Keynote address by François Villeroy de Galhau, Gouverneur de la Banque de France, Official Monetary and Financial Institutions Forum webinar, 25 September 2020 |
Good morning and welcome to this webinar, jointly organized by the Official Monetary and Financial Institutions Forum and the Banque de France. What better way to demonstrate the digital transformation than holding an event in cyberspace. It has been common in recent years to hear about disruptive technologies but over the past 6 months, information technology has instead been a crucial source of continuity in a highly disrupted world.
Digitalization is one among many factors transforming central banking and this will be my broader theme this morning. The ECB Strategic Review rightly launched by Christine Lagarde, with an explicit list of challenges[ii], is the opportunity to reflect on how the Eurosystem should respond to them.
The shocks that have hit the economy in the past decade have been unprecedented, but in hindsight, many long-term structural shifts were occurring that have caused the unstable and complex situation we face today. Global natural interest rates had already been falling since the early 1980s driven by the demographic transition and risk-aversion in key emerging markets. Digitalisation and globalisation, combined, have been pressing for “lowflation”. Financial vulnerabilities were also steadily, but invisibly, rising since the so-called Great Moderation. Indeed, it seems that excess demand now shows up in asset prices before wages or inflation, complicating the trade-offs between price stability and financial stability.
However, it would be remiss of me not to briefly mention the short-term challenges that we currently face.
Confronting this unprecedented Covid crisis, we acted boldly and rapidly, using all the tools at our disposal and inventing new ones such as the PEPP. By doing so, we successfully avoided both fragmentation and deflation. That said, inflation is not yet where we would like it to be, back towards 2% over the medium term. Have no doubt about our determination to act as much as needed, and about our capacity to act. Again this Autumn, we are hearing chatter about the ECB running out of ammunition. It proved completely wrong in March, and it remains wrong today. If needed, the ECB has ample room for manœuvre. By the way, the yesterday’s take up (EUR 174 bn) of our TLTRO-3 confirms the attractiveness and the adequacy of this innovative tool. We decided to keep a steady hand in the last Governing Council due to the continuity of our economic forecasts. But steady hands are not tied hands: we have free hands for the future.

Let me now come to the ECB’s strategic review, on which work has restarted after the peak of the Covid crisis. It is more extensive than the FOMC’s as it will cover, among many things, structural change; climate change; financial stability; and the effects of digitalization. The Eurosystem will take its time, as the Fed did, to consider the different alternatives. What professional economists find theoretically appealing may not be either easily applicable or comprehensible to the general public. What financial markets expect in the short run is not always consistent with long-term economic objectives.
But let me try today to share some preliminary thoughts on four key questions:

Is there such a difference between a dual mandate and the ECB’s two-tiered mandate?
How could we clarify the inflation objective?
What about the “second pillar” of the ECB and is there a link with the so-called “secondary” objectives?
Last but not least, how can we improve communication with the general public and economic actors?

My aim obviously is not to give you conclusive answers to these four questions but to highlight important elements of the debate. The Fed’s conclusions are a significant part of it but one shouldn’t assume that the ECB will simply follow suit. Other contributions – such as the ECB Listens exercise, our academic roundtables, Sintra or the current review of the Bank of Canada – are also important and differences are not always where expected.

Is there such a difference in mandates?

For most observers, including politicians, this is the most striking issue: the Fed has a dual mandate, including price stability and maximum employment, and the strategy review shifted its emphasis to the latter. The ECB, meanwhile, has a primary objective of price stability, according to the Treaties.
Of course it is our duty to stick to the Treaties and our strategic review won’t deviate an inch from them. However let me only remind you that our legal mandate is not, as often assumed, a purely “single mandate”: it is rather a two-tiered one  that includes at least two other objectives without prejudice to price stability: “to support the general economic policies in the Union” contributing among other aims to a “social market economy, aiming at full employment and social progress”[iii]; and “the stability of the financial system”[iv]
Furthermore, I would argue that there is less of a difference between a dual mandate and flexible inflation targeting than people think: noticeably, the measures we have taken to offset the effects of negative shocks such as the Global Financial Crisis or the sanitary crisis have a direct effect on growth and employment. As far as demand shocks are concerned, the monetary policy prescriptions are the same. In principle there are conflicts when there are supply shock but inflation targeting central banks also tend not to react to temporary supply shocks but respond only if there are signs of second-round effects.
The ECB also takes note of estimates of the natural rate of unemployment but recognizes that these are subject to enormous uncertainty – like estimates of all other “natural” variables. The ECB would not tighten policy based solely on an estimated unemployment gap.

