Eurogroup | Statements and remarks by Paschal Donohoe | 27 January 2021 |
Today, we mark an important milestone in the further development of the Economic and Monetary Union, which will strengthen euro area’s crisis prevention and resolution capabilities as well as the Banking Union. We also demonstrate our unity of purpose to deliver progress on important issues for the benefit of all our citizens.
Representatives from the Member States have signed the amending agreements to the Treaty on the European Stability Mechanism and the Single Resolution Fund Intergovernmental Agreement[1]. This signature launches the ratification procedures in the Member States, in accordance with their national constitutional requirements.
On 30 November 2020, the Eurogroup reached a political agreement in relation to the ESM reform package. The agreement will make the ESM more effective and flexible. This includes the ESM providing a common backstop to the Single Resolution Fund by means of a credit line as of the beginning of 2022, two years ahead of schedule. The decision taken by Eurogroup regarding the early introduction of the backstop recognises the considerable efforts by the European banking sector, supervisors, and Member States in significantly improving all risk reduction indicators during recent years.
The common backstop will help to ensure that a bank failure does not harm the broader economy or cause financial instability. It will be financed by contributions from the banking sector and not by taxpayers’ money, thereby reducing the link between banks and sovereigns in the Banking Union.
The ESM Treaty reform will expand the ESM’s mandate with new tasks and responsibilities: it will be equipped with a more accessible precautionary credit line and have a stronger role in financial assistance programmes and crisis prevention. Together with the early introduction of the common backstop, this will help to ensure that the euro area is capable of handling challenges if they arise.
I look forward to the completion of national ratification procedures to allow the entry into force of both agreements as of next year.
Compliments of the Council of the European Union.
The post Statement by the Eurogroup President, Paschal Donohoe, on the signature of ESM Treaty and the Single Resolution Fund Amending Agreements first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Following a review under the recommendation on the gradual lifting of the temporary restrictions on non-essential travel into the EU, the Council updated the list of countries for which travel restrictions should be lifted. As stipulated in the Council recommendation, this list will continue to be reviewed every two weeks and, as the case may be, updated.
Based on the criteria and conditions set out in the recommendation, as from 28 January member states should gradually lift the travel restrictions at the external borders for residents of the following third countries:

Australia
New Zealand
Rwanda
Singapore
South Korea
Thailand

China, subject to confirmation of reciprocity

Travel restrictions should also be gradually lifted for the special administrative regions of China Hong Kong and  Macao, subject to confirmation of reciprocity.
Residents of Andorra, Monaco, San Marino and the Vatican should be considered as EU residents for the purpose of this recommendation.
The criteria to determine the third countries for which the current travel restriction should be lifted cover in particular the epidemiological situation and containment measures, including physical distancing, as well as economic and social considerations. They are applied cumulatively. Reciprocity should also be taken into account regularly and on a case-by-case basis.
Schengen associated countries (Iceland, Lichtenstein, Norway, Switzerland) also take part in this recommendation.
Background
On 16 March 2020, the Commission adopted a communication recommending a temporary restriction of all non-essential travel from third countries into the EU for one month. EU heads of state or government agreed to implement this restriction on 17 March. The travel restriction was extended for a further month respectively on 8 April 2020 and 8 May 2020.
On 11 June the Commission adopted a communication recommending the further extension of the restriction until 30 June 2020 and setting out an approach for a gradual lifting of the restriction on non-essential travel into the EU as of 1 July 2020.
On 30 June the Council adopted a recommendation on the gradual lifting of the temporary restrictions on non-essential travel into the EU, including an initial list of countries for which member states should start lifting the travel restrictions at the external borders. The list is reviewed every two weeks and, as the case may be, updated.
The Council recommendation is not a legally binding instrument. The authorities of the member states remain responsible for implementing the content of the recommendation. They may, in full transparency, lift only progressively travel restrictions towards countries listed.
A Member State should not decide to lift the travel restrictions for non-listed third countries before this has been decided in a coordinated manner.
Contact:

Verónica Huertas Cerdeira, Press officer | veronica.huertas-cerdeira@consilium.europa.eu

Compliments of the Council of the European Union.
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Food systems face the triple challenge of providing food security and nutrition for a growing global population, and livelihoods to farmers and others working in food supply chains around the world, all while improving environmental sustainability.
Given the deep connections between these objectives, governments can do much more to take into account the synergies and trade-offs that exist between the different areas, as well as the challenges for developing more coherent policy, according to a new OECD report.
Making Better Policies for Food Systems brings together decades of OECD research and policy recommendations on food systems. The report underlines the long track record providing data, evidence and policy recommendations on topics ranging from agricultural productivity and trade to obesity, water use, rural development and global value chains. It notes that these and other topics were usually considered in isolation, rather than as components of wider food systems policies.
The centrality of food systems for the Sustainable Development Goals has led the UN to convene a Food Systems Summit in September 2021. Development of a new “food systems approach,” capable of simultaneously making progress on the three dimensions of food security/nutrition, livelihoods and environmental sustainability, will require better coordination between policy makers in a range of sectors, including  agriculture, fisheries, environment and public health, according to the OECD report.
This new approach will require policymakers to take a holistic view on food system objectives, as well as new efforts to avoid incoherent policies. In practice, this would mean that agricultural policymakers – who have traditionally focussed on agricultural production – would place a greater emphasis on the possible effects of farm policies on nutritional and environmental outcomes. Similarly, where environmental problems related to agriculture have in the past been addressed through agri-environmental policies, a food systems approach opens the possibility to use other instruments, such as those that promote changes in consumer or enterprise behaviour.
A food systems-based approach recognises the complexity of potential synergies and trade-offs between food security and nutrition, livelihoods and environmental sustainability. Rising demand for some food products may benefit producers in poor countries while simultaneously bringing negative environmental consequences. Changes in food prices may benefit producers while harming poorer consumers. Conditions vary enormously between smallholder farmers in developing countries, those doing extensive grazing-based farming and high-tech farmers in advanced economies.
This complexity will require tailored and multi-dimensional policies, based on robust, evidence-based and inclusive policy processes. The OECD highlights the clear need to reform agricultural and fisheries support policies that are the most distorting and which create negative environmental effects. Beyond that, making better policies for food systems will require overcoming disagreements on facts, but also diverging interests and differing values among stakeholders, according to the report.
Case studies on the seed sector, the ruminant livestock sector and the processed food sector provide in-depth discussion of how each can help address the triple challenge, the synergies and trade-offs that exist, as well as the differing policy processes that have been used in various countries.
The report focuses on three linked areas:

the actual performance of food systems, and  the role of policy;
how policymakers can design food systems policies taking into account the three dimensions of food security/nutrition, livelihoods and environmental sustainability; and
the common factors complicating efforts to design better food system policies, and potential solutions.

