Lecture given by John Bruton, former Taoiseach, to a webinar organised by the University of East Anglia in Norwich on Tuesday 11 May 2021 at 6.30pm |
Ireland is more affected by what happens in the UK than is any other country.
This is due to the facts that
+ Ireland is host to the UK’s only land border with another state
+ Geographically, Ireland’s easiest route to the Eurasian land mass is through UK territory
+ Politically, Ireland has been intertwined with the UK for most of the last millennium, including to this day under the mutual  Treaty obligations we and the UK share under the Belfast Agreement of 1998.
So it is important for citizens on my state to understand what is going on in the UK, and why it is going on.
While most people in the world were surprised by the UK decision to leave the European Union, Irish people were shocked.
The EU is a habit of mind, more than it is a legal structure
But before going into that, let me say a word about that the EU is, and what it is not.
EU is not a state, and is not about to become one.
It is, instead, a habit of consultation and common action between states, underpinned by legal and institutional arrangements. These arrangements are evolving in response to needs as they arise. More than it is a legal structure, the EU is a habit of mind. That is what a political institution is, a habit of thinking together.
Ireland will remain within that institution, with some influence on its evolution.
The UK will not, which is unfortunate. I say this is unfortunate because the security of much of Ireland’s infrastructure is dependent on links through the UK and its territorial waters.
The sea is no longer the barrier to hostile forces, that it was in 1939, in 1804, or 1745.
Increased Global interdependence has brought increased vulnerability.
Close and well structured relations with ones near neighbours across the sea, is important to the security of any island state, including Britain and  Ireland.
 A decision taken without a plan
Irish people were, as I said, shocked by the UK decision to leave the EU in 2016.
This was partly because it seemed the decision was taken without any regard to the effect it might have in either part of Ireland, and on the peace of the island.
But the shock was  all the greater, because the decision seemed to have been taken, without a clearly articulated plan, for the new relationship that the UK would have with the EU, or, for that matter, with Ireland.
Given our own experience with referenda, this struck us as reckless.
Taking an irrevocable decision on principle, without first negotiating what it might mean in practice, is like a pilot taking off without a flight path.
Incidentally, this is also why I have reservations about the drafting, of the provisions in the Belfast Agreement of 1998, for calling a referendum on Irish unity. It could simply put the cart before the horse.
The UK voters agreed to “take back control” from the EU in 2016, but without an agreed project for using the control they were taking back. Even now, five years after the decision, the plan is not yet visible.
Was England ever comfortable in the EU?
It was the more elderly section of the UK electorate that were strongest in their support for leaving the EU. This was surprising because these were electors, who were old enough to have had had a vote in 1975 referendum, when they decided the UK decided should remain in the EU.
Perhaps the UK was never comfortable being associated with continental Europe, even in 1975.
Churchill favoured a United States of Europe, but with Britain staying aside from it.
Churchill’s successor as Prime Minister, Harold Macmillan, wanted free trade with Europe, but initially, he wanted no part of a Customs Union and no political Union.
He did not believe the Common Market, when it was launched in 1957 by six countries without Britain, would work. But it did work.
Meanwhile the UK lost its Empire, its links with the Commonwealth were weakening, and the Suez debacle of 1956 had reminded it that its alliance with the US was not based on equality.
So, in 1961, Macmillan changed his mind, and made what he called  at the time the “grim choice” to join the Common Market, only to have the application vetoed by de Gaulle.
De Gaulle felt that Britain was too close the US, and was not wholehearted in its commitment to Europe.  He was not wrong on the latter point.
Eventually, another Conservative Prime Minister, Edward Heath, did succeed in persuading France to allow the UK to join the European Communities.
It is important to recall what the British people were told in the 1970’s about what joining the Common Market would mean.
Many Brexit supporters have recently claimed that the UK only ever wanted to join a common market, without any political strings, and that they were misled by their leaders. This is simply not so.
Edward Heath, who had fought in the Second World War himself, told the House of Commons, in April 1975, that the European Communities
“were founded for a political purpose, the political purpose was to absorb the new Germany into the structure of the European family”.
So the political goal was not hidden, and the British people formally accepted continued EU membership on that basis, in their 1975 Referendum.
Gradually, the UK had come around to the view that it should not stand aside from the growing common endeavour of the Common Market/European Union. As the newly appointed Prime Minister, Margaret Thatcher put it in a speech in Luxembourg in October 1979;
“Britain could not turn away from a voluntary association designed to express the principles of Western Democracy……Nor (she said) could any enterprise properly lay claim the proud name of Europe, that did not include Britain….. “
She continued
“  It took the British the whole of the 1950’s to realize these simple truths. It took the Six (Six Common Market members) the whole of the 1960’s to respond”
These words of Mrs Thatcher suggest that at last, in 1979, Britain was comfortable as a member of the EU.
What changed Britain’s attitude to the EU?
What happened to undo the lessons the UK had, according to Mrs Thatcher, learned in the 1950s?
On the surface, four issues led UK public opinion to turn away from the EU.
+ the rows about the UK’s financial contribution from 1979 onwards,
+ the ejection of the £ from the European Monetary System,
+ immigration, through the interaction of  the free movement provisions of the EU Treaties, and the EU’s enlargement to include the poorer countries of post Communist Europe and
+ the upsurge in identity politics, in the wake of the financial crash of 2008.
I think there also were deeper reasons than these.
The memory of the First and Second World Wars had faded. The importance of maintaining a structure of peace and interdependence in Europe  slowly diminished in the public mind in Britain. Communism was no longer a threat.
Indeed there is some evidence for the suggestion that long periods of peace encourage peoples to indulge in separatism.
One can perhaps see this even within the UK itself. UK solidarity was greatest during the World Wars and diminished after they were over.  All states are synthetic and imperfect creations, and  are subject to change.
The importance of self image
England’s self image played a part in its increasing discomfort with the EU.
Britain sees itself a
“a fortress built by nature for herself”, as  “ a scepter’d isle”, surrounded by seas controlled by Britain.
The religious divisions of the sixteenth century underlined this sense of separateness.
Roman jurisdiction over the King’s marriage was rejected.
This religious dimension was reinforced by the fact that Britain’s main continental rivals, over three centuries up to 1900, were Catholic powers, Spain and France, and Britain was emphatically Protestant. Legally it still is.
From the 1760’s to mid 20th century, Britain had the world’s biggest Empire.
And Let us not forget that that Empire stood with Britain in 1940, when France had been defeated, America was neutral, and Russia was still on the sidelines.
For this valid historical reason, the Commonwealth still has an emotional appeal in Britain, out of all proportion to its present political or economic importance.
The Monarchy has also given Britain a sense of self confidence, and an emotional bond, that makes compromise with European neighbours, including with Ireland, seem a little less necessary.
These factors were as much in play in 1975, when the British people decided to stay in the Common Market, as they were in 2016, when they decided to leave it. So the different decisions remain puzzling, to outsiders like me.
Untrammeled sovereignty… the goal of UK negotiators
Turning to the more recent negotiation, the organising principle of Brexit, from a UK perspective, seems to be to have been the restoration of untrammelled sovereignty to the Westminster Parliament, and to it only.
For the UK, Sovereignty apparently must reside in one place, and ONLY in one place.