How could we clarify the price stability objective?

The main substantive change by the FOMC is the introduction of an inflation make-up strategy. Rather than being solely forward-looking, the FOMC will, or could, now correct for past inflation shortfalls. Let us here also discuss the areas of continuity as Jay Powell did in his speech of 27 August[v] – and the possible differences:

The Fed confirmed our common strategy of inflation targeting and it has kept 2% as its numerical goal. This “conceptual  convergence” remains a cornerstone of modern central banking.
Average inflation targeting is a flexible tactic, possibly temporary, within a wider strategy of keeping inflation sustainably where expected. Still more importantly in my view, the inflation target should be perceived as flexible, symmetric and medium term. Allow me to be a bit more specific about these three requirements.

flexible is the most obvious one. We cannot guarantee to achieve precisely our numerical objective either all the time or straight away.

Symmetric means that our numerical objective is a target and not a ceiling. As a consequence we might be ready to accept inflation higher than 2% for some time, without mechanically triggering a tightening of our monetary stance. Commentators sometimes attribute a perceived asymmetry to our current definition of price stability “below, but close to, 2%”. The Governing Council has frequently re-affirmed its commitment to symmetry – as it stands in our Introductory Statement since Mario Draghi. Nevertheless, we should examine whether the current formulation casts doubt on this.

medium term means that we should judge our inflation performance over a long enough period. We shouldn’t forget what Jean-Claude Trichet often stressed as an optimal performance in the first years of the euro. “Over these 12 years, the average annual inflation rate in the euro area has been 1.97%. We have achieved price stability in the euro area over what has already been quite a long horizon.”[vi] As I said in previous occasions[vii], our medium-term target needs to be viewed in two ways: it has to be forward looking to guide inflation expectations, but it cannot ignore the past either. All this is not explicit average inflation targeting ex ante, but would achieve very similar outcomes ex post. We will have to discuss that.

We will also have to discuss the precise formulation of our inflation objective, in at least two respects: the “below but close to” as already mentioned and the measure of inflation we use. Continuity is a positive asset but the inclusion of “owner-occupied housing” in the HICP is frequently, and somewhat rightly, suggested by the general public. As you are aware, the preferred inflation measure of the Fed, the PCE index, includes these expenditures.
Last but not least, our inflation objective while clarified should also be credible. I will come back to this with my fourth question about communication.

What about the second pillar of the ECB and is there a link with “secondary objectives”?

For many, the history of the second pillar of monetary analysis of the ECB seems to be coming to an end. Born as the first pillar in 1999 and coming at the time from the strict following of monetary aggregates by the Bundesbank – and the Banque de France as well –, it became the second pillar after 2003, passing behind the economic analysis of the inflation outlook. And due to the fact that it has progressively fallen into disuse, many suggest we should now call time on it during our strategic review.
Is it that sure? Isn’t there another alternative path, more adequate than letting it disappear? There are three possible reasons:

The second pillar allows a cross check on the analysis of inflation.
We could possibly introduce a focus on nominal aggregates, whereas the first pillar focuses by its nature on prices and volumes.
Finally, it would allow reference to some of the “secondary” objectives of the ECB, including financial stability.

In our discussion to come, I believe we could study two types of aggregates:

Financial aggregates, from the perspective of financial stability, and potentially looking more closely at the assets of financial institutions including non-banks (such as their provision of credit in the broadest sense) rather than at their liabilities only (including money, as in the past).
Other economic aggregates, starting with nominal GDP, which has the virtue of combining real growth and prices – two variables that statisticians sometimes have difficulties separating in our measures. But also employment and income distribution, which respond to the demands of the Treaties as well as to the expectations of the public.

Allow me some remarks on the substance of these “secondary” objectives. To achieve financial stability, in an ideal world, we would have a box of macroprudential tools that could maintain financial stability whatever the monetary policy stance. However, in practice our set of macroprudential tools is comparatively limited. We need a monetary policy strategy that reflects this reality. We should go beyond the old debate of “separation principle” versus “ leaning against the wind”. I advocate a median way, which we could call “coordinated” or “integrated”.[viii] We have now a range of unconventional monetary instruments and our objective should be to pick the right combination that delivers the necessary accommodative monetary stance while minimizing of adverse side-effects on financial stability. TLTRO’s and the tiering system we use today for refinancing the Eurozone banks are two good examples in this respect.
On climate change, the emphasis put by Christine Lagarde[ix] herself is welcome and totally warranted. In my view, the fight against global warming is already an imperative for us under our price stability mandate: not only will the effects of climate change have significant repercussions on future inflation and growth, but they are already having an impact now. We could implement our climate decisions in no more than 3 to 5 years, which would make us pioneers among major Central banks.

