. Equally, on the fiscal front, there are many safeguards that have been put in place that have been escaped from over the last couple of years and will continue to be escaped from until the end of 2022, but will come back in some shape or form in order to protect from this monetary financing.
Do you have a view on the shape of the EU fiscal rules when they are reintroduced? This debate has already started in Brussels. Do you want to contribute? 
If we are asked for our views, we will certainly communicate them. And I think we have in the past already. But we are certainly keen that whatever is built is simple, easy to measure, countercyclical and comes soon enough so that governments and investors actually know where they stand in terms of the framework within which fiscal policies will be exercised. I think we’ve also been known to argue that a good euro area budget is certainly a step in the right direction in order to complete the monetary union by giving it a fiscal arm as well. But this is not really a decision that belongs to central banks. It is something that is going to belong to the governments of the 19 Member States.
Your new strategy includes “the recognition that financial stability is a precondition for price stability”. Does that mean that if we have another shock in the future and spreads widened dramatically in government debt markets, we could count on the ECB to do whatever it takes to combat that. 
We have demonstrated that in the past, and we certainly fought against the risk of fragmentation simply because we want our monetary policy to be properly transmitted throughout the entire euro area. So if that was to happen again, we would certainly take the measures in order to protect the transmission of our monetary policy and set aside that risk of fragmentation. In the words of one of my predecessors, the euro is irrevocable and monetary policy has to be channelled through all corners of the euro area.
What is the goal of your climate action plan? Is it to guard against the risks of climate change for the ECB’s own balance sheet and the wider financial system? Or do you have broader ambitions to act as a catalyst for making Europe a greener place? 
Both. It’s clear that, from a risk management point of view, we just have to change the way in which we operate by better analysing, better advising and being active in relation to our own portfolio and our own eligibility criteria when it comes to accepting collateral. So it’s on all three fronts. The analytical work that we do has to factor in climate change in a much deeper and better way. The advice that we give, in particular through ECB Banking Supervision, has to embed climate change concerns and alert the banks with which we work to the risks that they are facing. And we’ve very recently done a lot of climate change testing and scenario analysis using the Network for Greening the Financial System scenarios to really understand, and help the banks understand, where there is exposure and how concentrated it is. And we have to act. We started on our non-monetary policy portfolio. We are going to extend that.
We are not going to invent the information and disclosure requirements. We are not going to be able to actually assess the transition plans. And there will be lots of efforts that will be required by the standard setters, by the auditors, by the accounting firms and all the rest of it. But we also have to be, together with these others, at the forefront and not three steps behind. And if we signal that strongly enough, then we certainly operate as a catalyst force. When you set eligibility criteria, it’s a bit of a signal.
There are growing tensions in the Governing Council, particularly over the pace of your emergency bond purchases. How long can you preserve this unity that you have managed to construct, not least by sitting down with all your fellow Governing Council members to watch the football and by going on retreats to the Taunus hills? 
I neither have the expectation nor the illusion that we will be unanimous on all the decisions that we make. As I said, I regard the strategy review as foundational. The agreed framework within which we are going to weave our policy responses over the course of the next five years, and that’s why it mattered so much to me. That’s why we went to the Taunus retreat and spent two days hammering out some of those issues and why we watched football together. Yes, that’s true. But the weaving of monetary policy within that framework is going to take multiple colours. So unanimous agreement on each and every weaving moment is not a requirement. The more we can agree, the broader the agreement, the better. I think we should really not undermine or underrate those keywords that we have, which is this especially forceful or persistent reaction, the recognition of the constraint, this sort of gravitational force exercised by the effective lower bound that we have to resist, and the transitory period during which we recognise that our policies may imply a moderate deviation above target.
On those keywords, how key is the word “or”? Why not say especially forceful “and” persistent monetary policy action?
I think it’s the recognition of the effective lower bound. The “especially forceful” is if the economy is facing an adverse shock. So in the face of the adverse shock, you have this especially forceful reaction because you don’t want to be trapped. But recognising that close to the effective lower bound you need to be even longer in the game, that’s why you say “persistent”.
Do you think that you are already forceful enough because you’re clearly close to the lower bound? Or is it now just a question of being persistent and you’ll get there?
It’s being persistent. It’s being very attentive to the next projection and how both headline, core and other indicators of inflation and inflation expectations will be delivering, to see that the persistence we have demonstrated is actually moving the needle.
The new strategy says you will “continue to respond flexibly to new challenges as they arise”. Does this mean that you want to preserve some of the added flexibility of the PEPP, your pandemic emergency purchase programme, after it ends, for instance, on issuer limits and also on buying non-investment grade securities like Greek bonds? 
This is not something that we debated as part of the strategy review. We will discuss those matters because they will matter when we get closer to the end of PEPP, but this has not been a strategy review topic.
We’ve seen record rises in house prices in many European countries and many countries in the world. At what point could the risk of a housing bubble and bubbles in other asset markets lead to changes in monetary policy? 
It really depends on what we see. And while there are cities, in particular in some countries where housing prices have gone up significantly and are a concern for people, we don’t see it on average across the euro area. We will include housing prices through alternative indexes into our assessment of overall inflation.
The cost of owning a house, not house prices, right? 
We will include the consumption part of owning a house. So we will not include the investment part.
There is still much to be decided on how you implement the strategy isn’t there?
Sure, and it will be a constant effort every six weeks. But I tell you, it’s been a very interesting process, sometimes laborious, but every bit of it was helpful and conducive to this result.
Compliments of the European Central Bank.
The post ECB | Interview with Financial Times: Christine Lagarde first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Blog post by Fabio Panetta, Member of the Executive Board of the ECB |

