Blog post by Josep Borrell, High Representative of the European Union for Foreign Affairs and Security Policy / Vice-President of the European Commission
Since the start of the invasion of Ukraine, the EU has imposed 11 rounds of ever-tighter sanctions against Russia. Some people claim these sanctions have not worked. This is simply not true. Within a year, they have already limited Moscow’s options considerably causing financial strain, cutting the country from key markets and significantly degrading Russia’s industrial and technological capacity. To stop the war, we need to stay the course.

Our restrictive measures, to use the technically correct term, are unprecedented in their scope, focusing on key sectors of the Russian economy that are crucial to Moscow’s war effort. In addition, the EU has also imposed travel bans and asset freezes on more than 1,500 individuals and almost 250 entities.
Hard tangible effects across Russia’s economy
These measures are producing hard, tangible effects across Russia’s economy, despite the huge oil and gas revenues Russia used as a buffer in the first year of the invasion. And their effects will intensify over time, as the measures have a long-term impact on Russia’s budget, and its industrial and technological base.

The Russian economy contracted in 2022 by 2.1%. Manufacturing in particular – growing steadily before the invasion – was down 6% at the end of 2022, with high and medium-high technology manufacturing recording a 13% annual loss. The production of motor vehicles was down 48% year-on-year, other transport equipment by 13% and computer, electronic and optical production by 8% while retail trade was 10% lower and wholesale trade 17%.
The outlook for 2023 remains bleak
And the outlook for 2023 remains bleak. According to the latest OECD report, Russia’s GDP is foreseen to shrink by up to 2.5%. All the components of Russian private demand, including private investment and consumption, remain depressed. Only public expenditure related to the war effort, i.e. defence spending, is up.
Russian carriers are no longer able to fly to, from and over EU territory. Most modern aircraft operated by Russian carriers are dependent on European and American spare parts and technical assistance, which have been banned. The ban on new investment across the energy sector and export restrictions on technology and services for the energy industry have undermined the viability of Russian companies. The credit rating agency Moody’s has already downgraded 95 Russian firms (including most energy companies).

Source: European Commission
Compared to 2021, 58% of total EU imports from Russia were already cut off in 2022 – an unprecedented decoupling. Non-energy imports from Russia have fallen close to 60%, with the most visible drops for iron and steel, precious metals and wood. This movement is accelerating: the decline in imports of non-energy goods is above 75% for the first quarter of 2023, and the fall is even greater for energy goods, at minus 80%.

Source: European Commission
Since 10 August 2022, EU imports of Russian coal have stopped completely affecting around one fourth of all Russian coal exports. The G7+ energy sanctions on oil have proven effective. The price of Russian oil has fallen since the start of the EU embargo and G7+ oil price caps. The International Energy Agency (IEA) reports an average Russian crude oil export price at around $ 60/barrel in April 2023, a $ 24/barrel discount compared to the global oil price. The IEA also estimates that total Russian oil revenues are down 27% from a year before. At the same time, as was intended by the G7+ countries, despite falling exports to the EU, the overall volume of Russian global oil exports held up relatively well, helping to keep global markets stable. On gas, Russia’s own decision to cut flows and the EU’s strong diversification efforts resulted in a dramatic fall in volumes. Despite this, we have managed to get sufficient gas stocks ahead of next winter.

Source: European Commission
On the export side, restrictive measures to date cover around 54% of 2021 EU exports, targeting key capital and intermediate goods where Russia has a high dependency on supplies from the EU, United Kingdom, United States and Japan. Overall EU exports of goods were 52% below the annual average before the war in 2022.

