The European Commission is in charge of ensuring that State aid granted by Member States complies with EU rules. At the heart of this responsibility lies the notification procedure, under which Member States have to notify any planned aid measures to the Commission before putting them into effect. Therefore, generally, aid measures can only be implemented after approval by the Commission.
The General Block Exemption Regulation (“GBER”) introduces an important exception to the obligatory notification procedure. It declares specific categories of State aid compatible with the Treaty if they fulfil certain conditions and it exempts these categories from the requirement of prior notification to the Commission. By doing so, it allows Member States to implement public support measures directly, without prior Commission approval.
The European Commission has further widened the scope of the General Block Exemption Regulation. The new rules concern:

Aid granted through national funds for projects also supported under certain EU centrally managed programmes;
State aid to support the twin transition to a green and digital economy that will, at the same time, help the recovery from the effects of the coronavirus pandemic.

Please see also the related press release.
What is the General Block Exemption Regulation?
The 2014 ‘General Block Exemption Regulation‘ exempts certain categories of State aid from the requirement of prior notification to the Commission, when the benefits to society outweigh the possible distortions of competition that the aid may cause to the Single Market. State aid measures that meet the criteria of the Regulation can be implemented by Member States directly, without prior Commission approval. As a result, more than 96% of new of state aid measures implemented by Member States are now exempted.
The criteria set out in the General Block Exemption Regulation determine, in particular, eligible beneficiaries, maximum aid intensities (i.e. the maximum proportion of the eligible costs of a project that can benefit from State aid), aid amounts and eligible expenses. These criteria are derived from the Commission’s market experience and decision-making practice.
The fact that a State aid measure does not meet the criteria of the General Block Exemption Regulation does not mean that it is incompatible with EU state aid rules. It only means that the measure must be notified (prior to its implementation) to the Commission, which will then assess whether the State aid can be approved under other EU State aid rules.
Why has the Commission amended the General Block Exemption Regulation?
The aim of the current extension of the General Block Exemption Regulation is, firstly, to improve the interplay between EU funding rules under the new Multiannual Financial Framework (“MFF” the “budget” of the EU) on the one hand and EU State aid rules on the other hand. With this extension, the Commission, also introduces further possibilities for Member States to provide State aid to support the recovery from the economic impact of the coronavirus pandemic in a sustainable and resilient way without prior notification.
As regards the first aspect, the GBER extension aligns EU funding rules and EU State aid rules in certain areas. This will reduce unnecessary complexities, for example by allowing Member States to rely on the assessment of projects already carried out at EU-programme level, rather than having to carry out a separate assessment for State aid purposes when combining with national funding or funding under shared management programmes. At the same time, the rules ensure that competition in the EU Single market is preserved, amongst others by ensuring that public funding addresses market failures, does not crowd out private investments and is limited to the minimum necessary to achieve the public policy goals.
The extension of the GBER introduces new rules in the following areas:

Financing and investment operations supported by the InvestEU Fund;
Research, Development and Innovation (RD&I);
European Territorial Cooperation (ETC) projects, also known as Interreg;

In addition to these areas, the revision also introduces new block exemptions for European Innovation Partnership for agricultural productivity and sustainability (‘EIP’), and Operational Group projects or community-led local development (‘CLLD’) projects.
Furthermore, the extension of the GBER provides for additional possibilities for Member States to support the transition to a green and digital economy in a way that will speed up their economic recovery from the coronavirus pandemic. This will allow for the quick implementation, without prior notification to the Commission, of crucial State aid measures that will accelerate the twin transition and, at the same time, the recovery from the economic effects of the pandemic in a sustainable and resilient way. For this purpose, the rules in the following areas have been revised:

Aid for energy efficiency projects in buildings;
Aid for publicly accessible electric recharging and hydrogen refuelling infrastructure for road vehicles;
Aid for fixed broadband networks, 4G and 5G mobile networks, certain trans-European digital connectivity infrastructure projects and certain vouchers.

What are the main new elements of the General Block Exemption Regulation?
The amendment of the General Block Exemption Regulation (“GBER”) provides new rules to: (i) accompany the new Multiannual Financial Framework; (ii) support the twin transition to a green and digital economy and (iii) the recovery from the economic effects of the coronavirus pandemic.