We are entering the age of digital money. Much like commodity or representative money in the past, digital money is emerging in response to changes in society and technology.
Today, digitalisation is reaching all areas of our lives. The coronavirus (COVID-19) pandemic has shown just how fast such change can happen. And this is affecting the way we pay. We are increasingly buying digitally and online. The role of cash as a means of payment is declining.
Private solutions for digital and online payments bring important benefits such as convenience, speed and efficiency. But they also pose risks in terms of privacy, safety and accessibility. And they can be expensive for some users. Digital payments are still used more by consumers with higher incomes, whereas the preference for cash is higher among those with lower incomes, reflecting its essential role for financial inclusion.
Central banks cannot ignore these developments. Over many centuries, the sovereign has provided its own currency to citizens as a symbol of stability, safety and trust. Providing money as a public good is central to the mission of central banks.
Given the digital transformation under way, which has the potential to transform the payments landscape and even the entire financial system, central banks must be bold and keep up with the pace of change.
Today, the Governing Council of the European Central Bank has therefore decided to formally launch a project to get ready for the possible issuance of a digital euro. In concrete terms, this means that we will commit the resources necessary to design a marketable product. But a decision about whether or not to issue a digital euro will only come at a later stage. And in any event, a digital euro would complement cash, not replace it.
The launch of this project today follows on from the exploratory work we have done so far.
Our first step – the Eurosystem’s report on a digital euro – laid the groundwork and identified the rationale for potentially issuing a digital euro.[1]
People living in the euro area have costless access to a safe and universally accepted means of payment in the form of cash. But this should also be true for digital and online payments. A digital euro would reduce the cost of transactions. It would foster financial inclusion by aiming to make digital payments available to those who currently don’t have access to financial services. And it would enable users to make their purchases across all outlets and countries in the euro area.
A digital euro would also provide safety. Just like cash, a digital euro would be a direct claim on the central bank and would therefore have no risk – no liquidity risk, no credit risk, no market risk.
Being offered by the central bank – which has no commercial interest in monetising the data of users – the digital euro would help to protect people’s privacy against commercial usage or unjustified intrusion. An appropriate, transparent governance set-up that complies with European regulation on data protection would further guarantee that users’ personal data are only accessible to legitimate authorities, with a view to preventing illicit activities such as money laundering or terrorist financing.
A digital euro would level the playing field and encourage innovation by enabling competing providers – large and small – to build on it. By providing services with “digital euro inside”, European intermediaries would be in a position to strengthen the services they offer to their customers and stay competitive even as global tech giants expand into payments and financial services. And central bank money would remain at the heart of the payment system, strengthening Europe’s autonomy in the age of digital money.
Our second step, after publishing the Eurosystem report, was to hold a public consultation. We received a record level of feedback, revealing a considerable interest from Europeans in these potential benefits. It also showed that the most important features of a digital euro for households and firms are privacy, security and broad usability.[2]
In parallel, together with the national central banks (NCBs) of the euro area, we conducted experimental work to assess the technological feasibility of a digital euro.
Our experimentation revealed that existing infrastructure, such as that used by the Eurosystem for instant payments – TARGET Instant Payment Settlement (TIPS) –, as well as distributed ledger technology, could be scaled up to process the roughly 300 billion retail transactions carried out in the euro area each year.
This experimental work also allowed us to identify possible options to protect privacy, ranging from segregating data to using cryptographic techniques.
And finally, our experiments showed that the energy needed by the settlement infrastructure we used is negligible compared with the energy consumption and environmental footprint of crypto-assets such as bitcoin, which uses more electricity than Greece or Portugal alone[3].
A summary of the main findings of our experimentation has been published today[4], and the detailed results will be shared by the NCBs in the coming weeks.
But while all these steps have shed light on the possibilities of a digital euro, many questions still need to be answered.
Money and payments permeate our everyday lives and underpin the economy. Any changes stemming from technological innovation, if not properly designed, can become a source of disruption for our financial systems, economies and societies.
Designing a new form of central bank money will involve defining operational and technological requirements and identifying the preferable options. For example, between possible ways to ensure that the digital euro is used as a means of payment rather than as a form of investment, with a view to preserving financial stability. Or between a centralised ledger, which could be easier and more efficient to handle, a distributed ledger, which may be better suited to peer-to-peer transactions, and/or local storage on a user’s device, which would enable offline payments. These aspects all have a bearing on one another. Making a coherent set of choices will be key to a smoothly functioning system.
This is the backdrop to our decision to launch a digital euro project, starting with two years of investigative work on the design that a digital euro should have. It will involve focus groups, interaction with financial intermediaries, prototyping and conceptual work. We will engage with all stakeholders. And we will continue to interact closely with other European institutions to define the necessary legislative framework. The European Parliament, the European Commission, the European Council and the Eurogroup have all recognised the importance of the digital euro for an innovative financial sector and resilient payment systems, and they have encouraged the Eurosystem to continue its work.[5]
Our aim is to be ready, at the end of these two years, to start developing a digital euro, which could take around three years.
A digital euro will be successful if it adds value for everybody involved – citizens, merchants and financial intermediaries. We want to design the digital euro to be such a success.
The Eurosystem will drive this project forwards with the necessary degree of caution, inherent in our mandate to provide stability – both monetary and financial. But we will not shy away from writing this new page of European progress.
Compliments of the European Central Bank.

