More than €1.1 billion in finance to be mobilised in sustainable projects, supported by €150 million in InvestEU guarantees

Under the InvestEU programme, the European Bank for Reconstruction and Development (EBRD) and European Commission work together to help various EU countries in reaching their full green potential
New investments to boost green and sustainable projects in the municipal, transport and energy sectors
Funds to benefit Bulgaria, Croatia, Czechia, Estonia, Greece, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia

On Friday, 24 March 2023, the InvestEU Investment Committee has approved guarantees worth up to around €150 million in the form of framework agreements for the first EBRD operations, which are to follow. This is part of the InvestEU guarantee agreement worth up to €450 million between the European Commission and the EBRD.
The European Bank for Reconstruction and Development (EBRD), backed by the InvestEU programme, will mobilise more than €1.1 billion in financing through direct investments or financial intermediaries to help the EU countries where the EBRD operates to reach their full green potential. It will support investment projects to improve sustainability and minimise environmental impact.
The new financing will boost green and sustainable investments in the municipal, transport and energy sectors to address environmental challenges.
It will also contribute to the EBRD’s successful Green Cities programme, which is active in more than 50 urban areas to help accelerate their green transition. It will help recovery from the COVID-19 pandemic, address infrastructure gaps and improve the competitiveness and socio-economic convergence of these EU countries.
Furthermore, financial institutions in these countries will be able to provide loans to finance investments in sustainable transport, energy efficiency, renewable energy and residential buildings. This will contribute to energy savings and CO2 emission reduction in buildings and the transport sector.
Finally, with InvestEU backing, the EBRD will also support green investments in a broad range of industrial and infrastructure projects. These will focus on private companies facing rising costs of newer technologies, higher perceived risks and a lack of available financing.
Projects which are expected to be funded in this context include energy and resource efficiency in industries and commerce, the circular economy and recycling initiatives, green buildings, sustainable food products, renewable energy, energy storage and grids, water and wastewater, and low-carbon and urban transport.
Executive Vice-President for an Economy that Works for People, Valdis Dombrovskis, said:  “I welcome these first EBRD framework agreements, backed by InvestEU guarantees, that will support EU countries in central and eastern Europe and Greece to unlock their full potential for green growth and environmental sustainability. They will support green investments in the municipal, energy and transport sectors, boost competitiveness and help to increase socio-economic convergence. InvestEU plays a crucial role in leveraging investment across the EU and promoting a sustainable, inclusive and resilient economy. The EBRD is our important and reliable partner for achieving these priorities.”
Commissioner for the Economy, Paolo Gentiloni, said: “InvestEU is supporting investment across the EU that will help us to deliver on our common priorities. And no priority is more pressing than building a greener, more sustainable Europe. The approval of these guarantees shows the benefits of having the EBRD as an InvestEU implementing partner. Together, we can continue to ensure that InvestEU will contribute to making crucial investment projects a reality and help to deliver the green transition.”
EBRD President, Odile Renaud-Basso, said: “I am very pleased that our partnership with the European Commission will unlock more sustainable and green investments across the EU. The EBRD will leverage its private-sector and policy expertise to contribute to a swift transition to a green future in the EU countries where we invest – in particular across the municipal, industrial and SME sectors of their economies.”
Background
The European Commission and the EBRD signed an InvestEU guarantee agreement in December 2022, which is worth up to €450 million. The agreement will unlock EBRD finance of up to €2.1 billion for investments in sustainable infrastructure, the green economy and digitalisation, as well as innovation and research in the EU.
In addition, under the InvestEU programme, the EBRD and the European Commission signed an agreement in February 2023 for up to €60 million in advisory support for infrastructure, digitalisation and innovative investment projects in EU countries where the EBRD operates, namely Bulgaria, Croatia, the Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Poland, Romania, the Slovak Republic and Slovenia.
The InvestEU programme will provide the EU with crucial long-term funding by leveraging substantial private and public funds in support of a sustainable recovery. It will also help mobilise private investments for the EU’s policy priorities, such as the European Green Deal and the digital transition. The programme consists of three components: the InvestEU Fund, the InvestEU Advisory Hub, and the InvestEU Portal. The InvestEU Fund will be implemented through financial partners who will invest in projects using the EU budget guarantee of €26.2 billion. The entire budgetary guarantee will back the investment projects of the implementing partners, increase their risk-bearing capacity and thus mobilise at least €372 billion in additional investment.
Compliments of the European Commission.
The post Investment Committee paves way for first InvestEU projects by EBRD to support green mobility and energy first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Big ships to gradually reduce greenhouse gas (GHG) emissions
Containerships and passenger ships at major EU ports to use on shore power supply as of 2030
Ships fuel mix to have at least 2% of specific renewable fuels as of 2034

EU Parliament and Council reached a deal on cleaner maritime fuels, asking to cut ship emissions by 2% as of 2025 and by 80% as of 2050, to help the EU become climate neutral.
A provisional agreement reached on early Thursday morning between the European Parliament and Council negotiators sets up a fuel standard for ships to steer the EU maritime sector towards the uptake of renewable and low-carbon fuels and decarbonisation.
Cutting maritime emissions
During the talks, MEPs succeeded in ensuring that ships will have to gradually reduce greenhouse gas (GHG) emissions by cutting the amount of GHG in the energy they use (below 2020 level of 91.16 grams of CO2 per MJ) by 2% as of 2025, 6% as of 2030, 14,5% as of 2035, 31% as of 2040, 62% as of 2045 and 80% as of 2050. This would apply to ships above a gross tonnage of 5000, which are in principle responsible for 90% of CO2 emissions, and to all energy used on board in or between EU ports, as well as to 50% of energy used on voyages where the departure or arrival port is outside of the EU or in EU outermost regions.
MEPs also ensured that the Commission will review the rules by 2028 to decide whether to extend emission-cutting requirements to smaller ships or to increase the share of the energy used by ships coming from non-EU countries.
Thanks to MEPs, the deal gives more credits, as an incentive, in the form of offsetting emissions to those ship owners who use renewable fuels of non-biological origin (RFNBO) from 2025 to 2034. The deal also set a 2% renewable fuels usage target as of 2034 if the Commission reports that in 2031 RFNBO amount to less than 1% in fuel mix.
Plugging ships to on shore power supply
According to the preliminary agreement, containerships and passenger ships will be obliged to use on-shore power supply for all electricity needs while moored at the quayside in major EU ports as of 2030. It will also apply to the rest of EU ports as of 2035, if these ports have an on-shore power supply. This should significantly reduce air pollution in ports.
Certain exemptions, such as staying at port for less than two hours, using own zero-emission technology or making a port call due to unforeseen circumstances or emergencies, will apply.
Quotes
EP rapporteur Jörgen Warborn (EPP, SE) said: “This agreement sets out by far the world’s most ambitious path to maritime decarbonisation. No other global power has drafted such a comprehensive framework to tackle maritime emissions. This is truly ground-breaking.”
“This regulation will force others to move too. Europe will do its fair share, but European citizens and companies should not foot the bill for the entire world’s climate efforts.”
“We guarantee the sector long-term rules and predictability, so that they dare to invest. Shipping companies and ports can focus their resources on delivering the greatest climate benefits and the most value for money. This protects the jobs of seafarers, dockworkers and workers in the export industry, and sets an example for other countries to follow.”
Next steps
The informal deal on sustainable maritime fuels rules still needs to be approved by the Council Committee of Permanent Representatives and Parliament’s Transport and Tourism Committee, and then the Parliament and Council as a whole.
Background information
Transport was responsible for about a quarter of the EU’s total CO2 emissions in 2019, of which 14% came from water navigation, according to European Environment Agency. New rules on alternative fuel infrastructure and maritime fuel are part of the “Fit for 55 in 2030 package”, which is the EU’s plan to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels in line with the European Climate Law.
Contact:

Gediminas Vilkas, Press Officer | gediminas.vilkas@europarl.europa.eu

Compliments of the European Council, Council of the European Union.
The post Fit for 55: deal on new EU rules for cleaner maritime fuels first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Prenotification plans, continuity programs, automatic renewals, free-to-pay conversions. They’re all variations on the negative option theme. Under the right circumstances, those marketing methods can be convenient for consumers. But as decades of FTC law enforcement makes clear, when negative options are tainted with untruths, half-truths, and hidden strings, the impact on consumers can be, well, negative. That’s why the FTC is asking for public comment on proposed amendments to its Negative Option Rule designed to combat unfairness and deception.