How to improve communication with the general public?

My final remarks concern communication. Central banks have come a long way in being transparent about their decisions and explaining their reasoning. However, our communication is too often addressed to a narrow group of people – the media, the markets and economists. We need to do a better job of reaching the general public. And this means two changes of paradigm:

it is not only a question of democratic accountability – however essential this remains –, it is also key for our economic efficiency. Better-informed firms and households will also make better decisions and ones more aligned with our strategy, I will come back to it.
Secondly, we should evolve from a narrow objective of “transparency” to a wider objective of “clarity”. This means focusing on what is heard rather than what is said: we cannot merely “publish and go”. As Tiff Macklem, my Canadian colleague, says “Public communications should be in plain language and free of jargon. We should speak as public servants and peers, not as oracles delivering messages from an ivory tower.”[x] And effective speaking also requires active listening.  At the start of next year, consistent with the ECB endeavours, we will host a number of “Banque de France listens” events in all regions to hear what French citizens and SMEs think about inflation and monetary policy. We will then adjust our communication depending on what we hear.

Let me elaborate on the economic stakes of this communication. Our inflation targeting policy will be significantly more efficient if economic agents, be they households or businesses, do actually understand it, accept it and believe it. Hence it should be seen as clear, legitimate and credible. I insisted earlier on clarification (question 2), let me now conclude with legitimacy and credibility.
One of the most difficult challenges for a central bank with a price stability mandate is how to explain a positive inflation objective. The general public often does not understand why a central bank would deliberately try to increase inflation. We need to explain better that although our price stability objective is defined in terms of HICP inflation, we are actually seeking a general average increase in all nominal variables, including wages and nominal GDP. Few people spontaneously want an increase in consumer prices, but most do want an increase in their nominal incomes. Furthermore, households, firms, financial institutions and governments enter nominal contracts (negotiate wages, take out mortgages, buy sovereign debt etc) based on expected inflation. If actual inflation is higher or lower than these expectations, then wealth and income are transferred from one group to the other. The best way to be neutral is to announce a target that can efficiently guide expectations.
To a non-economist, price stability would imply targeting zero inflation. However, we need to explain why targeting zero inflation is not ideal. Real wage adjustments can be necessary to maintain competitiveness and sustain employment and this real adjustment is easier to achieve with a positive inflation rate. This is still more important in a monetary union in which real adjustments are necessary to maintain internal balance. The effective lower bound (ELB) on nominal interest rates would also be reached more frequently, putting a constraint on the use of monetary policy. But I do acknowledge that using the ELB argument at, say a family lunch on Sunday, is easier said than done.
Last but not least, credibility. Here, households and firms have mixed feelings: they believe that actual inflation is much higher than central banks and statistics institutes claim; and they doubt we will deliver the “close to 2%”in the future. Distrust is too often the name of the game. Here, let us again listen and speak. First listen to the inflation expectations of households and firms: we don’t measure them properly today, although they are of the essence for economic transmission of monetary policy, as households and firms are the actual price- and wage-setters.  Indeed, their price expectations are quite different from those of financial markets we tend to focus on.
Listen and then speak: once a central bank has committed to a target, it must use every tool available to deliver on it and explain clearly that the transmission of the monetary impulse to the economy entails some delays. We are all convinced that a credible inflation objective makes stabilizing inflation easier because the objective anchors inflation expectations. Let us convince our fellow citizens of our determination, “in plain language” – I hope my remarks today help somewhat to initiate this essential debate we will have to conduct and conclude in our ECB strategy review.
Thank you for your attention.
Contacts:

Mark Deen (mark.deen[at]banque-france.fr)

Déborah Guedj (deborah.guedj[at]banque-france.fr)

Compliments of the Banque de France.