Source: European Commission
EU exports on dual-use items and advanced technologies, which are essential to produce the equipment and weapons used by Russia to wage its war, dropped by 78% in 2022 compared to 2019-2021. EU trade restrictions so far exclude products, other than luxury goods, primarily intended for private consumption like pharmaceuticals, food, medical devices and some specific agricultural machinery. However, even in many areas that are not under sanctions, many EU companies have stopped trading with Russia and EU exports in non-sanctioned sectors are down by over 10% on average.
Russia’s war of aggression is the root cause of the global food insecurity
At the same time, the EU is also ensuring that its sanctions do not unduly affect trade in sectors, such as food and energy security, for third countries around the globe, in particular the least developed ones. Specific exemptions and guidance have been established to that effect. Russia’s war of aggression is the root cause of the global supply shock in the areas of food and related items by invading Ukraine, one of the main breadbasket of the world. The fact that Russia decided to exit the Black Sea Grain Initiative last July, attacking since then massively silos and Ukrainian ports, risks to aggravate again the global food security situation in coming months. The EU will continue to counter Russia’s false narrative on these issues and work closely with partners that are negatively affected by Russia’s actions to mitigate these effects.
Russia had an important budgetary surplus for the first half of 2022 due to high oil and gas prices but it has been erased in subsequent months, with the federal budget ending in a deficit in 2022. The fiscal situation is expected to worsen. January-April figures for 2023 showed Russia’s oil and gas federal budget revenues, representing 45 % of Russia’s budget in 2022, dropping 52%. The government is trying to address the revenue slump by extracting high dividends from state-owned enterprises and levying additional taxes on large businesses but these have their own costs and are unlikely to plug the growing fiscal deficit.
While the Russian government still has fiscal space with a public debt that stood at 17% of GDP at the end of 2021 and accumulated assets in the National Wealth Fund (NWF) that remain sizeable (as of April 2023, $ 154 billion, or 7.9% of GDP), it squeezed productive and social spending. In 2023, nearly a third of the federal budget is expected to be spent on defence and domestic security while funding for schools, hospitals and roads is slashed further.
In 2023, the current account surplus has decreased dramatically as import volumes recovered due to the increase in more costly substitution imports. At the same time, sanctions on Russian exports and the G7 price caps effectively reduced the income from Russia’s main exports. Russia has turned increasingly to the yuan as a means of transaction and a store of value – a currency with non-transparent capital controls. This in turn has increased the costs of doing financial transactions between Russia and the outside world.

Benefitting from measures like banning non-residents from transacting in the financial markets and a record current account surplus due to high commodity prices, the rouble appreciated against the euro following the start of the war. The exchange rate thus very much reflected the decoupling of the Russian economy from the global one. With the degradation of the current account, the rouble depreciated again in the second half of 2022 and has further weakened massively in 2023. It is now at its weakest for many years, trading at lower levels than during the pandemic. To try to halt this fall, the Russian Central Bank had to raise sharply interest rates from 7.5% in July to 12% on 15 August. This high interest rate will put an even greater brake on economic activity in Russia in coming months.
Large parts of the reserves of the Central Bank of Russia have been immobilised in the EU and other countries (of the € 300 billion assets immobilised, € 207 billion are in the EU). The EU, together with partners, is working to find ways to use revenues of the immobilised assets of the Russian central bank to support Ukraine’s reconstruction and for the purposes of reparation, while ensuring this is done in accordance with EU and international law.
Russia is trying to counter EU measures
Meanwhile, Russia is trying to counter EU measures. It is turning to non-sanctioning countries in search of technology and intermediate products. Russia’s overall imports fell post-invasion by around 18% from April to November 2022 compared to the same period of 2021. After this slump, Russia’s imports from China increased by 27%, in particular for machinery, electrical equipment and cars. Russia has also been introducing measures that have made it more difficult and costly for foreign companies to leave the Russian market.
While it is questionable if others can fully fill the space left by sanctioned EU goods, it underlines the need to act more firmly against the circumvention of EU sanctions. To this end, we are stepping up our engagement with key third countries, urging them to closely monitor and act against trade in EU sanctioned goods, particularly those found on the battlefield in Ukraine. In this regard, the EU Special Envoy David O’Sullivan will play an important role.
Within a year, sanctions have already limited Moscow’s political and economic options, causing financial strain, cutting the country from key markets, increasing the costs of trading and significantly degrading Russia’s industrial capacity. Looking at Russia’s long-term growth prospects, the technological degradation and the exit of foreign companies will hamper investment and productivity growth for years. The labour market situation was not favourable before the invasion due to Russia’s demographics. Mass conscription has worsened it further and the growing lack of opportunities exacerbates the brain drain from Russia. In short: Russia’s decision to attack Ukraine has obviously pushed the Russian economy towards isolation and decline.
Compliments of the European Commission.
The post EU Commission | Yes, The Sanctions Against Russia Are Working first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The European Investment Bank (EIB) has published the results of a survey on the investment levels in CEE companies — “Business Model Update: Are CEE Companies Investing Enough?”. The analysis was published as part of the Warsaw School of Economics (SGH) Report, which is to be presented at the Economic Forum in Karpacz (5 to 7 September 2023). The findings show that investment activity is recovering after the crises caused by the coronavirus pandemic and the war in Ukraine. Companies are trying to break away from the old capital-intensive growth model and are looking for new opportunities in this regard, especially those related to the use of modern technologies and innovation. The level of investment in enterprises in the CEE region (77%) is close to the average in the European Union (80%) and the United States (81%).
EIB Vice-President Teresa Czerwińska remarked, “Investment by CEE enterprises in product and service innovation is higher than the EU average. This is a positive trend that will accelerate the development of the region, create new jobs, and certainly increase the region’s competitiveness on the international market.”
“Enterprises in the CEE region, after the crises caused by the coronavirus pandemic and the war in Ukraine, are returning to the path of growth. The vast majority of investments involve the replacement or expansion of production capacity, which will allow enterprises to become more efficient and more environmentally friendly in future,” said EIB Chief Economist Debora Revoltella.
The main investment aim of companies located in the CEE region remains capacity replacement — the same as the EU average (46% of companies in CEE countries and in the European Union). This is followed by capacity expansion (25% of companies in CEE) and innovation (17%). Manufacturing companies (20%) and large organisations (18%) invest relatively more in innovation. Companies from Poland (22%), Slovenia (19%) and the Czech Republic (17%) allocate the greatest share of funds to innovation, investing in the development of new products or services.
Allocation of investment in the last financial year by country (%)