When the FTC takes a closer look at existing rules, it keeps an eye out for changes in the marketplace that suggest an update may be due. The Negative Option Rule is a good example of that. First, thanks to the burgeoning doorstep economy, consumers can buy just about anything – meals, clothes, household supplies, etc. – on a periodic schedule. However, the current Negative Option Rule applies only to prenotification plans, an older (and frankly, fading) business model. Under a prenotification plan, members of, say, a record club (remember record clubs?) get a notice in advance that the company intends to send them a certain album. If members don’t want that album, they have a limited time to return a postcard (remember postcards?). If they miss the deadline, they’re stuck with the album – and the bill. Given the narrow scope of the existing Negative Option Rule, the time seems right for a rethink.
A second reason why the FTC is asking for your feedback about proposed changes to the Rule is because problematic negative option practices continue to inflict consumer injury. Consumers tell us they’ve been being billed for stuff they never agreed to buy in the first place. Or they’ve made multiple cancellation attempts and yet products keeps coming at ‘em like clockwork. Others recount inconvenient hoops that companies make them jump through to cancel.
Because of the limited applicability of the Negative Option Rule, our approach to date has been to bring individual cases alleging violations of the FTC Act or – if applicable – the Telemarketing Sales Rule, the Restore Online Shoppers’ Confidence Act (ROSCA), and other laws. But the volume of complaints suggests that case-by-case enforcement may not protect consumers sufficiently.
So in 2019 the FTC published an Advance Notice of Proposed Rulemaking. Based on the comments we received, in 2021 the Commission issued an Enforcement Policy Statement Regarding Negative Option Marketing. The latest step is the just-announced proposal to amend the Rule. You’ll want to read the Federal Register Notice for details, but the FTC has a fact sheet with some highlights. And here is a summary of three of the proposals that are on the table:

Requiring companies to spell out the details of the deal. “They signed me up, but never told me what was involved!” It’s a common theme when consumers file reports about misleading negative option offers. To address that information deficit, the proposed amendment would require sellers to give people important information before getting their billing information: 1) that consumers’ payments will be recurring, if applicable, 2) the deadline for stopping charges, 3) what consumers will have to pay, 4) the date the charge will be submitted for payment, and 5) information about how consumers can cancel.

Ensuring companies get consumers’ express informed consent. “Why am I getting all this unwanted stuff and who said these people could bill my credit card?!” We hear that a lot from consumers, suggesting that additional provisions may be necessary to protect them from illegal practices. The proposed amendment is consistent with ROSCA’s “express informed consent” requirement, while providing more guidance for businesses on how to comply.

Requiring companies to implement click-to-cancel. “How the $%#& do I cancel?!” Online marketers have that frictionless enrollment thing down pat. But when consumers want to cancel, some of those same companies set up obstacle courses designed for frustration and failure. Two practices challenged in recent FTC cases illustrate this. One company required people to call a phone number to cancel and then left them on hold for ages. Another company ignored cancellation requests unless consumers sent them to one hard-to-find email address authorized to accept cancellations. The proposed amendment would require companies to make it easy to cancel and one way to further that goal is to mandate that businesses must let people cancel using the same method they used to enroll – in other words, click-to-cancel.

The FTC envisions that proposed changes would apply to all forms of negative option marketing and in all media. The proposed amendments also address other issues of interest to businesses and consumers: the use of “saves” (additional offers made before cancellation to keep the customer signed up), reminders and confirmations, penalties for violations, and the impact on existing state laws, to name just a few.
Another proposed change would change the name from the Negative Option Rule to the Rule Concerning Recurring Subscriptions and Other Negative Option Plans. It may seem like a small revision, but it would signal that “negative option” applies much more broadly than to your dad’s record club.
At this stage, the proposal is just that – a possible approach about which we would like your feedback. Once the Notice is published in the Federal Register, you can save a step by filing a public comment online.
Compliments of the Federal Trade Commission.
The post FTC | Negative reinforcement? FTC proposes amending Negative Option Rule to include click-to-cancel and other protections first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Speech by Fabio Panetta, Member of the Executive Board of the ECB, at a panel on “Global shocks, policy spillovers and geo-strategic risks: how to coordinate policies” at The ECB and its Watchers XXIII Conference | Frankfurt am Main, 22 March 2023 |
We are still going through a sequence of global shocks that are disrupting economies around the world. In just three years we have seen a pandemic, severe supply chain disruptions, a war, an energy crisis and now tensions in banking markets.
The resulting swings in activity and prices have presented policymakers with the challenge of identifying turning points in their underlying dynamics at a time of disruption in the economy and the financial sector. Inevitably, we need to navigate between the risk of underreacting – which could prolong the inflationary effects of these shocks – and that of overreacting, which could turn volatility into instability.
There are no simple solutions to these complex problems.
We need to adapt our policies to the overlapping effects of the shocks, to geopolitical developments, to the risk of financial amplification and to spillovers from other jurisdictions.
Three principles can help guide our monetary policy decisions in this context.
First, given the prevailing uncertainty and the ground we have already covered in tightening our policy, we must remain fully data-dependent and avoid pre-committing to any specific policy path. We should be guided by our reaction function, taking stock of inflation developments, underlying inflation dynamics and the strength of monetary policy transmission, also given the possible risks for the medium term outlook stemming from both the real economy and the financial sector.[1] This way we can ensure that we calibrate our measures in the light of the incoming information.[2]
Second, we need to monitor the effects of our measures and the way our different instruments interact with each other. In particular, we should continuously assess the combined effect of raising rates and reducing the size of our balance sheet.[3] The experience of other jurisdictions suggests that abrupt adjustments could make it more difficult for investors to adapt to evolving market conditions.
We need to maintain our disinflationary stance until we see convincing signs that inflation is returning to our target, in line with the “separation principle”: delivering the appropriate policy stance should not come at the cost of impairing its transmission.
And third: given the global nature of the shocks we are facing, we need to consider how they are transmitted across markets and economies as well as the potential spillovers from policies adopted abroad. But we should remain focused on our primary mandate of ensuring price stability in the euro area, without being overly conditioned by other jurisdictions.[4]
I will start by illustrating the global shocks and the uncertainty they create. I will then turn to the policy response to these shocks and their spillovers across jurisdictions. And I will outline what this means for our monetary policy in the current environment.
Global shocks and uncertainty
Over the past three years we have faced considerable uncertainty from both domestic and global shocks, complicating the policy diagnosis and increasing the risks of either underreacting or overreacting.
Global shocks, their pass-through and their unwinding
A major source of uncertainty surrounding both inflation and economic activity relates to the pass-through of global shocks and their unwinding. For example, the unprecedented sequence of domestic and global shocks makes it difficult to distinguish supply-demand imbalances triggered by the pandemic and the energy crisis from persistent, self-sustained inflationary dynamics.
Pandemic-related shocks
The reopening of the economy after the pandemic gave a sudden boost to demand (Chart 1) at a time when supply disruptions had not yet been resolved, leading to persistent bottlenecks. Firms reacted by building up inventories and hoarding labour, fuelling inflationary pressures. As a result, both demand and supply contributed to inflation in 2022.

Chart 1
Evolution of real GDP and private consumption in the euro area and the United States

(index: Q4 2019 = 100)

Sources: Eurostat, FRED and ECB staff calculations.
Note: NPISH stands for “non-profit institutions serving households”.

The boost to activity from the reopening is now fading. Supply bottlenecks have largely faded out[5] (Chart 2) and firms are starting to run down their inventories (Chart 3). This should dampen price pressures.

Chart 2
Easing of supply chain bottlenecks

(diffusion indices)

Sources: S&P Global, Markit and ECB staff calculations.
Notes: The Global Supply Shortage Index measures how many selected items have been in short supply against their long-run average for each month. The long-run average refers to value 1 of the index. The shaded area refers to the 5th-95th percentile range across 20 items (e.g. chemicals, electrical items, packaging, steel and textiles). The latest observations are for February 2023.

Chart 3
Inventory-to-GDP ratio and related survey indicators in the euro area

(standard deviation from historical (1999-2019) mean)

Sources: Eurostat (inventory investment-to-GDP ratio), S&P Global (PMI stocks of purchases and finished goods), European Commission (adequacy of stocks) and ECB calculations.
Note: The latest observations are for the fourth quarter of 2022 for the inventory investment-to-GDP ratio and the first quarter of 2023 for PMI stocks and adequacy of stocks.

The energy crisis
The energy crisis has had similar effects.[6] The sharp increase in wholesale energy and commodity prices has raised not only energy and food inflation but also – indirectly – core goods and services inflation (Chart 4).