Références

[i]I would particularly like to thank Nathalie Aufauvre, Matthieu Bussière, Olivier Garnier, Ivan Odonnat and Adrian Penalver for their help in preparing this speech.[ii] https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200123~3b8d9fc08d.en.htmlhttps://www.ecb.europa.eu/press/inter/date/2020/html/ecb.in200124_1~a226a06d7a.en.html[iii] Article 3.3 of the Treaty on the European Union.[iv] Article 127.5 of the Treaty on the Functioning of the European Union.[v] https://www.federalreserve.gov/newsevents/speech/powell20200827a.htm[vi] at the Evangelische Akademie Tutzing, Bavaria, 13 November 2010.[vii] https://www.banque-france.fr/sites/default/files/medias/documents/2020.05.25_sep_en_cl.pdf[viii] https://www.banque-france.fr/sites/default/files/medias/documents/bdf-pse_2019_09_20_vf_cl.pdf[ix] https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp200227_1~5eac0ce39a.en.html[x] https://www.bankofcanada.ca/2020/08/imperative-for-public-engagement/

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Statement | 25 September 2020 | Brussels
“The Commission has decided to appeal before the European Court of Justice the General Court’s judgment of July 2020 on the Apple State aid case in Ireland, which annulled the Commission’s decision of August 2016 finding that Ireland granted illegal State aid to Apple through selective tax breaks.
The General Court judgment raises important legal issues that are of relevance to the Commission in its application of State aid rules to tax planning cases. The Commission also respectfully considers that in its judgment the General Court has made a number of errors of law. For this reason, the Commission is bringing this matter before the European Court of Justice.
Making sure that all companies, big and small, pay their fair share of tax remains a top priority for the Commission. The General Court has repeatedly confirmed the principle that, while Member States have competence in determining their taxation laws taxation, they must do so in respect of EU law, including State aid rules. If Member States give certain multinational companies tax advantages not available to their rivals, this harms fair competition in the European Union in breach of State aid rules.
We have to continue to use all tools at our disposal to ensure companies pay their fair share of tax. Otherwise, the public purse and citizens are deprived of funds for much needed investments – the need for which is even more acute now to support Europe’s economic recovery. We need to continue our efforts to put in place the right legislation to address loopholes and ensure transparency. So, there’s more work ahead – including to make sure that all businesses, including digital ones, pay their fair share of tax where it is rightfully due.”
Compliments of the European Commission.
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The European Commission has today published a new, ambitious Action Plan to boost the European Union’s Capital Markets Union (CMU) over the coming years. The EU’s top priority today is to ensure that Europe recovers from the unprecedented economic crisis caused by coronavirus. Developing the EU’s capital markets, and ensuring access to market financing, will be essential in this task.
Large and integrated capital markets will facilitate the EU’s recovery, making sure that businesses – in particular small and medium-sized businesses – have access to sources of funding and that European savers have the confidence to invest for their future. Vibrant capital markets will also support Europe’s green and digital transition, as well helping to create a more inclusive and resilient economy. The Capital Markets Union is also crucial to boost the international role of the euro.
Valdis Dombrovskis, Executive Vice-President for an Economy that works for People said: “The coronavirus crisis has injected real urgency into our work to create a Capital Markets Union. The strength of our economic recovery will depend crucially on how well our capital markets function and whether people and businesses can access the investment opportunities and market financing they need. We need to generate massive investments to make the EU economy more sustainable, digital, inclusive and resilient. Today’s Action Plan aims to tackle head-on some of the remaining barriers to a single market for capital.”
Today’s Action Plan has three key objectives:

Ensuring that the EU’s economic recovery is green, digital, inclusive and resilient by making financing more accessible for European companies, in particular SMEs;
Making the EU an even safer place for individuals to save and invest long-term;
Integrating national capital markets into a genuine EU-wide single market for capital.

To do this, the Commission is putting forward today sixteen targeted measures to make real progress to complete the CMU. Among the measures announced today, the EU will:

Create a single access point to company data for investors;
Support insurers and banks to invest more in EU businesses;
Strengthen investment protection to support more cross-border investment in the EU.
Facilitate monitoring of pension adequacy across Europe;
Make insolvency rules more harmonised or convergent;
Push for progress in supervisory convergence and consistent application of the single rulebook for financial markets in the EU.