For further information on OECD work on food systems go to: www.oecd.org/food-systems.
Contact:

Lawrence Speer in the OECD Media Office  | Lawrence.Speer@oecd.org

Compliments of the OECD.
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Interview with Philip R. Lane, Member of the Executive Board of the ECB, conducted by Elena Laskari on 26 January 2021 |
Euro area economies are still under pressure because of the second wave of the pandemic and it is still unclear if we are closer to the end of the tunnel or closer to a third wave. According to the ECB’s forecasts, how many years will it take for our economies to heal the scars of the pandemic and return to where they were in 2019?
There’s no doubt that in the near term it’s a difficult situation. Many parts of the European economy are under some kind of lockdown measure right now, but we think this is maybe more delaying the recovery rather than posing a major long-term problem. So, we still think that by the middle of next year, so maybe towards the end of the summer of 2022, we will have returned to 2019 levels of GDP. I think it’s important to say that this year will be a year where initially, right now, there are lots of restrictions. But over the course of the year, as the vaccination programmes are rolled out, we think the economy can grow quite quickly. So there will be a lot of recovery later this year and next year. I should emphasise that even if the overall economy does recover, not every sector will recover in the same way. So there will be scars in some sectors of the economy.
Until 2022, right?
Right, so another year, year-and-a-half.
Do these projections include Greece as well?
What I’m focusing on there is the overall European aggregate picture, but at this point the pandemic is fairly common, fairly general across countries. Now, of course, for economies like Greece for example, the recovery will be heavily dependent on the recovery of tourism. But again, this depends on the speed of the vaccination campaign.
Will the recovery be an easy process? Is there a risk of a new financial crisis following the pandemic?
It’s very important to emphasise that we think there will be a lot of momentum, so we will see a strong growth rate later this year and next year because essentially the pandemic is an artificial type of recession. We know that much of the recession is because we have to suspend normal economic activity. When that suspension is over there can be a strong recovery. But as I mentioned to you, if you have been losing income in this period because your restaurant, your hotel or your service industry has been compromised, that income is a loss to you. But in terms of the recovery, in terms of the recovery of demand, we do think it will be a significant recovery later this year and into next year.
But at the same time we’re witnessing a rally in the stock markets while the real economy is suffering and banks risk facing an “explosion” of non-performing loans. Do you think that stock markets are “irrationally exuberant”?
First of all, let me say that I am not an investment adviser, so I don’t take a stance on whether markets are correctly pricing the value of stocks. But again, this returns to my basic point here. We have another year, year-and-a-half of this pandemic. But from the point of view of the stock markets, they look forward, not just to this year and next year, but many years into the future. So the stock markets are confident that there will be a recovery later this year and next year. On the point you mentioned about non-performing loans: of course, we do think there will be an increase. But to respond to your general question about the issue of the financial crisis: so much has been done. So much has been done by governments in terms of all sorts of subsidy programmes. We are maintaining favourable financing conditions at the ECB. A lot has been done, measures have been taken to counteract that risk, so I would not be disproportionately concerned about the financial damage of this pandemic.
Regarding Greece, the end of the pandemic will find the country with a debt-to-GDP ratio of more than 200 per cent and possibly still without an investment grade. Do you think that, after almost ten years of economic crisis and adjustment programmes here in Greece, we will need a new programme? And how would this relate to the ECB’s pandemic emergency purchase programme (PEPP)?
I think the overriding point is that the increase in public debt is everywhere. There’s a large increase in public debt across the world. First of all, the most important point to mention is that this has been necessary. It has been inescapable that in a pandemic the government has to do a lot. In that context, I think there’s a very natural reason why public debt has increased. And what we see is a low interest rate environment. So the ability to finance this debt, the ability to service this debt – we think even at high debt levels – is much easier than before. That does not remove the longer-term issue that high debt levels will need careful monitoring. But they will be more easily managed over the long term because the more quickly the economy grows, the more reforms are introduced over time to support a fast-growing economy. This is why the Next Generation EU plan is so important. There’s now a common European initiative with common funding to support an acceleration of digitalisation and the green economy, and many initiatives that will support a faster-growing European economy.
Last March, Mario Draghi wrote in the “Financial Times” that we are facing a war, and that wars are financed by increases in public debt. That is what we are seeing; that’s what’s happening. Do you think that the return to normality could or should include the cancellation of debts – private, as Mr Draghi has suggested, and/or public, as some others are saying?
Let me emphasise that a little bit. So much has happened since then in terms of the amount of support offered by governments in order to make sure that firms and households are supported as far as possible during this pandemic. So, if you like, the prospect of a lot of unsustainable debt in the private sector has been curtailed by the amount of fiscal support. Then, let me go back to what I said already. The most important issue is that in a world of very low interest rates the capacity to manage this debt is much greater than was maybe envisaged last March. Of course, again, to reiterate the bottom line: the cancellation of public debt is not part of the Treaty for the ECB. More generally, I think the focus should be on re-emphasising the importance of the roles of the governments at this point, the importance of the EU common funding which we have in place, the importance of accelerating growth rates after the pandemic, and to put all of that in the context of this, as you say, really large event, like a war. It’s temporary. We know it’s only going to last another year, year-and-a-half in terms of its main economic impact and therefore these extraordinary measures can be sustained, because it’s only for a relatively brief period of time compared with the normal business cycle or financial cycle.