The post ECB | Preparing for the euro’s digital future first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Today, the European Commission adopted a package of proposals to make the EU’s climate, energy, land use, transport and taxation policies fit for reducing net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. Achieving these emission reductions in the next decade is crucial to Europe becoming the world’s first climate-neutral continent by 2050 and making the European Green Deal a reality. With today’s proposals, the Commission is presenting the legislative tools to deliver on the targets agreed in the European Climate Law and fundamentally transform our economy and society for a fair, green and prosperous future.
A comprehensive and interconnected set of proposals
Today’s proposals will enable the necessary acceleration of greenhouse gas emission reductions in the next decade. They combine: application of emissions trading to new sectors and a tightening of the existing EU Emissions Trading System; increased use of renewable energy; greater energy efficiency; a faster roll-out of low emission transport modes and the infrastructure and fuels to support them; an alignment of taxation policies with the European Green Deal objectives; measures to prevent carbon leakage; and tools to preserve and grow our natural carbon sinks.

The EU Emissions Trading System (ETS) puts a price on carbon and lowers the cap on emissions from certain economic sectors every year. It has successfully brought down emissions from power generation and energy-intensive industries by 42.8% in the past 16 years. Today the Commission is proposing to lower the overall emission cap even further and increase its annual rate of reduction. The Commission is also proposing to phase out free emission allowances for aviation and align with the global Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) and to include shipping emissions for the first time in the EU ETS. To address the lack of emissions reductions in road transport and buildings, a separate new emissions trading system is set up for fuel distribution for road transport and buildings. The Commission also proposes to increase the size of the Innovation and Modernisation Funds.
To complement the substantial spending on climate in the EU budget, Member States should spend the entirety of their emissions trading revenues on climate and energy-related projects. A dedicated part of the revenues from the new system for road transport and buildings should address the possible social impact on vulnerable households, micro-enterprises and transport users.
The Effort Sharing Regulation assigns strengthened emissions reduction targets to each Member State for buildings, road and domestic maritime transport, agriculture, waste and small industries. Recognising the different starting points and capacities of each Member State, these targets are based on their GDP per capita, with adjustments made to take cost efficiency into account.
Member States also share responsibility for removing carbon from the atmosphere, so the Regulation on Land Use, Forestry and Agriculture sets an overall EU target for carbon removals by natural sinks, equivalent to 310 million tons of CO2 emissions by 2030. National targets will require Member States to care for and expand their carbon sinks to meet this target. By 2035, the EU should aim to reach climate neutrality in the land use, forestry and agriculture sectors, including also agricultural non-CO2 emissions, such as those from fertiliser use and livestock. The EU Forest Strategy aims to improve the quality, quantity and resilience of EU forests. It supports foresters and the forest-based bioeconomy while keeping harvesting and biomass use sustainable, preserving biodiversity, and setting out a plan to plant three billion trees across Europe by 2030.
Energy production and use accounts for 75% of EU emissions, so accelerating the transition to a greener energy system is crucial. The Renewable Energy Directive will set an increased target to produce 40% of our energy from renewable sources by 2030. All Member States will contribute to this goal, and specific targets are proposed for renewable energy use in transport, heating and cooling, buildings and industry. To meet both our climate and environmental goals, sustainability criteria for the use of bioenergy are strengthened and Member States must design any support schemes for bioenergy in a way that respects the cascading principle of uses for woody biomass.
To reduce overall energy use, cut emissions and tackle energy poverty, the Energy Efficiency Directive will set a more ambitious binding annual target for reducing energy use at EU level. It will guide how national contributions are established and almost double the annual energy saving obligation for Member States. The public sector will be required to renovate 3% of its buildings each year to drive the renovation wave, create jobs and bring down energy use and costs to the taxpayer.
A combination of measures is required to tackle rising emissions in road transport to complement emissions trading. Stronger CO2 emissions standards for cars and vans will accelerate the transition to zero-emission mobility by requiring average emissions of new cars to come down by 55% from 2030 and 100% from 2035 compared to 2021 levels. As a result, all new cars registered as of 2035 will be zero-emission. To ensure that drivers are able to charge or fuel their vehicles at a reliable network across Europe, the revised Alternative Fuels Infrastructure Regulation will require Member States to expand charging capacity in line with zero-emission car sales, and to install charging and fuelling points at regular intervals on major highways: every 60 kilometres for electric charging and every 150 kilometres for hydrogen refuelling.
Aviation and maritime fuels cause significant pollution and also require dedicated action to complement emissions trading. The Alternative Fuels Infrastructure Regulation requires that aircraft and ships have access to clean electricity supply in major ports and airports. The ReFuelEU Aviation Initiative will oblige fuel suppliers to blend increasing levels of sustainable aviation fuels in jet fuel taken on-board at EU airports, including synthetic low carbon fuels, known as e-fuels. Similarly, the FuelEU Maritime Initiative will stimulate the uptake of sustainable maritime fuels and zero-emission technologies by setting a maximum limit on the greenhouse gas content of energy used by ships calling at European ports.
The tax system for energy products must safeguard and improve the Single Market and support the green transition by setting the right incentives. A revision of the Energy Taxation Directive proposes to align the taxation of energy products with EU energy and climate policies, promoting clean technologies and removing outdated exemptions and reduced rates that currently encourage the use of fossil fuels. The new rules aim at reducing the harmful effects of energy tax competition, helping secure revenues for Member States from green taxes, which are less detrimental to growth than taxes on labour.
Finally, a new Carbon Border Adjustment Mechanism will put a carbon price on imports of a targeted selection of products to ensure that ambitious climate action in Europe does not lead to ‘carbon leakage’. This will ensure that European emission reductions contribute to a global emissions decline, instead of pushing carbon-intensive production outside Europe. It also aims to encourage industry outside the EU and our international partners to take steps in the same direction.