Chart 4
Contributions of energy-sensitive components to goods and services inflation in the euro area

(annual percentage changes and percentage point contributions)

Sources: Eurostat and ECB staff calculations.
Notes: The term “energy-sensitive component” reflects items with a share of energy in direct costs above the average share of energy across services items (panel a) and non-energy industrial goods (NEIG) items (panel b). The latest observations are for February 2023.

These effects are starting to be reabsorbed. Lower energy and commodity prices have translated into lower energy inflation (Chart 5). And they should eventually pass through to food and core inflation – consistent with the easing in pipeline price pressures (Chart 6). This is compressing medium-term consumer inflation expectations[7], and might temper catch-up wage demands. But how quickly these effects will be reflected in the inflation data is uncertain. And concerns about inflation persistence[8] make projecting core inflation particularly challenging.

Chart 5
Headline inflation and components in the euro area and the United States

(annual percentage changes and percentage point contributions)

Sources: Eurostat, US Bureau of Labor Statistics and ECB calculations.
Note: The latest observations are for February 2023.

Chart 6
Pipeline pressures and input/output prices

(panel a): annual percentage changes; panel b): diffusion index)

Sources: panel a): Eurostat and Refinitiv and Hamburg Institute of International Economics (HWWI), panel b): Markit.
Notes: Panel a): For Brent crude oil in euro, the monthly value represents the average of the data available (working days up to the day of the update). The latest observations are for 15 March 2023 for Brent crude oil in euro, February 2023 for euro area farm gate prices and international food commodity prices and January 2023 for the other items. Panel b): The latest observations are for February 2023.

The risk of inflation becoming entrenched
The unwinding of inflationary pressures has triggered concerns about the risk of second-round effects in the form of a de-anchoring of inflation expectations or a wage-price spiral, especially in view of the tight labour market conditions in advanced economies (Chart 7).[9]

Chart 7
Labour markets are still tight

(panel a): percent; panel b): annual percentage changes)

Sources: OECD, Haver and ECB calculations.
Notes: Panel a): the OECD aggregate for the vacancy ratio is based on the United States, United Kingdom, Japan, South Korea, euro area (excluding Italy), Canada, Sweden, Switzerland, Poland, Romania, Czech Republic, and Hungary. The dashed lines refer to long-term averages (2010-2019). The latest observations are for the third quarter of 2022 for the vacancy ratio and the fourth quarter of 2022 for the unemployment rate. Panel b): wage growth series are not harmonised, so comparability across country data is limited. Wages refer to average hourly wages for the United States and Canada and to average weekly regular earnings (excluding bonuses) for the United Kingdom. For the euro area and Japan, wage data track negotiated and scheduled wages respectively. The long-term average refers to 2010-2019. The latest observations are for February 2023 for the United States and Canada, January 2023 for Japan and the United Kingdom and December 2022 for the euro area.

In the euro area, medium-term inflation expectations remain anchored at our target. This reflects the ECB’s clear commitment to stamp out inflation. As President Lagarde stated this morning, “the public can be certain about one thing: we will deliver price stability, and bringing inflation back to 2% over the medium term is non-negotiable.”[10]
Robust wage growth over the next three years is also consistent with our projections, which indicate that inflation will gradually fall to around 3% by the end of 2023 and around 2% by the middle of 2025.
The risk is rather that wage and price-setting dynamics could make high inflation stickier and eventually feed into inflation expectations. Wages are still accelerating, and we cannot rule out a scenario in which stronger and persistent wage increases take hold. This risk needs to be closely monitored.
Opportunistic behaviour by firms could also delay the fall in core inflation. In fact, unit profits contributed to more than half of domestic price pressures in the last quarter of 2022 (Chart 8).[11] In some industries, profits are increasing strongly (Chart 9) and retail prices are rising rapidly, in spite of the fact that wholesale prices have been decreasing for some time. This suggests that some producers have been exploiting the uncertainty created by high and volatile inflation[12] and supply-demand mismatches[13] to increase their margins, raising prices beyond what was necessary to absorb cost increases. We should monitor the risk that a profit-price spiral could make core inflation stickier.

Chart 8
GDP deflator at market prices

(annual percentage changes; percentage point contributions)

Sources: Eurostat and ECB calculations.
Note: The latest observations are for the fourth quarter of 2022.

Chart 9
Sectoral wage and profit developments

(left-hand panel: percentage change from Q4 2019 to Q4 2022; right-hand panel: gross operating surplus over real value added, level)

Sources: Eurostat and ECB calculations.
Notes: Wages refer to compensation of employees, and profits to gross operating surplus. Income for self-employed people is included in wages. The latest observations are for the fourth quarter of 2022.

Looking ahead, a normalisation of profits would help bring down core inflation and reduce the risk of second-round effects, as wage demands could be accommodated without leading to an increase in prices in response.
Global supply-demand mismatches
Uncertainty about global supply and demand conditions is still high – and is now exacerbated by the financial tensions that have recently emerged.
Demand is showing signs of weakness in both the United States and the euro area.[14]
In China, the end of zero-COVID policies has been followed by a downturn and then a rebound, which could still be slowed down by headwinds emanating from the property market. The reopening will have an ambiguous overall effect on global inflation: it could dampen prices in sectors where China is a net exporter – such as goods – and increase prices in sectors where it is a net importer, such as commodities.[15]

The global policy response and its spillovers
A second source of uncertainty relates to the global policy responses to the shocks, and the spillovers from these responses.
We have already seen clear examples of these spillovers. For instance, the outsized fiscal stimulus implemented in the United States in response to the pandemic boosted the demand for durable goods (Chart 10) but led to a negative supply shock in other countries.[16] In the euro area, this supply shock contributed to pushing up inflation and hit the economy at an early stage of its recovery.[17]

Chart 10
Individual consumption – durables and services

(panel a): index: Q1 2018 = 100; panel b): January 2018 = 100)

Sources: ECB and Federal Reserve System.
Notes: Dotted lines denote the linear trend (from the first quarter of 2018 to the fourth quarter of 2019). Durables and services for the euro area are approximated using a bottom-up aggregation of available country-level data.

We are now facing a simultaneous and rapid global tightening of financing conditions (Charts 11), which is creating financial and policy spillovers (Chart 12). For example, monetary tightening in the United States is also resulting in tighter financing conditions[18] in other jurisdictions, including the euro area.[19] This adds to the risk of overtightening if central banks do not factor in the feedback loops they create.[20]

Chart 11
Global tightening of financing conditions

(panel a): standardised indices; panel b): percentages of countries)

Sources: Panel a) Refinitiv Datastream and ECB staff calculations; Panel b): Haver and ECB staff calculations.
Notes: Panel a): Country-level indices are aggregated as a weighted average using GDP purchasing power parity percentage shares. An increase reflects loosening financial conditions. A decrease reflects tightening financial conditions. The latest observations are for 17 March 2023.
Panel b): The global “inflation surges” index shows the share of countries which, at time t, are experiencing contemporaneously (1) year-on-year inflation that is higher than the time t-1 and (2) year-on-year inflation that is above a certain threshold. In this case, the threshold is given by the average of the year-on-year inflation in the post-Volcker period, from the first quarter of 1984 to the fourth quarter of 2022. The global “rate hikes synchronisation” index is constructed using BIS data on policy rates set by central banks and shows the share of countries that are tightening at time t. Both the indices cover 30 countries across advanced economies and emerging market economies. Global recessions are periods with (1) an annual world GDP per capita that is negative or close to zero, and (2) a high share of countries in a technical recession. The latest observations are for the fourth quarter of 2022.

Chart 12
Global component in yields

(correlation coefficients)

Sources: Datastream and Haver Analytics.
Notes: The sample consists of ten advanced economies (Australia, Canada, Denmark, euro area, Japan, New Zealand, Sweden, Switzerland, United Kingdom and United States). The bilateral correlation coefficients are averaged across these countries and time periods. The term premia and expectations components are the average of estimates from three models (dynamic Nelson-Siegel, rotated dynamic Nelson-Siegel and dynamic Svensson-Soderlind). The latest observations are for 9 March 2023.

In the euro area, the effects of monetary tightening are already visible, although they are only expected to fully materialise in the coming months due to the usual lag in the transmission of monetary policy. The monetary aggregates M1 and M3 are slowing down rapidly. In real terms their growth rates are in negative territory and at historic lows, below the levels of 2008 and 2011 (Chart 13).[21] Bank credit is also decelerating rapidly (Chart 14). As a result, it is declining as a share of GDP – faster, in fact, than in previous tightening episodes – and markets expect it to decline significantly further this year (Chart 15). These developments are largely related to our policy normalisation. But the size and the speed of the adjustment indicate that the transmission of our monetary policy to the economy may have become stronger.