Compliment of the European Central Bank.
The post ECB | Interview with SKAI TV: Looking past the pandemic first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Blog post by HR/VP Josep Borrell |
The inauguration of Joe Biden opens a welcome new chapter in EU-US relations. As President Biden has signalled, there is much to repair and rebuild, both at home and abroad. But this is above all a moment of opportunity. We as EU are ready to revive our partnership, which is so important at a time of tumultuous global change.
Like millions of people around the world, I followed President Biden’s inaugural address. Naturally, the President focused his speech principally on how to heal a divided nation, how to bring Americans back together and cope with the pandemic crisis by building back better. However, looking beyond America, he also announced that the US will “lead, not merely by the example of our power, but by the power of our example” and vowed to “repair our alliances and engage with the world once again”.
“The transatlantic partnership has shaped international relations and global order more than any other relationship. It is our most strategic relationship.”
The EU is ready for that: we have a unique opportunity to work together again to tackle a variety of global challenges. Even during the turbulence and challenges of the Trump administration, the truth remained: the transatlantic partnership, which more than any other relationship has shaped international relations and global order. It is our most strategic relationship, being not only indispensable for security and prosperity in the transatlantic area, but also to sustain a world order anchored in democracy, the rule of law and multilateralism.
‘Making multilateralism great again’
The President underlined that the US will “be a strong and trusted partner for peace, progress and security”. Europe wants it closest partner back at the world’s table. The EU and US must pull in the same direction when it comes to resolving the growing number of conflicts and geopolitical tensions, to define common standards and norms for the 21st century, and to work on shaping and strengthening the multilateral system. I look forward to work with State Secretary Blinken, who has also already vowed a new era of international cooperation. Let’s work together in making multilateralism great again.
A reinforced transatlantic partnership is key for global change
Together with the European Commission, I put forward a comprehensive “EU-US agenda for global change”, which spans four broad areas: green leadership, the COVID-19 response and global health, trade and technology, and global action and security.
“The world needs American and European leadership in the battle against the COVID-19 pandemic and shaping the global recovery.”
In the coming weeks and months, the focus on both sides of the Atlantic will be on tackling the COVID-19 pandemic and ensuring a solid pathway to global recovery. The world needs American and European leadership in this battle and I am very happy that President Biden has already signed an executive order reversing the decision to leave the World Health Organization (WHO) and that the US has announced yesterday to sign up to the WHO’s international vaccine-sharing Covax programme. We look forward to work with the new administration on fighting the pandemic and shaping the recovery. At all levels: be it government to government, but also business, civil society, and scientists. It is already underway: the first vaccine used in the US and the EU is a “transatlantic product”, developed by a joint venture between a German and a US company.
We can all see how the pandemic and the related economic downturn also provide a perfect breeding ground for populism, radical ideas, and consequently divisions and social unrest. The assault on 6 January storm on the Capitol was a wake-up call for all democracy advocates around the world. Indeed, as President Biden said, “we have learned again that democracy is precious, democracy is fragile”. We must fight disinformation and inequalities and ensure that our democratic narrative prevails. It is urgent that both the EU and the US take concrete steps to stem the rise in authoritarianism, corruption and human rights abuses.
US re-joining the Paris Agreement and addressing the climate crisis
The decision of President Biden to re-join the Paris climate agreement is fundamental. Working together on the climate crisis is at the forefront of our agenda: today, we – EU Foreign Ministers and my colleague Executive Vice-President Frans Timmermans – already held a video conference with the new US Climate Envoy John Kerry and discussed how the EU and the new US administration can cooperate again in the global fight against climate change.
“The decision of President Biden to re-join the Paris climate agreement is fundamental.”
The EU proposes to establish a comprehensive transatlantic ‘green agenda’, to mobilise more ambitious global climate action, starting with a joint commitment to net-zero emissions by 2050. For this, we need in particular to work on measures to build a green technology alliance; phase out fossil fuels; avoid carbon leakage; develop a global regulatory framework for sustainable finance; help poorer countries to adapt to climate change and pursue a joint leadership in the fight against deforestation. We have much to do together and we have no time to waste.
The global order, peace and security
There can be no doubt that the US plays an essential role in the maintenance of peace and security, and also in European security. Indeed, in many places on our continent and at our borders, we need to work together to get sustainable results, from the Western Balkans, to the Eastern Mediterranean to Ukraine and beyond. As global partners, we will have to deepen our dialogue and cooperation in all areas, including on reviving the Iran nuclear deal and the broader area of non-proliferation and arms control. In addition, we will soon begin a dialogue to discuss the full range of issues related to China. We will also look at opportunities for cooperation across the globe where our interests coincide.

