The European Commission proposes today a new instrument to address potential distortive effects of foreign subsidies in the Single Market. Today’s legislative proposal follows the adoption of the White Paper in June 2020 and an extensive consultation process with stakeholders. It aims at closing the regulatory gap in the Single Market, whereby subsidies granted by non-EU governments currently go largely unchecked, while subsidies granted by Member States are subject to close scrutiny. The new tool is designed to effectively tackle foreign subsidies that cause distortions and harm the level playing field in the Single Market in any market situation. It is also a key element to deliver on the updated EU Industrial Strategy also adopted today, by promoting a fair and competitive Single Market thereby setting the right conditions for the European industry to thrive.
Executive Vice-President Margrethe Vestager, in charge of competition policy and responsible for the cluster Europe Fit for the Digital Age, said: “Europe is a trade and investment superpower. In 2019 the stock of foreign direct investments  was worth more than 7 trillion euros. Openness of the Single Market is our biggest asset. But openness requires fairness. For more than 60 years, we’ve had a system of State aid control to prevent subsidy races between our Member States. And today we are adopting a proposal to also tackle distortive subsidies granted by non-EU countries. It is all the more important to ensure a level playing field in these challenging times, to support the recovery of the EU economy.”
Executive Vice-President Valdis Dombrovskis, responsible for An Economy that Works for People and for Trade, said: “Unfair advantages accorded through subsidies have long been a scourge of international competition. This is why we have made it a priority to clamp down on such unfair practices. They distort markets and provide competitive advantages on the basis of the support received, rather than on the quality and innovativeness of the products concerned. Today’s proposal complements our international efforts in this regard. It will level the playing field within the EU and encourage positive change, while maintaining the openness that is so vital to our economic strength.”
Commissioner for the Internal Market, Thierry Breton, said: “Our Single Market is fiercely competitive and attractive to foreign investors and companies. But being open to the world only works if everyone who is active in the Single Market, invests in Europe or bids for publicly funded projects, plays by our rules. Today we are closing a gap in our rule book to make sure that all companies compete on an equal footing and that no one can undermine the level playing field and Europe’s competitiveness with distortive foreign subsidies. This will strengthen Europe’s resilience.” 
EU rules on competition, public procurement and trade defence instruments play an important role in ensuring fair conditions for companies operating in the Single Market.  But none of these tools applies to foreign subsidies which provide their recipients with an unfair advantage when acquiring EU companies, participating in public procurements in the EU or engaging in other commercial activities in the EU. Such foreign subsidies can take different forms, such as zero-interest loans and other below-cost financing, unlimited State guarantees, zero-tax agreements or direct financial grants.
Today’s proposal is accompanied by an Impact Assessment report, which explains in detail the rationale behind the proposed Regulation and describes several situations in which foreign subsidies may cause distortions in the Single Market.
The Proposed Regulation
Scope
Under the proposed Regulation, the Commission will have the power to investigate financial contributions granted by public authorities of a non-EU country which benefit companies engaging in an economic activity in the EU and redress their distortive effects, as relevant.
In this context, the Regulation proposes the introduction of three tools, two notification-based and a general market investigation tool. More specifically:

A notification-based tool to investigate concentrations involving a financial contribution by a non-EU government, where the EU turnover of the company to be acquired (or of at least one of the merging parties) is €500 million or more and the foreign financial contribution is at least €50 million;
A notification-based tool to investigate bids in public procurements involving a financial contribution by a non-EU government, where the estimated value of the procurement is €250 million or more; and
A tool to investigate all other market situations and smaller concentrations and public procurement procedures, which the Commission can start on its own initiative (ex-officio) and may request ad-hoc notifications.

With respect to the two notification-based tools, the acquirer or bidder will have to notify ex-ante any financial contribution received from a non-EU government in relation to concentrations or public procurements meeting the thresholds. Pending the Commission’s review, the concentration in question cannot be completed and the investigated bidder cannot be awarded the contract. Binding deadlines are established for the Commission’s decision.
Under the proposed Regulation, where a company does not comply with the obligation to notify a subsidised concentration or a financial contribution in procurements meeting the thresholds, the Commission may impose fines and review the transaction as if it had been notified.
The general market investigation tool, on the other hand, will enable the Commission to investigate other types of market situations, such as greenfield investments or concentrations and procurements below the thresholds, when it suspects that a foreign subsidy may be involved. In these instances, the Commission will be able to start investigations on its own initiative (ex-officio) and may request ad-hoc notifications.
Based on the feedback received on the White Paper, the enforcement of the Regulation will lie exclusively with the Commission to ensure its uniform application across the EU.
If the Commission establishes that a foreign subsidy exists and that it is distortive, it will, where warranted, consider the possible positive effects of the foreign subsidy and balance these effects with the negative effects brought about by the distortion.
When the negative effects outweigh the positive effects, the Commission will have the power to impose redressive measures or accept commitments from the companies concerned that remedy the distortion.
Redressive measures and commitments
With respect to the redressive measures and commitments, the proposed Regulation includes a range of structural or behavioural remedies, such as the divestment of certain assets or the prohibition of a certain market behaviour.
In case of notified transactions, the Commission will also have the power to prohibit the subsidised acquisition or the award of the public procurement contract to the subsidised bidder.
Next Steps
The European Parliament and the Member States will now discuss the Commission’s proposal in the context of the ordinary legislative procedure with a view of adopt a final text of the Regulation.
The proposal will also be open for feedback for 8 weeks.
Once adopted, the Regulation will be directly applicable across the EU.
Background
The European Council in its Conclusions of the meeting on 21 and 22 March 2019 tasked the Commission to identify new tools to address the distortive effects of foreign subsidies on the Single Market. The Council also referred to the Commission’s White Paper in its Conclusions of 11 September 2020 and called for ‘further instruments to address the distortive effects of foreign subsidies in the Single Market’ in its Conclusions of 1-2 October 2020,.
In its February 2020 report on competition policy, the European Parliament called on the Commission to ‘investigate the option to add a pillar to EU competition law that gives the Commission appropriate investigative tools in cases where a company is deemed to have engaged in distortionary behaviour due to government subsidies…’.
In its Communication “A New Industrial Strategy for Europe” of 10 March 2020, the Commission confirmed that by mid-2020 it would adopt a White Paper on an Instrument on Foreign Subsidies, to address distortive effects caused by foreign subsidies within the Single Market. The Updated Industrial Strategy, adopted today, also identifies the proposed Regulation on foreign subsidies as one of the key actions delivering on the objective of EU’s open strategic autonomy.
In the 2021 Commission Work Programme and its Communication “Trade Policy Review” of 18 February 2021, the Commission announced that it would propose a legal instrument on foreign subsidies by mid-2021.
On 17 June 2020, the Commission adopted a White Paper proposing ways to deal with the distortive effects caused by foreign subsidies in the Single Market.
The public consultation on the White Paper ended on 23 September 2020. The Commission also consulted the public on the Inception Impact Assessment and run a targeted consultation with a sample of most impacted stakeholders.
The Commission has thoroughly analysed the input received and has taken it into due account when formulating today’s proposal.
Compliments of the European Commission.
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The European Commission is today complementing the successful EU Vaccines Strategy with a strategy on COVID-19 therapeutics to support the development and availability of much-needed COVID-19 therapeutics, including for the treatment of ‘long COVID’. Today’s Strategy covers the full lifecycle of medicines: from research, development and manufacturing to procurement and deployment.
It is part of the strong European Health Union, in which all EU countries prepare and respond together to health crises and ensure the availability of affordable and innovative medical supplies – including the therapeutics needed to treat COVID-19.
The Strategy includes clear actions and targets, including authorising three new therapeutics to treat COVID-19 by October 2021 and possibly two more by end of the year. Concretely:

Research, development and innovation

Invest €90 million in population studies and clinical trials to establish links between risk factors and health outcomes to further inform public health policy and clinical management, including for long-COVID patients.
Set up a ‘therapeutics innovation booster’ by July 2021 to support the most promising therapeutics from preclinical research to market authorisation. It will build on current initiatives and investments in therapeutic development, working in a close cooperation with the European Health Emergency Preparedness and Response Authority (HERA) preparatory action on mapping therapeutics. It will therefore ensure the coordination of all research projects on COVID-19 therapeutics, stimulating innovation and boosting therapeutic development.

Access to and swift approval of clinical trials

Invest €5 million under the EU4Health programme to generate better, high-quality safety data in clinical trials, which will help produce robust results in a timely manner.
Provide EU countries with financial support of €2 million under the EU4Health 2021 work programme for expedited and coordinated assessments to facilitate approval of clinical trials.
Explore how to support developers of therapeutics to build capacity to produce high-grade material for clinical trials.

Scanning for candidate therapeutics

Invest €5 million to map therapeutics and diagnostics to analyse development phases, production capacities and supply chains, including possible bottlenecks.
Establish a broader portfolio of 10 potential COVID-19 therapeutics and identify five of the most promising ones by June 2021.

Supply chains and delivery of medicines

Fund a €40 million preparatory action to support flexible manufacturing and access for COVID-19 therapeutics under the EU Fab project, which in turn will become over time an important asset for the future the European Health Emergency Preparedness and Response Authority (HERA).

Regulatory flexibility

Authorise at least three new therapeutics by October and possibly two more by the end of the year and develop flexible regulatory approaches to speed up the assessment of promising and safe COVID-19 therapeutics.
Start seven rolling reviews of promising therapeutics by end-2021, subject to research and development outcomes.

Joint procurement and financing

Launch new contracts for the purchase of authorised therapeutics by the end of the year.
Secure faster access to medicines with shorter administrative deadlines.

International cooperation to make medicines available to all

Reinforce engagement for the therapeutics pillar of the Access to COVID-19 Tools Accelerator.
Boost ‘OPEN’ initiative for international collaboration.