Question: What proportion of your total investment was spent on: (a) replacing production capacity (including existing buildings, machinery, equipment, and IT); (b) expanding production capacity for existing products/services; (c) developing or introducing new products, processes and services? Basis: all companies that made investments during the last financial year (excluding “don’t know” responses and companies that declined to answer).
In contrast to EU and US companies, those operating in the CEE region allocated a bigger share of their investment to machinery and equipment (53% vs. 49% in the EU and 47% in the US), and a smaller share to intangible assets (24% vs. 37% in the EU and 33% in the US). The share of companies intending to focus primarily on product and service innovation in CEE (27%) exceeded the result recorded in the EU (24%) and the US (21%) in this regard. Innovation is an especially important investment priority for manufacturing firms and large companies.
In particular, machinery and equipment dominated the investment expenditure of manufacturing (60% of investment expenditure) and construction companies (59%), while service companies invested relatively more in digital technologies (18%). The share of investment in intangible assets was highest in Latvia, Slovakia, Slovenia and the Czech Republic.
Investment areas by country (%)

Question: In the last financial year, how much did your company invest in each of the following areas with the intention of maintaining or increasing future profits? Basis: all companies that made investments during the last financial year (excluding “don’t know” responses and companies that declined to answer).
The most frequently cited long-term barriers to investment in the CEE region are uncertainty about the future (87%), energy costs (87%) and availability of skilled workers (82%). The average results for the European Union are similar.
Impact of climate change on investment
Companies in the region are concerned about the cost of taking zero-carbon measures, which for businesses means modernising production methods. Due to the high proportion of fossil fuels in energy production in CEE countries, and to energy-intensive production methods, enterprises in the region are particularly exposed to this risk. As a result, the share of CEE companies that see the transition to more demanding climate standards and regulations as a threat is higher than the percentage of those that see this process as an opportunity (36% and 18%, respectively). These figures contrast with the overall situation in the European Union, where the shares are almost the same (threat: 32%; opportunity: 29%). Compared to small and medium-sized enterprises, many more large enterprises view the transition to zero-carbon as an opportunity (14% vs. 22%).
CEE companies are taking steps to adopt a more environmentally friendly business model. Nearly 90% of companies in the region are aiming to reduce greenhouse gas emissions, which is in line with the EU average. The main projects undertaken in this regard in CEE countries are waste reduction and processing (67%) and investments in energy efficiency (55%), which have proven very profitable in recent years. Compared to the EU average, CEE enterprises invested less frequently in sustainable transport (43% vs. 32%). Across the region, companies in Romania (93%) and Poland (90%) were most likely to undertake such projects, while companies in Bulgaria were less likely (70%).
The percentage of CEE companies investing in energy efficiency (nearly 40%) is close to the EU average, despite the fact that the region favours a more energy-intensive business model. Companies in the manufacturing sector (48%) and large organisations (50%) were most likely to undertake such investments.
Investment financing
Own funds (70%) accounted for the largest share of financing among CEE companies in 2022, followed by external sources (25%), with group financing accounting for an average of 4% of overall corporate investment in CEE countries. The percentage of companies using external financing is highest in Romania (32%) and lowest in the Czech Republic (18%).
Three-quarters (75%) of the companies that say they use external financing obtained bank loans in the last financial year, of which 21% obtained a loan on preferential terms. There are significant differences in this regard between countries in the region: Preferential bank loans are most common in Hungary (39%), the Czech Republic (36%) and Romania (36%), and least common in Latvia (5%), Poland (7%) and Estonia (8%).
The proportion of companies experiencing financial difficulties in obtaining external financing is higher in CEE countries (9.2%) than the EU average (6.2%). The main problem reported by companies in the region was the rejection of loan applications (5.8%).
General Information
About the EIB Group Investment Survey
The EIB Group Investment Survey is the EIB’s annual flagship report. It is designed to serve as a monitoring tool that provides a comprehensive overview of the changes and factors driving investment and its financing within the European Union. The report combines the EIB’s internal analysis with the results of collaboration with leading experts in order to explain key market trends and provide a more in-depth look at specific topics. The 2022–2023 survey reflects the EU economy’s resilience to repeated shocks and its capacity for renewal, delivering on the promise of productive public and private investment. Featuring the results of the EIB’s annual investment survey, the report presents the responses of around 12 500 companies across Europe to a wide range of questions about corporate investment and investment financing; it also includes a survey of EU municipalities.
The EIB Group is the long-term lending institution of the European Union, owned by its Member States. It consists of the European Investment Bank and the European Investment Fund. The EIB Group provides financial support for investments that contribute to EU policy goals, such as social and territorial cohesion and a just transition towards climate neutrality.
The EIB is the first multilateral development bank to move away from financing projects connected with fossil fuels, and has pledged to support €1 trillion in climate investment over the course of this decade. More than half of the loans granted by the EIB Group in 2022 were for climate and environmentally sustainable development projects. At the same time, almost half of the projects financed by the EIB within the European Union were located in cohesion regions (i.e. regions with lower per capita incomes), underlining the Bank’s commitment to equitable growth.
Compliments of the EIB – a Platinum Member of the EACCNY.