“A strong and capable Europe is not a rival to the trans-Atlantic alliance but a precondition for it.”

Many US administrations have insisted that Europe increases its defence efforts to take better care of its own security and act as a security provider. So it matters that we are already actively working to strengthen EU defence policies, capacities and operations. Our flagship defence initiatives now include the Permanent Structured Cooperation (PESCO), the European Defence Fund (EDF) and military mobility. Indeed, a strong and capable Europe is not a rival to the trans-Atlantic alliance but a precondition for it.
Reinforcing defence capabilities of EU member states strengthen the Alliance and contribute to transatlantic burden-sharing. A more assertive, more capable and resilient Europe is the best partner for the US. Enhancing Europe’s security role will allow for a better cooperation with the US when it comes to the security risks of today and those of the future. It is clear that we have much to gain from close cooperation with the US to address pressing security challenges, from cyber security to hybrid threats, protecting our critical infrastructure and the security implications of climate change. We should certainly be ambitious in this area.
While we step up cooperation, we should be mindful that the experience of the last four year have left their toll on European public opinion. Indeed a clear majority of Europeans, as explained in a recent ECFR report(link is external), now believe that even under President Biden, the US will be mostly consumed with healing internal divisions and will have little capacity or will to help solve global problems. And there are underlying reasons—demographic, economic, and political—why the historical trajectory of the United States and Europe could well diverge. However, we appreciate that at least for the next four years there will be a US President who believes in partnership with democratic allies. And we don’t just feel appreciation for this restoration, but we recognize its necessity.
Working together on technology, trade and standards
Technology issues are now part of foreign policy. That’s why the rapid technological change in front of us gives us a window of opportunity to develop a joint EU-US strategic ‘high tech agenda’. We want to cooperate on devising clear rules and their enforcement on the responsibility of online platforms and Big Tech, work together on fair taxation and market distortions, and develop a common normative approach to the future development of key technologies. Let us in the ‘tech democracies’ provide a response to these challenges before it is too late.
In sum, the list of challenges we face is long. And sometimes differences in views between us will persist. That is normal. However, with Biden, the tone and basic posture is changing. In diplomacy, that matters a lot. C’est le ton qui fait la musique, as they say in French. Let’s get to work and rebuild our alliance for democracy, prosperity, global security and a better and more stable world.
Compliments of the Delegation of the European Union to the United States.
The post Biden’s presidency begins: a fresh start for the US but also for transatlantic relations first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The EU trade agenda is set to have an overall positive impact on the EU economy and the agri-food sector, according to a new study published today. Trade agreements are due to result in substantial increases in EU agri-food exports, with more limited increases in imports, creating a positive trade balance overall. The study also confirms that the EU’s approach to grant a limited amount of lower duty imports (through tariff rate quotas) is the best approach in terms of protecting specific vulnerable agri-food sectors in the EU.
The study carried out by the Commission’s Joint Research Centre (JRC) covers the cumulative effects of 12 trade agreements on the agri-food sector by 2030, an update of a 2016 study. A theoretical modelling exercise, the study includes trade results for the agricultural sector as a whole, and sector-specific impacts on trade, producer prices and production volumes.
Commenting on the study, Executive Vice-President responsible for trade Valdis Dombrovskis said: “The EU has always stood for open and fair trade which has enormously benefitted our economy, including agricultural producers. This study shows that we have been able to strike the right balance between offering more export opportunities to EU farmers, while protecting them from potential harmful effects of increased imports. Supporting the EU agri-food sector will continue to be a key element of the EU’s trade policy, be it through market opening, protecting traditional EU food products or defending it against dumping or other forms of unfair trade.”
Agriculture Commissioner Janusz Wojciechowski said: “The success of EU agricultural trade reflects the competitiveness of our sector. Reforms of the Common Agricultural Policy have highly contributed to this, supported by a global reputation of EU products as being safe, sustainably produced, nutritious and of high quality. This study, with more positive results than in 2016, confirms that our ambitious trade agenda helps EU farmers and food producers take full advantage of opportunities abroad while making sure we have sufficient safeguards in place for the most sensitive sectors.”
The study covers free trade agreements (FTAs) recently concluded or implemented by the EU, as well as trade agreements on the EU agenda. It includes two scenarios, an ambitious one (full tariff liberalisation of 98.5% of all products, and a partial tariff cut of 50% for the remaining products) and a more conservative one (full liberalisation of 97%, and 25% tariff cut for the others). In addition, included in the scenarios, the five concluded FTAs are modelled on the basis of the negotiated outcome. The results of the scenarios are both compared to a reference scenario of business as usual in 2030. Environmental and climate effects do not fall within the scope of today’s study, including any Green Deal related initiatives. The Sustainability Impact Assessments prepared in support of trade negotiations already provide the Commission with an in-depth analysis of the potential economic, social, human rights, and environmental impacts .
Main findings
Throughout the study, findings are for 2030, with the different scenarios compared to the reference scenario of business as usual.
For both scenarios, the results show a positive impact on the EU agri-food trade balance by 2030. While EU trade partners gain market access in the EU, it also allows EU exports to grow significantly. EU agri-food exports to the 12 FTA partners are set to increase by 25% (conservative scenario) and by 29% (ambitious scenario), while imports increase by 10% (conservative) and by 13% (ambitious), both compared to the reference scenario. This corresponds to the EU total agri-food exports increasing by €4.7 billion (conservative) and by €5.5 billion (ambitious), and total agri-food imports by €3.7 billion (conservative) and €4.7 billion (ambitious).
The study confirms that the EU agricultural sector can benefit from the EU trade agenda. A comparison of the 2016 versus 2021 cumulative impact studies shows the effectiveness of tariff rate quotas in mitigating impacts on our sensitive sectors such as beef, rice or sugar. In fact, the 2016 study already informed the strategy towards Mercosur and this update can be used as an evidence base for the need for Tariff Rate Quotas in ongoing trade negotiations. Furthermore, an ambitious future Common Agriculture Policy, supporting innovation, sustainability and the competitiveness of the EU farming sector, can also contribute to minimise any negative outcomes of trade negotiations while reinforcing the positive ones.
More details on the economic assessment is available in the study, including information about the methodology and caveats.
The outcome of the study was presented yesterday to EU Ministers at the AGRIFISH Council and presented today at the European Parliament’s Committee on Agriculture and rural development.
Compliments of the European Commission.
The post EU Commission study finds positive impact of trade agreements on agri-food sectors first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

New unit, operational as of early 2021, to strengthen and bring together ECB work on climate
Decision reflects growing importance of climate change for the economy and the ECB’s policy
Climate change centre will shape and steer climate agenda

The European Central Bank (ECB) has decided to set up a climate change centre to bring together the work on climate issues in different parts of the bank. This decision reflects the growing importance of climate change for the economy and the ECB’s policy, as well as the need for a more structured approach to strategic planning and coordination.
The new unit, which will consist of about ten staff working with existing teams across the bank, will report to the ECB’s President, Christine Lagarde, who oversees the ECB’s work on climate change and sustainable finance.
“Climate change affects all of our policy areas,” said ECB President Christine Lagarde. “The climate change centre provides the structure we need to tackle the issue with the urgency and determination that it deserves.”
The climate change centre will shape and steer the ECB’s climate agenda internally and externally, building on the expertise of all teams already working on climate-related topics. Its activities will be organised in workstreams, ranging from monetary policy to prudential functions, and supported by staff that have data and climate change expertise. The climate change centre will start its work in early 2021.
The new structure will be reviewed after three years, as the aim is to ultimately incorporate climate considerations into the routine business of the ECB.
Contact:

Eva Taylor, e: eva.taylor@ecb.europa.eu | tel.: +49 69 1344 7162.