Next Steps
The Commission will draw up a portfolio of 10 potential COVID-19 therapeutics and by June 2021, identify the five most promising ones. It will organise matchmaking events for industrial actors involved in therapeutics to ensure enough production capacity and swift manufacturing. New authorisations, rolling reviews and joint procurement contracts will be up and running before the end of the year.
The therapeutics innovation booster, matchmaking events and preparatory action to support flexible manufacturing and access for COVID-19 therapeutics under the EU Fab project, will feed into the HERA, for which a proposal is due later in the year. The pilot project on access to health data will feed into the European Health Data Space proposal expected later this year.
Members of the College said:
Vice-President for Promoting our European Way of Life, Margaritis Schinas, said: “The situation in many intensive care units across the continent remains critical. We need to focus both on vaccines and therapeutics, as two powerful and complementary ways to combat COVID-19. But currently we have only one authorised medicine to treat COVID-19. By acting on better availability of medicines today, we are making sure patients receive the treatments they need while also preparing our future biomedical preparedness. A coordinated strategy on quick access to therapeutics will boost our strategic autonomy and contribute to a strong Health Union.”
Commissioner for Health and Food Safety, Stella Kyriakides, said: “Vaccinations save lives, but they cannot yet eradicate COVID-19. We need a strong push on treatments to limit the need for hospitalisation, speed up recovery times, and reduce mortality. Patients in Europe and across the world should have access to world-class COVID-19 medicines. This is why we have set a very clear goal: by October, we will develop and authorise three new effective COVID-19 therapeutics that can have the potential to change the course of the disease. We will do so by investing in research and innovation, the identification of new promising medicines, ramping up production capacity and supporting equitable access. Our Therapeutics Strategy is a strong European Health Union in action.”
Commissioner for Innovation, Research, Culture, Education and Youth, Mariya Gabriel, said: “By increasing vaccine availability across Europe, more and more Europeans are now protected against COVID-19. In the meantime, the development of innovative medicines to treat coronavirus patients remains a priority when it comes to saving lives. Research and innovation is the first step to finding effective and safe therapeutics, which is why we are proposing to establish a new COVID-19 ‘therapeutics innovation booster’ and will invest € 90 million in population studies and clinical trials.”
Background
The Strategy on COVID-19 therapeutics complements the EU strategy for COVID-19 vaccines from June 2020 and builds on ongoing work by the European Medicines Agency and the Commission to support research, development, manufacturing and deployment of therapeutics.
The Strategy forms part of a strong European Health Union, using a coordinated EU approach to better protect the health of our citizens, equip the EU and its Member States to better prevent and address future pandemics, and improve the resilience of Europe’s health systems.
Compliments of the European Commission.
The post Coronavirus: EU Commission proposes EU Strategy for the development and availability of therapeutics first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Advances in artificial intelligence (AI) technology promise to revolutionize our approach to medicine, finance, business operations, media, and more. But research has highlighted how apparently “neutral” technology can produce troubling outcomes – including discrimination by race or other legally protected classes. For example, COVID-19 prediction models can help health systems combat the virus through efficient allocation of ICU beds, ventilators, and other resources. But as a recent study(link is external) in the Journal of the American Medical Informatics Association suggests, if those models use data that reflect existing racial bias in healthcare delivery, AI that was meant to benefit all patients may worsen healthcare disparities for people of color.
The question, then, is how can we harness the benefits of AI without inadvertently introducing bias or other unfair outcomes? Fortunately, while the sophisticated technology may be new, the FTC’s attention to automated decision making is not. The FTC has decades of experience enforcing three laws important to developers and users of AI:

Section 5 of the FTC Act. The FTC Act prohibits unfair or deceptive practices. That would include the sale or use of – for example – racially biased algorithms.

Fair Credit Reporting Act. The FCRA comes into play in certain circumstances where an algorithm is used to deny people employment, housing, credit, insurance, or other benefits.

Equal Credit Opportunity Act. The ECOA makes it illegal for a company to use a biased algorithm that results in credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or because a person receives public assistance.

Among other things, the FTC has used its expertise with these laws to report on big data analytics and machine learning; to conduct a hearing on algorithms, AI and predictive analytics; and to issue business guidance on AI and algorithms. This work – coupled with FTC enforcement actions – offers important lessons on using AI truthfully, fairly, and equitably.
Start with the right foundation. With its mysterious jargon (think: “machine learning,” “neural networks,” and “deep learning”) and enormous data-crunching power, AI can seem almost magical. But there’s nothing mystical about the right starting point for AI: a solid foundation. If a data set is missing information from particular populations, using that data to build an AI model may yield results that are unfair or inequitable to legally protected groups. From the start, think about ways to improve your data set, design your model to account for data gaps, and – in light of any shortcomings – limit where or how you use the model.
Watch out for discriminatory outcomes. Every year, the FTC holds PrivacyCon, a showcase for cutting-edge developments in privacy, data security, and artificial intelligence. During PrivacyCon 2020, researchers presented work showing that algorithms developed for benign purposes like healthcare resource allocation and advertising actually resulted in racial bias. How can you reduce the risk of your company becoming the example of a business whose well-intentioned algorithm perpetuates racial inequity? It’s essential to test your algorithm – both before you use it and periodically after that – to make sure that it doesn’t discriminate on the basis of race, gender, or other protected class.
Embrace transparency and independence. Who discovered the racial bias in the healthcare algorithm described at PrivacyCon 2020 and later published in Science? Independent researchers spotted it by examining data provided by a large academic hospital. In other words, it was due to the transparency of that hospital and the independence of the researchers that the bias came to light. As your company develops and uses AI, think about ways to embrace transparency and independence – for example, by using transparency frameworks and independent standards, by conducting and publishing the results of independent audits, and by opening your data or source code to outside inspection.
Don’t exaggerate what your algorithm can do or whether it can deliver fair or unbiased results. Under the FTC Act, your statements to business customers and consumers alike must be truthful, non-deceptive, and backed up by evidence. In a rush to embrace new technology, be careful not to overpromise what your algorithm can deliver. For example, let’s say an AI developer tells clients that its product will provide “100% unbiased hiring decisions,” but the algorithm was built with data that lacked racial or gender diversity. The result may be deception, discrimination – and an FTC law enforcement action.
Tell the truth about how you use data. In our guidance on AI last year, we advised businesses to be careful about how they get the data that powers their model. We noted the FTC’s complaint against Facebook, which alleged that the social media giant misled consumers by telling them they could opt in to the company’s facial recognition algorithm, when in fact Facebook was using their photos by default. The FTC’s recent action against app developer Everalbum reinforces that point. According to the complaint, Everalbum used photos uploaded by app users to train its facial recognition algorithm. The FTC alleged that the company deceived users about their ability to control the app’s facial recognition feature and made misrepresentations about users’ ability delete their photos and videos upon account deactivation. To deter future violations, the proposed order requires the company to delete not only the ill-gotten data, but also the facial recognition models or algorithms developed with users’ photos or videos.
Do more good than harm. To put it in the simplest terms, under the FTC Act, a practice is unfair if it causes more harm than good. Let’s say your algorithm will allow a company to target consumers most interested in buying their product. Seems like a straightforward benefit, right? But let’s say the model pinpoints those consumers by considering race, color, religion, and sex – and the result is digital redlining (similar to the Department of Housing and Urban Development’s case against Facebook in 2019). If your model causes more harm than good – that is, in Section 5 parlance, if it causes or is likely to cause substantial injury to consumers that is not reasonably avoidable by consumers and not outweighed by countervailing benefits to consumers or to competition – the FTC can challenge the use of that model as unfair.
Hold yourself accountable – or be ready for the FTC to do it for you. As we’ve noted, it’s important to hold yourself accountable for your algorithm’s performance. Our recommendations for transparency and independence can help you do just that. But keep in mind that if you don’t hold yourself accountable, the FTC may do it for you. For example, if your algorithm results in credit discrimination against a protected class, you could find yourself facing a complaint alleging violations of the FTC Act and ECOA. Whether caused by a biased algorithm or by human misconduct of the more prosaic variety, the FTC takes allegations of credit discrimination very seriously, as its recent action against Bronx Honda demonstrates.
As your company launches into the new world of artificial intelligence, keep your practices grounded in established FTC consumer protection principles.
Author:

Elisa Jillson

Compliments of the Federal Trade Commission.
The post FTC | Aiming for truth, fairness, and equity in your company’s use of AI first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

1 Introduction
The UK referendum on EU membership in 2016 has set the course for the most significant change to the relationship between the United Kingdom and its closest trading partners for decades. The primary interest from the ECB’s perspective is to understand the likely impact on trade of the departure of the United Kingdom from the European Union, as the United Kingdom has long been one of the euro area’s major export markets.
This article reviews the development of UK import demand and balance of payments since the referendum in order to assess the likely implications for euro area foreign demand.[2] It focuses on early insights into factors which have affected UK imports in the period between the referendum and the start of the coronavirus (COVID-19) pandemic. The departure of the United Kingdom from the EU could potentially result in some disruption to euro area export growth in the coming years if, for instance, UK import demand is reduced or diverted as a consequence of Brexit.
The United Kingdom has long been a major trading partner for the euro area, accounting for around 14% of euro area foreign demand over the period 2016-18 (Chart 1). Until the mid-2010s, when the 2015 general election paved the way for the referendum, the United Kingdom had been the euro area’s largest single trading partner – even ahead of the United States. Developments in foreign demand are a major determinant of euro area GDP growth as non-euro area imports and exports of goods and services amount to around half of euro area GDP.

Chart 1
Euro area export destinations

(share of exports of goods and services, 2016-18 average)
Source: ECB staff calculations.
Note: RoW stands for the rest of the world.

Since the 2016 referendum, the UK’s share of euro area foreign demand has fallen somewhat, largely reflecting a notable slowdown in the growth of UK imports from the EU and, correspondingly, a sizeable drag on euro area exports (Chart 2). A marked deceleration in the growth of UK import demand since the end of 2017 has exacerbated a broader slowdown in the growth of non-euro area foreign demand, which has weighed on euro area export growth. In addition, uncertainties surrounding the various Brexit deadlines throughout much of 2019 and 2020 resulted in considerable quarterly volatility in the UK component of euro area foreign demand.

Chart 2
Euro area exports to non-euro area countries

(annual percentage changes of three-month moving averages, monthly data)
Sources: Eurostat and ECB staff calculations.
Notes: Exports of goods and services. The latest observation is for December 2020.