The post EIB | How Central and Eastern European companies are investing — findings from the EIB Group Investment Survey first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Growing trade restrictions may reverse economic integration and undermine the cooperation needed to protect against new shocks and address global challenges.
In a shock-prone world, economies must be more resilient—individually and collectively. Cooperation is critical, but greater protectionism could lead to fragmentation, and even split nations into rival blocs just as fresh shocks expose the global economy’s fragility.
While estimates of the cost of fragmentation vary, greater international trade restrictions could reduce global economic output by as much as 7 percent over the long term, or about $7.4 trillion in today’s dollars. That’s equivalent to the combined size of the French and German economies, and three times sub-Saharan Africa’s annual output.
More deliberate global cooperation clearly is needed. International institutions can play a vital role, bringing countries together to help solve global challenges, as IMF Managing Director Kristalina Georgieva writes a new essay for Foreign Affairs.
There are signs cooperation is faltering. As the Chart of the Week shows, new trade barriers introduced annually have nearly tripled since 2019 to almost 3,000 last year.

Other forms of fragmentation—like technological decoupling, disrupted capital flows, and migration restrictions—will also raise costs. In addition, global flows of goods and capital have leveled off since the global financial crisis. IMF research shows geopolitical alignments increasingly influence both foreign direct investment and portfolio flows.
The IMF continues to underscore that the international community, supported by global institutions such as ours, should pursue targeted progress where common ground exists and maintain collaboration in areas where inaction would be devastating.
“Policymakers need to focus on the issues that matter most not only to the wealth of nations but also to the economic well-being of ordinary people,” Georgieva wrote in Foreign Affairs. “They must nurture the bonds of trust among countries wherever possible so they can quickly step up cooperation when the next major shock comes.”
Compliments of the IMF.The post IMF | The High Cost of Global Economic Fragmentation first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The European Commission adopted today the rules governing the implementation of the Carbon Border Adjustment Mechanism (CBAM) during its transitional phase, which starts on 1 October of this year and runs until the end of 2025.
The Implementing Regulation published today details the transitional reporting obligations for EU importers of CBAM goods, as well as the transitional methodology for calculating embedded emissions released during the production process of CBAM goods.
In the CBAM’s transitional phase, traders will only have to report on the emissions embedded in their imports subject to the mechanism without paying any financial adjustment. This will give adequate time for businesses to prepare in a predictable manner, while also allowing for the definitive methodology to be fine-tuned by 2026.
To help both importers and third country producers, the Commission also published today guidance for EU importers and non-EU installations on the practical implementation of the new rules. At the same time, dedicated IT tools to help importers perform and report these calculations are currently being developed, as well as training materials, webinars and tutorials to support businesses when the transitional mechanism begins. While importers will be asked to collect fourth quarter data as of 1 October 2023, their first report will only have to be submitted by 31 January 2024.
Ahead of its adoption by the Commission, the Implementing Regulation was subject to a public consultation and was subsequently approved by the CBAM Committee, composed of representatives from EU Member States. One of the central pillars of the EU’s ambitious Fit for 55 Agenda, CBAM is the EU’s landmark tool to fight carbon leakage. Carbon leakage occurs when companies based in the EU move carbon-intensive production abroad to take advantage of lower standards, or when EU products are replaced by more carbon-intensive imports, which in turn undermines our climate action.
For more information
Carbon Border Adjustment Mechanism (CBAM)

The post EU Commission | Detailed reporting rules adapted for the Carbon Border Adjustment Mechanism’s transitional phase first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