Compliments of the European Central Bank.
The post ECB sets up climate change centre first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Keynote speech by Christine Lagarde, President of the ECB, at the ILF conference on Green Banking and Green Central Banking |
Frankfurt am Main, 25 January 2021
In the famous fable “Belling the Cat”,[1] a group of mice gather to discuss how to deal with a cat that is eating them one by one. They hatch a plan to put a bell on the cat so they can hear it coming and escape before being caught. When it comes to who will actually do it, however, each mouse finds a reason why they are not the right mouse for the job, and why another mouse should do it instead. The cat never does receive a bell – and the story ends poorly for the mice.
In many ways, that fable describes mankind’s reaction to the threats posed by climate change. Already in 1986, the front cover of Der Spiegel showed Cologne cathedral half-submerged by water and the headline declared a “Climate Catastrophe”.[2] This is just one example, among many, that demonstrates that people were aware of the risks posed by climate change a generation ago. Yet, while many people agreed on the seriousness of the issue, and that something had to be done, concrete action has been much less prevalent.
It is with this history in mind that I want to talk about the role of central banks in addressing climate change. Clearly, central banks are not the main actors when it comes to preventing global heating. Central banks are not responsible for climate policy and the most important tools that are needed lie outside of our mandate. But the fact that we are not in the driving seat does not mean that we can simply ignore climate change, or that we do not play a role in combating it.
Just as with the mice in the fable, inaction has negative consequences, and the implications of not tackling climate change are already visible. Globally, the past six years are the warmest six on record, and 2020 was the warmest in Europe.[3] The number of disasters caused by natural hazards is also rising, resulting in $210 billion of damages in 2020.[4] An analysis of over 300 peer-reviewed studies of disasters found that almost 70% of the events analysed were made more likely, or more severe, by human-caused climate change.[5]
That said, there are now signs that policy action to fight climate change is accelerating, especially in Europe. We are seeing a new political willingness among regulators and fiscal authorities to speed up the transition to a carbon neutral economy, on the back of substantial technological advances in the private sector.
This increased action is often considered as a source of transition risk, which we need to take into account and reflect in our policy framework. This is not “mission creep”, it is simply acknowledging reality. Yet the transition to carbon neutral is not so much a risk as an opportunity for the world to avoid the far more disruptive outcome that would eventually result from governmental and societal inaction. Scenarios show that the economic and financial risks of an orderly transition can be contained. Even a disorderly scenario, where the economic and financial impacts are potentially substantial, represents a much better overall outcome in the long run than the disastrous impact of the transition not occurring at all.[6]
It now seems likely that faster progress will be made along three interlocking dimensions. Each of them lies outside the remit of central banks, but will have important implications for central bank balance sheets and policy objectives.
Including, informing and innovating
The first dimension along which we expect rapid progress is including the true social and environmental cost of carbon into the prices paid by all sectors of the economy.
Appropriate pricing can come via direct carbon taxes or through comprehensive cap and trade schemes. Both are used to some extent in the EU. It is likely, though, that the next steps in Europe will come mainly via the EU’s Emissions Trading System (ETS), a cap and trade scheme. The ETS is an essential infrastructure, although it has not always been successful in the past at delivering a predictable price of carbon. Moreover, it currently covers only around half of EU greenhouse gas emissions and a significant amount of allowances continue to be given for free.
The effective price of carbon is expected to rise if the EU’s targets for reducing emissions are to be reached. Modelling by the OECD and the European Commission[7] suggests that an effective carbon price between €40-60[8] is currently needed, depending on how stringent other regulations are. The introduction of the ETS Market Stability Reserve and the review of the ETS scheduled for this year should provide the opportunity to deliver a clear path towards adequate carbon pricing.
The second dimension where we expect to see progress is greater information on the exposure of individual companies. At present, information on the sustainability of financial products – when available – is inconsistent, largely incomparable and at times unreliable. That means that climate risks are not adequately priced,[9] and there is a substantial risk of sharp future corrections. Yet for an open market economy to allocate resources efficiently, the pricing mechanism needs to work correctly.
This requires a step change in the disclosure of climate-related data using standardised and commonly agreed definitions. While TCFD-based[10] disclosures have underpinned public/private efforts to better inform, disclosure needs to be at a far more granular level of detail than is currently available. In Europe. climate disclosures are governed by the Non-Financial Reporting Directive (NFRD), which is currently under review.[11] The Eurosystem has advocated for mandatory disclosures of climate-related risks from a far greater number of companies, including non-listed entities. Moreover, disclosures should be complemented by forward-looking measures that assess the extent to which both financial and non-financial firms are aligned with climate goals and net zero commitments.
The European Taxonomy Regulation[12] that entered into force last year is also an important milestone along this path. But it still needs to be fleshed out with concrete technical criteria and complemented by an equivalent taxonomy for carbon-intensive activities. A further essential step is the consistent and transparent inclusion of climate risks in credit ratings. Here, again, we have high hopes that progress will now speed up.
While adequate carbon prices and greater information on exposures will help provide incentives to decarbonise, that economic transformation cannot take place without the third dimension: substantial green innovation and investment. Both, however, require a complex ecosystem of which finance is a key element,[13] so we expect to see increasing availability of green finance. Green bond issuance by euro area residents has grown sevenfold since 2015, reaching €75 billion in 2020 – this represents roughly 4% of the total corporate bond issuance.[14]
We need to see funding for green innovation increasing from other market segments as well, especially as recent analyses point to the beneficial role of equity investors in supporting the green transition.[15] Assets under management by investment funds with environmental, social and governance mandates have roughly tripled since 2015, and a little more than half of these funds are domiciled in the euro area. Completing the capital markets union should provide a further push to support equity-based green finance by fostering deep and liquid capital markets across Europe.
Simultaneous progress along each of these three dimensions increases the likelihood of substantial economic change in the near term. That is so because movement along each dimension reinforces progress along the others and magnifies the effectiveness of climate policy.
For example, the economic impact of higher carbon prices depends on the availability of alternative green technologies. In the past, a sudden and substantial increase in carbon taxes could have resulted in an economic downturn, substantial stranded assets and threats to financial stability. Today, however, solar power is not only consistently cheaper than new coal or gas-fired plants in most countries, but it also offers some of the lowest cost electricity ever seen.[16] Green finance and innovation are also developing rapidly. Introducing well-signalled carbon pricing therefore becomes more feasible and could further sharpen incentives both to develop new technologies and to carry out the substantial investment required for the widespread adoption of the green technologies that already exist.
Climate change and central banks
Today, then, central banks face two trends – more visible impacts of climate change and an acceleration of policy transition. Both trends have macroeconomic and financial implications and have consequences for our primary objective of price stability,[17] for our other areas of competence including financial stability and banking supervision, as well as for the Eurosystem’s own balance sheet. Central banks are both aware of those consequences, and determined to mitigate them. Much has already been accomplished and more is under way:
The founding of the Network for Greening the Financial System (NGFS), with membership including all major central banks, is testament to that collective engagement with climate change.
At the ECB, we are now launching a new climate change centre to bring together more efficiently the different expertise and strands of work on climate across the Bank. Climate change affects all of our policy areas. The climate change centre provides the structure we need to tackle the issue with the urgency and determination that it deserves.
In the area of financial stability and banking supervision, the ECB has taken concrete steps towards expanding the financial system’s understanding of climate risks and its ability to manage them. We have issued a guide on our supervisory expectations relating to the management and disclosure of climate-related and environmental risks.[18] A recent survey of the climate-related disclosures of 125 banks suggests there is still a way to go. It evaluated climate disclosures across several basic information categories. Only 3% of banks made disclosures in every category, and 16% made no disclosure in any category.[19] ECB Banking Supervision has requested that banks conduct a climate risk self-assessment and draw up action plans, which we will begin assessing this year. We will conduct a bank-level climate stress test in 2022.