CONTINUE READING HERE
Compliments of the European Central Bank.
The post Understanding post-referendum weakness in UK import demand and UK balance of payments risks for the euro area first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Are the euro area’s economic prospects likely to worsen in a scenario where coronavirus variants continue to multiply?
The current situation is bittersweet. The first quarter was weaker than we expected three months ago. On the other hand, the pace of vaccination is gaining momentum across Europe. This is good news, because it will have a major impact on the economy. For the time being, it is estimated that growth will be around 4%. We expect the second half of the year to be very positive, even if there is still uncertainty. We note elsewhere that as soon as vaccination accelerates – like in the United Kingdom, Israel or the United States – the situation normalises rapidly. I hope that we will be in a much better situation by early summer.
Mario Draghi presented a €248 billion recovery plan which also contains important structural reforms. The Italian Prime Minister has said that Italy’s destiny is on the line. You worked alongside him as Vice-President for two years at the ECB: in your opinion, can Draghi restore trust in Italy?
Mario Draghi has made a very important contribution to Europe and is now making a very important contribution to Italy. For the time being, his main contribution to Italy is that he is leading a unity government that has the support of a very large majority in Parliament. That’s very important. And the recovery plan for Italy will be key to determining the future of its economy. I also think that Draghi’s prestige and reputation have provided the glue for the unity we are seeing in the Italian Parliament. This is an excellent signal for Europe as a whole.
You knew him in your capacity as Vice-President. What’s his best quality?
He has extraordinary leadership skills, which he clearly demonstrated as President of the ECB. And this is the best quality to allow a country to look ahead with confidence.
You said that Italy’s recovery plan is important for the success of the country. As Europe’s largest plan, is it not also crucial for the continent’s recovery?
One of the problems associated with the impact of the pandemic is that its effects were very divergent. In 2020 the average decline in GDP was just under 7%. However, in the Nordic countries, the contraction stopped at 4-5%, while in countries such as Spain it reached 11%. Fiscal situations also differ widely between northern and southern Europe. That’s why NextGenerationEU (NGEU) is so important: to avoid overly large gaps between countries. It is also important that it will be financed by the common issuance of bonds, and that part of the funds will be allocated in the form of grants. Lastly, NGEU has been designed to help above all the countries most affected by the pandemic. These three elements make the plan vital. NGEU does not simply seek to be a source of funding for short-term projects, but also to stimulate potential growth in the medium term. This is also why the funds will have to be accompanied by reforms to improve the productivity and competitiveness of the Member States. That’s also why it needs to be implemented and launched very quickly. The Commission will also need to approve the different plans quickly.
European countries like Italy will also re-emerge from the pandemic with huge public debt. Some are asking for it to be reduced. What do you think?
This isn’t a solution. Not only would it be an infringement of the Treaty, and therefore unacceptable for the ECB, but it would also be an economic mistake.
Why?
On the one hand, if the debt were cancelled, national central banks would need to use the profits they make to cover the losses instead of using them to pay dividends to the governments, as they now do at the end of each year. And what’s more, a decision of this kind would jeopardise the credibility of the central bank and undermine the effectiveness of our policies.
The German Federal Constitutional Court in Karlsruhe gave the green light, conditional on the German “own resources” law. It is feared that the final ruling will undermine any ambition to move forward with eurobonds in the future. Is this good or bad news?
It’s not for us to comment on court judgments. But if the European Commission is ever able to issue joint bonds for the first time, that will be because there was a political will to do so. And this seems to me to be an important step forward.
So eurobonds would be something positive.
When an agreement was reached on NGEU and its forms of financing, the markets reacted very positively. This happened because they saw the political will behind this agreement and because they understood that European governments were firmly committed to doing everything they could to deal with the consequences of the pandemic. We need to complete monetary union. And we need to complete banking union with the European deposit insurance scheme. Furthermore, we need to work on the capital markets union and to converge towards a European instrument to pursue a common fiscal policy.
China’s economy is picking up again; soon America’s will too. How risky is it that Europe’s recovery is lagging behind?
The situation in the United States is more comparable to the situation we have here in Europe. Still, in 2020 economic activity in the United States contracted only half as much as in the euro area. And now, according to the Federal Reserve, the US economy will grow very rapidly, by 6.5%. If you compare monetary policy programmes and fiscal stimulus on both sides of the Atlantic, they are similar. In 2020 the fiscal effort in Europe reached 8 percentage points of GDP, which was helped along by automatic stabilisers. And now we have NGEU, a generous and ambitious plan. The main difference is that it has not got off the ground yet, but I hope that it soon will, and we will then be able to quickly bridge the gap with the United States.
Nevertheless, this gap already seems to be having some unwanted side effects, at least for the ECB. The markets are jittery, they are worried inflation could increase in the United States and spread to Europe. Are these concerns justified?
The US recovery started earlier and it’s true that it has led to an increase in nominal yields for government bonds. This is natural given that we are starting to see things get back to normal. The vaccination rollout in the United States has been very fast, and their fiscal stimulus programme is very ambitious. And alongside the recovery, the markets also expect inflation to increase, which puts pressure on yields. At the ECB we have tried to counter this and we have succeeded: European bond yields have been very calm since March. The markets have understood that the United States are further ahead in the recovery cycle and that, based on the economic fundamentals, the pressure on yields was unjustified.
But there are still fears that the Fed could soon be forced to take a less accommodative stance, which would ramp up the pressure on the ECB.
The normalisation of monetary policy should go hand in hand with the normalisation of the economy. Once the pandemic is over and the economy starts to get back to normal, then obviously monetary policy will also have to start doing the same. An emergency programme like the pandemic emergency purchase programme is temporary by definition and designed to deal with the economic fallout from the pandemic. But – and this is key – any withdrawal of these extraordinary measures must occur in step with economic developments, and we need to pay extremely close attention to this. Phasing out stimuli too soon could stymie the recovery. At the same time, prolonging emergency measures for too long may run the risk of moral hazard as well as the zombification of parts of the European economy. So we need to take a balanced approach.
Some members of the ECB Governing Council are already calling for tapering in the light of a recovery in the second half of the year. Are they right to do so?
I don’t have any preconceived notions in this respect. The way in which the economy develops will be the deciding factor. If by speeding up the vaccination campaign we manage to have vaccinated 70% of Europe’s adult population by the summer and the economy starts to pick up speed, we may also start to think about phasing out the emergency mode on the monetary policy side. The manufacturing sector is already doing very well; services are still lagging behind but should soon be able to recover and close the gap with the industrial sector. We hope that in a year’s time the pandemic will be behind us, social distancing will be a memory and the economy will be back to pre-pandemic levels: monetary policy will have to adjust to that.
So you can think about raising interest rates?
No, that’s not what I said, I was referring to a cautious exit from the emergency programme, and I said that it should be managed with a great deal of prudence.
Are you concerned about the strengthening of the euro?
As you are aware, the exchange rate is not one of our monetary policy objectives. But it is definitely one of the most important variables when looking at macroeconomic trends. So we monitor it very closely to see what effect it might have on growth and inflation.
What course do you think inflation will take over the next few months?
We expect inflation to rise temporarily. It may even exceed 2% towards the end of the year, but this will only be because of temporary factors, such as soaring energy prices. On average, it will be 1.5% this year. We expect it to slow in 2022 and to stand at 1.4% in 2023.
As a result of NGEU, do you truly believe that the risk of countries like Germany speeding ahead and leaving the others behind has been averted? Germany has also invested a lot of its own money in the economy and had the fiscal space to do so. If the gaps between countries are too great, will this once again threaten the euro area’s resilience?
Excessive divergences between countries do indeed pose a threat to the euro area’s resilience. But the idea behind the recovery plan is exactly that, to prevent these excessive divergences from occurring. That’s why it was important that NGEU earmark more funds for the hardest hit countries like Italy and Spain. And this is especially true for countries such as Spain, whose economy is highly dependent on the services sector, which has been hit hardest by the pandemic.
Some people fear that the end of the pandemic – and debt moratoria – could trigger an avalanche of bankruptcies. Do you share these concerns?
It’s true that at the beginning of the crisis, one of the biggest concerns was the possibility that the crisis itself might be followed by a wave of bankruptcies, mainly in the tourism sector and services in general. That’s why it was important for some countries, including Italy and Spain, to provide financial support to the hardest hit sectors from the outset and decide to grant debt moratoria. This was also important to prevent the emergence of a vicious circle between sovereigns, banks and corporates. Again, in this situation, it will be crucial that these measures are withdrawn gradually and with a great deal of prudence after the crisis. Otherwise we run the risk of choking the recovery.
Do you think there is a risk of a new wave of non-performing loans and the zombification of part of the banking system?
As you know, there is always a lag between economic developments and changes to levels of non-performing loans. There will most likely be an increase in non-performing loans in the second half of the year, but we don’t expect it to be as acute as we feared at the start of the pandemic. Still, banks need to take timely action to minimise any cliff effects when the moratoria measures begin to expire.
There has been much talk of a digital euro. But following Facebook’s announcement that it would launch its own digital currency, “Diem”, is there a risk that Europe might be too late? Is the currency and the very existence of central banks under threat?
Central banks have played a key role worldwide in dealing with the pandemic and we must make sure we are also well equipped to deal with any future challenge, on all fronts. Our current focus is to deepen the analysis of how a digital euro should work and what it should look like to benefit European citizens and our economy. The Governing Council will decide around mid-2021 whether to initiate a project for the possible launch of a digital euro.
Compliments of the European Central Bank.