1. Measures to accompany the new Multiannual Financial Framework:

New rules for State aid involved in the implementation of the new InvestEU program
The aim of the InvestEU Fund is to provide for an EU guarantee to support financing and investment operations to address specific market failures and mobilise additional private and public investment in support of the Union’s internal policies. Member States have a possibility to contribute their resources to the EU guarantee under the Member State compartment and/or to finance financial products via national promotional banks or other public finance institutions under the support of the InvestEU Fund.
Financial products supported by the InvestEU Fund may involve funds controlled by Member States, including Union shared management funds, contributions stemming from the Recovery and Resilience Facility (“RRF”), or other contributions by Member States, in order to increase leverage and support additional investments in the Union. For instance, Member States have the possibility of contributing a part of Union shared management funds or Recovery and Resilience Facility resources to the Member State compartment of the EU guarantee. Moreover, Member States can finance financial products backed by the InvestEU Fund through their own funds or national promotional banks. The GBER amendment introduces block exemptions for situations where such funding constitutes State aid and will, thereby, improve the interplay between the InvestEU Fund and State aid rules. This will facilitate the deployment of Member States’ resources to finance the target investments under the support of the InvestEU Fund, while at the same time ensuring that potential competition distortions are minimised.
The amendment introduces two new block exemptions, catering for the following scenarios:

The first (general) scenario provides for eligibility and exclusion criteria for the final recipients, as well as maximum financing amounts for a wide range of different policy areas (broadband; energy generation and infrastructure; social, educational, cultural and natural heritage infrastructure and activities; transport and transport infrastructures; other infrastructures than transport; environmental protection, including climate protection; research, development, innovation and digitalisation). The scenario provides for additional possibilities for block exempting aid for SMEs and small mid-caps, even beyond the listed policy areas.
The second scenario applies to financial products supporting smaller financing (up to €7.5 million per beneficiary), provided to final recipients by commercial financial intermediaries which retain some risk exposure. There will be no limitations (“eligibility criteria”) for final recipients under this scenario, except for the exclusion of large firms in financial difficulties.

New rules in the area of Research, Development and Innovation:
The GBER amendment will facilitate the way in which centrally managed funding from Horizon Europe can be combined or, in cases of projects having received a Seal of Excellence, substituted with national funding. Following a detailed mapping exercise of the different sets of rules, the amendment aligns certain aspects of State aid rules, on the one hand, and Horizon Europe on the other. This will prevent potential discrepancies that could cause delays or difficulties in the roll-out of R&D&I funding under the new Multiannual Financial Framework.
More concretely, the amendment provides for exemptions to the notification obligation and of the requirement to carry out at national level an assessment of the quality of an R&D&I project already assessed under the rules established under Horizon 2020 and Horizon Europe programmes in the following areas:

Aid for SMEs for research and development projects as well as feasibility studies awarded a Seal of Excellence quality label under the Horizon 2020 or the Horizon Europe programme;
Aid for Marie Skłodowska-Curie actions and ERC Proof of Concept actions awarded a Seal of Excellence quality label under the Horizon 2020 or the Horizon Europe programme;
Aid provided to a co-funded research and development project or a feasibility study implemented by at least three Member States, or alternatively two Member States and at least one associated country, and selected on the basis of the evaluation and ranking made by independent experts following trans-national calls, in line with the Horizon 2020 or Horizon Europe programme rules;
Aid provided to co-funded Teaming actions, involving at least two Member States and selected on the basis of the evaluation and ranking made by independent experts following transnational calls under the Horizon 2020 or the Horizon Europe programme rules.

New rules for European Territorial Cooperation (also known as “Interreg”)
The promotion of European Territorial Cooperation (“ETC”) projects has been an important priority in the EU’s Cohesion policy for many years. Under State aid rules, a block exemption for aid provided in the context of such ETC projects already existed. Given the experience gained in the area, the GBER amendment extends the possibilities for providing aid to ETC projects in two ways:

The already existing block exemption, which was limited to aid being provided to SMEs, is extended to allow aid to be provided also to large companies without prior notification;
In addition, a new, simplified, block exemption for very small amounts of aid provided to ETC projects is introduced (up to €20 000 per beneficiary per project).