These measures build on the progress made in the 2015 CMU Action Plan and 2017 Mid-Term Review, and follow calls from the European Parliament (draft own initiative (INI) report, June 2020) and Council (Council conclusions, 5 December 2019). They are also informed by detailed discussions with stakeholders and the recommendations of the High Level Forum on Capital Markets Union.
Background
The CMU is not a goal in itself, but is essential for delivering on key economic policy objectives: the post-coronavirus recovery, an inclusive and resilient economy that works for all, the twin transition towards a digital and sustainable economy, and open strategic autonomy in a post-Brexit and increasingly complex world. Meeting these objectives requires massive investments that public money and traditional funding through bank lending alone cannot deliver. Only large, well-functioning and integrated capital markets can provide the scale of support needed to recover from the coronavirus crisis. Only a proper functioning CMU can mobilise and channel the enormous investment required to tackle the climate and environment challenges we face and support the digitalisation of our companies, so they remain competitive globally.
The CMU should bring value to all Europeans, wherever they live and work. Consumers should have more choice as regards their savings and investments, and should be well informed and appropriately protected wherever they are. Businesses, including small- and medium-sized ones, should be able to access funding across the EU and investors should be able to invest in projects across the EU.
Compliments of the European Commission.
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The European Commission has today adopted a new Digital Finance Package, including Digital Finance and Retail Payments Strategies, and legislative proposals on crypto-assets and digital resilience. Today’s package will boost Europe’s competitiveness and innovation in the financial sector, paving the way for Europe to become a global standard-setter. It will give consumers more choice and opportunities in financial services and modern payments, while at the same time ensuring consumer protection and financial stability.
Today’s measures will be crucial in supporting the EU’s economic recovery as it will unlock new ways of channelling funding to Europe’s businesses, while also playing a key role in delivering the European Green Deal and the New Industrial Strategy for Europe. By making rules safer and more digital friendly for consumers, the Commission aims to boost responsible innovation in the EU’s financial sector, especially for highly innovative digital start-ups, while mitigating any potential risks related to investor protection, money laundering and cyber-crime.
Valdis Dombrovskis, Executive Vice-President for an Economy that works for People, said: “The future of finance is digital. We saw during the lockdown how people were able to get access to financial services thanks to digital technologies such as online banking and fintech solutions. Technology has much more to offer consumers and businesses and we should embrace the digital transformation proactively, while mitigating any potential risks. That’s what today’s package aims to do. An innovative digital single market for finance will benefit Europeans and will be key to Europe’s economic recovery by offering better financial products for consumers and opening up new funding channels for companies.”
Today’s Digital Finance Package consists of a Digital Finance Strategy, a Retail Payments Strategy, legislative proposals for an EU regulatory framework on crypto-assets, and proposals for an EU regulatory framework on digital operational resilience.
A Digital Finance Strategy: towards a European financial data space – new ways of channelling funding to SMEs – better financial products for consumers
The aim of today’s Digital Finance Strategy is to make Europe’s financial services more digital-friendly and to stimulate responsible innovation and competition among financial service providers in the EU. It will reduce fragmentation in the digital single market, so that consumers can have access to financial products across borders and that Fintech start-ups scale up and grow. It will ensure that EU financial services rules are fit for the digital age, for applications such as artificial intelligence and blockchain. Data management is also at the heart of today’s strategy. In keeping with the Commission’s broader Data Strategy, the objective of today’s measures is to promote data sharing and open finance, while maintaining the EU’s very high standards on privacy and data protection. Finally, the strategy aims to ensure a level playing field among providers of financial services, be they traditional banks or technology companies: same activity, same risks, same rules.
A Retail Payments Strategy: modern and cost effective payments