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Today, the Commission is proposing that Member States ease the current restrictions on non-essential travel into the EU to take into account the progress of vaccination campaigns and developments in the epidemiological situation worldwide.
The Commission proposes to allow entry to the EU for non-essential reasons not only for all persons coming from countries with a good epidemiological situation but also all people who have received the last recommended dose of an EU-authorised vaccine. This could be extended to vaccines having completed the WHO emergency use listing process. In addition, the Commission proposes to raise, in line with the evolution of the epidemiological situation in the EU, the threshold related to the number of new COVID-19 cases used to determine a list of countries from which all travel should be permitted. This should allow the Council to expand this list.
At the same time, the emergence of coronavirus variants of concern calls for continued vigilance. Therefore as counter-balance, the Commission proposes a new ‘emergency brake’ mechanism, to be coordinated at EU level and which would limit the risk of such variants entering the EU. This will allow Member States to act quickly and temporarily limit to a strict minimum all travel from affected countries for the time needed to put in place appropriate sanitary measures.
Non-essential travel for vaccinated travellers
The Commission proposes that Member States lift restrictions on non-essential travel for vaccinated persons travelling to the EU. This reflects the latest scientific advice showing that vaccination considerably helps to break the transmission chain.
Member States should allow travel into the EU of those people who have received, at least 14 days before arrival, the last recommended dose of a vaccine having received marketing authorisation in the EU. Member States could also extend this to those vaccinated with a vaccine having completed the WHO emergency use listing process. In addition, if Member States decide to waive the requirements to present a negative PCR test and/or to undergo quarantine for vaccinated persons on their territory, they should also waive such requirements for vacccinated travellers from outside the EU.
This should be facilitated once the Digital Green Certificate becomes operational, in line with the rules the Commission proposed on 17 March. In particular, travellers should be able to prove their vaccination status with a Digital Green Certificate issued by Member States’ authorities on an individual basis, or with another certificate recognised as equivalent by virtue of a Commission adequacy decision.
Until the Digital Green Certificate is operational, Member States should be able to accept certificates from non-EU countries based on national law, taking into account the ability to verify the authenticity, validity and integrity of the certificate and whether it contains all relevant data.
Member States could consider setting up a portal allowing travellers to ask for the recognition of a vaccination certificate issued by a non-EU country as reliable proof of vaccination and/or for the issuance of a Digital Green Certificate.
Children who are excluded from vaccination should be able to travel with their vaccinated parents if they have a negative PCR COVID-19 test taken at the earliest 72 hours before arrival area. In these cases, Member States could require additional testing after arrival.
Full lifting of non-essential travel restriction from more countries
Non-essential travel regardless of individual vaccination status is currently permitted from 7 countries with a good epidemiological situation. This list is decided by the Council on the basis of epidemiological criteria contained in the current recommendation.
The Commission is proposing to amend the criteria to take into account the mounting evidence of the positive impact of vaccination campaigns. The proposal is to increase the threshold of 14-day cumulative COVID-19 case notification rate from 25 to 100. This remains considerably below the current EU average, which is over 420.
The adapted threshold should allow the Council to expand the list of countries from which non-essential travel is permitted regardless of vaccination status, subject to health-related measures such as testing and/or quarantine. As now, the Council should review this list at least every 2 weeks.
Essential travel to remain permitted
Those travelling for essential reasons, including notably healthcare professionals, cross-border workers, seasonal agricultural workers, transport staff and seafarers, passengers in transit, those travelling for imperative family reasons or those coming to study should continue to be allowed to enter the EU, regardless of whether they are vaccinated or which country they come from. The same applies to EU citizens and long-term residents as well as their family members. Such travel should continue to be subject to health-related measures, such as testing and quarantine as decided by Member States.
‘Emergency brake’ to counter the spread of variants
When the epidemiological situation of a non-EU country worsens quickly and in particular if a variant of concern or interest is detected, a Member State can urgently and temporarily suspend all inbound travel by non-EU citizens resident in such a country. The only exceptions in this case would be healthcare professionals, transport personnel, diplomats, transit passengers, those travelling for imperative family reasons, seafarers, and persons in need of international protection or for other humanitarian reasons. Such travellers should be subject to strict testing and quarantine arrangements even if they have been vaccinated.
When a Member State applies such restrictions, the Member States meeting within the Council structures should review the situation together in a coordinated manner and in close cooperation with the Commission, and they should continue doing so at least every 2 weeks.
Next steps
It is now for the Council to consider this proposal. A first discussion is scheduled at technical level in the Council’s integrated political crisis response (IPCR) meeting taking place on 4 May, followed by a discussion at the meeting of EU Ambassadors (Coreper) on 5 May.
Once the proposal is adopted by the Council, it will be for Member States to implement the measures set out in the recommendation. The Council should review the list of non-EU countries exempted from the travel restriction in light of the updated criteria and continue doing so every 2 weeks.
Background
A temporary restriction on non-essential travel to the EU is currently in place from many non-EU countries, based on a recommendation agreed by the Council. The Council regularly reviews, and where relevant updates, the list of countries from where travel is possible, based on the evaluation of the health situation.
This restriction covers non-essential travel only. Those who have an essential reason to come to Europe should continue to be able to do so. The categories of travellers with an essential function or need are listed in Annex II of the Council Recommendation. EU citizens and long-term residents as well as their family members should also be allowed to enter the EU.
Following a proposal by the Commission, the Council agreed on 2 February 2021 additional safeguards and restrictions for international travellers into the EU, aimed at ensuring that essential travel to the EU continues safely in the context of the emergence of new coronavirus variants and the volatile health situation worldwide. These continue to apply.
On 17 March 2021, in a Communication on a common path to Europe’s safe re-opening, the Commission committed to keeping the operation of the Council Recommendation on the temporary restriction on non-essential travel into the EU under close review, and propose amendments in line with relevant developments. Today’s proposal updates the Council recommendation.
In parallel to preparing for the resumption of international travel for vaccinated travellers, the Commission proposed on 17 March 2021 to create a Digital Green Certificate, showing proof that a person has been vaccinated against COVID-19, received a negative test result or recovered from COVID-19, to help facilitate safe and free movement inside the EU. This proposal also provides the basis for recognising non-EU countries’ vaccination certificates.
The Council Recommendation on the temporary restriction on non-essential travel into the EU relates to entry into the EU. When deciding whether restrictions on non-essential travel can be lifted for a specific non-EU country, Member States should take account of the reciprocity granted to EU countries. This is a separate issue from that of the recognition of certificates issued by non-EU countries under the Digital Green Certificate.
The Council recommendation covers all Member States (except Ireland), as well as the 4 non-EU states that have joined the Schengen area: Iceland, Liechtenstein, Norway and Switzerland. For the purpose of the travel restriction, these countries are covered in a similar way as the Member States.
The latest information on the rules applying to entry from non-EU countries as communicated by Member States are available on the Re-open EU website.
For More Information
Proposal for a Council Recommendation on the temporary restriction on non-essential travel into the EU and the possible lifting of such restriction, 3 May 2021
Travel during the coronavirus pandemic
Compliments of the European Commission.
The post Coronavirus: Commission proposes to ease restrictions on non-essential travel to the EU while addressing variants through new ‘emergency brake’ mechanism first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

