Speech by Isabel Schnabel, Member of the Executive Board of the ECB, at the Jackson Hole Economic Policy Symposium organised by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming | 27 August 2022 |
The Great Moderation was a period of prosperity and broad macroeconomic stability.[1] The volatility of both inflation and output declined, the length of economic expansions increased, and people in most economies experienced sustained improvements in their standards of living.
There is broad agreement that better monetary policy was an important factor behind the Great Moderation.[2] As central banks took up the fight against spiralling inflation in the late 1970s and early 1980s, they brought down and stabilised inflation expectations at levels that provided a solid nominal anchor for firms and households.
The subsequent advance of inflation targeting around the world is believed to be a prime reason why the global financial crisis of 2008 merely interrupted the Great Moderation.[3] Afterwards, macroeconomic volatility quickly dropped back to its previous low levels.
Yet, monetary policy was not the only factor behind the Great Moderation. Good luck, in the sense of a smaller variance of the shocks hitting the global economy, is widely believed to have played an important role as well.[4] Compared with the 1970s, for example, real oil prices traded in a much narrower range from the second half of the 1980s until the mid-2000s.
The question I would like to discuss this morning is whether the pandemic, and more recently Russia’s invasion of Ukraine, will herald a turning point for macroeconomic stability – that is, whether the Great Moderation will give way to a period of “Great Volatility” – or whether these shocks, albeit significant, will ultimately prove temporary, as was the case for the global financial crisis.
My answer to this question is that of a “two-handed economist”. On the one hand, there is a tangible risk that the nature and persistence of the shocks hitting our economies will remain unfavourable over the coming years. On the other hand, the decisions that central banks are taking today to deal with high inflation can shape the future course of our economies in a way that mitigates and limits the ultimate impact of these shocks on prosperity and stability.
A new era of volatility
The pandemic and the war in Ukraine have led to an unprecedented increase in macroeconomic volatility.
Output growth volatility in the euro area over the past two years was about five times as high as it was at the peak of the Great Recession in 2009.[5] Inflation volatility has surged beyond the levels seen during the 1970s.
Once the exceptional effects of the pandemic and the war wash out from the data, output and inflation volatility are bound to decline.
Yet, there are valid grounds to believe that policymakers will find themselves in a less favourable environment over the medium term – one in which shocks are potentially larger, more persistent and more frequent.
Climate change is a major driver. The experience of recent years leaves no doubt that the incidence and severity of extreme and disruptive weather events are rising sharply, exposing the global economy to greater volatility in output and inflation.[6]
This summer, the European Union – like many other parts of the world – is suffering from one of the most severe droughts on record, with nearly two-thirds of its territory in a state of alert or warning.[7]
The pandemic and the war are likely to add to instability in the years to come. They challenge two of the fundamental stabilising forces that have contributed to the decline in volatility during the Great Moderation: globalisation and an elastic energy supply.
Globalisation acted as a gigantic shock absorber.
The breakup of the Soviet Union and global economic liberalisation from the 1980s onwards led to about half of today’s world population being integrated into the global economy. Labour supply became so abundant, and production capacity so large, that even periods of strong demand rarely succeeded in putting persistent upward pressure on prices and wages.[8]
However, even before the pandemic, protectionism and nationalism were on the rise.[9] Tariff and non-tariff barriers were raised as the benefits of free trade were increasingly being called into question.[10]
Today, the world economy is at risk of fracturing into competing security and trade blocs. The international network that connects our economies is fragile. We are witnessing new and alarming forms of protectionism.
Consider health. Although vaccines have been rolled out in advanced economies for nearly two years now, a third of the world population is still unvaccinated. Unequal access to effective COVID-19 vaccines means that ending the pandemic remains elusive.
Food protectionism, meanwhile, is causing misery and social unrest in parts of the world. The number of governments imposing export restrictions on food and fertilizers is close to that recorded during the 2008-2012 food crisis, exacerbating the repercussions of the war on food supply.
Protectionism is going hand-in-hand with a fundamental reappraisal of global value chains. Many critical inputs to our modern societies, such as semiconductor chips, are produced in just a handful of countries. Europe’s energy crisis has exposed the deep fragilities of such an economic system.
Efforts to enhance diversification will help secure strategic autonomy and make value chains more robust. But they also imply duplication and inefficiency. And if used as a form of protectionism, a greater reliance on domestic production may leave countries more – rather than less – vulnerable to shocks in the future.[11]
The second stabilising force – an elastic energy supply – will also become less powerful in absorbing shocks in the years to come.