These proposals are all connected and complementary. We need this balanced package, and the revenues it generates, to ensure a transition which makes Europe fair, green and competitive, sharing responsibility evenly across different sectors and Member States, and providing additional support where appropriate.
A Socially Fair Transition
While in the medium- to long-term, the benefits of EU climate policies clearly outweigh the costs of this transition, climate policies risk putting extra pressure on vulnerable households, micro-enterprises and transport users in the short run. The design of the policies in today’s package therefore fairly spreads the costs of tackling and adapting to climate change.
In addition, carbon pricing instruments raise revenues that can be reinvested to spur innovation, economic growth, and investments in clean technologies. A new Social Climate Fund is proposed to provide dedicated funding to Member States to help citizens finance investments in energy efficiency, new heating and cooling systems, and cleaner mobility. The Social Climate Fund would be financed by the EU budget, using an amount equivalent to 25% of the expected revenues of emissions trading for building and road transport fuels. It will provide €72.2 billion of funding to Member States, for the period 2025-2032, based on a targeted amendment to the multiannual financial framework. With a proposal to draw on matching Member State funding, the Fund would mobilise €144.4 billion for a socially fair transition.
The benefits of acting now to protect people and the planet are clear: cleaner air, cooler and greener towns and cities, healthier citizens, lower energy use and bills, European jobs, technologies and industrial opportunities, more space for nature, and a healthier planet to hand over to future generations. The challenge at the heart of Europe’s green transition is to make sure the benefits and opportunities that come with it are available to all, as quickly and as fairly as possible. By using the different policy tools available at EU level we can make sure that the pace of change is sufficient, but not overly disruptive.
Background
The European Green Deal, presented by the Commission on 11 December 2019, sets the goal of making Europe the first climate-neutral continent by 2050. The European Climate Law, which enters into force this month, enshrines in binding legislation the EU’s commitment to climate neutrality and the intermediate target of reducing net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels.The EU’s commitment to reduce its net greenhouse gas emissions by at least 55% by 2030 was communicated to the UNFCCC in December 2020 as the EU’s contribution to meeting the goals of the Paris Agreement.
As a result of the EU’s existing climate and energy legislation, the EU’s greenhouse gas emissions have already fallen by 24% compared to 1990, while the EU economy has grown by around 60% in the same period, decoupling growth from emissions. This tested and proven legislative framework forms the basis of this package of legislation.
The Commission has conducted extensive impact assessments before presenting these proposals to measure the opportunities and costs of the green transition. In September 2020 a comprehensive impact assessment underpinned the Commission’s proposal to increase the EU’s 2030 net emissions reduction target to at least 55%, compared to 1990 levels. It showed that this target is both achievable and beneficial. Today’s legislative proposals are supported by detailed impact assessments, taking into account the interconnection with other parts of the package.
The EU’s long-term budget for the next seven years will provide support to the green transition. 30% of programmes under the €2 trillion 2021-2027 Multiannual Financial Framework and NextGenerationEU are dedicated to supporting climate action; 37% of the €723.8 billion (in current prices) Recovery and Resilience Facility, which will finance Member States’ national recovery programmes under NextGenerationEU, is allocated to climate action.
Members of the College said:
President of the European Commission, Ursula von der Leyen, said: “The fossil fuel economy has reached its limits. We want to leave the next generation a healthy planet as well as good jobs and growth that does not hurt our nature. The European Green Deal is our growth strategy that is moving towards a decarbonised economy. Europe was the first continent to declare to be climate neutral in 2050, and now we are the very first ones to put a concrete roadmap on the table. Europe walks the talk on climate policies through innovation, investment and social compensation.”
Executive Vice-President for the European Green Deal, Frans Timmermans, said: “This is the make-or-break decade in the fight against the climate and biodiversity crises. The European Union has set ambitious targets and today we present how we can meet them. Getting to a green and healthy future for all will require considerable effort in every sector and every Member State. Together, our proposals will spur the necessary changes, enable all citizens to experience the benefits of climate action as soon as possible, and provide support to the most vulnerable households. Europe’s transition will be fair, green and competitive.
Commissioner for Economy, Paolo Gentiloni, said: “Our efforts to tackle climate change need to be politically ambitious, globally coordinated and socially fair. We are updating our two-decades old energy taxation rules to encourage the use of greener fuels and reduce harmful energy tax competition. And we are proposing a carbon border adjustment mechanism that will align the carbon price on imports with that applicable within the EU. In full respect of our WTO commitments, this will ensure that our climate ambition is not undermined by foreign firms subject to more lax environmental requirements. It will also encourage greener standards outside our borders. This is the ultimate now or never moment. With every passing year the terrible reality of climate change becomes more apparent: today we confirm our determination to act before it is really too late.”
Commissioner for Energy, Kadri Simson, said: “Reaching the Green Deal goals will not be possible without reshaping our energy system – this is where most of our emissions are generated. To achieve climate-neutrality by 2050, we need to turn the renewables evolution into a revolution and make sure no energy is wasted along the way. Today’s proposals set more ambitious targets, remove barriers and add incentives so that we move even faster towards a net-zero energy system.”
Commissioner for Transport, Adina Vălean, said: “With our three transport-specific initiatives – ReFuel Aviation, FuelEU Maritime and the Alternative Fuels Infrastructure Regulation – we will support the transport sector’s transition into a future-proof system. We will create a market for sustainable alternative fuels and low-carbon technologies, while putting in place the right infrastructure to ensure the broad uptake of zero-emission vehicles and vessels. This package will take us beyond greening mobility and logistics. It is a chance to make the EU a lead-market for cutting-edge technologies.”
Commissioner for Environment, Oceans and Fisheries, Virginijus Sinkevičius, said: “Forests are a big part of the solution to many of the challenges we face in tackling climate and biodiversity crises. They are also key to delivering the EU’s 2030 climate targets. But current conservation status of forests is not favourable in the EU. We must increase the use of biodiversity-friendly practices and secure the health and resilience of forest ecosystems. The Forest Strategy is a real game changer in the way we protect, manage and grow our forests, for our planet, people and the economy.”
Commissioner for Agriculture, Janusz Wojciechowski, said: “Forests are essential in the fight against climate change. They also provide jobs and growth in rural areas, sustainable material to develop the bioeconomy, and valuable ecosystem services to our society. The Forest Strategy, by addressing the social, economic and environmental aspects all together, aims at ensuring and enhancing the multifunctionality of our forests and highlights the pivotal role played by millions of foresters working on the grounds. The new Common Agricultural Policy will be an opportunity for more targeted support to our foresters and to the sustainable development of our forests”.
Compliments of the European Commission.
The post European Green Deal: EU Commission proposes transformation of EU economy and society to meet climate ambitions first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Main results
Infographic – Recovery fund: the EU delivers
See full infographic
Ministers focused on the economic recovery. They adopted the first set of Council implementing decisions on the approval of 12 national recovery and resilience plans.
Austria, Belgium, Denmark, France, Germany, Greece, Italy, Latvia, Luxembourg, Portugal, Slovakia and Spain can now sign grant and loan agreements and start receiving funds from the EU’s Recovery and Resilience Facility.
Ministers also exchanged views on the further implementation of the Recovery and Resilience Facility. The Facility will make available a total of €672.5 billion in grants and loans for reforms and investments in member states. The use of funds will boost the recovery after the COVID-19 pandemic and support the EU’s climate transition and digital transformation.