New rules for European Innovation Partnership for agricultural productivity and sustainability (‘EIP’) Operational Group projects and community-led local development (‘CLLD’) projects
The amendment introduces new block exemptions for SMEs participating in community-led local development (‘CLLD’) projects, designated as LEADER (“Liaison Entre Actions de Développement de l’Économie Rurale”) projects for local development under the European Agricultural Fund for Rural Development, or European Innovation Partnership (‘EIP’) for agricultural productivity and sustainability Operational Group projects.
In addition to a general provision, spelling out eligible costs and maximum aid intensities, the amendment introduces a simplified block exemption for small amounts of funding per project, not exceeding €200.000 for CLLD projects and €350.000 for EIP Operational Group projects.
2. Measures to support the twin transition to a green and digital economy as well as the recovery from the economic effects of the coronavirus pandemic
The GBER extension revises and provides block exemptions in areas that are key to the transition to a green and digital economy. The measures Member States will be implementing under these new rules will, at the same time, help to implement their Recovery and Resilience Plans (in particular under the European Flagships “renovate”, “recharge and refuel” and “connect”), as well as other measures taken at national level to support the recovery from the economic effects of the coronavirus pandemic, in a fast and streamlined manner.
Aid for energy efficiency measures in buildings
The amendment simplifies the rules for State aid for energy efficiency measures in buildings by:

simplifying the way of calculating the eligible costs for certain categories of buildings, including residential buildings;
including a new possibility of combining aid for energy efficiency measures in those buildings with aid for on-site renewable energy installations, storage facilities for the renewable energy produced, equipment and infrastructures for the recharging of electric vehicles and investments in the digitalisation of the building;
including a new possibility allowing for the aid measures to also relate to the facilitation of energy performance contracts.

Aid for publicly accessible recharging or refuelling infrastructure for zero and low emission road vehicles
The amendment introduces a new block exemption for aid for publicly accessible recharging or refuelling infrastructure for the supply of electricity and hydrogen to zero and low emission road vehicles for transport purposes. This will facilitate aid for comprehensive networks of such infrastructures in the Member States far beyond what was possible under the GBER rules in place until today (under which only aid for local measures was block exempted and larger networks of recharging and refuelling infrastructures were subject to a notification procedure and prior approval by the Commission).
Aid for broadband infrastructures
In order to facilitate the digital transition, including in the context of the recovery, the amendment also revises the rules on aid for broadband infrastructures:

Revision of the rules for fixed broadband networks:

The amendment allows aid for investments in fixed broadband networks in the following cases:

to connect households and socio-economic drivers in areas where there is no network able to reliably provide speeds of at least 30 Mbps download present or credibly planned to be deployed within three years from the moment of publication of the planned aid measure or within the same timeframe as the deployment of the subsidised network;
to connect households and socio-economic drivers in areas where there is no network able to reliably provide speeds of at least 100 Mbps download present or credibly planned to be deployed within three years from the moment of publication of the planned aid measure or within the same timeframe as the deployment of the subsidised network; and
to connect only socio-economic drivers in areas where there is only one network able to reliably provide speeds of at least 100 Mbps download, but below 300 Mbps download, present or credibly planned to be deployed within three years from the moment of publication of the planned aid measure or within the same timeframe as the deployment of the subsidised network.

Introduction of new rules for aid for 4G and 5G mobile networks;
Introduction of new rules for aid for projects of common interest in the area of trans-European digital connectivity infrastructure; and
Introduction of new rules for aid schemes for certain vouchers for consumers in order to facilitate teleworking, online education, training services, or for SMEs.