Chart 13
Growth of monetary aggregates M1 and M3 in the euro area and the United States

(annual growth rates, percentages)

Sources: Panel a): ECB (BSI); panel b): ECB (BSI and ICP).
Notes: Solid lines show the annual growth rates of the index of notional stocks, i.e. a measure of flows normalised by outstanding amounts in the previous month. With this method, valuation changes and reclassifications are excluded from the computation of annual growth rates, and thus jumps in the annual growth series are avoided. Dotted lines show the annual growth rates of outstanding amounts. This method avoids the risk of distortion in the ratio of the money stock over price index that is implicit in the calculation of the real rates. In panel b), M3 and M1 are deflated by the HICP index. The latest observations are for January 2023.

Chart 14
Credit growth in the euro area

(three-month annualised percentage changes, seasonally adjusted)

Source: ECB (BSI).
Notes: In panel a), MFI loans are adjusted for sales, securitisation and cash pooling activities. In panel b), MFI loans are adjusted for sales and securitisation. The latest observations are for January 2023.

Chart 15
Bank loans to the non-financial private sector in the euro area

(percentages of GDP)

Sources: ECB (BSI, MNA), Refinitiv (I/B/E/S), ECB projections, individual banks’ financial statements and ECB calculations.
Notes: The orange marker shows the median forecast for year-end 2023, and the whiskers represent values within one standard deviation around the median (10th and 90th percentiles), as reported by market analysts and sourced through I/B/E/S. The distribution is weighted by realised loan volume for each bank as of year-end 2022 and based on an underlying sample of 143 forecasts covering 44 banks, submitted between 20 January and 10 March 2023. In each quarter, GDP is calculated by multiplying quarterly, seasonally adjusted flows by four; the figure for 2023 is based on the March 2023 ECB staff macroeconomic projections for the euro area. The latest observations are for the fourth quarter of 2022 for BSI and MNA, while market expectations refer to the fourth quarter of 2023.

The global tightening may also be amplified by the recent financial tensions in global banking markets. Aside from their impact on confidence, these tensions will make banks more sensitive to deposit outflows, inducing them to transfer the rate hikes more rapidly – and to a greater extent – to their customers on both sides of the balance sheet. For a while, banks may also become more prudent about lending and decide to retain cash as a precautionary measure. In the euro area, our bank lending survey[22] was already pointing to a tightening of lending standards for firms and households before the recent tensions, and this tightening may aggravate the drop in credit growth in the coming months.
In addition, major central banks have been simultaneously raising rates and reducing the supply of liquidity through quantitative tightening policies. This could make the policy adjustment bumpier. There is no reliable experience we can draw on to examine the combined effects of rate hikes and quantitative tightening. It is hard to assess how a contraction of the balance sheet of the central bank affects financial markets – especially if it happens in conjunction with an abrupt increase in interest rates.[23] The liability-driven investment crisis in the United Kingdom and the crisis of Silicon Valley Bank in the United States suggest that sudden adjustments may have an impact on the transmission of monetary policy and even give rise to severe financial tensions.[24]
In the current context, weakening growth prospects and heightened uncertainty may lead investors to move from risky assets to risk-free assets. And when the supply of liquidity is contracting quickly, this may spur a “dash for cash”, reinforcing the effects of the sharp increase in policy rates and exacerbating financial vulnerabilities. In fact, in the United States, high quality liquid assets are unusually offering higher returns than risky assets (Chart 16) at a time when liquidity is being withdrawn from the system.

Chart 16
Inverse price/earnings ratio, six-month risk-free rate and excess reserves in the euro area and the United States

(left-hand scale: percentage points, right-hand scale: EUR trillions)

Sources: Panel a): Refinitiv and ECB calculations; panel b): Refinitiv, Federal Reserve, and ECB calculations.
Notes: The inverse price/earnings ratio is a gauge of the earnings yield of holding stocks, shown here in comparison to risk-free rates. In panel a), excess liquidity is calculated as banks’ current account and deposit facility holdings minus their minimum reserve requirements. In panel b), excess reserves are calculated as reserves of depository institutions minus required reserves (the latter are set to zero in 2020). The latest observations in panel a) are 13 March 2023 for financial market data and 8 March 2023 for excess liquidity. The latest observations in panel b) are 13 March 2023 for financial market data and January 2023 (monthly data) for excess reserves.

As available liquidity shrinks, both in aggregate and for most banks, the supply of lending could also contract rapidly. Estimates by ECB staff suggest that banks with lower excess liquidity are more likely to reduce their supply of credit in response to policy rate hikes, and the increase in their lending rates is likely to be larger (Chart 17).

Chart 17
Response of loan supply and lending rates to a policy rate hike by level of excess liquidity

(percentage points of supply-driven loan growth (panel a) and change in lending rates (panel b) over three months for each percentage point increase in the deposit facility rate; size of bubbles equal to volumes of loans to firms)

Sources: Panel a): ECB (AnaCredit, iBSI, MOPDB) and ECB calculations; panel b): ECB (AnaCredit, iBSI, iMIR, MOPDB) and ECB calculations.
Notes: Supply-driven loan growth at the bank level is identified applying the methodology of Mary Amiti and David Weinstein to the euro area credit register (see Amiti, M. and Weinstein, D. (2018), “How Much Do Idiosyncratic Bank Shocks Affect Investment? Evidence from Matched Bank-Firm Loan Data”, Journal of Political Economy, Vol. 126, No 2, pp. 525-587. The chart reports coefficients from regressions of the supply-driven loan growth (panel a) and bank-level changes in new lending rates to firms (panel b) three months ahead on the level of excess liquidity interacted with the change in the deposit facility rate over the same period, distinguishing between observations before and after December 2021 and with the excess liquidity-over-assets ratio between the levels indicated on the x-axis. The specification includes bank and country time fixed effects and controls for bank assets. The size of the bubbles measures the outstanding amounts of loans to firms for banks belonging to each category. The latest observations are for November 2022.

Implications for the ECB’s monetary policy
So how should monetary policy operate in an environment characterised by high uncertainty, strong spillovers and financial vulnerabilities?
Adapting to the current environment
First, monetary policy must remain fully adaptable to changing developments, given the prevailing uncertainty, the lags with which it operates and the risk of sudden financial tensions. This requires a data-dependent approach that does not prejudge future policy decisions and that reflects the risks on both sides.
Second, our tightening must be calibrated prudently. This is because it is already having a strong impact on financing conditions and because we want to avoid undesirable financial volatility. And this prudent approach holds truer still as our policy rates move more firmly into restrictive territory, inflationary forces ease and the risks to the inflation outlook become balanced. At times like this, abrupt policy moves are not necessary.[25]
Third, in order to avoid financial tensions which could hamper our disinflationary policies, we should rely on our policy rate as the key instrument to steer our stance and we should be measured and predictable in the normalisation of our balance sheet. We should continuously monitor investors’ exposure to interest rate risk and liquidity risk and carefully analyse the impact that the decline in liquidity may have on the supply of credit.
We must stand ready to intervene in a timely manner to counter possible market dysfunctions. We have the instruments to adjust the provision of liquidity and ease collateral conditions as necessary, in line with what we have done during the pandemic. And we need to remain committed to our three lines of defence against financial fragmentation within the euro area.[26]
Finally, all policymakers should be tackling inflation on all fronts. It is not a task for central bankers alone. Thanks to public intervention, we had an unusual recession – one with high profits. This means that firms have the buffers to absorb a catch-up in labour costs without increasing prices in response, also in view of the fall in the cost of other inputs, like energy.
Persistently opportunistic profits should not put a dampener on disinflation. Profiteering strategies that increase inflation and the risk of second-round effects would trigger a monetary policy reaction. But other authorities should also intervene. The appropriate response to excess corporate profits is not more fiscal support to compensate consumers for high prices of goods and services. Rather, it is to intervene to prevent any abuse of market power.
Addressing spillovers
Let me now turn to how monetary policy should address spillovers.
We must take into account all the relevant information when taking decisions, and that includes developments outside the euro area. Given the global nature of the shocks we are facing, we need to consider how they are transmitted across markets and economies, alongside the potential spillovers from the policy response to those shocks. This is what we have done. And in response to tensions in international funding markets, we have worked with other major central banks to enhance the provision of US dollar liquidity via our standing liquidity swap line arrangements.[27]
At the same time, we need to tailor our policy response to the outlook for the euro area and avoid passively importing financing conditions from abroad through policy spillovers to interest rate expectations and long-term interest rates. We have the necessary autonomy to steer financing conditions in a way that reflects the differences between the euro area and other jurisdictions.[28]
We can reconcile these two objectives – factoring in spillovers but tailoring our policy to domestic conditions – if we calibrate our policy appropriately and communicate our reaction function clearly.
Our measures need to be calibrated in such a way that they achieve the appropriate domestic stance. To use a metaphor – if outside temperatures start falling after a period of hot weather, we have less need for air conditioning because temperatures inside will gradually cool, too. If we then apply this approach to our current situation, when calibrating our measures we should consider the restrictive impulse coming from the global tightening and from the vulnerabilities that are emerging in the financial sector abroad.
The clarity of our communication is also crucial, especially in view of the current financial tensions. In order to communicate our policy intentions clearly and consistently at a time when we must remain data-dependent and adapt to new developments, we need to set out a clear reaction function and stick to it.[29] Accordingly, in our latest monetary policy statement we emphasised that “The elevated level of uncertainty reinforces the importance of a data-dependent approach to our policy rate decisions, which will be determined by our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.”[30]
Conclusion
Let me conclude.
A string of shocks has created uncertainty for economies around the world. While the effects of some of these shocks are starting to unwind, it may be some time yet before we see volatility in activity and prices subside, and a new equilibrium settle in.
Notably, my remarks today have focused on the current economic situation. But we may well see longer-lasting changes to economic structures as supply chains are reconfigured to increase resilience to global shocks and align with shifting geopolitical strategies.
In the meantime, monetary policy must perform a difficult balancing act.
Faced with an exceptionally complex environment, we need to acknowledge the uncertainty prevailing in the economy. And we need to continuously assess the combined effect of our different policy instruments, the risks of non-linear effects and the spillovers from policies adopted elsewhere. This means our monetary policy should be data-dependent and adaptable. And it requires us to shape our communication on the basis of our monetary policy reaction function.
In a speech last month I summarised my thinking by saying that we do not want “to drive like crazy at night with our headlights turned off”.[31] The recent financial tensions have made this conviction even stronger.
Compliments of the European Commission.
Footnotes:

The possible consequences that an incorrect calibration of monetary policy could have for financial stability and the transmission of monetary policy are discussed in Panetta, F. (2022), “Mind the step: calibrating monetary policy in a volatile environment”, keynote speech at the ECB Money Market Conference, Frankfurt am Main, 3 November.

Panetta, F. (2023), “Monetary policy after the energy shock”, speech at an event organised by the Centre for European Reform, the Delegation of the European Union to the United Kingdom and the ECB Representative Office in London, 16 February.

The risks of policy normalisation – in particular the interaction between rate hikes and quantitative tightening – are discussed in Panetta, F. (2022), “Normalising monetary policy in non-normal times”, speech at a policy lecture hosted by the SAFE Policy Center at Goethe University and the Centre for Economic Policy Research (CEPR), 25 May.

Panetta, F. (2021), “Monetary autonomy in a globalised world”, welcome address at the joint BIS, BoE, ECB and IMF conference on “Spillovers in a “post-pandemic, low-for-long” world”, 26 April.

The Global Supply Chain Pressure Index, developed by the Federal Reserve Bank of New York, decreased considerably in February 2023 and is now below its historical average. This decrease was broad-based across factors but driven mainly by a decline in European and Asian delivery times. This latest estimate suggests that global supply chain conditions have largely normalised.

See Chart 5 in Panetta, F. (2022), “Greener and cheaper: could the transition away from fossil fuels generate a divine coincidence?”, speech at the Italian Banking Association, 16 November.

The ECB Consumer Expectations Survey suggests that euro area consumer inflation expectations have reached a turning point. Median expectations for inflation three years ahead fell to 2.5% in January 2023, from 3.0% in the previous month.

Panetta, F. (2023), “Monetary policy after the energy shock”, op. cit.

Panetta, F. (2023), “Monetary policy after the energy shock”, op. cit.

Lagarde, C. (2023), “The path ahead”, speech at the ECB and its Watchers Conference, 22 March.

The resilience of profits started to be visible during the pandemic, when there was an unusual recession with an increase in unit profits (in contrast with past recessions), while fiscal support absorbed the economic shock.

High input price pressures facilitate increases in profit margins, as the extent to which increases in selling prices reflect the pass-through of increased costs or go beyond the cost increases and benefit profit margins is less clear in such an environment.

Supply-demand mismatches limit competition and enable profit-maximising companies to expand their profit margins without losing market shares.

In the euro area, all private domestic demand components contracted in the fourth quarter of 2022. Private domestic expenditure – the sum of private consumption and investment (excluding non-residential construction and Irish intellectual property products) – dropped by 0.8% quarter on quarter, amid declining real disposable income, lingering uncertainty and tighter financing conditions. In the United States, real private domestic final purchases – which includes private consumption, residential investment and business fixed investment – increased at a subdued annual rate of 0.2% in the fourth quarter of 2022.

Estimates suggest, however, that the reopening is already priced into commodity prices and that its impact on oil prices has been more than offset by ample supply and weak global demand.

With the United States representing over 25% of global consumption – about twice as much as either the euro area or China – and driving much of the growth in global spending on durable goods, the surge in US demand exacerbated pandemic-related bottlenecks worldwide. See Chart 8 in Broadbent, B. (2021), “Lags, trade-offs and the challenges facing monetary policy”, speech at Leeds University Business School, 6 December.

Panetta, F. (2021), “Patient monetary policy amid a rocky recovery”, speech at Sciences Po, 24 November.

ECB analysis finds that a tightening by the Federal Reserve System generates spillovers to euro area real activity and inflation that are comparable to the effects of this tightening on the US economy. Estimates are obtained based on a sample spanning 1991 to 2019, using high frequency-based US monetary policy shocks (sum of conventional, Odyssean forward guidance and quantitative easing) in monthly smooth local projections. For example, a one standard deviation US monetary policy tightening shock contracts US and euro area equity prices about equally by up to 0.75% over a two-year horizon. See Lane, P.R. (2023), “The euro area hiking cycle: an interim assessment”, speech at the National Institute of Economic and Social Research, 16 February.

A tightening in the United States also results in an appreciation of the US dollar, which increases pressure on other central banks to tighten in order to avoid the depreciation of their currencies against the dollar leading to a deterioration of their domestic inflation outlooks. This was particularly noteworthy in the context of the energy shock, because the price of energy commodity imports is often denominated in US dollars.

Dieppe, A. and Brignone, D. (2022), “Synchronised interest rate hikes, spillovers and risks to global growth”, VoxEU, 14 November; Panetta, F. (2022), “Mind the step: calibrating monetary policy in a volatile environment”, op. cit.; and Obstfeld, M. (2022), “Uncoordinated monetary policies risk a historic global slowdown”, Realtime Economics, Peterson Institute for International Economics, 12 September.

The decline in M1 largely reflects shifts away from the unusually large stock of overnight deposits towards other less-liquid but better-remunerated instruments. The sharp deceleration in M3 is driven by the run-off of the Eurosystem balance sheet and the sharp slowdown in credit.

ECB (2023), Euro area bank lending survey, January.

Panetta, F. (2022), “Normalising monetary policy in non-normal times”, op. cit.

These crises were triggered by specific events (the announcement of a fiscal package in the United Kingdom and a shift in sentiment among Silicon Valley Bank’s depositors – tech companies, venture capital and high net worth individuals – that exposed large unhedged interest rate risks).

Panetta, F. (2022), “Mind the step: calibrating monetary policy in a volatile environment”, op. cit.

The first of these is a measured approach to interest rate increases and balance sheet normalisation. The second is the flexibility embedded in our reinvestments under the pandemic emergency purchase programme. The third is the Transmission Protection Instrument.

The frequency of seven-day US dollar operations has been increased from weekly to daily. See ECB (2023), “Coordinated central bank action to enhance the provision of US dollar liquidity”, 19 March.

Panetta, F. (2021), “Monetary autonomy in a globalised world”, op. cit.

In the past, when concerns about having reached the lower bound were dominating discussions, forward guidance helped insulate the euro area from financial spillovers. But forward guidance is not suited to the current environment. See Panetta, F. (2023), “Monetary policy after the energy shock”, op. cit.

ECB (2023), “Monetary policy statement”, 16 March.