The ECB is also currently carrying out a climate risk stress test exercise to assess the impact on the European banking sector over a 30-year horizon. Preliminary results from mapping climate patterns to the address-level location of firms’ physical assets show that in the absence of a transition, physical risks in Europe are concentrated unevenly across countries and sectors of the economy.
But there is more: climate change also impacts our primary mandate of price stability through several channels. This is why climate change considerations form an integral part of our ongoing review of our monetary policy strategy. Climate change can create short-term volatility in output and inflation through extreme weather events,[20] and if left unaddressed can have long-lasting effects on growth and inflation. Transition policies and innovation can also have a significant impact on growth and inflation. These factors could potentially cause a durable divergence between headline and core measures of inflation and influence the inflation expectations of households and businesses.
The transmission of monetary policy through to the interest rates faced by households and businesses could also be impaired, to the extent that increased physical risks or the transition generate stranded assets and losses by financial institutions. According to a recent estimate by the European Systemic Risk Board, a disorderly transition could reduce lending to the private sector by 5% in real terms.[21]
And climate change can also have implications for our monetary policy instruments. First, the Eurosystem’s balance sheet itself is exposed to climate risks, through the securities purchased in the asset purchase programmes and the collateral provided by counterparties as part of our policy operations.
Furthermore, several factors associated with climate change may weigh on productivity and the equilibrium interest rate, potentially reducing the space available for conventional policy. For example, labour supply and productivity may diminish as a result of heat stress, temporary incapability to work and higher rates of mortality and morbidity.[22] Resources may be reallocated away from productive use to support adaptation, while capital accumulation may be impaired by rising destruction from natural hazards and weaker investment dynamics related to rising uncertainty.[23] And the increase in short-term volatility and accelerated structural change could hamper central banks’ ability to correctly identify the shocks that are relevant for the medium-term inflation outlook, making it more difficult to assess the appropriate monetary policy stance.
Our strategy review enables us to consider more deeply how we can continue to protect our mandate in the face of these risks and, at the same time, strengthen the resilience of monetary policy and our balance sheet to climate risks. That naturally involves evaluating the feasibility, efficiency and effectiveness of available options, and ensuring they are consistent with our mandate.
The ECB is also assessing carefully, without prejudice to the primary objective of price stability, how it can contribute to supporting the EU’s economic policies, as required by the treaty. Europe has prioritised combating climate change and put in place targets, policies and regulations to underpin the transition to a carbon-neutral economy. While the Eurosystem is not a policy maker in these areas, it should assess its potential role in the transition.
We recognise that our active role in some markets can influence the development of certain market segments. The ECB currently holds around a fifth of the outstanding volume of eligible green bonds. Standardisation helps nascent markets gain liquidity and encourages growth. And our eligibility criteria can provide, in this context, a useful coordination device. For example, since the start of this year, bonds with coupon structures linked to certain sustainability performance targets have been eligible as collateral for Eurosystem credit operations and for outright purchases for monetary policy purposes.
We have also taken action with regards to our non-monetary policy portfolio, namely our own funds and pension fund. The ECB raised the share of green bonds in its own funds portfolio to 3.5% last year and is planning on raising it further as this market is expected to grow in the coming years. Investing parts of the own funds portfolio in the green bond fund of the Bank for International Settlements marks another step in this direction. A shift of all conventional equity benchmark indices tracked by the staff pension fund to low-carbon equivalents last year significantly reduced the carbon footprint of the equity funds. Other central banks are also aligning decisively their investment decisions with sustainability criteria.[24]
Conclusion
Let me conclude.
Climate change is one of the greatest challenges faced by mankind this century, and there is now broad agreement that we should act. But that agreement needs to be translated more urgently into concrete measures. The ECB will contribute to this effort within its mandate, acting in tandem with those responsible for climate policy.
Unlike the mice in the fable, not only do we have to recognise that we cannot keep waiting for someone else to act, we also must recognise that the burden cannot fall on one party alone. There is no single panacea for climate change, and combating it requires rapid progress along several dimensions. Relying on just one solution, or on one party, will not be enough to avoid a climate catastrophe. And here we can actually learn something from mice. As the Roman playwright Plautus wrote, “How wise a beast is the little mouse, who never entrusts its safety to only one hole.”[25]
Compliments of the European Central Bank.
The post Speech by Christine Lagarde | Climate change and central banking first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Keynote SPEECH by Fabio Panetta, Member of the Executive Board of the ECB, at the 50th anniversary of the Associazione Italiana per l’Analisi Finanziaria (by videoconference) |
Introduction
I would like to start by thanking the Italian Association for Financial Analysts (Associazione Italiana per l’Analisi Finanziaria, AIAF) for inviting me to speak on the occasion of its 50th anniversary.[1] Promoting high standards in financial analysis is vitally important for guaranteeing the development and the integrity of markets, to ensure they can serve the real economy. The work performed by the AIAF over the past 50 years in the fields of research, training and reporting and its strong ties with financial operators and savers have helped bring Italian standards in line with international best practice.
The AIAF’s ability to keep pace with innovation is clearly reflected in its commitment to sustainable finance, the subject of my speech today.
In recent years, addressing climate change and the transition to a sustainable development model more broadly have become increasingly important. Under the responsible financing approach, companies still aim to create value while taking into account principles such as fair compensation for employees, respect for ethical and social values and environmental protection. Sustainable finance – also known as responsible finance – incorporates environmental, social and governance (ESG) principles into the decision-making processes of financial operators. It represents an important change designed to ensure the financial system is used for the benefit of our collective well-being; in doing so, it has become a vital tool for addressing climate-related risks, which have become increasingly prominent due to the emergence of irreversible damage to the environment (such as the impact on biodiversity and temperature levels).
In my speech today, I will consider the debate on sustainable development and climate-related risks in the light of the shock caused by the coronavirus (COVID-19) pandemic. I will then examine what can be done to strengthen the impact of responsible finance on the economic system and the ECB’s role in tackling climate-related risks.
Sustainable development and climate-related risks in the time of the pandemic
The challenge to find a sustainable development path which meets the needs of present generations without compromising the well-being of future generations is not new. The German economist Hans Carl von Carlowitz was already thinking about how resources could be used sustainably as early as the 18th century.[2]
But it was not until the 1970s and the publication of The Limits to Growth[3] report that the sustainability of the growth model gained prominence as an item on European and international policy agendas.
Initial analyses of sustainability focused on the risk of non-renewable natural resources being depleted. This focus has gradually widened to include the extent to which our natural systems can cope with the effects of climate change.
The idea that well-being must take into account factors such as equity – within and across generations – and sustainability was brought to the fore in the 2030 Agenda for Sustainable Development, launched by the United Nations in 2015. In the same year, the Paris Agreement[4] recognised the need to speed up the economy’s reduction of CO2 emissions and to protect the environment for the benefit of both current and future generations.
In recent months the pandemic shock has caused global economic, social and environmental vulnerabilities to resurface, exacerbating them even further and increasing the risk of greater income inequality and a widening of the wealth gap. The pandemic has also emphasised the urgent need to address the problems that are affecting people’s well-being.
The UN estimates that the number of people living in poverty worldwide will increase by between 40 and 60 million as a result of the pandemic, undoing the progress made in recent years.[5] We may also see an increase in gender and generational discrimination owing to the severe impact the pandemic is having on women and young people.
Low-income countries are not the only ones affected by these problems. The pandemic could also bring about an increase in poverty[6], social exclusion, inequality and challenges to achieving universal energy access in advanced economies, many of which were already a long way from reaching the 2030 Agenda[7] goals before the crisis struck (Chart 1).