Are there any other measures contained in the amendment that could facilitate the application of State aid rules during the ongoing coronavirus pandemic?
The coronavirus pandemic continues to significantly affect undertakings in the EU. In response to the pandemic, the Commission adopted temporary rules in March 2020, (“Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak”, as amended on 2 April 2020, 8 May 2020, 29 June 2020, 13 October 2020 and 28 January 2021) to give Member States a flexible framework to support their economies. One aspect of these temporary rules is that companies that were not in difficulty before 31 December 2019, but became undertakings in difficulties during the pandemic, are eligible for State aid under the temporary rules (while under normal circumstances, such undertakings in difficulty would be excluded from most categories of State aid).
To ensure consistency across EU State aid rules, the prolongation of the General Block Exemption Regulation adopted on 27 July 2020 introduced an exception to the general rule that excludes any undertakings in difficulty from receiving block exempted aid. This exception was applicable to companies that became undertakings in difficulty in the period from 1 January 2020 until 30 June 2021.
Since the coronavirus pandemic is, however, still ongoing, and given that the Temporary Framework in the meantime has been prolonged until 31 December 2021, the current amendment prolongs until 31 December 2021 the exception allowing undertakings in difficulty to receive aid block exempted under the General Block Exemption Regulation.
This means that, following the amendment, undertakings that were not in difficulty on 31 December 2019 but became undertakings in difficulty during the period from 1 January 2020 to 31 December 2021 are exceptionally eligible for aid under the General Block Exemption Regulation.
What are the next steps?
The amending Regulation will enter into force on the third day after its publication in the Official Journal of the European Union. The amending Regulation is available here.
Compliments of the European Commission
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Christine Lagarde, President of the ECB, Luis de Guindos, Vice-President of the ECB | Frankfurt am Main, 22 July 2021 |
Good afternoon, the Vice-President and I welcome you to our press conference.
At today’s meeting, the Governing Council focused on two main topics: first, the implications of our strategy review for our forward guidance on the key ECB interest rates; and, second, our assessment of the economy and our pandemic measures.
In our recent strategy review, we agreed a symmetric inflation target of two per cent over the medium term. Our policy rates have been close to their lower bound for some time and the medium-term outlook for inflation is still well below our target. In these conditions, the Governing Council today revised its forward guidance on interest rates. We did so to underline our commitment to maintain a persistently accommodative monetary policy stance to meet our inflation target.
In support of our symmetric two per cent inflation target and in line with our monetary policy strategy, the Governing Council expects the key ECB interest rates to remain at their present or lower levels until we see inflation reaching two per cent well ahead of the end of our projection horizon and durably for the rest of the projection horizon, and we judge that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target.
Let me turn to the assessment of the economic outlook and our pandemic measures.
The recovery in the euro area economy is on track. More and more people are getting vaccinated, and lockdown restrictions have been eased in most euro area countries. But the pandemic continues to cast a shadow, especially as the delta variant constitutes a growing source of uncertainty. Inflation has picked up, although this increase is expected to be mostly temporary. The outlook for inflation over the medium term remains subdued.
We need to preserve favourable financing conditions for all sectors of the economy over the pandemic period. This is essential for the current rebound to turn into a lasting expansion and to offset the negative impact of the pandemic on inflation. Therefore, having confirmed our June assessment of financing conditions and the inflation outlook, we continue to expect purchases under the pandemic emergency purchase programme (PEPP) over the current quarter to be conducted at a significantly higher pace than during the first months of the year.
We also confirmed our other measures to support our price stability mandate, namely the level of the key ECB interest rates, our purchases under the asset purchase programme (APP), our reinvestment policies and our longer-term refinancing operations, as detailed in the press release published at 13:45 today. We stand ready to adjust all of our instruments, as appropriate, to ensure that inflation stabilises at our two per cent target over the medium term.
I will now outline in more detail how we see the economy and inflation developing, and then talk about our assessment of financial and monetary conditions.
Economic activity
The economy rebounded in the second quarter of the year and, as restrictions are eased, is on track for strong growth in the third quarter. We expect manufacturing to perform strongly, even though supply bottlenecks are holding back production in the near term. The reopening of large parts of the economy is supporting a vigorous bounce-back in the services sector. But the delta variant of the coronavirus could dampen this recovery in services, especially in tourism and hospitality.
As people return to shops and restaurants and resume travelling, consumer spending is rising. Better job prospects, increasing confidence and continued government support are reinforcing spending. The ongoing recovery in domestic and global demand is boosting optimism among businesses. This supports investment. For the first time since the start of the pandemic, our bank lending survey indicates that funding of fixed investment is an important factor driving the demand for loans to firms.