Today we have excellent news for the Europe’s recovery. We approved the first set of implementing decisions on national recovery and resilience plans. 12 member states can now sign the financing agreements and get the funds to power the recovery. By focusing our reforms and investments on green and digital targets, we can emerge from the crisis stronger. This is an unprecedented opportunity to reshape our economy and make it more resilient for the future.
Andrej Šircelj, Slovenia’s Minister for Finance

Council gives green light to first recovery disbursements (press release, 13 July 2021)
A recovery plan for Europe (background information and timeline)
Financing the climate transition (policy page)

European Semester
Ministers approved conclusions on the 2021 in-depth reviews for 12 member states in the context of the European Semester. The reviews are part of the macroeconomic imbalances procedure and build on the alert mechanism report for 2021.

Council conclusions on the 2021 in-depth reviews (press release, 13 July 2021)
European Semester in 2021 (background information and timeline)

Other business
The Slovenian presidency presented its work programme in the field of economy and finance for July-December 2021. Ministers held a general discussion on the recent EU sustainable finance strategy and the proposal for an EU green bond standard. The presidency also presented the state of play of the financial services legislative proposals.
Ministers were informed of the outcomes of the G20 finance ministers and the Central Bank governors meeting of 9-10 July 2021.
Compliments of the European Commission.
The post Economic and Financial Affairs Council first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The European Commission welcomes the historic global agreement endorsed by G20 Finance Ministers and Central Bank Governors on July 10, which will bring fairness and stability to the international corporate tax framework. This unprecedented consensus will usher in a complete reform of the international corporate tax system. This will include a reallocation of taxing rights that will mean the world’s largest companies will have to pay tax wherever they conduct business. At the same time, a global minimum effective tax rate of at least 15% will help curb aggressive tax planning and stop the corporate tax “race to the bottom.”
European Commissioner for Economy Paolo Gentiloni, who is taking part in the discussions in Venice today, said: “The G20 has today endorsed the unprecedented global agreement on corporate tax reform reached last week and now supported by 132 jurisdictions. A bold step has been taken, one that few would have thought possible just a few months ago. This is a victory for tax fairness, for social justice and for the multilateral system. But our work is not done. We have until October to finalise this agreement. I am optimistic that we will be able in that time also to reach a consensus among all European Union Member States on this crucial issue.”
The work under the auspices of the Organization for Economic Co-operation and Development (OECD) Inclusive Framework focuses on two main issues:

Adapting the international rules on how the taxation of corporate profits is shared amongst countries, to reflect the changing nature of business models, including the ability of companies to do business without a physical presence. Under the new rules, a share of the excess profits of the largest, most profitable Multinational Enterprises (MNEs) would be redistributed to market jurisdictions, where consumers or users are located.
Ensuring that multinational businesses are subject to a minimum effective level of tax on all of their profits each year. This will be set at a rate of at least 15%, and would apply to all multinational groups making more than EUR 750 million in combined financial revenues.