A new law to ensure that batteries are collected, reused and recycled in Europe is entering into force today. The new Batteries Regulation will ensure that, in the future, batteries have a low carbon footprint, use minimal harmful substances, need less raw materials from non-EU countries, and are collected, reused and recycled to a high degree in Europe. This will support the shift to a circular economy, increase security of supply for raw materials and energy, and enhance the EU’s strategic autonomy.
In line with the circularity ambitions of the European Green Deal, the Batteries Regulation is the first piece of European legislation taking a full life-cycle approach in which sourcing, manufacturing, use and recycling are addressed and enshrined in a single law.
Batteries are a key technology to drive the green transition, support sustainable mobility and contribute to climate neutrality by 2050. To that end, starting from 2025, the Regulation will gradually introduce declaration requirements, performance classes and maximum limits on the carbon footprint of electric vehicles, light means of transport (such as e-bikes and scooters) and rechargeable industrial batteries.
The Batteries Regulation will ensure that batteries placed on the EU single market will only be allowed to contain a restricted amount of harmful substances that are necessary. Substances of concerns used in batteries will be regularly reviewed.
Targets for recycling efficiency, material recovery and recycled content will be introduced gradually from 2025 onwards. All collected waste batteries will have to be recycled and high levels of recovery will have to be achieved, in particular of critical raw materials such as cobalt, lithium and nickel. This will guarantee that valuable materials are recovered at the end of their useful life and brought back in the economy by adopting stricter targets for recycling efficiency and material recovery over time.
Starting in 2027, consumers will be able to remove and replace the portable batteries in their electronic products at any time of the life cycle. This will extend the life of these products before their final disposal, will encourage re-use and will contribute to the reduction of post-consumer waste.
To help consumers make informed decisions on which batteries to purchase, key data will be provided on a label. A QR code will provide access to a digital passport with detailed information on each battery that will help consumers and especially professionals along the value chain in their efforts to make the circular economy a reality for batteries.
Under the new law’s due diligence obligations, companies must identify, prevent and address social and environmental risks linked to the sourcing, processing and trading of raw materials such as lithium, cobalt, nickel and natural graphite contained in their batteries.  The expected massive increase in demand for batteries in the EU should not contribute to an increase of such environmental and social risks.
Next steps
Work will now focus on the application of the law in the Member States, and the redaction of secondary legislation (implementing and delegated acts) providing more detailed rules.
Background
Since 2006, batteries and waste batteries have been regulated at EU level under the Batteries Directive. The Commission proposed to revise this Directive in December 2020 due to new socioeconomic conditions, technological developments, markets, and battery uses.
Demand for batteries is increasing rapidly. It is set to increase 14-fold globally by 2030 and the EU could account for 17% of that demand. This is mostly driven by the electrification of transport. Such exponential growth in demand for batteries will lead to an equivalent increase in demand for raw materials, hence the need to minimise their environmental impact.
In 2017, the Commission launched the European Battery Alliance to build an innovative, sustainable and globally competitive battery value chain in Europe, and ensure supply of batteries needed for decarbonising the transport and energy sectors.
Compliments of the European Commission.The post EU Circular economy: New law on more sustainable, circular and safe batteries enters into force first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The European Commission adopted today (Aug 17th) the rules governing the implementation of the Carbon Border Adjustment Mechanism (CBAM) during its transitional phase, which starts on 1 October of this year and runs until the end of 2025.
The Implementing Regulation published today details the transitional reporting obligations for EU importers of CBAM goods, as well as the transitional methodology for calculating embedded emissions released during the production process of CBAM goods.
In the CBAM’s transitional phase, traders will only have to report on the emissions embedded in their imports subject to the mechanism without paying any financial adjustment. This will give adequate time for businesses to prepare in a predictable manner, while also allowing for the definitive methodology to be fine-tuned by 2026.
To help both importers and third country producers, the Commission also published today guidance for EU importers and non-EU installations on the practical implementation of the new rules. At the same time, dedicated IT tools to help importers perform and report these calculations are currently being developed, as well as training materials, webinars and tutorials to support businesses when the transitional mechanism begins. While importers will be asked to collect fourth quarter data as of 1 October 2023, their first report will only have to be submitted by 31 January 2024.
Ahead of its adoption by the Commission, the Implementing Regulation was subject to a public consultation and was subsequently approved by the CBAM Committee, composed of representatives from EU Member States. One of the central pillars of the EU’s ambitious Fit for 55 Agenda, CBAM is the EU’s landmark tool to fight carbon leakage. Carbon leakage occurs when companies based in the EU move carbon-intensive production abroad to take advantage of lower standards, or when EU products are replaced by more carbon-intensive imports, which in turn undermines our climate action.
For more information
Carbon Border Adjustment Mechanism (CBAM)
Compliments of the European Commission.

The post Commission adopts detailed reporting rules for the Carbon Border Adjustment Mechanism’s transitional phase first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, and national competent authorities (NCAs) completed an analysis of the cross-border provision of investment services during 2022.