We expect economic activity to return to its pre-crisis level in the first quarter of next year. But there is still a long way to go before the damage to the economy caused by the pandemic is offset. The number of people in job retention schemes has been declining but remains high. Overall, there are still 3.3 million fewer people employed than before the pandemic, especially among the younger and lower skilled.
Ambitious, targeted and coordinated fiscal policy should continue to complement monetary policy in supporting the recovery. In this context, the Next Generation EU programme has a key role to play. It will contribute to a stronger and uniform recovery across euro area countries. It will also accelerate the green and digital transitions and support necessary structural reforms that lift long-term growth.
Inflation
Inflation was 1.9 per cent in June. We expect inflation to increase further over the coming months and to decline again next year. The current increase is largely being driven by higher energy prices and by base effects from the sharp fall in oil prices at the start of the pandemic and the impact of the temporary VAT reduction in Germany last year. By early 2022, the impact of these factors should fade out as they fall out of the year-on-year inflation calculation.
In the near term, the significant slack in the economy is holding back underlying inflationary pressures. Stronger demand and temporary cost pressures in the supply chain will put some upward pressure on prices. But weak wage growth and the past appreciation of the euro mean that price pressures will likely remain subdued for some time.
There is still some way to go before the fallout from the pandemic on inflation is eliminated. As the economy recovers, supported by our monetary policy measures, we expect inflation to rise over the medium term, although remaining below our target. While measures of longer-term inflation expectations have increased, they remain some distance from our two per cent target.
Risk assessment
We see the risks to the economic outlook as broadly balanced. Economic activity could outperform our expectations if consumers spend more than currently expected and draw more rapidly on the savings they have built up during the pandemic. A faster improvement in the pandemic situation could also lead to a stronger expansion than currently envisaged. But growth could underperform our expectations if the pandemic intensifies or if supply shortages turn out to be more persistent and hold back production.
Financial and monetary conditions
The recovery of growth and inflation still depends on favourable financing conditions. Market interest rates have declined since our last meeting. Financing conditions for most firms and households remain at favourable levels.
Bank lending rates for firms and households remain historically low. Firms are still well funded as a result of their borrowing in the first wave of the pandemic, which in part explains why lending to firms has slowed. By contrast, lending to households is holding up. Our most recent bank lending survey shows that credit conditions for both firms and households have stabilised. Liquidity remains abundant.
At the same time, the cost for firms of issuing equity is still high. Many firms and households have taken on more debt to weather the pandemic. Any worsening of the economy could therefore threaten their financial health, which could trickle through to the quality of banks’ balance sheets. It remains essential to prevent balance sheet strains and tightening financing conditions from reinforcing each other.
Conclusion
Summing up, the euro area economy is rebounding strongly. But the outlook continues to depend on the course of the pandemic and progress with vaccinations. The current rise in inflation is expected to be largely temporary. Underlying price pressures will likely increase gradually, although leaving inflation over the medium term still well below our target. Our policy measures, including our revised forward guidance, will help the economy shift to a solid recovery and, ultimately, bring inflation to our two per cent target.
We are now ready to take your questions.
Compliments of the European Central Bank.
The post ECB Press Conference | Christine Lagarde, Luis de Guindos: Monetary policy statement first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Read the letter from Mr Panetta to the European Data Protection Board on the privacy and data protection aspects of a possible digital euro here !
Compliments of the European Central Bank.
The post ECB | Privacy & data protection of a possible digital euro first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The European Commission has today presented an ambitious package of legislative proposals to strengthen the EU’s anti-money laundering and countering terrorism financing (AML/CFT) rules. The package also includes the proposal for the creation of a new EU authority to fight money laundering. This package is part of the Commission’s commitment to protect EU citizens and the EU’s financial system from money laundering and terrorist financing. The aim of this package is to improve the detection of suspicious transactions and activities, and to close loopholes used by criminals to launder illicit proceeds or finance terrorist activities through the financial system. As recalled in the EU’s Security Union Strategy for 2020-2025, enhancing the EU’s framework for anti-money laundering and countering terrorist financing will also help to protect Europeans from terrorism and organised crime.
Today’s measures greatly enhance the existing EU framework by taking into account new and emerging challenges linked to technological innovation. These include virtual currencies, more integrated financial flows in the Single Market and the global nature of terrorist organisations. These proposals will help to create a much more consistent framework to ease compliance for operators subject to AML/CFT rules, especially for those active cross-border.
Today’s package consists of four legislative proposals:

A Regulation establishing a new EU AML/CFT Authority;
A Regulation on AML/CFT, containing directly-applicable rules, including in the areas of Customer Due Diligence and Beneficial Ownership;
A sixth Directive on AML/CFT (“AMLD6”), replacing the existing Directive 2015/849/EU (the fourth AML directive as amended by the fifth AML directive), containing provisions that will be transposed into national law, such as rules on national supervisors and Financial Intelligence Units in Member States;
A revision of the 2015 Regulation on Transfers of Funds to trace transfers of crypto-assets (Regulation 2015/847/EU).

Members of the College said:
Valdis Dombrovskis, Executive Vice-President for an Economy that works for people, said: “Every fresh money laundering scandal is one scandal too many – and a wake-up call that our work to close the gaps in our financial system is not yet done. We have made huge strides in recent years and our EU AML rules are now among the toughest in the world. But they now need to be applied consistently and closely supervised to make sure they really bite. This is why we are today taking these bold steps to close the door on money laundering and stop criminals from lining their pockets with ill-gotten gains.”
Mairead McGuinness, Commissioner responsible for financial services, financial stability and Capital Markets Union said: “Money laundering poses aclear and present threat to citizens, democratic institutions, and the financial system. The scale of the problem cannot be underestimated and the loopholes that criminals can exploit need to be closed. Today’s package significantly ramps up our efforts to stop dirty money being washed through the financial system. We are increasing coordination and cooperation between authorities in member states, and creating a new EU AML authority. These measures will help us protect the integrity of the financial system and the single market.”
A new EU AML Authority (AMLA)
At the heart of today’s legislative package is the creation of a new EU Authority which will transform AML/CFT supervision in the EU and enhance cooperation among Financial Intelligence Units (FIUs). The new EU-level Anti-Money Laundering Authority (AMLA) will be the central authority coordinating national authorities to ensure the private sector correctly and consistently applies EU rules. AMLA will also support FIUs to improve their analytical capacity around illicit flows and make financial intelligence a key source for law enforcement agencies.
In particular, AMLA will:

establish a single integrated system of AML/CFT supervision across the EU, based on common supervisory methods and convergence of high supervisory standards;
directly supervise some of the riskiest financial institutions that operate in a large number of Member States or require immediate action to address imminent risks;
monitor and coordinate national supervisors responsible for other financial entities, as well as coordinate supervisors of non-financial entities;
support cooperation among national Financial Intelligence Units and facilitate coordination and joint analyses between them, to better detect illicit financial flows of a cross-border nature.