Even the minutest issue, such as the health standards for plants, or the safety and content of food, must be decided in Westminster only, and not in common with Brussels.
This concern with indivisible sovereignty is the only reason  the UK has declined to have a Plant and Veterinary standards agreement  with the EU, and is thus the reason we have problems with supplies to garden centres and Supermarkets in NI, through the outworking of the agreed Irish Protocol.
Sovereignty is everything, and trumps everything.
But, in this thinking, if sovereignty cannot be delegated upwards, to an international treaty based organisation like the EU, it is  also difficult to conceive of it being delegated downwards,  internally to nations within the UK itself.
Sovereignty and devolution… uneasy bedfellows
Gordon Brown, former Prime Minister, claimed in a Guardian article last year, that it would soon be
” impossible to hold together a UK of nations and regions in the straitjacket of a centralised state.”
His main criticism was that the UK government was taking decisions, like setting the terms for Brexit, without ,properly and formally, taking into account the views of the devolved parliaments in Edinburgh, Cardiff and Belfast.
Two of these had clearly stated that they wanted to stay in the EU Single Market, but the Westminster government ignored them. It was guided instead by the opinion of English MPs.
The contradictions here are profound and enduring.
In a speech in which she spoke of the
“precious union”
of the four nations, that the then PM, Theresa May, also announced that the UK would leave both Customs Union and Single Market( something to which the people of  2 of the 4 nations were opposed).
Later she felt free to go outside the long settled Barnett formula for dividing up finance between the devolved administrations, so she could give an extra £1 billion to Northern Ireland, in return for the support of the DUP for her minority government in Westminster.
She only showed the devolved administrations the text of her Article 50 letter, initiating UK withdrawal from the EU, on the day she sent it to Brussels.
The European Union operates according to a written rule book, the Lisbon Treaty, which is a sort of constitution, which is interpreted by a single Court system.
In effect the UK Union has only one rule….”Westminster decides.”
The durability of this arrangement will be tested in future.
The Brexit test for Europe
The EU will also be tested in coming years too.
Many advocates of Brexit in the UK saw it as loosening the unity of the EU. This has not happened. In fact the fiscal integration of the EU has deepened since the UK left,
Even though there have been policy failures, as on vaccination, the unity of the EU has not weakened. Indeed some the supposedly anti EU parties, in Italy and France, have actually modified their positions in a more favourable direction. This is not what the Daily Telegraph expected.
But let us wait and see.
“In politics, being deceived is no excuse”
Who won in the Brexit Trade negotiation?
The fact that there is any agreement at all, after all the brinkmanship and bad blood, is a tribute to all involved.
It is in the nature of a divorce, like Brexit, that both sides actually lose.
First let us look at the British side.
For them, the goal was “sovereignty”.
While traditionally sovereignty has been seen as the unfettered power of the British Parliament to legislate, Boris Johnson interpreted it as taking back control into the hands of British Ministers, rather than Parliament as such.
From a British point of view, the Agreement goes some way towards meeting this goal. British Ministers have ”taken back control”, at least on paper,  of many issues, at least as far as the island of Britain is concerned.   But not as far as Northern Ireland is concerned!
This is because UK voters, in 2016, simply forgot about Northern Ireland and ignored the problems of the UK land border there with the EU. There were reassured there would be no problem, but as the Polish philosopher, Leszek Kolokowski said;
“In politics, being deceived is no excuse”
Future EU rules, in which neither the UK, nor the people of Northern Ireland, nor their elected representatives,  will have a direct or indirect  say, will continue to apply in Northern Ireland under the Protocol the UK Parliament  agreed with the EU, in its haste to leave.
In sum, Boris Johnson and the UK Parliament traded more UK sovereignty over the island of Britain, for LESS UK sovereignty over Northern Ireland.
In future, the more British rules diverge from EU rules, the more will Northern Ireland diverge from the rest of the United Kingdom. And more divergence is the declared goal of the current UK government.
This creates a political mine field.
The implications for NI unionists could be quite destabilising if the UK government , in order to justify Brexit,  decides to  diverge  radically from the EU, on trade and regulatory matters.
More divergence is the “Whole Point” of Brexit
In a letter to EU leaders last year, Boris Johnson said British laws would diverge from those of the EU and added
“That is the point of our exit, and our ability to enable this, is central to our future democracy”.
Divergence from the EU is central to the future of British democracy according to the Prime Minister.
Where will that leave Northern Ireland under the terms of the Protocol he signed, and which was endorsed by Parliament?
The Joint EU/UK Committee, set up under the Withdrawal Agreement, will need to monitor the political and security consequences of this  rush to diverge.
Title X of the Agreement requires advance notice, and consultations, of changes in regulations as between the UK and the EU. It will be important for peace and security that these consultations include representatives of all major interests in Northern Ireland.
What the UK achieved
That said, the Agreement contains significant gains for the UK side, at least as far as the island of Britain is concerned.
Firstly, there will be no direct application of decisions of the European Court of Justice on the island of Britain.
Secondly, while the UK has accepted that it will not regress from present high social, environmental and quality standards, it will be free to set its own UK standards for the island of Britain. These will, as I have said, be different from those applying in Northern Ireland and in the EU.
This right to diverge is what UK Brexiteers saw as an expression of UK’s sovereignty, and they have got it.
But, thirdly, the UK also accepts that divergence will not come for free.
As one advocate of Brexit, Dr Liam Fox MP, put it in Westminster during the debate on the Agreement
“If we want to access the Single Market, there has to be a price to be paid.  If we want to diverge from the rules of the Single Market, there has to a price to be paid”
The Agreement establishes detailed mechanisms to negotiate the  ”price” will  have to be paid, mostly by consumers in the form of higher prices,  for divergence.  It will going on for years to come.
These mechanisms in the  Trade and Cooperation Agreement ( A Partnership Council, Joint Committees, and Arbitration Tribunals) are completely untested at this stage. A great deal will depend on the particular use the UK decides to make of its new freedoms.
Arbitration tribunals… our joint future
If problems arise and these cannot be settled in the committee system, there is an agreed provision for arbitration. Three person Arbitration Tribunals which will operate on strict time limits will be set up. If the Arbitrators find that either the EU or the UK has breached the agreed principles, the other party will be allowed to impose tariffs or prohibitions, to compensate for losses it has suffered.
Incidentally, these tariffs, if imposed, will have to be paid on goods going from Britain to NI or vice versa.
This aspect of the Agreement is valuable from an EU point of view.
In its absence, any disputes would have had to be referred to the disputes resolution system of the WTO.   That WTO system is both cumbersome and narrow. Parties before the WTO can stall, adopt delaying tactics, or ignore rulings. Disputes there can drag on for years, as we have seen with the US/EU dispute about subsidies to Boeing and Airbus. So reaching agreement on a customised EU/UK disputes resolution mechanism was an important achievement for Michel Barnier.
But there are potential downsides in the Agreement for the EU too.
We will be replacing a single set of rules, interpreted by a single judicial authority, the European Court of Justice (ECJ) with individual Arbitration Tribunals, operating under tight deadlines. This could lead to inconsistent decisions in different areas of trade. If a Tribunal interprets EU law differently to the interpretation later made by the ECJ on the same subject, there could be real difficulties
The UK will be free to negotiate trade agreements of its own with non EU countries. These negotiations may create additional pressure for even more divergence between UK and EU standards.