Chart 1
Distances of OECD countries from 2030 Agenda goals

Notes: The chart provides the distribution of the distances (expressed in standard units) of OECD countries from the 17 goals. The blue diamonds show the median distance for OECD countries. Box boundaries show the first and third quartiles of the distribution of countries’ performances, and the whiskers show the 10th and 90th percentiles. See here for detailed metadata.

These worrying developments, which undermine the foundations of inclusive growth, are accompanied by environmental issues, in particular climate change. Natural disasters that occurred in 2018 caused more than 20,000 deaths worldwide and deprived 29 million people of livelihoods, resulting in damages estimated at USD 23 billion. Together with 2016, 2020 was the warmest year on record. Climate scenarios predict that global temperatures will continue to rise over the course of the 21st century, resulting in more frequent and more intense extreme natural events, with negative implications for ecosystems and public health.
Economic activity is both a cause and a victim of climate change.
It is a cause for example due to the use of fossil fuels for energy: three-quarters of greenhouse gas emissions are generated from fossil fuel combustion. Climate change has also had an impact on human activities: rising average temperatures, with pronounced fluctuations, affect all sectors, particularly those more susceptible to natural events, such as agriculture. Frequent and intense heatwaves and hydrogeological phenomena can have significant economic consequences, while gradually rising sea levels threaten coastal communities throughout the world.
It is clear that we need to ensure the sustainability of our development model, starting by gradually moving away from the use of fossil fuels.
In recent months, the steps taken to limit the consequences of the pandemic have temporarily slowed the rise in emissions. According to NASA, between February and May 2020 atmospheric CO2 concentrations fell compared to pre-crisis levels to a level consistent with the achievement of the targets set by the Paris Agreement.[8]
But this will only be a temporary improvement unless climate policy changes course, particularly if there is not an adequate carbon pricing system that penalises emissions.[9] The challenge facing us now is how to support general well-being while keeping emissions at levels that comply with the Paris Agreement.
Monetary and fiscal authorities are responding by introducing decisive policies designed to revive development. But we cannot just limit our efforts to returning things to how they were before. We must seize this opportunity to modernise our economy, reduce social and environmental vulnerabilities and bring about change that makes development sustainable.
The contribution of responsible finance
In the financial world, interest in sustainable growth has long been limited to a small group of specialist operators.[10] But things have changed in recent years.
The Paris Agreement explicitly recognised the vital role of the financial system in promoting responsible development.
Since 2015 ESG investment funds have increased the total assets they manage by over 170%. Between January and October 2020, this category of funds in Europe saw net inflows of more than €150 billion, nearly 80% more than in the same period the previous year.[11] According to market operators, this trend is set to continue.[12]

Chart 2
Euro area: assets of global ESG funds by asset class (left) and distribution of holdings across euro area sectors (right)USD billions (left); percentage (right)

Notes: The pie chart on the right is based on a sample of 1,076 ESG funds domiciled in the euro area, comprising 554 equity funds, 262 bond funds and 216 mixed funds. Mixed funds are classified as equity or bond funds if the respective share of equity or bond investments exceeds 50%. ICPFs: insurance corporations and pension funds; IFs: investment funds.Sources: Bloomberg Finance L.P. and ECB report (left); Bloomberg Finance L.P., Refinitiv, ECB securities holdings statistics per sector and ECB calculations (right).