Following the oil price shocks of the 1970s, the distribution of global oil supply changed drastically. OPEC’s global market share fell from 53% in 1973 to 28% in 1985 as Mexico, Norway and other countries started producing significant amounts of oil.[12]
The “Shale Revolution” in the United States, which started at the turn of the century, changed the oil market once again. It is estimated to have resulted in a significant increase in the price elasticity of oil and gas supply.[13]
As a result, just as globalisation led to excess supply in product and labour markets, limiting price and wage increases, the emergence of the United States as a large net exporter of energy buffered the impact of demand shocks on oil and gas prices over the past 15 years.
The green transition and the war in Ukraine will lastingly make fossil energy scarcer and more expensive at a time when renewable energy carriers are not yet sufficiently scalable. Over the coming months, acute shortages, in particular in Europe, may require painful adjustments to production and consumption.
The shift to greener technologies will reduce such pressures over the longer run, but it will also broaden the sources of energy shocks during the transition.
Most green technologies require significant amounts of metals and minerals, such as copper, lithium and cobalt. As their supply is constrained in the short and medium term, and often concentrated in a small number of countries, action to quickly reduce our dependency on fossil energy will lead to firms and governments competing for scarce commodities, thereby pushing up prices.[14]
Of course, such fundamental and disruptive changes to the structure of our economies also offer important opportunities.
There is hope that the war in Ukraine unites those who embrace the values of liberty, territorial integrity and democracy. And the determined fight against climate change holds the potential for strong and sustainable growth.
But even then, the challenges we are facing are likely to bring about larger, more frequent and more persistent shocks in the years ahead.
The role of monetary policy
The transition to the Great Volatility is not a pre-determined outcome, however.
If the nature of the shocks changes – that is, if one of the factors that had contributed to the Great Moderation subsides – the other factor – better policies – becomes more important in ensuring macroeconomic stability.
Fiscal policy will play an important role in enhancing the resilience of our economies.
Governments need to adapt their policies to the risk of a protracted period of lower potential output growth. With debt-to-GDP ratios at or close to historical highs, spending should focus on protecting social cohesion and promoting productive and green investments that will help secure long-term prosperity and rebuild fiscal space needed to cushion future shocks.
Monetary policy, in turn, needs to protect price stability. What this means in an environment of elevated volatility and structural change is, however, controversial.
Because monetary policy operates with long lags, price stability is typically defined over the medium term, giving central banks some discretion over the extent and length of inflation overshoots that they are willing to tolerate over the short run.
This discretion is particularly relevant in the case of supply-side shocks that tend to push prices and output in opposite directions. Stabilising inflation is then no longer equivalent to stabilising output – the divine coincidence of monetary policy disappears.[15] Such shocks therefore imply a trade-off for monetary policy, between inflation and output.
The experience of the 1970s suggests that the extent of this trade-off is highly path dependent. A poorly chosen course of action can make attaining price stability significantly more costly in the future.
This path dependency puts a heavy weight on the decisions that central banks are taking in response to the challenges we are facing today.
For the first time in four decades, central banks need to prove how determined they are to protect price stability. The pandemic and the war are consistently suppressing the level of aggregate supply at a time of strong pent-up demand, leading to sharp price pressures across a large range of goods and services.
There are two broad paths central banks can take to deal with current high inflation: one is a path of caution, in line with the view that monetary policy is the wrong medicine to deal with supply shocks.[16]
The other path is one of determination. On this path, monetary policy responds more forcefully to the current bout of inflation, even at the risk of lower growth and higher unemployment. This is the “robust control” approach to monetary policy that minimises the risks of very bad economic outcomes in the future.[17]
Three broad observations speak in favour of central banks choosing the latter path: the uncertainty about the persistence of inflation, the threats to central bank credibility and the potential costs of acting too late.
Uncertainty about inflation persistence requires a forceful policy response
The first observation relates to how central banks should act in the current environment of large uncertainty.
William Brainard’s well-known attenuation principle suggests that central banks should tread carefully in the face of uncertainty about how their policies are transmitted to the broader economy.[18]
There are at least two conceptual cases where the Brainard principle breaks down.
One is the existence of the effective lower bound. The best way for central banks to avoid the perils of a liquidity trap is to ease policy swiftly when a disinflationary shock hits the economy in the vicinity of the lower bound.[19] This principle has become a cornerstone of the monetary policy strategies of many central banks, including the ECB.
The second case is when there is uncertainty about the persistence of inflation.
When the degree of inflation persistence is uncertain, optimal policy prescribes a forceful response to a deviation of inflation from the target to reduce the risks of inflation remaining high for too long.[20]
In this case, it is largely irrelevant whether inflation is driven by supply or demand. If a central bank underestimates the persistence of inflation – as most of us have done over the past one-and-a-half years – and if it is slow to adapt its policies as a result, the costs may be substantial.[21]
In the current environment, these risks remain significant. Unprecedented pipeline pressures, tight labour markets and the remaining restrictions on aggregate supply threaten to feed an inflationary process that is becoming harder to control the more hesitantly we act on it.