Panetta, F. (2023), “Monetary policy after the energy shock”, op. cit.

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On this note: be sure to check out the EACCNY’s podcast series on the FUTURE OF TECHNOLOGY

Digital technologies shielded labor and productivity from the pandemic, while lagging countries accelerated the adoption of technology. However, digitalization gaps persist.
As the world does its best to move on from the pandemic, one of the lasting legacies for many advanced economies has been greater adoption of digital technologies. Working from home is now common, and many companies have expanded online operations.
And as the crisis recedes, we can now see that digitalization, as measured by the share of workers using a computer connected to the internet, has proved to be a silver lining across many economies. This has far-reaching and long-lasting implications for productivity and labor markets, as we detail in a new staff discussion note focusing on advanced economies.
Before the pandemic, digitalization varied widely by country, industry, and company. For example, more than four-fifths of workers in Sweden had computers with internet access in 2019, the most in our study, while Greece had the lowest share, with less than two-fifths. Two years later, the Greek share had surged almost 8 percentage points, to 45 percent, narrowing the gap with Sweden with one of the most significant gains shown in our study.
Across advanced economies, digitalization increased by an average of 6 percentage points, our research shows. The results underscore how the pandemic accelerated digitalization, especially in economies or industries that had been lagging.
Digitalization has historically been lower in contact-intensive sectors, while small businesses tend to lag larger counterparts, a trend observed across many countries. Notably, however, these disparities were not solely driven by differences by industry. Greek restaurants and hotels, for example, trail Sweden’s by 38 percentage points.
Small firms, which have historically been less digitalized, enjoyed the biggest gains. Similarly, sectors that are least digitalized invested more in digitalization.
The surge in digitalization saved many firms during the pandemic, helping them adapt to lockdowns through remote work and online operations. Our research measures possible gains of digitalization using two different productivity gauges: labor productivity, which measures output per hours worked, and total factor productivity, which tracks output relative to the total inputs used in its production. Our findings confirm that high levels of digitalization helped shield productivity and employment from the shock, with the most digitalized industries experiencing significantly smaller losses in labor productivity and hours worked than less digitalized sectors.
At the depths of the pandemic in 2020, our research shows, higher digitalization in a sector reduced labor productivity losses by a sizable 20 percent when comparing the 75th and 25th percentiles of digitalization. Moreover, had less-digitalized economies matched the 75th percentile in the sample for each sector, aggregate labor productivity growth during the pandemic would have been a quarter higher.
While some changes brought about by the pandemic may not endure, evidence for larger firms shows a growing total factor productivity differential between high- and low-digitalized firms as the crisis drew to a close.
It’s too soon to assess the longer-term effects of digitalization, but we can see that it helped boost productivity, protect employment, and mitigate economic disruptions during the pandemic.
Labor markets and remote work
At the onset of the pandemic, policymakers feared greater digitalization could widen job market inequality by increasing demand for higher-skilled workers and displacing low- and medium-skilled workers.
While digital occupations were more shielded from layoffs than non-digital ones during the crisis, there is little evidence so far of a structural shift in the composition of labor demand toward digital occupations. Indeed, as we showed in a September working paper, vacancies data showed a strong increase in the demand for less-skilled workers as the economy started to recover.
A change that is more persistent and could have long-term implications in the labor market is the working-from-home revolution. Prior to the crisis, only 5 percent of workers typically worked from home in Europe, but by 2021 that had topped 16 percent.
Countries where working from home is more common saw larger increases in labor force participation, indicating that this arrangement may attract more workers to the labor market. For example, participation has already surpassed pre-crisis levels in the Netherlands, where over 20 percent of workers usually work from home, while in Italy, where less than 10 percent of workers work from home, participation remains below pre-pandemic trends.
Working from home can generate significant welfare gains by reducing commutes and increasing time management flexibility. Working from home can boost attachment to the labor market and the labor supply, while supporting the environment by reducing commuting.
The pandemic accelerated adoption of digital technologies and shielded productivity. However, with persistent gaps across countries and sectors, policymakers must seize the moment and take steps to continue closing the digitalization gap and ensure that the gains from digitalization are broadly shared.
This includes promoting policies that maintain healthy competition in digital markets and adapting labor laws and regulations to facilitate remote work. Doing so can build a more resilient and adaptable economy better prepared to navigate future crises.
Authors:

Florence Jaumotte is Acting Division Chief of the Structural and Climate Policies Division in the IMF Research Department

Myrto Oikonomou is an Economist in the African Department of the IMF

Carlo Pizzinelli is an economist in the Research Department of the IMF

Marina M. Tavares is an economist in the Research Department of the IMF
This blog reflects research contributions by Longji Li, Andrea Medici, Ippei Shibata and Jiaming Soh.