This change of pace primarily reflects the impetus coming from the authorities at global level. I have already mentioned the UN’s 2030 Agenda and the Paris Agreement. But awareness of social and environmental issues among young people, who are less inclined than the generations before them to separate consumption and investment decisions from sustainability-related issues, has also had an impact.[13]
According to the UN, implementing the 2030 Agenda will require total investment of between USD 5 to 7 trillion per year.[14] The European Commission has also estimated that in order for the EU to meet its 2030 climate target, new investment of up to €260 billion per year will be required over the next decade.[15]
Whether investment programmes of this scale can be implemented will largely depend on the cost and availability of financial resources. The lower cost of capital compared with traditional investments – also referred to as the green premium – could encourage the launch of new sustainable projects. However, empirical analyses show that this premium would be small at best.[16] It is therefore unrealistic to imagine that the huge volume of investment needed to ensure sustainable development can take place without the involvement of the public sector, for example in order to raise the price of coal by strengthening the emissions trading system[17] or to support research and development of alternative energy sources.[18]
In order to boost the contribution made by sustainable finance, the financial instruments offered to investors must be trustworthy and easy to understand. Lenders also need to be able to assess whether investment projects are consistent with their own financial and non-financial objectives.
There needs to be detailed information about whether investments meet sustainability criteria. At the moment, the data available are scarce and of poor quality – for example, the ESG ratings of individual companies produced by a range of analysts are based on different methods and are poorly correlated (Chart 3).[19] Here too, public sector involvement, in particular effective regulation, is necessary.
The European Union is leading the way internationally in terms of regulating sustainable finance. But further progress would be welcome, also in view of the launch of the European Green Deal[20] and the European Commission’s soon-to-be-published renewed sustainable finance strategy.
The review of the Non-Financial Reporting Directive could result in significant progress being made[21] by expanding the range of companies subject to sustainability reporting requirements, establishing common assessment criteria and ensuring an appropriate degree of data granularity. Empirical evidence indicates that disclosure makes firms pay closer attention to sustainability without worsening their performance.[22]

Chart 3
Correlation of environmental scoring performance by Bloomberg and Refinitiv

Notes: The Bloomberg and Refinitiv environmental scores give values between 0 and 100, whereby a higher value indicates a better performance in terms of environmental variables. Sources: Bloomberg, Refinitiv EIKON and ECB own reports.

There is a need for the definitive launch of the classification system (or taxonomy) of sustainable activities[23], planned for 2022. The use of this tool by analysts, banks and companies will require further steps, such as approving delegated acts and establishing guidelines.
The new regulatory framework will need to offset investors’ information requirements against the need to avoid overly complex and burdensome transparency obligations for issuers, particularly small and medium-sized ones.[24]
Lastly, the development of sustainable finance requires global cooperation, also considering that around 90% of the global emissions are produced outside Europe. Coordination is necessary in order to adopt a common set of rules and practices for taxonomies and non-financial reporting criteria, and to establish procedures to prevent opportunistic behaviour and regulatory arbitrage. This year’s G20 presidency provides Italy with a unique opportunity to put these issues at the top of the international agenda.[25]
What is the ECB’s role?
In recent months the ECB has launched a reflection process to identify policies through which it can contribute to the climate transition in full accordance with its mandate under EU law.[26]
Article 127 of the Treaty on the Functioning of the EU states that the primary objective of the ECB is to maintain price stability. The Treaty also states that, as a secondary aim, the ECB shall support the achievement of the EU’s objectives. And Article 3 of the Treaty includes sustainable development among these objectives.
The monetary policy stance has at best only a negligible impact on environmental risks. This is due to both its very different time horizon compared with climate change[27] and the fact that it cannot target individual sectors. However, the economic and monetary analysis that underpins the monetary policy stance should also take into account the shocks caused by climate change to both conjunctural and structural developments.[28]
The ECB can contribute to environmental policies in the implementation of monetary policy – what we refer to as the operational framework. We have already taken steps in this direction, for example by including sustainable finance instruments – the sustainability-linked bonds – among the collateral that can be used in refinancing operations.[29] In addition, to ensure that it remains financially sound, the ECB has to protect its balance sheet from the financial risks caused by climate change that are not correctly priced by the markets.[30] By performing its own analysis of these risks on the basis of rigorous methodologies, the ECB can contribute to the accurate valuation of these climate-related risks and promote awareness among investors, thereby helping to combat climate change. These issues are currently being considered as part of our monetary policy strategy review.
But it is not just monetary policy that is affected. Climate change has an impact on the overall stability of the financial system. The most vulnerable intermediaries are those that operate with long time horizons and are exposed to the consequences of extreme events, such as insurance companies. We are currently defining models that could be used to measure the systemic risks caused by climate change, including through specific stress analyses.
ECB Banking Supervision – the ECB’s supervisory arm – has also recently published its expectations on how banks should manage climate and environmental risks in their balance sheets. Looking ahead, this could then influence banks’ capital and public disclosure, increasing awareness among intermediaries and investors of these risks.[31]
Lastly, the ECB is actively involved in European and international initiatives aimed at improving information on the environmental impact of companies and intermediaries.
Conclusion
Advanced economies have long been characterised by a high level of savings and insufficient investment. Productivity growth is subdued, while interest rates and inflation are at historically low levels.
The pandemic shock has squeezed the spending capacity of households and businesses and caused widespread uncertainty, accentuating these trends. Exiting the crisis will require prolonged support from economic policies – both monetary and fiscal – and a significant increase in productive investment.
Sustainable investment projects can play a crucial role in helping to reabsorb excess savings and raise growth potential, while also setting out a growth path that reduces social vulnerabilities and counteracts climate and other environmental risks.
The recovery and resilience plans that European countries are being asked to prepare so that they can access the Next Generation EU funds are an opportunity to relaunch growth, steering it to a sustainable path.
If used wisely – to increase human capital, to invest in technology and to protect the environment – these funds can help us transition from a crisis with dramatic implications to an opportunity for progress. We need to be bold and forward-looking in seizing this opportunity and do so in a timely manner.
Responsible finance can play an important role in reconciling development with environmental, ethical and social values. The next European strategy on sustainable finance provides an opportunity to align financial flows with these values.
The ECB has started to reflect on how it can contribute to responsible development. A central bank that is responsive to the needs of citizens – both now and in the future – has a duty to be mindful of the demands of sustainable development in order to ensure stability in all its forms: first and foremost monetary stability, but financial, environmental and social stability too.
Compliments of the European Central Bank.
The post Speech | Sustainable finance: transforming finance to finance the transformation first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.