The UK may come under pressure to allow the imports to the UK,  that would not meet EU standards.
For example, the UK may come under pressure to accept chlorinated chicken, hormone treated beef, or foods that have been genetically modified. If these products are then incorporated into processed foods, which are then exported to the EU, there could be big problems. We have experience of food quality scares in the past.
There are separate and detailed provisions for imports which could upset the playing field on which EU and British producers will compete.  This could arise if there are hidden subsidies or monopolistic practices.
How the EU must respond to Brexit
In global terms, the continent of Europe has been weakened by Brexit.
Brexit will force the EU to up its game.
As a single entity, the UK will be able to move more quickly to set new regulations for new sectors, based on the technologies of the future. The EU, with 27 members to satisfy, and budget of only 1% of GDP, may move more slowly. That must be addressed.
I hope that the Conference of the Future of Europe, meeting for the first time this week, will not be afraid to streamline EU decision making procedures, including, in necessary, by targeted Treaty Amendments.
A Union that is unable to amend its constitution eventually gets into trouble, as the US is finding.
Peace and stability, rather than a chance in sovereignty, must be the first priority for Ireland
Although legally speaking the issues are unconnected, Brexit has led to speculation that there might soon be a poll, under the terms of the Belfast Agreement of 1998, on Irish unity.
The 1998 Agreement says that there should be such a poll if the Secretary of State for Northern Ireland believes such a poll would result in a vote for Irish unity. It assumes there would also be poll in Ireland as well.The relevant text in the Agreement is as follows;
“The Secretary of State shall exercise the power under paragraph 1 if at any time it appears likely to him that a majority of those voting would express a wish that Northern Ireland should cease to be part of the United Kingdom and form part of a united Ireland.”
A majority for this purpose could be as little as 50.5% to 49.5%.
According to some of those present in the final days of the negotiation of the Agreement, the organisation and consequences of holding such a poll were not much considered at the time. But the text is there, and it has legal force.
That said, the history of Northern Ireland, since 1920, demonstrates the danger of attempting to impose, by a simple majority, a constitutional settlement, and an identity, on a minority who feel they have been overruled. If, for example, a 49.5% minority in Northern Ireland votes to stay in the UK, and resolutely rejects rule from Dublin, one could expect there would be difficulties, not least for the government in Dublin.
A poll in those circumstances could repeat the error of 1920, and add to divisions, rather than diminish them.
I was a bit surprised then to see Bertie Ahern,  a former Taoiseach, call for the border polls to take place in 2028 (the 30th anniversary of the Good Friday Agreement).
Target dates tend to be misinterpreted as promises, a sense of inevitability takes over, opinion becomes polarised, and rational discussion of the risks becomes impossible.
Reducing a complex issue, with many nuances and gradations, to an over simplified Yes/No question is risky anyway, and deciding such a matter by referendum, irrevocably, without first negotiating the details, is not wise. It can lead to unforeseen results. This is, perhaps, a lesson of the 2016 Brexit Referendum.
Strangely, the Belfast Agreement, does not require the UK government to consult with the Irish government before calling such a poll, even though a poll on the same subject would have to take place in the Irish Republic.
The result of the poll would have major financial, security and cultural consequences for the Republic.
This omission, therefore,  of a provision to consult the Irish government gives weight to the suggestion that this part of the Agreement were not examined in depth by the negotiators in 1998.
Even though all other legislative decisions inside Northern Ireland must, under the same Belfast Agreement, be agreed by a procedure of parallel consent of both nationalists and unionists, this, possibly irrevocable, existential decision on sovereignty could be made by a  simple majority, of as little as a single vote, in a referendum.
This may be the law. But it sits uneasily beside the principles set out in the Agreement itself which say the parties will
“endeavour to strive in every practical way towards reconciliation and rapprochement within the framework of democratic and agreed arrangement”
It seeks something “agreed”, rather than something “decided” by a simple majority.
Deciding the biggest question of all by a simple majority runs up against the principles in the Downing Street Declaration of 1993, agreed by Albert Reynolds and John Major.
It said that Irish unity should be achieved
“by those who favour it, persuading those who do not, peacefully and without coercion or violence”
This type of persuasion of the opposite community, is not taking place within Northern Ireland  at the moment, in either a pro Union or a pro United Ireland direction.  Thanks to Brexit, positions are more polarised now than ever.
In the Downing Street Declaration in 1993, the Taoiseach, Albert Reynolds said on behalf of the Irish people
“Stability will not be found under any system which is refused allegiance, or rejected on grounds of identity, by a significant minority of those governed by it”.
Let us face facts. A poll on unity, carried by a narrow majority of say 51% to 49%, could not be guaranteed to deliver a system that would not be
“at risk of being rejected, on grounds of identity, by a significant minority”
“The consent of the governed is an essential ingredient of stability” was what John Major and I agreed in the Framework Document of 1995.
Irish unity, carried by a 51/49% margin, might not obtain the requisite consent of the defeated 49%., who would still have to be governed.  That is practical politics.
So, I say that peace and stability, tolerance and gradualism, should be our guiding principles in approaching the question of sovereignty over Northern Ireland.
The focus now should  be on making all the three strands of the Good Friday Agreement yield their full potential, rather than fixating on territorial sovereignty through a border poll.
We must first build sustained reconciliation, and shared goals, between the two communities in Northern Ireland.
That is a commonsense precondition for success of any of the many constitutional options that might be considered at some stage in the future.
Compliments of Ambassador John Bruton.
The post John Bruton | Why did Brexit happen and what will be its effects? first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Today, the European Commission adopted the EU Action Plan: “Towards Zero Pollution for Air, Water and Soil” – a key deliverable of the European Green Deal and the main topic of this year’s EU Green Week. It sets out an integrated vision for 2050: a world where pollution is reduced to levels that are no longer harmful to human health and natural ecosystems, as well as the steps to get there. The plan ties together all relevant EU policies to tackle and prevent pollution, with a special emphasis on how to use digital solutions to tackle pollution. Reviews of relevant EU legislation are foreseen to identify remaining gaps in EU legislation and where better implementation is necessary to meet these legal obligations.
Executive Vice-President for the European Green Deal Frans Timmermans said: “The Green Deal aims to build a healthy planet for all. To provide a toxic-free environment for people and planet, we have to act now. This plan will guide our work to get there. New green technologies already here can help reduce pollution and offer new business opportunities. Europe’s efforts to build back a cleaner, fairer, and more sustainable economy must likewise contribute to achieving the zero pollution ambition.”
Commissioner for the Environment, Oceans and Fisheries Virginijus Sinkevičius said: “Environmental pollution negatively affects our health, especially the most vulnerable and socially deprived groups, and is also one of the main drivers of biodiversity loss. The case for the EU to lead the global fight against pollution is today stronger than ever. With the Zero Pollution Action Plan, we will create a healthy living environment for Europeans, contribute to a resilient recovery and boost transition to a clean, circular and climate neutral economy.”
To steer the EU towards the 2050 goal of a healthy planet for healthy people, the Action Plan sets key 2030 targets to reduce pollution at source, in comparison to the current situation. Namely:

improving air quality to reduce the number of premature deaths caused by air pollution by 55%;
improving water quality by reducing waste, plastic litter at sea (by 50%) and microplastics released into the environment (by 30%);
improving soil quality by reducing nutrient losses and chemical pesticides’ use by 50%;
reducing by 25% the EU ecosystems where air pollution threatens biodiversity;
reducing the share of people chronically disturbed by transport noise by 30%, and
significantly reducing waste generation and by 50% residual municipal waste.

The Plan outlines a number of flagship initiatives and actions, including:

aligning the air quality standards more closely to the latest recommendations of the World Health Organisation,
reviewing the standards for the quality of water, including in EU rivers and seas,

reducing soil pollution and enhancing restoration,
reviewing the majority of EU waste laws to adapt them to the clean and circular economy principles,
fostering zero pollution from production and consumption,
presenting a Scoreboard of EU regions’ green performance to promote zero pollution across regions,

reduce health inequalities caused by the disproportionate share of harmful health impacts now borne by the most vulnerable,

reducing the EU’s external pollution footprint by restricting the export of products and wastes that have harmful, toxic impacts in third countries,
launching Living Labs for  green  digital  solutions  and  smart  zero pollution,
consolidating the EU’s Knowledge Centres for Zero Pollution and bringing stakeholders together in the Zero Pollution Stakeholder Platform,
stronger enforcement of zero pollution together with environmental and other authorities.