Today’s strategy aims to bring safe, fast and reliable payment services to European citizens and businesses. It will make it easier for consumers to pay in shops and make e-commerce transactions safely and conveniently. It seeks to achieve a fully integrated retail payments system in the EU, including instant cross-border payment solutions. This will facilitate payments in euro between the EU and other jurisdictions. It will promote the emergence of home-grown and pan–European payment solutions.
Legislative proposals on crypto-assets: seizing opportunities and mitigating risks
The Commission has today proposed for the first time new legislation on crypto-assets (a digital representation of values or rights that can be stored and traded electronically). The ‘Regulation on Markets in Crypto Assets’ (MiCA) will boost innovation while preserving financial stability and protecting investors from risks. This will provide legal clarity and certainty for crypto-asset issuers and providers. The new rules will allow operators authorised in one Member State to provide their services across the EU (“passporting”). Safeguards include capital requirements, custody of assets, a mandatory complaint holder procedure available to investors, and rights of the investor against the issuer. Issuers of significant asset-backed crypto-assets (so-called global ‘stablecoins’) would be subject to more stringent requirements (e.g. in terms of capital, investor rights and supervision).
The Commission is also proposing today a pilot regime for market infrastructures that wish to try to trade and settle transactions in financial instruments in crypto-asset form. The pilot regime represents a so-called ‘sandbox’ approach – or controlled environment – which allows temporary derogations from existing rules so that regulators can gain experience on the use of distributed ledger technology in market infrastructures, while ensuring that they can deal with risks to investor protection, market integrity and financial stability. The intention is to allow companies to test and learn more about how existing rules fare in practice.
Legislative proposals on digital operational resilience: closing the door to cyber attacks and enhancing oversight of outsourced services
Technology companies are becoming more and more important in the area of finance, both as IT providers for financial firms, as well as providers of financial services themselves. Today’s proposed ‘Digital Operational Resilience Act’ (DORA) aims to ensure that all participants in the financial system have the necessary safeguards in place to mitigate cyber-attacks and other risks. The proposed legislation will require all firms to ensure that they can withstand all types of Information and Communication Technology (ICT) – related disruptions and threats. Today’s proposal also introduces an oversight framework for ICT providers, such as cloud computing service providers.
Background
Today’s Digital Finance Package builds on the work carried out in the context of the FinTech Action Plan of 2018 and the work of the European Parliament, European Supervisory Authorities (ESAs) and other experts. While preparing the Digital Finance Package, the Commission engaged with stakeholders and the public in many ways. The Commission organised Digital Finance Outreach events, a series of events with stakeholders that took place in Member States and in Brussels in spring 2020. The Commission had also organised three public consultations to gather feedback from a broad range of stakeholders[1].
In the area of retail payments, the Payment Services Directive 2 (PSD2) was already an important step at legislative level. However, PSD2 will be reviewed in Q4 2021, and adjusted where necessary, in order to support the implementation of the retail payments strategy policies. The Commission had also published a public consultation for a Retail Payments Strategy for Europe in the first semester of 2020. The Commission took into account the responses to the consultation when shaping the EU actions in the area of retail payments.
Compliments of the European Commission.
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European Commission President Ursula von der Leyen today mapped out in her first annual State of the Union address, a path for the European Union to overcome the fragility laid bare by the coronavirus crisis and build a union of vitality.
The 2020 State of the European Union debate came at a time of uncertainty with the coronavirus pandemic still affecting all aspects European and global economies and societies. The pandemic has simultaneously shown both the fragility of the global system and the importance of cooperation to tackle collective challenges: “Because this was a global crisis we need to learn the global lessons”.
Von der Leyen underlined that Europe has a once in a lifetime opportunity to make change happen by design with NextGenerationEU and that Europe “has the vision, the plan, the investment” it takes to do so. To enable Europe to become green, digital and more resilient, the European Commission will focus on (see here for main initiatives in more detail):