The technical details of the agreement will be negotiated in the coming months with a view to bringing all 139 Inclusive Framework members to a final agreement in October. Once there is a consensus-based global agreement on both Pillars, the Commission will move swiftly to propose measures for their implementation in the EU, in line with the EU’s tax agenda and the needs of the Single Market.
Compliments of the European Commission.
The post Taxation: Historic global agreement to ensure fairer taxation of multinational enterprises first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The European economy is forecast to rebound faster than previously expected, as activity in the first quarter of the year exceeded expectations and the improved health situation prompted a swifter easing of pandemic control restrictions in the second quarter.
Faster economic growth as economies reopen and sentiment indicators brighten
According to the Summer 2021 interim Economic Forecast, the economy in the EU and the euro area is set to expand by 4.8% this year and 4.5% in 2022. Compared to the previous forecast in the spring, the growth rate for 2021 is significantly higher in the EU (+0.6 pps.) and the euro area (+0.5 pps.), while for 2022 it is slightly higher in both areas (+0.1 pp.). Real GDP is projected to return to its pre‑crisis level in the last quarter of 2021 in both the EU and the euro area. For the euro area, this is one quarter earlier than expected in the Spring Forecast.
Growth is expected to strengthen due to several factors. First, activity in the first quarter of the year exceeded expectations. Second, an effective virus containment strategy and progress with vaccinations led to falling numbers of new infections and hospitalisations, which in turn allowed EU Member States to reopen their economies in subsequent quarter. This reopening benefited service sector businesses in particular. Upbeat survey results among consumers and businesses as well as data tracking mobility suggest that a strong rebound in private consumption is already underway. In addition, there is evidence of a revival in intra-EU tourist activity, which should further benefit from the entry into application of the new EU Digital COVID Certificate as of 1 July. Together, these factors are expected to outweigh the adverse impact of the temporary input shortages and rising costs hitting parts of the manufacturing sector.
Private consumption and investment are expected to be the main drivers of growth, supported by employment that is expected to move in tandem with economic activity. Strong growth in the EU’s main trading partners should benefit EU goods exports, whereas service exports are set to suffer from remaining constraints to international tourism.
The Recovery and Resilience Facility (RRF) is expected to make a significant growth contribution. The total wealth generated by the RRF over the forecast horizon is expected to be approximately 1.2% of the EU’s 2019 real GDP. The expected size of its growth impulse remains roughly unchanged from the previous forecast, as information from the Recovery and Resilience Plans officially submitted in recent months broadly confirms the assessment made in the spring.
Inflation rates slightly higher, but moderating in 2022
The forecast for inflation this year and next has also been revised higher. Rising energy and commodity prices, production bottlenecks due to capacity constraints and the shortage of some input components and raw materials, as well as strong demand both at home and abroad are expected to put upward pressure on consumer prices this year. In 2022, these pressures should moderate gradually as production constraints are resolved and supply and demand converge.
Accordingly, inflation in the EU is now forecast to average 2.2% this year (+0.3 pps. compared to the Spring Forecast) and 1.6% in 2022 (+0.1 pps). In the euro area, inflation is forecast to average 1.9% in 2021 (+ 0.2 pps.) and 1.4% in 2022 (+0.1 pps.).
Substantial risks
Uncertainty and risks surrounding the growth outlook are high, but remain overall balanced.
The risks posed by the emergence and spread of COVID-19 virus variants underscore the importance of further picking up the pace up of vaccination campaigns. Economic risks relate in particular to the response of households and firms to changes in restrictions.
Inflation may turn out higher than forecast, if supply constraints are more persistent and price pressures are passed on to consumer prices more strongly.
Members of the College said:
Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People said: “The European economy is making a strong comeback with all the right pieces falling into place. Our economies have been able to reopen faster than expected thanks to an effective containment strategy and progress with vaccinations. Trade has held up well, and households and businesses have also proven to be more adaptable to life under COVID-19 than expected. After many months of restrictions, consumer confidence and tourism are both on the up, though the threat of new variant will have to be carefully managed to make travel safe. This encouraging forecast is also thanks to the right policy choices having been made at the right time, and it factors in the major boost that the Recovery and Resilience Facility will deliver to our economies over the coming months. We will have to keep a close eye on rising inflation, which is due not least to stronger domestic and foreign demand. And, as always, we need to be mindful of disparities: some Member States will see their economic output return to their pre-crisis levels already by the third quarter of 2021 – a real success – but others will have to wait longer. Supportive policies must continue as long as needed and countries should gradually move to more differentiated fiscal approaches. In the meantime, there must be no let-up in the race to get Europeans vaccinated so we can keep variants at bay.”
Paolo Gentiloni, Commissioner for Economy said: “The EU economy is set to see its fastest growth in decades this year, fuelled by strong demand both at home and globally and a swifter-than-expected reopening of services sectors since the spring. Thanks also to restrictions in the first months of the year having hit economic activity less than projected, we are upgrading our 2021 growth forecast by 0.6 percentage points. That is the highest upward revision we have made in more than 10 years and is in line with firms’ confidence reaching a record high in recent months. With the Recovery and Resilience Facility taking off, Europe has a unique opportunity to open a new chapter of stronger, fairer and more sustainable growth. To keep the recovery on track, it is essential to maintain policy support as long as needed. Crucially, we must redouble our vaccination efforts, building on the impressive progress made in recent months: the spread of the Delta variant is a stark reminder that we have not yet emerged from the shadow of the pandemic.”
Background
This forecast is based on a set of technical assumptions concerning exchange rates, interest rates and commodity prices with a cut-off date of 26 June. For all other incoming data, including assumptions about government policies, this forecast takes into consideration information up until and including 28 June. Unless new policies are credibly announced and specified in adequate detail, the projections assume no policy changes.
The European Commission publishes two comprehensive forecasts (spring and autumn) and two interim forecasts (winter and summer) each year. The interim forecasts cover annual and quarterly GDP and inflation for the current and following year for all Member States, as well as EU and euro area aggregates.
The European Commission’s next economic forecast will be the Autumn 2021 Economic Forecast which is scheduled to be published in November 2021.
For More Information
Full document: Summer 2021 Economic Forecast
Compliments of the European Commission.
The post Summer 2021 Economic Forecast: Reopening fuels recovery first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

There is a need to coordinate the large and growing number of international initiatives underway on addressing financial risks from climate change.
There is a growing focus on potential risks to financial stability from climate change. A large, and growing, number of international initiatives are underway on addressing financial risks from climate change. Ongoing work by official sector bodies, including the FSB, NGFS, BCBS, IAIS, IOSCO, OECD, IMF and World Bank, and a variety of private sector bodies on climate issues have been added to recently by the IFRS Foundation proposal to establish an International Sustainability Standards Board (ISSB), initially focused on climate-related reporting. More generally, climate topics are being given an important place in both the G20 and G7 agendas for 2021, and preparations are underway for COP26.
This roadmap for addressing climate-related financial risks, which has been prepared in consultation with standard-setting bodies (SSBs) and other relevant international bodies, supports international coordination in several ways.

It promotes relevant initiatives at standard-setting bodies, the NGFS and other international organisations.
By presenting relevant ongoing and planned international work in one place, it helps to identify gaps to be covered by further work, limit overlap and promote synergies.
It sketches out how the FSB can serve as a forum for discussing cross-sectoral and systemic issues and agreeing a way forward.
It provides input into broader international policy considerations by facilitating communication with the G20, G7 and COP26.