In the second half of 2020 global economic activity and trade staged a sharp rebound driven mainly by the manufacturing sector, while services sector activity was and has remained subdued. In the third quarter of 2020 global economic activity recovered swiftly as a result of the easing of the pandemic and associated containment measures as well as the significant policy support deployed at the peak of the crisis. Despite a slowdown in the last quarter of the year, reflecting a worsening of the pandemic, the pace of the global economic recovery in the second half of 2020 was overall stronger than initially estimated (ECB 2021, IMF 2021).[1] It was driven to a significant extent by the manufacturing sector (Chart A, upper panel), as production activities restarted and the demand for goods recovered. At the same time the services sector, and especially the most contact-intensive activities, lagged behind owing to continued social distancing and some remaining limitations. These also hit the travel and tourism sectors particularly hard. Following the collapse in global trade in the first half of 2020 (ECB 2020), global merchandise imports recovered, and by November 2020 they had reached their pre-crisis level again. [2] However, the recovery has progressed at different speeds across countries, with China – the first country to bring the virus under control – already returning to its pre-crisis level in June 2020 (Chart A, lower panel). It was only towards the end of the year that the recovery in trade started to spread to other key global economies.

Chart A
Developments in global economic activity and trade
Global merchandise trade and PMI indices
(left-hand scale year-on-year, percentage changes; right-hand scale diffusion indices)

Global merchandise trade and country contributions
(left-hand scale index, December 2019 = 100; right-hand scale contributions)
Sources: Markit, CPB and ECB calculations.
Notes: The global aggregate excludes the euro area. The latest observations are for March 2021 (PMI) and January 2021 (global merchandise trade).

The sharp rebound in global manufacturing activity caused a strong rise in international orders and resulted in some supply bottlenecks. Supply frictions are evidenced by rising supplier delivery times, which in turn are reflected in higher container shipping costs and, more generally, in higher input prices. In particular, the Global Purchasing Managers’ Indices (PMIs) for different manufacturing sub-sectors show how the sharp rebound in new orders for inputs of production since the trough in the second quarter of 2020 has been accompanied by a strong rise in supplier delivery times and an increase in input price pressures (Chart B). The sectors experiencing stronger disruptions in supply chains are basic materials, machinery and equipment, and cars. A particularly severe shortage in the supply of semiconductors is causing delays in car production globally.[3]

Chart B
Supplier delivery times and input prices

Global PMI Indices (diffusion indices)
(y-axis – PMI suppliers’ delivery times (reversed); x-axis – PMI new export orders, change between February 2021 and Q2 2020)
Sources: IHS Markit, Haver analytics and ECB staff calculations.
Notes: The size of the bubbles is proportional to the change in the PMI index for input prices between February 2021 and Q2 2020. Grey dots reflect increases in the PMI index for input prices below 10, yellow dots reflect increases between 10 and 15 and blue dots reflect increases in the PMI index greater than 15.