A Single EU Rulebook for AML/CFT
The Single EU Rulebook for AML/CFT will harmonise AML/CFT rules across the EU, including, for example, more detailed rules on Customer Due Diligence, Beneficial Ownership and the powers and task of supervisors and Financial Intelligence Units (FIUs). Existing national registers of bank accounts will be connected, providing faster access for FIUs to information on bank accounts and safe deposit boxes. The Commission will also provide law enforcement authorities with access to this system, speeding up financial investigations and the recovery of criminal assets in cross-border cases. Access to financial information will be subject to robust safeguards in Directive (EU) 2019/1153 on exchange of financial information.
Full application of the EU AML/CFT rules to the crypto sector
At present, only certain categories of crypto-asset service providers are included in the scope of EU AML/CFT rules. The proposed reform will extend these rules to the entire crypto sector, obliging all service providers to conduct due diligence on their customers. Today’s amendments will ensure full traceability of crypto-asset transfers, such as Bitcoin, and will allow for prevention and detection of their possible use for money laundering or terrorism financing. In addition, anonymous crypto asset wallets will be prohibited, fully applying EU AML/CFT rules to the crypto sector.
EU-wide limit of €10,000 on large cash payments
Large cash payments are an easy way for criminals to launder money, since it is very difficult to detect transactions. That is why the Commission has today proposed an EU-wide limit of €10,000 on large cash payments. This EU-wide limit is high enough not to put into question the euro as legal tender and recognises the vital role of cash. Limits already exist in about two-thirds of Member States, but amounts vary. National limits under €10,000 can remain in place. Limiting large cash payments makes it harder for criminals to launder dirty money. In addition, providing anonymous crypto-asset wallets will be prohibited, just as anonymous bank accounts are already prohibited by EU AML/CFT rules.
Third countries
Money laundering is a global phenomenon that requires strong international cooperation. The Commission already works closely with its international partners to combat the circulation of dirty money around the globe. The Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, issues recommendations to countries. A country that is listed by FATF will also be listed by the EU. There will be two EU lists, a “black-list” and a “grey-list, reflecting the FATF listing. Following the listing, the EU will apply measures proportionate to the risks posed by the country. The EU will also be able to list countries which are not listed by FATF, but which pose a threat to the EU’s financial system based on an autonomous assessment.
The diversity of the tools that the Commission and AMLA can use will allow the EU to keep pace with a fast-moving and complex international environment with rapidly evolving risks.
Next steps
The legislative package will now be discussed by the European Parliament and Council. The Commission looks forward to a speedy legislative process. The future AML Authority should be operational in 2024 and will start its work of direct supervision slightly later, once the Directive has been transposed and the new regulatory framework starts to apply.
Background
The complex issue of tackling dirty money flows is not new. The fight against money laundering and terrorist financing is vital for financial stability and security in Europe. Legislative gaps in one Member State have an impact on the EU as a whole. That is why EU rules must be implemented and supervised efficiently and consistently to combat crime and protect our financial system. Ensuring the efficiency and consistency of the EU AML framework is of the utmost importance. Today’s legislative package implements the commitments in our Action Plan for a comprehensive Union policy on preventing money laundering and terrorism financing which was adopted by the Commission on 7 May 2020.
The EU framework against money laundering also includes the regulation on the mutual recognition of freezing and confiscation orders, the directive on combating money laundering by criminal law, the directive laying down rules on the use of financial and other information to combat serious crimes,  the European Public Prosecutor’s Office, and the European system of financial supervision.
Compliments of the European Commission.
The post Beating financial crime: EU Commission overhauls anti-money laundering and countering the financing of terrorism rules first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The European Commission kick-starts today two new Industrial Alliances: the Alliance for Processors and Semiconductor technologies, and the European Alliance for Industrial Data, Edge and Cloud.
The two new alliances will advance the next generation of microchips and industrial cloud/edge computing technologies and provide the EU with the capabilities needed to strengthen its critical digital infrastructures, products and services. The alliances will bring together businesses, Member State representatives, academia, users, as well as research and technology organisations.
Margrethe Vestager, Executive Vice-President for a Europe fit for the Digital Age, said: “Cloud and edge technologies present a tremendous economic potential for citizens, businesses and public administrations, for example in terms of increased competitiveness and meeting industry-specific needs. Microchips are at the heart of every device we use nowadays. From our mobile phones to our passports, these small components bring a wealth of opportunities for technological advancements. Supporting innovation in these critical sectors is therefore crucial and can help Europe leap ahead together with like-minded partners.”
Commissioner for Internal Market Thierry Breton said: “Europe has all it takes to lead the technological race. The two alliances will devise ambitious technological roadmaps to develop and deploy in Europe the next generation of data processing technologies from cloud to edge and cutting-edge semiconductors. The alliance on cloud and edge aims at developing energy-efficient and highly secured European industrial clouds, which are not subject to control or access by third country authorities. The alliance on semiconductors will rebalance global semiconductor supply chains by ensuring that we have the capacity to design and produce, in Europe, the most advanced chips towards 2nm and below.”
Industrial Alliance for Processors and Semiconductor technologies
Microchips, including processors, are key technologies that power all electronic devices and machines we use today. Chips underpin a large variety of economic activities, and determine their energy efficiency and security levels. Capabilities in the development of processors and chips are crucial to the future of today’s most advanced economies. The Industrial Alliance on processors and semiconductor technologies will be a key instrument to further industrial progress in the EU in this area.
It will identify and address current bottlenecks, needs and dependencies across the industry. It will define technological roadmaps ensuring that Europe has the capacity to design and produce the most advanced chips while reducing its overall strategic dependencies by increasing its share of the global production of semiconductors to 20% by 2030.
To this aim, the Alliance aims to establish the design and manufacturing capacity required to produce the next generation of trusted processors and electronic components. This will mean moving Europe towards a production capacity of 16 nanometre (nm) to 10nm nodes to support Europe’s current needs, as well as below 5 to 2 nm and beyond to anticipate future technology needs. The most advanced types of semiconductors are more performant and have the potential to cut massively the energy used by everything from phones to data centres.
European Alliance for Industrial Data, Edge and Cloud
As highlighted in the European Strategy for Data, the volume of data generated is greatly increasing and a significant proportion of data is expected to be processed at the edge (80% by 2025, from only 20% today), closer to the users and where data are generated. This shift represents a major opportunity for the EU to strengthen its own cloud and edge capacities, and hence its technological sovereignty. It will require the development and deployment of fundamentally new data processing technologies, encompassing the edge, moving away from fully centralised data processing infrastructure models.
The European Alliance for Industrial Data, Edge and Cloud will foster the emergence of disruptive cloud and edge technologies that are highly secure, energy and resource-efficient and fully interoperable, fostering trust for cloud users across all sectors. The Alliance will serve the specific needs of EU citizens, businesses, and the public sector (including for military and security purposes) to process highly sensitive data, while boosting the competitiveness of EU industry on cloud and edge technologies.
Throughout its lifespan, the work of the Alliance will respect the following key principles and norms:

Highest standards in terms of interoperability and portability/reversibility, openness and transparency;
Highest standards in terms of data protection, cybersecurity, and data sovereignty;
State of the art in terms of energy efficiency and sustainability;
Compliance with European cloud best practices, including through adherence to relevant standards, codes of conduct and certification schemes.