The increase in the cross-border provision of financial services has benefits for consumers and firms, as it fosters competition, expands the offer available to consumers and the market for firms. However, it also requires that NCAs intensify their efforts and focus more on the supervision of cross-border activities and cooperation to tackle the issues arising from these activities.
The data collected and analysed across 29 jurisdictions allows ESMA and NCAs to shed light on various aspects of the market for retail investors that receive investment services by credit institutions and investment firms established in other Member States.
Key findings of the data collection[1] include:

A total of around 380 firms[2] provided services to retail clients on a cross-border basis in 2022. The majority of them (59%) are investment firms, while 41% are credit institutions.
Approximately 7.6 million clients in the EU/EEA received investment services from firms located in other EU/EEA Member States in 2022.
In terms of number of firms, Cyprus is the primary location for firms providing cross-border investment services in the EU/EEA, accounting for 23% of the total firms passporting investment services. Luxembourg and Germany follow with 16% and 13% of all firms, respectively.
Looking at the number of EU/EEA retail clients receiving cross-border investment services, more than 75% are served by firms based in three jurisdictions: Cyprus, Germany, and Sweden. Cyprus-based firms reported activity to around 2.5 million cross-border retail clients, German-based firms to around 2 million retail clients and Sweden-based firms to more than 1 million retail clients. All other firms in the scope of the exercise reported a total of around 1.8 million cross-border retail clients, accounting for about a quarter of the total number of retail clients.
The average number of cross-border retail clients per firm varied from 189 (for the only firm in Italy) to about 140,000 retail clients (for the 8 firms based in Sweden). Overall, the average number of retail clients per firm was about 19,000.
As host Member States, Germany, Spain, France and Italy are the most significant destinations (in terms of number of retail clients) for investment firms providing services cross-border in other Member States.
Approximately 5,700 complaints were recorded by firms relating to the provision of cross-border investment services to retail clients in 2022. The number of complaints received is proportional to the number of clients served by firms providing cross-border investment services.

The data analysis highlighted that clients of cross-border investment services primarily lodged complaints[3] about “terms of contract/fees/charges” and about “issues pertaining to general admin/customer services”. Fewer complaints were reported on the topics of “investment products not appropriate/suitable for the client” and “market event related”.

Next steps
ESMA aims to continue performing the data collection exercise on annual basis and endeavours to publish a Report on the findings at the next iteration of the exercise in 2024.

Distribution of firms across EU/EEA Member States

Shares of firms by home Member State

Number of clients by home Member State

Number of clients by host Member State

Compliments of the European Securities and Markets Authority (ESMA).

Footnotes:
[1] Some country specific figures may have to be interpreted with a note of caution as the firm-level reporting did not always follow the ESMA template.
[2] Firms that provided investment services to less than 50 retail clients in any other Member State where not included in the scope of the data collection exercise. This approach has allowed for clear proportionality in conducting the exercise, with no burden for firms below the materiality threshold.
[3] Firms recorded the most frequent complaint topics among the following eight (8) categories:
– Quality or lack of information provided to the client
– Investment product not appropriate/suitable for the client
– Terms of contract/fees/charges
– General admin/customer services (including custody/safekeeping services)
– Issue in relation to withdrawal of investor’s funds from an account / issue connected to exit from the investment and redemption of funds
– Market event related
– IT issues
– OtherThe post ESMA performs an analysis of the cross-border investment activity of firms first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