Compliments of the IMF.
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On 20 March 2023, the European Commission has started unannounced inspections at the premises of a company active in the energy drinks sector in various Member States.
The Commission has concerns that the inspected company may have violated EU antitrust rules that prohibit cartels and restrictive business practices (Article 101 of the Treaty of the Functioning of the European Union (‘TFEU’) and Article 53 of the European Economic Area Agreement (‘EEA’)). The inspected company may also have violated EU antitrust rules that prohibit abuses of a dominant position (Article 102 of the TFEU and Article 54 of the EEA).
The Commission officials were accompanied by their counterparts from the national competition authorities of the Member States where the inspections were carried out.
Unannounced inspections are a preliminary step in an investigation into suspected anticompetitive practices. The fact that the Commission carries out such inspections does not mean that the company is guilty of anti-competitive behaviour, nor does it prejudge the outcome of the investigation itself. The Commission respects the rights of defence, in particular the right of companies to be heard in antitrust proceedings.
There is no legal deadline to complete inquiries into anticompetitive conduct. Their duration depends on several factors, including the complexity of each case, the extent to which the undertakings concerned cooperate with the Commission and the scope of the exercise of the rights of defence.
Under the Commission’s leniency programme companies that have been involved in a secret cartel may be granted immunity from fines or significant reductions in fines in return for reporting the conduct and cooperating with the Commission throughout its investigation. Individuals and companies can report cartel or other anti-competitive behaviour on an anonymous basis through the Commission’s whistle-blower tool. Further information on the Commission’s leniency programme and whistle-blower tool is available on DG Competition’s website.
Compliments of the European Commission.
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You may have heard of simulation theory, the notion that nothing is real and we’re all part of a giant computer program. Let’s assume at least for the length of this blog post that this notion is untrue. Nonetheless, we may be heading for a future in which a substantial portion of what we see, hear, and read is a computer-generated simulation. We always keep it real here at the FTC, but what happens when none of us can tell real from fake?
In a recent blog post, we discussed how the term “AI” can be used as a deceptive selling point for new products and services. Let’s call that the fake AI problem. Today’s topic is the use of AI behind the screen to create or spread deception. Let’s call this the AI fake problem. The latter is a deeper, emerging threat that companies across the digital ecosystem need to address. Now.
Most of us spend lots of time looking at things on a device. Thanks to AI tools that create “synthetic media” or otherwise generate content, a growing percentage of what we’re looking at is not authentic, and it’s getting more difficult to tell the difference. And just as these AI tools are becoming more advanced, they’re also becoming easier to access and use. Some of these tools may have beneficial uses, but scammers can also use them to cause widespread harm.
Generative AI and synthetic media are colloquial terms used to refer to chatbots developed from large language models and to technology that simulates human activity, such as software that creates deepfake videos and voice clones. Evidence already exists that fraudsters can use these tools to generate realistic but fake content quickly and cheaply, disseminating it to large groups or targeting certain communities or specific individuals. They can use chatbots to generate spear-phishing emails, fake websites, fake posts, fake profiles, and fake consumer reviews, or to help create malware, ransomware, and prompt injection attacks. They can use deepfakes and voice clones to facilitate imposter scams, extortion, and financial fraud. And that’s very much a non-exhaustive list.
The FTC Act’s prohibition on deceptive or unfair conduct can apply if you make, sell, or use a tool that is effectively designed to deceive – even if that’s not its intended or sole purpose. So consider:
Should you even be making or selling it? If you develop or offer a synthetic media or generative AI product, consider at the design stage and thereafter the reasonably foreseeable – and often obvious – ways it could be misused for fraud or cause other harm. Then ask yourself whether such risks are high enough that you shouldn’t offer the product at all. It’s become a meme, but here we’ll paraphrase Dr. Ian Malcolm, the Jeff Goldblum character in “Jurassic Park,” who admonished executives for being so preoccupied with whether they could build something that they didn’t stop to think if they should.
Are you effectively mitigating the risks? If you decide to make or offer a product like that, take all reasonable precautions before it hits the market. The FTC has sued businesses that disseminated potentially harmful technologies without taking reasonable measures to prevent consumer injury. Merely warning your customers about misuse or telling them to make disclosures is hardly sufficient to deter bad actors. Your deterrence measures should be durable, built-in features and not bug corrections or optional features that third parties can undermine via modification or removal. If your tool is intended to help people, also ask yourself whether it really needs to emulate humans or can be just as effective looking, talking, speaking, or acting like a bot.
Are you over-relying on post-release detection? Researchers continue to improve on detection methods for AI-generated videos, images, and audio. Recognizing AI-generated text is more difficult. But these researchers are in an arms race with companies developing the generative AI tools, and the fraudsters using these tools will often have moved on by the time someone detects their fake content. The burden shouldn’t be on consumers, anyway, to figure out if a generative AI tool is being used to scam them.
Are you misleading people about what they’re seeing, hearing, or reading? If you’re an advertiser, you might be tempted to employ some of these tools to sell, well, just about anything. Celebrity deepfakes are already common, for example, and have been popping up in ads. We’ve previously warned companies that misleading consumers via doppelgängers, such as fake dating profiles, phony followers, deepfakes, or chatbots, could result – and in fact have resulted – in FTC enforcement actions.
While the focus of this post is on fraud and deception, these new AI tools carry with them a host of other serious concerns, such as potential harms to children, teens, and other populations at risk when interacting with or subject to these tools. Commission staff is tracking those concerns closely as companies continue to rush these products to market and as human-computer interactions keep taking new and possibly dangerous turns.
Compliments of Federal Trade Commission.
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The challenges to the European Union’s security and resilience are becoming increasingly complex and dynamic. A range of actors constantly test our resilience, seeking to exploit the openness, interdependence and connectivity of our societies and economies.
The weaponisation of energy and the acts of sabotage against the Nord Stream gas pipelines have led to heightened attention to ensure the resilience of our critical infrastructure. Against this background, it is crucial for both the EU and NATO to support efforts to enhance national and collective resilience against threats to our critical infrastructure.
Today EU and NATO are joining forces to step up the existing cooperation by launching an EU-NATO Task Force on Resilience of Critical Infrastructure to reinforce our common security. This Task Force was announced jointly by President von der Leyen and NATO Secretary General Stoltenberg on 11 January 2023.
On today’s occasion, President von der Leyen said: “We must strengthen the resilience of our critical infrastructure to always be ready. Today we successfully launched the first meeting of the Task Force for Resilient Critical Infrastructure. EU and NATO senior experts will work hand in hand to identify key threats to our critical infrastructure and work on responses.”
The EU and NATO will share best practices, enhance shared situational awareness, develop key principles to improve resilience including mitigating measures and remedial actions. The Task Force will cover four sectors at this stage: energy, digital infrastructure, transport, and space. The Task Force is between EU and NATO staff, and it will be established within the EU-NATO Structured Dialogue on Resilience.
Only by working together, we can counteract those seeking to undermine our security, and ensure that our critical infrastructure remains robust and reliable in the face of evolving threats.
Compliments of the European Commission.
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Today, the Commission proposed the Net-Zero Industry Act to scale up manufacturing of clean technologies in the EU and make sure the Union is well-equipped for the clean-energy transition. This initiative was announced by President von der Leyen as a part of the Green Deal Industrial Plan.
The Act will strengthen the resilience and competitiveness of net-zero technologies manufacturing in the EU, and make our energy system more secure and sustainable. It will create better conditions to set up net-zero projects in Europe and attract investments, with the aim that the Union’s overall strategic net-zero technologies manufacturing capacity approaches or reaches at least 40% of the Union’s deployment needs by 2030. This will accelerate the progress towards the EU’s 2030 climate and energy targets and the transition to climate neutrality, while boosting the competitiveness of EU industry, creating quality jobs, and supporting the EU’s efforts to become energy independent.
President of the European Commission, Ursula von der Leyen, said: “We need a regulatory environment that allows us to scale up the clean energy transition quickly.   The Net-Zero Industry Act will do just that. It will create the best conditions for those sectors that are crucial for us to reach net-zero by 2050: technologies like wind turbines, heat pumps, solar panels, renewable hydrogen as well as CO2 storage. Demand is growing in Europe and globally, and we are acting now to make sure we can meet more of this demand with European supply.” 
Together with the proposal for a European Critical Raw Materials Act and the reform of the electricity market design, the Net-Zero Industry Act sets out a clear European framework to reduce the EU’s reliance on highly concentrated imports. By drawing on the lessons learnt from the Covid-19 pandemic and the energy crisis sparked by Russia’s invasion of Ukraine, it will help increase the resilience of Europe’s clean energy supply chains.
The proposed legislation addresses technologies that will make a significant contribution to decarbonisation. These include: solar photovoltaic and solar thermal, onshore wind and offshore renewable energy, batteries and storage, heat pumps and geothermal energy, electrolysers and fuel cells, biogas/biomethane, carbon capture, utilisation and storage, and grid technologies, sustainable alternative fuels technologies, advanced technologies to produce energy from nuclear processes with minimal waste from the fuel cycle, small modular reactors, and related best-in-class fuels. The Strategic Net Zero technologies identified in the Annex to the Regulation will receive particular support and are subject to the 40% domestic production benchmark.
Key actions to drive net-zero technology manufacturing investments
The Net-Zero Industry Act is built on the following pillars:

Setting enabling conditions: the Act will improve conditions for investment in net-zero technologies by enhancing information, reducing the administrative burden to set up projects and simplifying permit-granting processes. In addition, the Act proposes to give priority to Net-Zero Strategic Projects, that are deemed essential for reinforcing the resilience and competitiveness of the EU industry, including sites to safely store captured CO2 emissions. They will be able to benefit from shorter permitting timelines and streamlined procedures.

Accelerating CO2 capture: the Act sets an EU objective to reach an annual 50Mt injection capacity in strategic CO2 storage sites in the EU by 2030, with proportional contributions from EU oil and gas producers. This will remove a major barrier to developing CO2 capture and storage as an economically viable climate solution, in particular for hard to abate energy-intensive sectors.

Facilitating access to markets:  to boost diversification of supply for net-zero technologies, the Act requires public authorities to consider sustainability and resilience criteria for net-zero technologies in public procurement or auctions.

Enhancing skills: the Act introduces new measures to ensure there is a skilled workforce supporting the production of net-zero technologies in the EU, including setting up Net-Zero Industry Academies, with the support and oversight by the Net-Zero Europe Platform. These will contribute to quality jobs in these essential sectors.

Fostering innovation: the Act makes it possible for Member States to set up regulatory sandboxes to test innovative net-zero technologies and stimulate innovation, under flexible regulatory conditions.
A Net-Zero Europe Platform will assist the Commission and Member States to coordinate action and exchange information, including around Net-Zero Industrial Partnerships. The Commission and Member States will also work together to ensure availability of data to monitor progress towards the objectives of the Net-Zero Industry Act. The Net-Zero Europe Platform will support investment by identifying financial needs, bottlenecks and best practices for projects across the EU. It will also foster contacts across Europe’s net-zero sectors, making particular use of existing industrial alliances.