Jointly with the Chemicals Strategy for Sustainability adopted last year, the action plan translates the EU’s zero pollution ambition for a toxic-free environment into action. It goes hand in hand with the EU’s goals for climate neutrality, health, biodiversity and resource efficiency and builds on initiatives in the field of energy, industry, mobility, food, circular economy, and agriculture.
This year’s EU Green Week, the biggest annual event on environment policy, on 1 – 4 June will allow citizens across the EU to discuss zero pollution from its many angles at the main Brussels conference, online and in more than 600 partner events.
Background
Pollution is the largest environmental cause of multiple mental and physical diseases, and of premature deaths, especially among children, people with certain medical conditions and the elderly. People who live in more deprived areas often live close to contaminated sites, or in areas where there is a very high flow of traffic. A toxic-free environment is also crucial to protect our biodiversity and ecosystems, as pollution is one of the main reasons for the loss of biodiversity. It reduces the ability of ecosystems to provide services such as carbon sequestration and air and water decontamination.
According to a recent EEA report on Health and Environment, in the EU,  every year over 400 000 premature deaths (including from cancers) are attributed to ambient air pollution, and 48 000 cases of ischaemic heart disease as well as 6.5 million cases of chronic sleep disturbance to noise, next to other diseases attributable to both.
The EU has already set many targets linked to pollution. Existing legislation on air, water, marine, and noise sets out objectives for environmental quality, and many laws address the sources of pollution. In addition, the Commission has announced some overarching targets for reducing nutrient losses and pesticides in the Farm to Fork and Biodiversity strategies to help achieve our biodiversity goals.
Compliments of the European Commission.
The post European Green Deal: EU Commission aims for zero pollution in air, water and soil first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The Spring 2021 Economic Forecast projects that the EU economy will expand by 4.2% in 2021 and by 4.4% in 2022. The euro area economy is forecast to grow by 4.3% this year and 4.4% next year. This represents a significant upgrade of the growth outlook compared to the Winter 2021 Economic Forecast which the Commission presented in February. Growth rates will continue to vary across the EU, but all Member States should see their economies return to pre-crisis levels by the end of 2022.
Economic growth resumes as vaccination rates increase and containment measures ease
The coronavirus pandemic represents a shock of historic proportions for Europe’s economies. The EU economy contracted by 6.1% and the euro area economy by 6.6% in 2020. Although in general, businesses and consumers have adapted to cope better with containment measures, some sectors – such as tourism and in-person services – continue to suffer.
The rebound in Europe’s economy that began last summer stalled in the fourth quarter of 2020 and in the first quarter of 2021, as fresh public health measures were introduced to contain the rise in the number of COVID-19 cases. However, the EU and euro area economies are expected to rebound strongly as vaccination rates increase and restrictions are eased. This growth will be driven by private consumption, investment, and a rising demand for EU exports from a strengthening global economy.
Public investment, as a proportion of GDP, is set to reach its highest level in more than a decade in 2022. This will be driven by the Recovery and Resilience Facility (RRF), the key instrument at the heart of NextGenerationEU.
Labour markets improve slowly
Labour market conditions are slowly improving after the initial impact of the pandemic. Employment rose in the second half of 2020 and unemployment rates have decreased from their peaks in most Member States.
Public support schemes, including those supported by the EU through the SURE instrument, have prevented unemployment rates from rising dramatically. However, labour markets will need time to fully recover as there is scope for working hours to increase before companies need to hire more workers.
The unemployment rate in the EU is forecast at 7.6% in 2021 and 7% in 2022. In the euro area, the unemployment rate is forecast at 8.4% in 2021 and 7.8% in 2022. These rates remain higher than pre-crisis levels.
Inflation
Inflation rose sharply early this year, due to the rise in energy prices and a number of temporary, technical factors, such as the annual adjustment to the weightings given to goods and services in the consumption basket used to calculate inflation. The reversal of a VAT cut and the introduction of a carbon tax in Germany also had a noticeable effect.
Inflation will vary significantly over the course of this year as the assumed energy prices and changes in the VAT rates generate noticeable fluctuations in the level of prices compared to the same period last year.
Inflation in the EU is now forecast at 1.9% in 2021 and 1.5% in 2022. For the euro area, inflation is forecast at 1.7% in 2021 and 1.3% in 2022.*
Public debt to peak in 2021
Public support for households and businesses has played a vital role in mitigating the impact of the pandemic on the economy, but has resulted in Member States increasing their levels of debt.
The aggregate general government deficit is set to rise by about half a percentage point to 7.5% of GDP in the EU this year and by about three quarters of a percentage point to 8% of GDP in the euro area. All Member States, except for Denmark and Luxembourg, are forecast to run a deficit of more than 3% of GDP in 2021.
By 2022, however, the aggregate budget deficit is forecast to halve to just below 4% in both the EU and the euro area. The number of Member States running a deficit of more than 3% of GDP is forecast to fall significantly.
In the EU, the ratio of public debt to GDP is forecast to peak at 94% this year before decreasing slightly to 93% in 2022. The euro area debt-to-GDP ratio is forecast to follow the same trend, rising to 102% this year and then falling slightly to 101% in 2022.
The risks to the outlook remain high but are now broadly balanced
The risks surrounding the outlook are high and will remain so as long as the shadow of the COVID-19 pandemic hangs over the economy.
Developments in the epidemiological situation and the efficiency and effectiveness of vaccination programmes could turn out better or worse than assumed in the central scenario of this forecast.
This forecast may underestimate the propensity of households to spend or it may underestimate consumers’ desire to maintain high levels of precautionary savings.
Another factor is the timing of policy support withdrawal, which if premature, could jeopardise the recovery. On the other hand, a delayed withdrawal could lead to the creation of market distortions and barriers to exit of unviable firms.
The impact of corporate distress on the labour market and the financial sector could prove worse than anticipated.
Stronger global growth, particularly in the US, could have a more positive impact on the European economy than expected. Stronger US growth, however, could push up US sovereign bond yields, which could cause disorderly adjustments in financial markets that would hit highly indebted emerging market economies with high foreign currency debts particularly hard.
Members of the College said:
Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People said: “While we are not yet out of the woods, Europe’s economic prospects are looking a lot brighter. As vaccination rates rise, restrictions ease and people’s lives slowly return to normal, we have upgraded forecasts for the EU and euro area economies for this year and next. The Recovery and Resilience Facility will help the recovery and will be a real game changer in 2022, when it will ramp up public investments to the highest level in over a decade. Much hard work still lies ahead, and many risks will hang over us as long as the pandemic does.  Until we reach solid ground, we will continue to do all it takes to protect people and keep businesses afloat.”
Paolo Gentiloni, Commissioner for Economy said: “The shadow of COVID-19 is beginning to lift from Europe’s economy. After a weak start to the year, we project strong growth in both 2021 and 2022. Unprecedented fiscal support has been – and remains – essential in helping Europe’s workers and companies to weather the storm. The corresponding increase in deficits and debt is set to peak this year before beginning to decline. The impact of NextGenerationEU will begin to be felt this year and next, but we have much hard work ahead – in Brussels and national capitals – to make the most of this historic opportunity. And of course, maintaining the now strong pace of vaccinations in the EU will be crucial – for the health of our citizens as well as our economies. So let’s all roll up our sleeves.”
Background
The Spring 2021 Economic Forecast is based on a set of technical assumptions concerning exchange rates, interest rates and commodity prices, with a cut-off date of 28 April 2021. For all other incoming data, including assumptions about government policies, this forecast takes into consideration information up until and including 30 April. Unless policies are credibly announced and specified in adequate detail, the projections assume no policy changes.
Following the final adoption of the RRF regulation and significant progress on the preparation of the recovery and resilience plans, the Spring Forecast incorporates the reform and investment measures set out in draft RRPs for all Member States. However, at the time of the cut-off date, details of some plans were still under discussion in a number of Member States. In such cases, simplified working assumptions have been used for the recording of RRF-related transactions, specifically regarding the time profile of expenditure (assumed to be linear over the RRF lifetime) and its composition (assumed to be split between public investment and capital transfers.)
Compliments of the European Commission.
The post EU Commission | Spring 2021 Economic Forecast: Rolling up sleeves 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 |
The COVID-19 pandemic has caused the largest decrease in global economic activity on record. But the drop in carbon dioxide emissions has been only temporary. Although global CO2 emissions fell by 6.4% overall in 2020, they had already begun to increase in the second half of the year and have now returned to pre-crisis levels.
The fact that last year’s extraordinary circumstances still did not bring global emissions into line with the targets set by the 2015 Paris climate agreement is a stark reminder of the scale of the challenge we face. As the Nobel laureate economist William Nordhaus reminds us, climate change is the quintessential global externality. Its effects are spread around the world and no country has sufficient incentives or capacity to solve the problem on its own. International coordination is therefore essential.
Fortunately, a return to multilateral cooperation through the G7, the G20, and the Financial Stability Board (FSB) offers a unique window of opportunity. Following US President Joe Biden’s decision to rejoin the Paris agreement, the European Union’s commitment to reach carbon neutrality by 2050, and China’s pledge to do the same by 2060, we may now be at a turning point for global climate action.
Three priorities stand out on the international agenda. The first is the need to increase global carbon prices. Putting a higher price on carbon is the most cost-effective way to reduce emissions at the necessary scale and speed. By internalizing the social cost of emissions – making emitters pay – carbon pricing leverages the power of markets to steer economic activities away from carbon-intensive activities.
Currently, carbon prices are far too low. The International Monetary Fund calculates that the average global carbon price is only $2 per ton. And, according to the World Bank, only 5% of global greenhouse-gas emissions are priced within the range required to achieve the Paris agreement’s goals.
Here, advanced economies can lead by example and use the current policy window to commit to carbon-price paths consistent with the Paris accord. Although smaller advanced economies account for only a limited share of global emissions, their adoption of decisive decarbonization measures could encourage developing countries to follow suit.
The second priority is to use the recovery from the COVID-19 pandemic to “build back better.” Decisions made now will shape the climate trajectory for decades to come. Policymakers should seize this opportunity to set the global economy on a sustainable growth path. The EU recovery package – Next Generation EU – lives up to that ambition.
The third priority goes to the heart of the financial system and central banking: financing the green transition. Phasing out fossil fuels implies the need for massive investment, even if estimates of the precise figure are subject to significant uncertainty. Looking beyond emissions reductions to the broader sustainability agenda, the United Nations estimates that implementing the 2030 Sustainable Development Agenda will require global investments of $5-7 trillion per year. To fill this gap, it will be crucial to mobilize the resources of financial intermediaries, including banks.
Sustainable-finance products – such as green lending, green and sustainable bonds, and funds with environmental, social, and governance (ESG) characteristics – have grown dramatically in recent years. Unfortunately, the field suffers from information asymmetries and insufficient transparency.
To foster the growth of sustainable finance, many countries have started developing regulatory frameworks to combat “greenwashing,” and the EU is at the forefront of these efforts. Yet in the absence of global coordination, different jurisdictions have developed different approaches, and industry-based initiatives have proliferated.
The resulting edifice of inconsistent and incomparable standards, definitions, and metrics has fragmented sustainable-finance markets, reducing their efficiency and limiting the cross-border availability of capital for green investment. As jurisdictions compete to attract finance, the risk of regulatory arbitrage and a race to the bottom has grown. If left unaddressed, this trend could result in lower standards globally, increasing the likelihood of greenwashing.
But we now have an opportunity to start devising a common global approach. Sustainable finance is a top priority for both the G20 under its Italian presidency and the G7 under its British presidency. Moreover, in a public letter shortly after her confirmation, US Secretary of the Treasury Janet Yellen called for an upgrade to the G20’s sustainable-finance working group to “reflect its importance.”
A key first step is to agree on minimum standards for corporate disclosures. If a company’s sustainability performance is unclear or unknown, ascertaining the sustainability of the related financial assets is impossible. We must replace the current alphabet soup of reporting frameworks with a common standard. To that end, the EU’s approach – including the ongoing revision of the Corporate Sustainability Financial Reporting Directive – represents an advanced benchmark toward which any international standard should aim.
For a common standard to launch a race to the top, it must not fall short of the best international practices. It should cover all ESG aspects of sustainability. And it should require companies to disclose not just issues that influence enterprise value, but also information on the company’s broader environmental and social impact (known as “double materiality”).
A second and even greater challenge is to ensure that countries develop consistent classifications of what counts as sustainable investment. If an activity or asset is considered sustainable in one country but unsustainable in another, there cannot be a truly global sustainable-finance market.
To ensure a global level playing field, today’s leaders should aim for an agreement on common principles for well-functioning and globally coherent taxonomies. Just as governments need to be mindful of the risk of carbon leakage, they must account for the risk of carbon financing leakage.
Finally, we need to ensure that all segments of financial activity remain aligned with broader climate objectives. The enormous energy consumption and associated CO2 emissions of crypto-asset mining could undermine global sustainability efforts. Bitcoin alone is already consuming more electricity than the Netherlands. Controlling and limiting the environmental impact of crypto assets, including through regulation and taxation, should be part of the global discussion.
Climate change and sustainability are global challenges that require global solutions – and nowhere more so than in the financial sector. The current political environment offers us a rare opportunity to make substantial progress. We must not waste it.
This blog post first appeared as an opinion piece in Project Syndicate.
Compliments of the European Central Bank.
The post ECB | A global accord for sustainable finance first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Working group recommendations should help EURIBOR users comply with EU Benchmarks Regulation fallback obligations
Key milestone reached with publication of recommendations as working group enters new phase and secretariat passes from ECB to ESMA