About 20 years ago, here in Jackson Hole, Carl Walsh was clear about what this implies for the conduct of monetary policy: to reduce the risks of a Volcker-type policy shock, central banks should conduct policy assuming that inflation is persistent, as the costs of underestimating persistence are higher than those of overestimating it.[22]
Such a policy naturally puts a stronger emphasis on incoming data.
Two sets of indicators matter most for deciding on the policy adjustment required to restore price stability.
One is actual inflation outcomes along the entire pricing chain. These play a more critical role than they would normally do, as they serve as an important reference point for policymakers to evaluate future pipeline pressures, the forces driving inflation persistence and risks of a de-anchoring of inflation expectations.
The other is data on the state of the economy to assess how fast supply and demand imbalances are correcting in response to both changes in interest rates and the repercussions of adverse supply-side shocks.
At the same time, the nature of inflation uncertainty implies that forward guidance on the future path of short-term interest rates becomes less relevant, or that it even risks adding to volatility rather than reducing it.
A key condition for the success of forward guidance in steering expectations over the past decade was a macroeconomic environment characterised by both historically low inflation volatility and the constraints of the effective lower bound.
Forward guidance is less appropriate in conditions of high volatility. When shocks are large and frequent, central banks can give no reliable signal about the future path of short-term interest rates, other than the broad direction of travel consistent with a reaction function that is calibrated on the assumption of high inflation persistence.
Risks of a de-anchoring of inflation expectations are rising
The second observation tilting the trade-off facing monetary policy towards more forceful action relates to central banks’ credibility.
Our currencies are stable because people trust that we will preserve their purchasing power. For politically independent central banks, establishing and maintaining that trust is an important policy objective in and of itself.
Failing to honour this trust may carry large political costs.[23] History is full of examples of high and persistent inflation causing social unrest. Recent events around the world suggest that the current inflation shock is no exception. Sudden and large losses in purchasing power can test even stable democracies.
Surveys suggest that the surge in inflation has started to lower trust in our institutions.[24] Young people, in particular, have no living memory of central banks fighting inflation.
We are witnessing a steady and sustained rise in medium and long-term inflation expectations in parts of the population that risks increasing inflation persistence beyond the initial shock.
In the euro area, consumers’ medium-term inflation expectations were firmly anchored at our 2% target throughout the pandemic. According to the most recent data, median expectations are close to 3%, while average expectations have increased from 3% a year ago to almost 5% today.[25]
Average long-term inflation expectations of professional forecasters, too, have started to gradually move away from our 2% target. In July, they stood at 2.2%, a historical high.
For both consumers and professional forecasters, we are also observing a marked increase in the right tail of the distribution – that is, the share of survey participants who expect inflation to stabilise at levels well above our 2% target.[26] Option prices in financial markets paint a similar picture.[27]
In the 1970s, such shifts in the right tail of the distribution preceded shifts in the mean.[28]
We broadly know why these shifts happen among consumers who are financially less literate. These consumers predominately form their expectations based on inflation experiences.[29]
But for the euro area, the ECB’s consumer expectations survey shows that people who are financially more literate and who see themselves as playing a relevant role in actual price and wage-setting have recently revised their medium-term inflation expectations to a larger extent than other survey participants.
This is a source of concern. Unlike for consumers who form their expectations based on their experience of inflation, the higher inflation expectations of financially literate people are unlikely to subside if and when inflation starts decelerating. This increases the probability of second-round effects.
We cannot say for certain what is behind these upward revisions to inflation expectations. But two potential explanations come to mind.
One is that higher medium-term inflation expectations may be the result of a perception that monetary policymakers have reacted too slowly to the current high inflation.
A cardinal principle of optimal policy in a situation of above-target inflation is to raise nominal rates by more than the change in expected inflation – the Taylor principle. If real short-term interest rates fail to increase, monetary policy will be ineffective in dealing with high inflation.
In the United States, a systematic failure to uphold the Taylor principle was one of the key factors contributing to the persistence of inflation in the 1970s.[30]
The second explanation is that higher inflation expectations may reflect more fundamental concerns, possibly related to fiscal and financial dominance, or to the recent review of central banks’ monetary policy frameworks that focused more on the challenges of too-low inflation rather than too-high inflation.[31]
All these factors may have created perceptions of a higher tolerance for inflation and a stronger desire to stabilise output.
Determined action is needed to break these perceptions. If uncertainty about our reaction function is undermining trust in our commitment to securing price stability, a cautious approach to policymaking will no longer be the appropriate course of action.
Instead, a politically independent central bank needs to put less weight on stabilising output than it would when inflation expectations are well anchored.