In 2013, the Financial Stability Board (FSB) established the Official Sector Steering Group (OSSG) with the view of promoting the effective collaboration of the global official sector towards the end goal of successful transition to robust benchmarks, including the transition away from LIBOR.
After a decade of preparation, the LIBOR transition has entered its final stage. The end of June 2023 marked the final major milestone in the LIBOR transition with the end of the remaining USD LIBOR panel. Only three of the US dollar LIBOR settings will continue in a synthetic form after June 2023 and are intended to cease at end-September 2024. In addition, reform of other interest rate benchmarks and related transition efforts have either been completed or near their planned, final conclusion.1
This monumental undertaking has seen an unprecedented shift in wholesale markets and has required the sustained coordination and dedication of regulators, industry bodies and market participants, and will lead to a more stable financial system. To maintain financial stability, it is important that markets remain anchored in robust benchmarks (for example risk-free or nearly risk-free rates) going forward.
In the post transition landscape, the FSB would like to emphasise the following messages:
1. The FSB continues to encourage firms to consider their choice of reference rates and use benchmarks that are robust, suitable, sustainable and compatible with relevant guidance and regulation.
The FSB encourages market participants to use the most robust reference rates, anchored in deep, credible and liquid markets, in order to avoid the need to repeat this exercise.
The FSB recognises that, in some cases, there may be a role for risk-free rate (RFR) derived term rates and has set out the circumstances where the limited use of RFR-based term rates would be compatible with financial stability.2 However, an over-reliance on term rates outside of these limited circumstances carries risks of undermining the robustness of these rates due to the potential for illiquidity in the underlying markets that enable and sustain term RFRs. As such, the FSB reiterates that their use must be in line with official sector and national working group best practice recommendations in the interest of sustaining robust reference rates and financial stability going forward.
Attempting to recreate rates that are based on LIBOR’s underlying wholesale unsecured markets leads to the same inherent vulnerabilities (e.g., excessive use of expert judgment and limited reliance on anchored transactions) and poses financial stability concerns. Using the more recently created ‘credit sensitive rates’ (CSRs) risks undermining the progress made through the decade-long LIBOR transition. IOSCO recently completed its review of certain CSRs against the 2013 Principles for Financial Benchmarks, related to benchmark design, methodology and transparency. In its 3 July 2023 public statement on alternatives to USD LIBOR, IOSCO highlighted concerns that bank-issued commercial paper and certificates of deposit market data are not sufficiently deep, robust and reliable to underpin a benchmark.3) IOSCO stated that limited reliance on anchored transactions lead to the “inverted pyramid” risk and can pose financial stability concerns. IOSCO also called on the CSRs reviewed to refrain from representing that they are “IOSCO-compliant.” IOSCO recommended that the reviewed administrators (1) consider and clearly disclose how they have considered the “concept of proportionality”; (2) consider licensing restrictions in line with recommendations from National Working Groups and Regulators; (3) consider improving the transparency of their rates.
The FSB welcomes IOSCO’s review of these rates and supports and underscores IOSCO’s message that “market participants should proceed with caution if they are considering using CSRs and take into account the risks identified in the review”.
2. Market participants should continue to incorporate robust contractual fallbacks.
At the outset of the LIBOR transition, it was clear that large numbers of contracts, across asset classes, did not make adequate provisions for the permanent cessation of panel-based LIBOR, or for its loss of representativeness. Whilst some contracts did contain fallback arrangements, many were unsuitable, for example because these fallbacks were linked to LIBOR and/or were often designed to cater for only a temporary outage in LIBOR. Some contracts did not contain any fallback provisions.
The LIBOR transition has underscored the importance of robust, workable fallback provisions. Where standard form contracts are used, relevant trade bodies have shown leadership in improving fallback language and encouraging market participants to adopt robust fallback provisions.
The FSB would like to thank in particular ISDA’s leadership on this work. Working with OSSG members, ISDA incorporated explicit fallback rate mechanisms for both IBORs and RFRs referenced in its IBOR Protocol and new definitional booklet. The OSSG encourages market participants to incorporate similar fallbacks into all contracts referencing RFRs.4
Some FSB jurisdictions have laws and regulations5 obliging market participants to incorporate robust and suitable fallback provisions into their contracts. Notwithstanding this, the FSB encourages all market participants to learn from the LIBOR transition experience and to adopt robust fallback mechanisms in all cases.
The FSB would like to thank the OSSG co-chairs, John C. Williams, President of the Federal Reserve Bank of New York and Nikhil Rathi, Chief Executive of the UK Financial Conduct Authority, as well as all past co-chairs. The FSB would also like to thank all OSSG members for their contributions and dedication to improving financial stability.
The FSB will continue to monitor the reference rate environment, including the ongoing use of Term RFRs and CSRs with the benefit of ongoing insights from IOSCO.
Contact:

Press enquiries | +41 61 280 8486 | press@fsb.org | Ref: 23/2023

Compliments of the Financial Stability Board.
1. For example, in Canada, CDOR will be discontinued after June 28, 2024, however, market participants are expected to transition from CDOR to CORRA well before this date, with new derivatives and securities transactions referencing CORRA after end-June 2023. [←]
2. FSB (2021) Overnight risk-free rates and term rates, June [←]
3. IOSCO (2023) Statement on Alternatives to USD LIBOR (July [←]
4. For contracts referencing Term RFRs, the OSSG encourages incorporation of fallbacks to explicitly referenced, externally produced, and IOSCO compliant alternatives of a similar risk-free nature, including fallbacks to overnight RFRs either in arrears or advance, as the primary fallbacks in any rate waterfall. References to internal cost of funds or issuer or lender discretion should be avoided as primary fallbacks, as should references to fallbacks to be selected by a central bank or other official body unless consent for such reference has been granted by the authority named. [←]
5. For example, Article 28(2) of the EU and UK Benchmarks Regulations require supervised entities to have robust plans in place in the event that a benchmark which they are using materially changes or ceases to be provided. [←]The post FSB | Final Reflections on the LIBOR Transition first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The Council has today approved the regulation to strengthen Europe’s semiconductor ecosystem, better known as the ‘Chips Act’. This is the last step in the decision-making procedure.
The Chips Act aims to create the conditions for the development of a European industrial base in the field of semiconductors, attract investment, promote research and innovation and prepare Europe for any future chip supply crisis. The programme should mobilise €43 billion in public and private investment (€3.3 billion from the EU budget), with the objective of doubling the EU’s global market share in semiconductors, from 10% now to at least 20% by 2030.