The private sector working group on euro risk-free rates has today published its recommendations addressing events that would trigger fallbacks in EURIBOR-related contracts, as well as €STR-based EURIBOR fallback rates (rates that could be used if a fallback is triggered). While there is currently no plan to discontinue EURIBOR, the development of more robust fallback language addresses the risk of a potential permanent discontinuation and is in line with the EU Benchmarks Regulation (BMR). The valuable feedback from the two market-wide consultations on the draft recommendations has been taken into account in the final recommendations.
As with similar for a in other currency areas, the working group’s recommendations are not legally binding for market participants. They do, however, provide guidance and represent the prevailing market consensus on EURIBOR fallback trigger events and €STR-based fallback rates, which market participants may consider in their contracts.
The decision approving these recommendations was unanimous.
Now that the working group on risk-free rates has delivered the last of its predefined deliverables, it will focus more on monitoring benchmark rate developments in general. It has been decided that the secretariat will move to the European Securities and Markets Authority (ESMA), which, as provided for in the BMR, will supervise the administrator of EURIBOR as of 2022. This means that the working group’s publications will, from now on, be available on ESMA’s website. Communication aspects (media enquiries, newsletter, etc.) will also be taken over by ESMA.
Contact:

William Lelieveldt | william.lelieveldt@ecb.europa.eu | tel.: +49 69 1344 7316

Notes

Fallbacks deal with the risk that a benchmark rate used in a financial contract becomes unavailable and that the benchmark rate used “falls back” to another rate. Under the EU Benchmarks Regulation, users of benchmarks are required to have fallback arrangements in their contracts.
The working group on euro risk-free rates, for which the European Central Bank (ECB) currently provides the secretariat, is an industry-led group established in 2018 by the ECB, the Financial Services and Markets Authority, ESMA and the European Commission. Its main tasks are to identify and recommend alternative risk-free rates and transition paths (see Terms of reference). The secretariat of the group will pass from the ECB to ESMA on 11 May 2021.