Protecting lives and livelihoods in Europe, the health of our citizens and the stability of our economy;
Reinforcing the building blocks of the European Green Deal and raising our ambitions – Von der Leyen announced during her address, that the Commission is proposing an increase in reduction of emissions to 55%;
Leading the digital transformation, particularly on data, technology and infrastructure;
Making the most of our single market;
Continuing to rally global response as the world awaits an accessible, affordable and safe vaccine against COVID-19;
Taking a new approach to migration, remaining vigilant on the rule of law and building a union where racism and discrimination have no place;
Responding more assertively to global events and deepening our relations with EU’s closest neighbours and global partners.

Regarding the Union’s tasks on the global scale and as global actor, President Von der Leyen called for the revitalisation and reform of the multilateral system, including the UN, WTO and WHO. “It is with a strong United Nations that we can find long-term solutions for crises like Libya or Syria. It is with a strong World Health Organisation that we can better prepare and respond to global pandemics or local outbreaks – be it Corona or Ebola. And it is with a strong World Trade Organisation that we can ensure fair competition for all. But the truth is also that the need to revitalise and reform the multilateral system has never been so urgent. Our global system has grown into a creeping paralysis. Major powers are either pulling out of institutions or taking them hostage for their own interests. Neither road will lead us anywhere. Yes, we want change. But change by design – not by Destruction of the International system. And this is why I want the EU to lead reforms of the WTO and WHO so they are fit for today’s world. But we know that multilateral reforms take time and in the meantime the world will not stop. Without any doubt, there is a clear need for Europe to take clear positions and quick actions on global affairs.”
President Von der Leyen pledged to use Europe’s “diplomatic strength and economic clout to broker agreements that make a difference” on ethical, human rights and environmental issues and that Europe should always “be a global advocate for fairness.”
Von der Leyen also tackled various international issues of current affairs and stressed that Europe must deepen and refine its partnerships with its friends and allies. From revitalising and cherishing the transatlantic alliance to strengthening partnerships with the EU’s closest neighbours.
The President reminded her audience that the decision to open accession negotiations with Albania and North Macedonia was truly historic and that the future of the whole Western Balkans lies in the EU. Von der Leyen also gave her reassurance that “we will also be there for the Eastern Partnership countries and our partners in the southern neighbourhood – to help create jobs and kickstart their economies.”
On Africa, Von der Leyen said that the EU-African partnership is a partnership of equals, where both sides share opportunities and responsibilities. “Africa will be a key partner in building the world we want to live in – whether on climate, digital or trade,” she said.
Regarding Turkey, she said that the country is and will always be an important neighbour. She pointed out that “while we are close together on the map, the distance between us appears to be growing. Yes, Turkey is in a troubled neighbourhood. And yes, it is hosting millions of refugees, for which we support them with considerable funding. But none of this is justification for attempts to intimidate its neighbours.”
“The relationship between the European Union and China is simultaneously one of the most strategically important and one of the most challenging we have”, Von der Leyen elaborated with view to EU-China relations. “From the outset I have said China is a negotiating partner, an economic competitor and a systemic rival. We have interests in common on issues such as climate change – and China has shown it is willing to engage through a high-level dialogue. But we expect China to live up to its commitments in the Paris Agreement and lead by example.”
On the situation in Belarus, she underlined that the European Union is on the side of the people of Belarus: “We have all been moved by the immense courage of those peacefully gathering in Independence Square or taking part in the fearless women’s march. The elections that brought them into the street were neither free nor fair. And the brutal response by the government ever since has been shameful. The people of Belarus must be free to decide their own future for themselves.”
The President also pledged that the European Commission will put forward a European Magnitsky act and urged Member States to embrace qualified majority voting on external relations “at least on human rights and sanctions implementation.”
As to Europe’s overall approach in international affairs, President Von der Leyen called for Europe “to be a global advocate for fairness” and she stressed that “if Europe is to play this vital role in the world – it must also create a new vitality internally.”
Compliments of the European Union External Action Service.
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Smarter and standardised reporting procedures proposed to reduce banks’ reporting costs
Banking industry involvement in improving procedures needed

The European Central Bank (ECB) today published the European System of Central Banks’ (ESCB) input into a European Banking Authority (EBA) feasibility report on reducing the reporting burden for the European banking industry. Under Article 430c of the Capital Requirements Regulation (CRR), the European Parliament and the Council of the European Union mandated the EBA to carry out a feasibility study and requested that input from the ESCB be taken into account.
The ESCB report proposes to reduce the reporting burden for banks in the fields of statistical, resolution and prudential reporting without losing the information content that is indispensable to monetary policy, resolution and supervisory tasks. This can be achieved through:

a common standard data dictionary and common data model for statistical, resolution and prudential information requirements;
smarter procedures, such as harmonised transmission reporting formats, the removal of duplications and improved data sharing between authorities;
increased cooperation between European authorities, and between authorities and the banking industry, to achieve a common standard data dictionary, a common data model and smarter procedures.

These efforts should help to reduce the reporting burden for banks and increase the quality of the data received by authorities. As a result, banks would be able to reduce costs, and authorities could better monitor developments in the banking industry.
Compliments of the ECB.
The post ECB proposes to reduce reporting burden for banks and increase data quality first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Today, the European Commission is proposing an upgrade of the Single European Sky regulatory framework which comes on the heels of the European Green Deal. The objective is to modernise the management of European airspace and to establish more sustainable and efficient flightpaths. This can reduce up to 10% of air transport emissions.
The proposal comes as the sharp drop in air traffic caused by the coronavirus pandemic calls for greater resilience of our air traffic management, by making it  easier to adapt traffic capacities to demand.
Commissioner for Transport, Adina Vălean, declared: “Planes are sometimes zig-zagging between different blocks of airspace, increasing delays and fuel consumed. An efficient air traffic management system means more direct routes and less energy used, leading to less emissions and lower costs for our airlines. Today’s proposal to revise the Single European Sky will not only help cut aviation emissions by up to 10% from a better management of flight paths, but also stimulate digital innovation by opening up the market for data services in the sector. With the new proposed rules we help our aviation sector advancing on the dual green  and digital transitions.”
Not adapting air traffic control capacities would result in additional costs, delays and CO2 emissions. In 2019, delays alone cost the EU €6 billion, and led to 11.6 million tonnes (Mt) of excess CO2. Meanwhile, obliging pilots to fly in congested airspace rather than taking a direct flight path entails unnecessary CO2 emissions, and the same is the case when airlines are taking longer routes to avoid charging zones with higher rates.
The European Green Deal, but also new technological developments such as wider use of drones, have put digitalisation and decarbonisation of transport at the very heart of EU aviation policy. However, curbing emissions remains a major challenge for aviation. The Single European Sky therefore paves the way for a European airspace that is used optimally and embraces modern technologies. It ensures collaborative network management that allows airspace users to fly environmentally-optimal routes. And it will allow digital services which do not necessarily require the presence of local infrastructure.
To secure safe and cost-effective air traffic management services, the Commission proposes actions such as:

strengthening the European network and its management to avoid congestion and suboptimal flight routes;
promoting a European market for data services needed for a better air traffic management;
streamlining the economic regulation of air traffic services provided on behalf of Member States to stimulate greater sustainability and resilience;
boosting better coordination for the definition, development and deployment of innovative solutions.