All this supports the consistency of actions to be taken over the coming years, enhances authorities’ ability to address financial stability risks and reduces the risk of harmful market fragmentation.
The roadmap focuses on work to assess and address financial risks of climate change through four main, interrelated areas: firm-level disclosures; data; vulnerabilities analysis and regulatory and supervisory tools.
The FSB roadmap sets out a comprehensive and coordinated plan for addressing climate-related financial risks, including steps and indicative timeframes needed to do so, and paves the way for implementation. It will be delivered to the G20 Finance Ministers and Central Bank Governors meeting in July 2021.
Compliments of the Financial Stability Board.
The post FSB roadmap for addressing climate-related financial risks first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Previously published in the “Irish Times” |
The UK’s EU negotiator and its Secretary of State for Northern Ireland published a remarkable article in the “Irish Times “ last week.
They complained of what they called the “inflexible requirement to treat movement of goods( from Britain) into Northern Ireland, as if they were crossing an EU external frontier, with the full panoply of checks and controls”.
It appears that they never read the Ireland/Northern Ireland Protocol which is part of the Agreement under which the UK withdrew from the EU. For this is precisely what the UK agreed to, in great detail, in the Protocol.
Annex 2 of this Protocol lists the EU laws which are to apply “in and to the UK in respect of Northern Ireland”.
The very first item on this very long list is Customs Code of the EU. This is a rigorous code with exacting procedures, as the UK knows well.
Also listed are EU laws on the collection of trade statistics, product safety, electrical equipment, medical products, food safety and hygiene, GMOs and animal diseases. The list is specific. It refers to each item of EU legislation by its full title.
The UK is fully familiar with all the legislation in the Annex, because the UK, as an EU member state at the time, took part in drafting each one of these laws. It also had a reputation as a country that applied EU laws more conscientiously than most.
These controls have to be enforced somewhere. This can be done either at a land border or at a sea border.
The UK Ministers , writing in the “Irish Times”, say preventing a hard land border on the island of Ireland remains essential.
So, if the controls are not to be exercised on the land border in Ireland, where do the UK Ministers propose to exercise them?
The two Ministers make no attempt to answer this question. They offer no constructive suggestions at all, apart from using slogans like “balance” and “flexibility” in the implementation of the very precise laws listed in the Protocol.
The Ministers do not attempt to deal with the requirements for protecting Ireland’s position as a member of the EU Single Market. They do not deal with the possibility that, if the parts or ingredients, that do not meet EU standards, can come into Northern Ireland, cross the border, and thus become incorporated in an EU supply chain originating here, our position as part of the EU Single Market is undermined. It would not be long before there would be calls from continental competitors for checks on goods originating in Ireland at continental ports and airports. All that would be needed to set that off would be a single event, perhaps to do with a scandal over food standards.
Let us not forget that the current UK government has said that they propose to diverge from EU standards in future. Indeed Boris Johnson said divergence is the “whole point” of Brexit. UK standards may be similar to ours now. That will not be the case five years from now.
At the end of the article, the two Ministers say that, if solutions are not found (although they do not offer any), “we will of course have to consider all our options”.
In diplomatic terms, for British Ministers to use such words, in an Irish newspaper, is menacing.
A large non EU state is threatening a small EU state, with whom it has a land boundary, with unspecified actions, because of the out working of an international Treaty, to which the larger state freely agreed, less than two years ago.
Nowhere in the article by the two Ministers is there even a hint that they take responsibility for the Protocol they themselves negotiated. If a business man agreed a permanent contrast a year or so ago, then did not like part of it, and wanted to renegotiate that part, one would expect him to be somewhat apologetic and to offer alternative ways of achieving the goals of the other party. But there was no hint of either contrition, or constuctiveness, in the article of Lord Frost and Brandon Lewis….just menace.
It is clear from the article of the two Ministers that they have no intention of using the grace period as intended by the EU, to allow traders to make adjustments to their supply chains.  They intend to use the time inciting feeling against the EU and endeavouring to pressurize EU states individually, in the hope that the EU will dilute or corrode the legal foundations of EU Single Market, in the interest of domestic UK politics.
There are suggestions that the UK even wants the EU to recognise  the new goods standards the UK will make, as somehow “equivalent” to EU standards, and give them the same rights to circulate in the EU as goods from the 27 EU states, that comply to the letter with EU standards. A dangerous precedent would be set. If the EU conceded this to a country that had left the EU, existing EU members would soon look for their own local exceptions to EU standards, and the Single market would wither away.
Brexit was a British idea. Brexit means border controls. They should deal with the logical consequences of their own freely chosen policies.
Author:

John Bruton, Former Taoiseach & Former EU Ambassador to the US

Compliments of John Bruton.
The post John Bruton | Are we heading for a car crash outcome on the NI Protocol? first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.