Compliments of the European Central Bank.
The post ECB | Private sector working group on euro risk-free rates publishes recommendations on EURIBOR fallbacks first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Amendments to give effect to the leverage ratio becoming a binding Pillar 1 own-funds requirement under the Capital Requirements Regulation (CRR)
Change will apply as of 28 June 2021

On May 7, the European Central Bank (ECB) has today published amendments to its monetary policy implementation Guideline[1] to give effect to the leverage ratio becoming a binding Pillar 1 own-funds requirement. The amended guideline implements a decision taken by the Governing Council on 6 May 2021. The decision is linked to this prudential requirement becoming binding as of 28 June 2021, in line with the entry into force of related regulatory requirements.[2]
Under the amended Guideline, automatic measures are applied in case of breaches of the leverage ratio requirement or in case the information on the leverage ratio is incomplete or not made available in time. As of 28 June 2021, the treatment of the leverage ratio in the Eurosystem monetary policy counterparty framework will be aligned with that of existing Pillar 1 own-funds requirements, consisting of the common equity tier 1 capital ratio, the tier 1 capital ratio and the total capital ratio.
Guideline ECB/2021/23 is available on the ECB’s website and will be published in the 23 official EU languages in the Official Journal of the European Union.[3]
Contact:

Eva Taylor | eva.taylor[at]ecb.europa.eu | tel.: +49 69 1344 7162.

Compliments of the European Central Bank.
The post ECB updates treatment of leverage ratio in the Eurosystem monetary policy counterparty framework first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

7 May, 2021, WASHINGTON |
Ambassador Katherine Tai today released a set of transparency principles that establish the foundation for a high transparency standard for the day-to-day operations of the Office of the United States Trade Representative (USTR).  These Transparency Principles reflect the Administration’s commitment to comprehensive public engagement, including outreach to historically overlooked and underrepresented communities, as it develops and implements a trade policy that advances the interests of all Americans.  USTR will continue to build on these Transparency Principles, and identify additional opportunities for thoughtful and inclusive two-way communication with the American public.
“Our trade agenda will only succeed if it reflects the views, and serves the interests, of all Americans” said Ambassador Katherine Tai.  “These Transparency Principles make clear that USTR will engage new, and frequently silenced, voices to find innovative solutions and forge consensus. Importantly, the principles announced today are just a starting point as we build a broad-based and equitable trade policy.”
Ambassador Tai also announced the designation of General Counsel Greta Peisch as the USTR Chief Transparency Officer.  This role was created by the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 to engage with the public, advise the USTR and consult with the Congress on transparency policy, and coordinate transparency in trade negotiations.  As the Chief Transparency Officer, Ms. Peisch will lead the agency’s efforts to put the Transparency Principles released today into action, and to identify further opportunities for improving transparency in the development of U.S. trade policy.
The principles released by USTR are:

USTR is committed to providing inclusive opportunities for the public to participate in the development of trade policy and trade initiatives, including changes in policy that affect existing trade programs.  USTR will seek public input with respect to new major trade initiatives when feasible even when not required by law.
USTR will facilitate participation in trade policy development by a broad range of stakeholders.  In order to foster more inclusive and broader representation in terms of both geography and demographics, as well as stakeholder perspective, USTR will seek input using innovative and adaptable forms of communication, including virtual hearings and outreach, in addition to traditional means such as Federal Register notices.
USTR will ensure its website contains up to date information on current trade initiatives and programs.  USTR press releases and other materials related to agency programs, initiatives, and negotiations will contain sufficient information to adequately inform the public and will link to available background information on the USTR website.
USTR will strive to ensure that the membership of federal advisory committees includes a wide variety of expert interests, reflective of the diverse stakeholder perspectives.
USTR will adhere to the Guidelines for Consultation and Engagement adopted in October 2015.
USTR will periodically review and adjust these principles, practices, and the Guidelines for Consultation and Engagement to ensure that USTR provides full opportunities for communication and participation in development of trade policy by a broad and diverse range of stakeholders, including American workers, innovators, manufacturers, farmers, ranchers, fishers, service suppliers, underserved communities, and community-based stakeholders.

The USTR Transparency Principles are also available on the USTR website here.
Compliments of the Office of the United States Trade Representative.
The post USTR Releases Agency Transparency Principles first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The European Committee of the Regions (CoR) and the Organisation for Economic Co-operation and Development (OECD) invite representatives of local and regional authorities across Europe to participate in a survey on the Sustainable Development Goals. The consultation is open until Friday 11 June 2021.
In 2019, the UN launched the Decade of Action for Sustainable Development to accelerate efforts, scale up projects and mobilize contributions across all levels of governments and society for the realization of the SDGs. Regional and local authorities remain essential partners in the process of localization and effective implementation of the SDGs.
Today, the engagement and commitment of local and regional governments to the SDGs is more relevant than ever in a European Union harshly affected by the Covid-19 pandemic. The recovery is an oppor​tunity to build back better, following the roadmap traced by the SDGs, to design and implement long-term recovery strategies.
In this scenario, the survey is expected to gather evidence on the progress achieved by local and regional authorities in the two years following the first survey launched by the CoR and the OECD and to highlight the additional difficulties they are facing after the outbreak of the pandemic.
The insights captured by the survey will be used to identify the challenges faced by local and regional authorities in the effort to localize the Agenda 2030 during the pandemic and devise solutions to support them in this endeavour. Moreover, the survey is essential to make your voice heard at the EU level and give your opinion on the place that the SDGs should occupy among EU priorities and within the upcoming plans for recovery.
The results of the survey will be presented during the European Week of Regions and Cities in October. They will also contribute to a CoR opinion on SDGs and the broader OECD Programme on A Territorial Approach to SDGs: A role for cities and regions to leave no one behind​, which seeks to support cities and regions in fostering a territorial approach to the SDGs.
START THE SURVEY!