Next Steps
The current proposal will be submitted to the Council and the Parliament for deliberations, which  the Commission hopes will be concluded without delay.
Subsequently, after final adoption of the proposal, implementing and delegated acts will need to be prepared with experts to address more detailed and technical matters.
Background
The Single European Sky initiative was launched in 2004 to reduce fragmentation of the airspace over Europe, and to improve the performance of air traffic management in terms of safety, capacity, cost-efficiency and the environment. A proposal for a revision of the Single European Sky (SES 2+) was put forward by the Commission in 2013, but negotiations have been stalled in Council since 2015. In 2019, a Wise Person’s Group, composed of 15 experts in the field, was set up to assess the current situation and future needs for air traffic management in the EU, which resulted in several recommendations. The Commission then amended its 2013 text, introducing new measures, and drafted a separate proposal to amend the EASA Basic Regulation. The new proposals are accompanied by a Staff Working Document, presented today.
Compliments of the European Commission.
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Bonds with coupons linked to sustainability performance targets to become eligible as central bank collateral
Potential eligibility also for asset purchases under the APP and the PEPP subject to compliance with programme-specific eligibility criteria
Decision applicable from 1 January 2021

The European Central Bank (ECB) has decided that bonds with coupon structures linked to certain sustainability performance targets will become eligible as collateral for Eurosystem credit operations and also for Eurosystem outright purchases for monetary policy purposes, provided they comply with all other eligibility criteria.
The coupons must be linked to a performance target referring to one or more of the environmental objectives set out in the EU Taxonomy Regulation and/or to one or more of the United Nations Sustainable Development Goals relating to climate change or environmental degradation. This further broadens the universe of Eurosystem-eligible marketable assets and signals the Eurosystem’s support for innovation in the area of sustainable finance.
Non-marketable assets with comparable coupon structures are already eligible. The decision aligns the treatment of marketable and non-marketable collateral assets with such coupon structures.
The decision applies from 1 January 2021.
Compliments of the ECB.
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The European Commission has today adopted a time-limited decision to give financial market participants 18 months to reduce their exposure to UK central counterparties (CCPs).
A CCP is an entity that reduces systemic risk and enhances financial stability by standing between the two counterparties in a derivatives contract (i.e. acting as buyer to the seller and seller to the buyer of risk). A CCP’s main purpose is to manage the risk that could arise if one of the counterparties defaults on the deal. Central clearing is key for financial stability by mitigating credit risk for financial firms, reducing contagion risks in the financial sector, and increasing market transparency.
The heavy reliance of the EU financial system on services provided by UK-based CCPs raises important issues related to financial stability and requires the scaling down of EU exposures to these infrastructures. Accordingly, industry is strongly encouraged to work together in developing strategies that will reduce their reliance on UK CCPs that are systemically important for the Union. On 1 January 2021, the UK will leave the Single Market. Today’s temporary equivalence decision aims to protect financial stability in the EU and give market participants the time needed to reduce their exposure to UK CCPs.
Valdis Dombrovskis, Executive Vice President for an Economy that Works for People said: “Clearing houses, or CCPs, play a systemic role in our financial system. We are adopting this decision to protect our financial stability, which is one of our key priorities. This time-limited decision has a very practical rationale, because it gives EU market participants the time they need to reduce their excessive exposures to UK-based CCPs, and EU CCPs the time to build up their clearing capability. Exposures will be more balanced as a result. It is a matter of financial stability.”
Background
On the basis of an analysis conducted with the European Central Bank, the Single Resolution Board and the European Supervisory Authorities, the Commission identified that financial stability risks could arise in the area of central clearing of derivatives through CCPs established in the United Kingdom (“UK CCPs”) should there be a sudden disruption in the services they offer to EU market participants. This was addressed in the Commission Communication of 9 July 2020, where market participants were recommended to prepare for all scenarios, including where there will be no further equivalence decision in this area.
Compliments of the European Commission.
The post Financial stability: EU Commission adopts time-limited decision giving market participants the time needed to reduce exposure to UK central counterparties (CCPs) first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.