With the Chips Act, Europe will be a frontrunner in the world semiconductors race. We can already see it in action: new production plants, new investments, new research projects. And in the long run, this will also contribute to the renaissance of our industry and the reduction of our foreign dependencies.
Héctor Gómez Hernández, Spanish Minister for Industry, Trade and Tourism

Next steps
Following the Council’s approval today of the European Parliament’s position, the legislative act has been adopted.
After being signed by the President of the European Parliament and the President of the Council, the regulation will be published in the Official Journal of the European Union and will enter into force on the third day following its publication.
The Council has also passed an amendment to the regulation establishing the joint undertakings under Horizon Europe, to allow the establishment of the chips joint undertaking, which builds upon and renames the existing key digital technologies joint undertaking. The amendment was approved by the Council today following consultation with the Parliament. Both texts will be published in the Official Journal at the same time.
Background
Chips are small devices composed of semiconductors (materials capable of allowing or blocking the flow of electricity) and able to store large quantities of information or perform mathematical and logical operations. They are essential for a wide range of daily-use products, from credit cards to cars or smartphones. With the development of artificial intelligence, 5G networks and the internet of things, demand and market opportunities for chips and semiconductors are expected to grow substantially.
Currently, Europe is too dependent on chips produced abroad, which became even more evident during the COVID-19 crisis. Industry and other strategic sectors such as health, defence and energy faced supply disruptions and shortages. The Chips Act aims to reduce the EU’s vulnerabilities and dependencies on foreign actors while reinforcing the EU’s industrial base for chips, maximising future business opportunities and creating good-quality jobs. This will improve the EU’s security of supply, resilience, and technological sovereignty in the field of chips.
Compliments of the European Council, the Council of the European Union.The post Chips Act: EU Council gives its final approval first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Higher interest rates soon would prevent more economic pain later
The European Central Bank could prevent inflation expectations from becoming unmoored and drifting upwards by continuing to raise its policy rate, as discussed in our recent report on the euro area. A further tightening of monetary policy in the near term would prevent much more costly measures later to bring inflation back to target.
As the Chart of the Week shows, the ECB Governing Council has raised its deposit-facility rate eight times, by a total of 400 basis points, since it started to tighten policy in mid-2022. These decisive actions have helped keep longer-term expectations well anchored so far.
If the ECB were to raise its policy rate further and possibly above the 3.75 percent peak that markets expect now, depending on incoming data, this would help significantly to prevent high inflation from becoming entrenched. In fact, inflation would converge more rapidly towards the 2 percent target and interest rates could then fall at a faster pace.
The original shocks to energy and food prices that catapulted inflation above target are dissipating. But inflation is still high, with prices in the euro area rising by 5.5 percent from a year earlier in June. Core prices—a more reliable measure of underlying inflationary pressures—were up by 5.4 percent. Core inflation in the three months to June was also still much higher than the ECB’s target, at 4.6 percent on an annualized basis.
Inflation pressures are likely to persist for some time. Workers will try to recoup losses in purchasing power by pushing for higher wages, while businesses are likely to seek to protect their profits by setting their retail prices to reflect higher labor costs. We do not see inflation coming back to target before mid-2025—and inflation could possibly prove more persistent if, for instance, inflation expectations shift upwards or the share of wage contracts containing backward-indexation clauses increases.
In the face of persistent inflation, the ECB should persevere in keeping monetary policy tight. For a while, the ECB should react more strongly when inflation comes in above expectations than it does when inflation is below expectations—adopting a so-called tightening bias.
A tightening bias would help prevent high inflation from becoming entrenched—a bad outcome that would ultimately force the ECB to tighten more and for longer to return inflation to target, causing a sharper economic downturn later.
Of course, the ECB should remain flexible given the economic uncertainties ahead and be ready to adjust course depending on the flow of data. The ECB’s meeting-by-meeting approach to making policy decisions rightly allows it to set rates based on the evolving inflation outlook, and incoming information on the drivers of underlying inflation and the strength of monetary policy transmission.
Authors:

Alfred Kammer is the Director of the European Department at the International Monetary Fund

Luis Brandao Marques is a Deputy Chief in the Advanced Economies Unit of the European Department

Compliments of the IMF.The post IMF | Europe Should Tighten Monetary Policy Further first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.