Participation in the Alliances
These Alliances are open for participation by all public and private entities with a legal representative in the Union and with relevant activities, provided they meet the conditions defined in the Terms of Reference.
Due to the strategic relevance of the activities in the respective sectors, membership of the Alliances is subject to compliance with a number of conditions. Relevant stakeholders must meet eligibility criteria, related notably to security (including cybersecurity), security of supply, IP protection, data protection and data access and practical utility to the Alliance. They must sign the Declarations and fill in an application form, which will be assessed by the European Commission.
Background
The European Alliance for Industrial Processors and Semiconductor Technologies builds on the Commission’s ambitions to bolster Europe’s microelectronics and embedded systems value chains and strengthen leading-edge manufacturing capacity. In December 2020, Member States committed to work together to reinforce Europe’s capabilities in semiconductor technologies and offering the best performance for applications in a wide range of sectors. 22 Member States are currently signatories of this initiative.
The European Alliance for Industrial Data, Edge and Cloud builds on the political will, expressed by all 27 Member States in October 2020, to foster the development of the next generation cloud and edge capacities for the public and private sectors. In their Joint Declaration, the signatory Member States agreed to work together towards deploying resilient and competitive cloud infrastructure and services across Europe.
Compliments of the European Commission.
The post Digital sovereignty: EU Commission kick-starts alliances for Semiconductors and industrial cloud technologies first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The COVID-19 pandemic presents a real-life test that may hold important lessons for financial policy, including the functioning of G20 reforms.
The COVID-19 pandemic is the first major test of the global financial system since the G20 reforms were put in place following the financial crisis of 2008. While significantly different in nature from the 2008 crisis, this real-life test may hold important lessons for financial policy, including the functioning of the G20 reforms.
The report identifies preliminary lessons for financial stability from the COVID-19 experience and aspects of the functioning of the G20 financial reforms that may warrant attention at the international level.
The report notes that, thus far, the global financial system has weathered the pandemic thanks to greater resilience, supported by the G20 reforms, and the swift, determined and bold international policy response. Authorities broadly used the flexibility within international standards to support financing to the real economy. Monitoring and coordination, guided by the FSB COVID-19 Principles, has discouraged actions that could distort the level playing field and lead to harmful market fragmentation.
The COVID-19 experience reinforces the importance of completing remaining elements of the G20 reform agenda. The financial stability benefits of the full, timely and consistent implementation of those reforms remain as relevant as when they were agreed. Those parts of the global financial system where implementation of the reforms is most advanced displayed resilience. The pandemic has highlighted the importance of effective operational risk management arrangements and the need to further enhance crisis management preparedness and promote resilience amidst rapid technological change.
The pandemic also highlighted differences in resilience within and across financial sectors. The March 2020 market turmoil has underscored the need to strengthen resilience in non-bank financial intermediation. The functioning of capital and liquidity buffers may warrant further consideration, while some concerns about excessive financial system procyclicality remain.
COVID-19 may yet test the resilience of the global financial system. Banks and non-bank lenders could face additional losses as support measures are unwound. Identifying systemic vulnerabilities early on remains a priority. One of the legacies of the pandemic may be a build-up of leverage and debt overhang in the non-financial sector. Addressing debt overhang, including by facilitating the market exit of unviable companies and by promoting the efficient reallocation of resources to viable firms, may be a key task for policymakers going forward.
The FSB will engage with external stakeholders on preliminary findings and issues raised in this report. The final report, which will incorporate this feedback and set out tentative lessons and next steps to address the identified issues, will be delivered to the G20 Summit in October.
Compliments of the Financial Stability Board.
The post FSB | Lessons learnt from the COVID-19 pandemic from a financial stability perspective: Interim report first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, today launches a consultation on draft ESMA guidelines on certain aspects of the MiFID II remuneration requirements.

The remuneration of staff involved in the provision of investment and ancillary services and activities, or in selling or advising on structured deposits to clients is a crucial investor protection issue. Therefore, ESMA has developed draft guidelines that aim to clarify and foster convergence in the implementation of certain aspects of the new MiFID II remuneration requirements, replacing the existing ESMA guidelines on the same topic, issued in 2013.
This Consultation Paper builds on the text of the 2013 guidelines, which have been substantially confirmed, while those parts now incorporated into the MiFID II framework have been removed. In addition:

it takes into account new requirements under MiFID II;
it provides additional details on some aspects that were already covered under ESMA’s 2013 guidelines; and
it incorporates the results of supervisory activities conducted by national competent authorities on the topic.

Next Steps
ESMA will consider the responses it receives to this consultation paper by 19 October 2021 and expects to publish a final report, and final guidelines, by end of Q1 2022.

Respond
Compliments of the European Securities & Markets Authority.
The post ESMA Consults on Remuneration Requirements under MiFID II first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

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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