To further support the uptake of renewable hydrogen within the EU as well as imports from international partners, today the Commission is also presenting its ideas on the design and functions of the European Hydrogen Bank. This sends a clear signal that Europe is the place for hydrogen production.
As announced in the Green Deal Industrial Plan, the first pilot auctions on renewable hydrogen production will be launched under the Innovation Fund in Autumn 2023. Selected projects will be awarded a subsidy in the form of a fixed premium per kg of hydrogen produced for a maximum of 10 years of operation. This will increase the bankability of projects and bring overall capital costs down. The EU auction platform can also offer “auctions-as-a-service” for Member States, which will also facilitate the production of hydrogen in Europe. The Commission is further exploring how to design the international dimension of the European Hydrogen Bank to incentivise renewable hydrogen imports. Before the end of the year, all elements of the Hydrogen Bank should be operational.
Next Steps
The proposed Regulation now needs to be discussed and agreed by the European Parliament and the Council of the European Union before its adoption and entry into force.
Background
The European Green Deal, presented by the Commission on 11 December 2019, sets the goal of making Europe the first climate-neutral continent by 2050. The EU’s commitment to climate neutrality and the intermediate goal of reducing net greenhouse gas emissions by at least 55% by 2030, relative to 1990 levels, are made legally binding by the European Climate Law.
The legislative package to deliver on the European Green Deal  provides a plan to put the European economy firmly on track to achieve its climate ambitions, with the REPowerEU Plan accelerating the move away from imported Russian fossil fuels. Alongside the Circular Economy Action Plan, this sets the framework for transforming the EU’s industry for the net-zero age.
The Green Deal Industrial Plan was presented on 1 February to boost net-zero industry and ensure the objectives of the European Green Deal are delivered on time. The plan sets out how the EU will sharpen its competitive edge through clean-tech investment, and continue leading on the path to climate neutrality. It responds to the invitation by the European Council for the Commission to make proposals to mobilise all relevant national and EU tools and improve framework conditions for investment, with a view to safeguarding the EU’s resilience and competitiveness. The first pillar of the Plan aims to create a predictable and simplified regulatory environment for net-zero industries. To this end, in addition to the Net-Zero Industry Act, the Commission is presenting a European Critical Raw Materials Act, to secure a sustainable and competitive critical raw materials value chain in Europe, and has proposed a reform of the electricity market design that will allow consumers to benefit from the low production costs of renewables.
Compliments of the European Commission.
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Today, the EU Commission proposes a comprehensive set of actions to ensure the EU’s access to a secure, diversified, affordable and sustainable supply of critical raw materials. Critical raw materials are indispensable for a wide set of strategic sectors including the net zero industry, the digital industry, aerospace, and defence sectors.
While demand for critical raw materials is projected to increase drastically, Europe heavily relies on imports, often from quasi-monopolistic third country suppliers. The EU needs to mitigate the risks for supply chains related to such strategic dependencies to enhance its economic resilience, as highlighted by shortages in the aftermath of the Covid-19 and the energy crisis following Russia’s invasion of Ukraine. This can put at risk the EU’s efforts to meet its climate and digital objectives.
The Regulation and Communication on critical raw materials adopted today leverage the strengths and opportunities of the Single Market and the EU’s external partnerships to diversify and enhance the resilience of EU critical raw material supply chains. The Critical Raw Materials Act also improves the EU capacity to monitor and mitigate risks of disruptions and enhances circularity and sustainability.
President of the European Commission, Ursula von der Leyen said: “This Act will bring us closer to our climate ambitions. It will significantly improve the refining, processing and recycling of critical raw materials here in Europe. Raw materials are vital for manufacturing key technologies for our twin transition – like wind power generation, hydrogen storage or batteries. And we’re strengthening our cooperation with reliable trading partners globally to reduce the EU’s current dependencies on just one or a few countries. It’s in our mutual interest to ramp up production in a sustainable manner and at the same time ensure the highest level of diversification of supply chains for our European businesses.”
Together with the reform of the electricity market design and the Net Zero Industry Act, today’s measures on critical raw materials create a conducive regulatory environment for the net-zero industries and the competitiveness of European industry, as announced in the Green Deal Industrial Plan.
Internal Actions
The Critical Raw Materials Act will equip the EU with the tools to ensure the EU’s access to a secure and sustainable supply of critical raw materials, mainly through:
Setting clear priorities for action: In addition to an updated list of critical raw materials, the Act identifies a list of strategic raw materials, which are crucial to technologies important to Europe’s green and digital ambitions and for defence and space applications, while being subject to potential supply risks in the future. The Regulation embeds both the critical and strategic raw materials lists in EU law. The Regulation sets clear benchmarks for domestic capacities along the strategic raw material supply chain and to diversify EU supply by 2030:

At least 10% of the EU’s annual consumption for extraction,
At least 40% of the EU’s annual consumption for processing,
At least 15% of the EU’s annual consumption for recycling,

Not more than 65% of the Union’s annual consumption of each strategic raw material at any relevant stage of processing from a single third country.

Creating secure and resilient EU critical raw materials supply chains: The Act will reduce the administrative burden and simplify permitting procedures for critical raw materials projects in the EU. In addition, selected Strategic Projects will benefit from support for access to finance and shorter permitting timeframes (24 months for extraction permits and 12 months for processing and recycling permits). Member States will also have to develop national programmes for exploring geological resources.
Ensuring that the EU can mitigate supply risks: To ensure resilience of the supply chains, the Act provides for the monitoring of critical raw materials supply chains, and the coordination of strategic raw materials stocks among Member States. Certain large companies will have to perform an audit of their strategic raw materials supply chains, comprising a company-level stress test.
Investing in research, innovation and skills:  The Commission will strengthen the uptake and deployment of breakthrough technologies in critical raw materials. Furthermore, the establishment of a large-scale skills partnership on critical raw materials and of a Raw Materials Academy will promote skills relevant to the workforce in critical raw materials supply chains. Externally, the Global Gateway will be used as a vehicle to assist partner countries in developing their own extraction and processing capacities, including skills development.
Protecting the environment by improving circularity and sustainability of critical raw materials: Improved security and affordability of critical raw materials supplies must go hand in hand with increased efforts to mitigate any adverse impacts, both within the EU and in third countries with respect to labour rights, human rights and environmental protection. Efforts to improve sustainable development of critical raw materials value chains will also help promoting economic development in third countries and also sustainability governance, human rights, conflict-resolution and regional stability.
Member States will need to adopt and implement national measures to improve the collection of critical raw materials rich waste and ensure its recycling into secondary critical raw materials. Member States and private operators will have to investigate the potential for recovery of critical raw materials from extractive waste in current mining activities but also from historical mining waste sites. Products containing permanent magnets will need to meet circularity requirements and provide information on the recyclability and recycled content.
International Engagement
Diversifying the Union’s imports of critical raw materials: The EU will never be self-sufficient in supplying such raw materials and will continue to rely on imports for a majority of its consumption. International trade is therefore essential to supporting global production and ensuring diversification of supply. The EU will need to strengthen its global engagement with reliable partners to develop and diversify investment and promote stability in international trade and strengthen legal certainty for investors. In particular, the EU will seek mutually beneficial partnerships with emerging markets and developing economies, notably in the framework of its Global Gateway strategy.
The EU will step up trade actions, including by establishing a Critical Raw Materials Club for all like-minded countries willing to strengthen global supply chains, strengthening the World Trade Organization (WTO), expanding its network of Sustainable Investment Facilitation Agreements and Free Trade Agreements and pushing harder on enforcement to combat unfair trade practices.
It will further develop Strategic partnerships: The EU will work with reliable partners to promote their own economic development in a sustainable manner through value chain creation in their own countries, while also promoting secure, resilient, affordable and sufficiently diversified value chains for the EU.
Next Steps
The proposed Regulation will be discussed and agreed by the European Parliament and the Council of the European Union before its adoption and entry into force.
Background
This initiative comprises a Regulation and a Communication. The Regulation sets a regulatory framework to support the development of domestic capacities and strengthen sustainability and circularity of the critical raw material supply chains in the EU. The Communication proposes measures to support the diversification of supply chains through new international mutually supportive partnerships. The focus is also on maximising the contribution of EU trade agreements, in full complementarity with the Global Gateway strategy.
The Critical Raw Materials Act was announced by President von der Leyen during her 2022 State of the Union speech, where she called to address the EU’s dependency on imported critical raw materials by diversifying and securing a domestic and sustainable supply of critical raw materials. It responds to the 2022 Versailles Declaration adopted by the European Council which outlined the strategic importance of critical raw materials to guarantee the Union’s strategic autonomy and European sovereignty. It also responds to the conclusions of the Conference on the Future of Europe and to the November 2021 resolution of the European Parliament for an EU critical raw materials’ strategy.
The measures build upon the 2023 criticality assessment, the foresight report focusing on strategic technologies, and the actions initiated under the 2020 Action Plan on critical raw materials. Today’s proposal is underpinned by the scientific work of the Commission’s Joint Research Centre (JRC). Together with the JRC Foresight study, the JRC also revamped the Raw Materials Information System which provides knowledge on raw materials, both primary (extracted/harvested) and secondary, for example from recycling. The tool provides information on specific materials, countries, as well as for different sectors and technologies and includes analyses for both supply and demand, current and future.
The Critical Raw Material Act is presented in parallel to the EU’s Net Zero Industry Act, which aims to scale up the EU manufacture of key carbon neutral or “net-zero” technologies to ensure secure, sustainable and competitive supply chains for clean energy in view of reaching the EU’s climate and energy ambitions.
Compliments of the European Commission.
The post Critical Raw Materials: ensuring secure and sustainable supply chains for EU’s green and digital future first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.