Rising ocean freight shipping costs are another sign of supply bottlenecks (Chart C, upper panel). Since the second half of 2020, global freight shipping costs have been on a steady recovery path from the lows reached in the midst of the pandemic. In recent months, however, they have reached levels not seen since after the Great Financial Crisis, while growth rates have risen above those observed since 2015. At the same time, transport costs on shipping routes from Asia and China to Europe and the Mediterranean, as well as the United States, have experienced a particularly sharp rise since the second half of the year. They appear to have peaked recently (Chart C, lower panel). Two factors are associated with the increase in shipping costs. On the one hand, the strong rise in demand for intermediate inputs on the back of stronger manufacturing activity raised the demand for Chinese exports and the demand for container shipments. At the same time, shortages of containers at Asian ports have exacerbated supply bottlenecks and further increased shipping costs as companies in Asia are reported to be paying premium rates to get containers back.[4] Reportedly, ports in Europe and the United States are congested amid logistics disruptions related to the coronavirus (COVID-19) pandemic and idle containers remain in several ports on the back of the uneven recovery of trade. Notably, available data point to a decrease in container ship traffic from important Asian ports, with the Asia-EU trade lane having experienced the biggest decrease (as indicated by the largest reduction in Chart D). In this context, the reliability of the schedules of global container services has declined to the lowest levels on record, according to new data from SeaIntelligence Consulting.[5] The rise in shipping costs has been further exacerbated by limited air freight capacity as international flight volumes have plunged due to travel restrictions and flight cancellations.

Chart C
Global and regional shipping costs

Global shipping costs
(year-on-year, percentage changes)

Freightos Baltic Index
(USD per forty-foot equivalent unit shipping container, contributions of sub-indices)
Sources: Bloomberg, Refinitiv, and ECB calculations.
Notes: The latest observations are for March 2021. The World Container Index (WCI) is a composite indicator of container freight rates for eight major trade lanes between Asia, Europe and North America. The China (Export) Containerized Freight Index (CCFI) is a composite indicator of container freight rates from all major ports in China. The Harpex is a composite indicator of weekly container shipping rate changes in the time charter market for eight different classes of container ships. The Freightos Baltic Global Container Freight Index (FBX) is a composite indicator of container freight spot rates across twelve major global trade lanes.

Chart D
Shipping capacity

(deadweight tons (DWT); 1 DWT=1,000 kilograms)
Sources: Bloomberg, IHS and ECB calculations.
Notes: Container ship vessels include container ro-ro cargo, container, deck cargo and general cargo vessels. Port of departure includes major Asian ports (Shanghai, Singapore, Shenzhen, Ningbo, Busan, Hong Kong and Klang). Port of destination, in addition to major Asian ports, includes major European ports (Rotterdam, Antwerp and Hamburg), major North American ports (Los Angeles, Long Beach and New York/New Jersey) and major South American ports (Santos, Colon and Cartagena). Shaded areas refer to the volume of traffic – when vessels are fully loaded – in April 2020, whereas the solid areas refer to the volume of traffic in February 2021. The thickness of edges is proportional to the aggregate deadweight tonnage (DWT) and percentages refer to the share of each destination out of total outbound DWT from Asia in April 2020 (shaded area) and February 2021 (solid areas) respectively.

The rise in global container shipping costs at the end of 2020 largely reflected stronger demand (Chart E). We use econometric analysis to disentangle the relative importance of the demand and supply forces.[6] The analysis suggests that at the start of 2020 supply constraints explained rising shipping costs, as containers were grounded as a consequence of the measures adopted to contain the spread of COVID-19. While such pressures persisted in the second quarter of the year, amid stringent containment measures globally, these were more than offset by the great trade collapse which led to a sharp decline in the Harpex. Shipping costs remained subdued in the third quarter as supply chain disruptions begun to subside, and global demand was on a path of gradual recovery and feeding only slowly into higher trade flows.[7] In the fourth quarter, however, the rise in shipping costs reflected above all the more vigorous recovery in global demand, and only to a smaller extent supply constraints in the shipping industry.[8] The surge in global oil and fuel prices further contributed to the spike in shipping costs.

Chart E
Historical decomposition of global shipping costs

(percentage point deviations from trend, contributions)
Sources: ECB staff calculations.
Notes: The decomposition is based on an SVAR model that employs: total shipping containers (measured in twenty-foot equivalent units (TEUs)), Harper Peterson Charter Rates Index (Harpex) of shipping costs and fuel prices. The model is identified using sign restrictions whereby a positive demand shock leads to an increase in both TEUs and the Harpex, while a positive supply shock leads to an increase in TEUs and a decline the Harpex (both have no contemporaneous impact on the oil price). An oil price shock leads to an increase in the oil prices and the Harpex, and a decline in TEUs. The model is estimated on monthly data (expressed in annual dynamics) from January 2013 to January 2021.

The surge in shipping costs raised the question to what extent these are passed on through the pricing chain. Importers commonly pass on part of rising transportation costs to consumers through higher prices, which could give rise to inflationary pressures. In order to gauge the potential magnitude of this effect, a structural vector autoregressive (SVAR) model has been estimated for the US economy, following Herriford et al. (2016).[9] The analysis suggests that after one year, the pass-through of shipping prices into US Personal Consumption Expenditures (PCE) inflation is rather limited.[10] Even a 50% annual increase in the Harpex – similar to that experienced leading up to January 2021 – could raise annual PCE inflation by up to 0.25 percentage points one year later. The size of this effect is also explained by the fact that international shipping costs make up only a relatively small share of the final cost of manufacturing output.[11] Overall, given that supply challenges are largely driven by transportation rather than production constraints, the rise in transportation costs is expected to have only a modest impact on global economic activity.[12]
As supply adjusts to higher demand freight costs might decline again. Overall, higher shipping costs and longer delivery times have caused temporary frictions in supply chains. However, as supply adjusts to increased demand, these bottlenecks should delay but not derail the global recovery.[13] At the same time, as lockdowns are lifted and consumers rebalance their spending towards services, some easing of the current supply bottlenecks should be expected, with knock-on effects on shipping costs.
Authors:

Maria Grazia Attinasi
Alina Bobasu
Rinalds Gerinovics

Compliments of the European Central Bank.
The post ECB | What is driving the recent surge in shipping costs? first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.