​The survey is available in all EU languages; to select your preferred language, click on the drop down menu on the right of the screen
The survey is open until Friday 11 June 2021 midnight
All responses will be kept confidential​

Contact:

econ-survey-cor@cor.europa.eu

Compliments of the European Committee of the Regions.
The post CoR/OECD | SDGs as a Framework for Covid-19 Recovery in Cities and Regions first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

WE ARE HIRING A PROGRAM & COMMUNICATION OFFICER
Our colleague Femke Hartog is heading back to the Netherlands and we are looking for someone to step into her shoes.
The position a great opportunity for someone with detailed and broad knowledge of the EU & US relationship, including related economic issues and the transatlantic business environment, to deploy that experience in an international affairs & trans-Atlantic business environment. The position has the potential to expand in scope and responsibilities as we are growing not only as a chapter but also as a network.
RESPONSIBILITIES:
The objective of the position is to ensure that the EACC-NY lives up to its mission to stimulate transatlantic trade & business development, to educate the business community on both sides of the Atlantic about the intricacies of transatlantic trade and to facilitate networking and relationships between European and American businesses and professional organizations.
This position has an important outward facing component and exposure to very senior level executives and ministers on a national and international level.
Educational Program Management (65%)

Help develop a pipeline of relevant topics & speakers for our educational seminars together with our members and committees
Work with the committees and members on a daily basis to build out these educational seminars (agenda development, speaker assignments, etc)
Responsible for day-to-day management of our seminars/workshops as well as the administrative aspects of our programs from the initial idea, logistics to the event execution on-site
Analyze the topics and focus of existing educational programs and recommend improvements

Marketing & Communications (35%)

Development and execution of marketing plan, incl. progress/result/ROI analysis
Updates and conceptual re-development of the organizations web-site
Conceptual development and updates to marketing collateral
Day-to-day hands-on responsibility for updates on digital marketing platforms
Help implement and develop CRM database

REQUIREMENTS:
You have 5 or more years of work experience and proven knowledge of transatlantic relations and the business issues related to trade & investment between Europe and the US. Valid Work Permit is required(!).
INTERESTED:
Send your CV & Salary Requirements to ybr@eaccny.com.
The post WE ARE HIRING A PROGRAM & COMMUNICATION OFFICER first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Throughout 2020 and into 2021, the global financial system withstood the effects of the global pandemic and economic lockdowns due to unprecedented policy support. Strong financial systems that are well regulated and well supervised help maintain financial stability. But like a well calibrated engine on a car, maintenance is key. Each year the IMF takes a look under the hood of select economies, which helps to unmask vulnerabilities that could present bigger problems down the road.
The Financial Sector Assessment Program, or “FSAP” as it’s widely known, helps to assess financial vulnerabilities and make financial systems stronger and better able to withstand adverse events. The IMF considers country-specific features of financial systems and tailors its analysis to the needs of each member participating in the program. Assessments for advanced economies are done by the IMF alone, while those for other economies are typically carried out jointly with the World Bank. The IMF’s Executive Board will soon conduct a periodic review of the FSAP.
In 2021, the IMF plans to assess the stability of six financial systems. Two assessments cover economies with large financial systems (United Kingdom, Hong Kong SAR). The remaining four focus on the emerging market (Chile, Philippines, South Africa) and frontier (Georgia) economies. For economies with large, systemically important financial systems it is mandatory to undergo financial stability assessments every five years. For others, assessments are carried out at the request of their governments.
The 2021 FSAP assessments include the following:
Chile features very large and deep local markets compared to other economies of similar size and level of development. The assessment will focus on the resiliency of the financial system, which exhibits a high level of interconnectedness between banks, mutual funds, pension funds, and insurance companies, particularly in light of the economic shocks that were experienced in the fourth quarter of 2019 and during the pandemic. It will also examine the effectiveness of banking, insurance, and financial market supervision following the reorganization and consolidation of the regulatory structure, with an emphasis on macroprudential policy coordination, the closing of regulatory gaps, and COVID-related forbearance measures.
Hong Kong SAR is a small, open economy, and a major international financial center. The FSAP will assess the financial sector’s cross-sectoral and cross-border linkages, in view of extensive linkages to mainland China, stretched real estate valuations, and exposure to shifts in global market and domestic risk sentiment. The assessment will review the regulatory and supervisory frameworks for fintech developments, in addition to regular risk and regulatory assessments of banking, securities and insurance markets, as well as a review of crisis management arrangements and macroprudential frameworks. In addition, there will be a detailed assessment of payments and financial market infrastructures.
Georgia is a small, open economy with a moderately-sized financial sector comprised almost entirely of banks. The banking system is relatively concentrated and highly dollarized in both deposits and lending—the latter leading to higher credit risks from unhedged borrowers of banks’ loans in foreign currency in case of currency depreciation. Against this backdrop, the FSAP will focus on banks’ solvency and liquidity risks, and carry out assessments of banking supervisory oversight, macroprudential policy (especially with regards to risks from financial dollarization), and financial safety nets, including bank resolution and deposit insurance. The World Bank will also examine financial sector competition, assess oversight of markets and payments systems, and provide guidance for development of capital markets and access to finance for small and medium enterprises.
The Philippines’ assessment was just concluded in March 2021. The country is now recovering from the impact of COVID-19. Banks dominate the financial system and entered the pandemic with solid capital and liquidity buffers. However, they are closely interconnected with nonfinancial corporations where market analysts forecast significant earning shocks, especially in retail, tourism, transportation, and construction industries. While recovering, the economy is also vulnerable to physical risks from climate change owing to its geographical position. The risk assessment examined bank resilience against COVID-19 shocks and physical risks (typhoon) and their interconnectedness with nonfinancial corporations. The assessment also evaluated bank oversight, macroprudential policy, and safety-net arrangements. The World Bank investigated oversight and developmental issues of insurers, payment systems, capital markets, and credit reporting, as well as climate change and environment risks supervision and deepening markets for green growth.
South Africa is home to Africa’s largest financial sector, with large cross-border banking groups and a well-developed investment fund and insurance sector. The assessment will examine the strength of the financial sector in a difficult environment of subdued growth and large fiscal deficits (exacerbated by a weak financial position of state-owned enterprises and the ongoing health and economic impact of COVID). The importance of capital flows to the financial sector will underpin the “capital-flows-at-risk” analysis, as well as the assessment of systemic liquidity management and macroprudential policy. The assessment will also examine banking, insurance, and securities markets; pension and cyber risk supervision; crisis management and resolution; fintech; financial inclusion; climate risk; and capital markets development.
The United Kingdom is one of the world’s most complex and open financial systems, hosting several globally systemic entities, and a large domestic financial sector. The 2021 FSAP will take place during a challenging macrofinancial period: While UK institutions have proven resilient to the pandemic’s sharp economic contraction, there could be scars that challenge the profitability prospects of the financial system. The United Kingdom’s exit from the European Union will lead to structural changes. And there are new developments—such as the growing share of market-based finance, adoption of new technologies, and the increasing importance of climate change and cyber risks—that deserve attention. The FSAP will examine risks in these areas and assess the adequacy of the oversight framework to safeguard financial stability.
Compliments of the IMF.
The post IMF | Economies in the Financial Spotlight in 2021 first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.