Policymakers should also not pause at the first sign of a potential turn in inflationary pressures, such as an easing of supply chain disruptions. Rather, they need to signal their strong determination to bring inflation back to target quickly.[32]
This is another key lesson of the 1970s. If the public expects central banks to lower their guard in the face of risks to economic growth – that is, if they abandon their fight against inflation prematurely – then we risk seeing a much sharper correction down the road if inflation becomes entrenched.
Central banks are facing a higher sacrifice ratio
The third, and closely related, observation that supports a more forceful policy response relates to the potential costs of acting too late – that is, when high inflation has become fundamentally entrenched in expectations, a situation that neither the United States nor the euro area are facing today.
In the early 1980s, many central banks had to tolerate large and costly increases in unemployment to restore confidence in the nominal anchor. There are at least three reasons to believe that a similar endeavour could be even more costly today in terms of lost output and employment.
One is that our economies have become less interest rate-sensitive over time, meaning that more withdrawal of monetary accommodation would be required for a given desired decline in inflation.
The growing importance of intangible capital is partially responsible for this. In the United States, its share in total investment has tripled since 1980. And in the euro area, it has increased from about 12% in 1995 to 23% today.
Research finds that intangible capital-intensive firms tend to be net savers because intangible capital is more difficult to mobilise as collateral for bank lending, making the cost of credit less important.[33]
These effects are reinforced by the structural shift towards services, which tend to be, on average, less responsive to monetary policy than more capital-intensive sectors, such as manufacturing.[34]
The second reason why a de-anchoring of inflation expectations has become more costly relates to the slope of the Phillips curve.
There is a wealth of studies that find that the Phillips curve has become flatter over the past few decades.[35]
Before the pandemic, a flat Phillips curve meant that central banks could allow the economy to run hot before inflationary pressures would emerge. Today, a flat Phillips curve means that lowering inflation – once it has become entrenched – potentially requires a deep contraction.
The third reason concerns the relevant measure of slack.
Even if the true slope of the Phillips curve were to be steeper than is suggested by reduced-form estimates, the fact that it is often global rather than domestic slack that matters for price-setting reduces the sensitivity of the economy to interest rate changes on a much broader level.[36]
The events of the past one-and-a-half years are testimony to the increased relevance of global economic conditions for inflation.[37]
In other words, central banks are likely to face a higher sacrifice ratio compared with the 1980s, even if prices were to respond more strongly to changes in domestic economic conditions, as the globalisation of inflation makes it more difficult for central banks to control price pressures.
Conclusion
Let me conclude.
High inflation has become the dominant concern of citizens in many countries.
Both the likelihood and the cost of current high inflation becoming entrenched in expectations are uncomfortably high. In this environment, central banks need to act forcefully. They need to lean with determination against the risk of people starting to doubt the long-term stability of our fiat currencies.
Regaining and preserving trust requires us to bring inflation back to target quickly. The longer inflation stays high, the greater the risk that the public will lose confidence in our determination and ability to preserve purchasing power.
Trust in our institutions is even more important at a time of major and disruptive structural change that brings about larger, more persistent and more frequent shocks. A reliable nominal anchor eases the transition towards the new equilibrium, and improves the trade-off facing central banks in the future.
All in all, therefore, an important lesson from the Great Moderation is that it is also up to central banks whether the challenges we are facing today will lead to the Great Volatility, or whether the pandemic and the war in Ukraine will ultimately be remembered as painful but temporary interruptions of the Great Moderation.
Thank you.
Compliments of the European Central Bank.

1. Bernanke, B. (2004), “The Great Moderation”, remarks at the meetings of the Eastern Economic Association, Washington, DC, 20 February; Perez-Quiros, G. and McConnell, M. (2000), “Output Fluctuations in the United States: What Has Changed since the Early 1980’s?”, American Economic Review, Vol. 90, No 5, American Economic Association, pp. 1464-1476; Stock, J. and Watson, M. (2002), “Has the Business Cycle Changed and Why?”, NBER Macroeconomics Annual, Volume 17.
2. Clarida R., Gali, J. and Gertler, M. (2000), “Monetary policy rules and macroeconomic stability: evidence and some theory”, The Quarterly Journal of Economics, Vol. 115, No 1, pp. 147-180.
3. Perron, P. and Yamamoto, Y. (2021), “The Great Moderation: Updated Evidence with Joint Tests for Multiple Structural Changes in Variance and Persistence”, Empirical Economics, Vol. 62, pp. 1193-1218; Waller, C. and Crews, J. (2016), “Was the Great Moderation Simply on Vacation?”, The Economy Blog, Federal Reserve Bank of St. Louis; and Clark, T. (2009), “Is the Great Moderation over? An Empirical Analysis”, Economic Review, Federal Reserve Bank of Kansas City, Vol. 94, Issue Q IV, pp. 5-42.
4. Stock, J. and Watson, M. (2002), op. cit. There were also other factors, such as changes in inventory management and more efficient financial markets, that are thought to have contributed to the decline in volatility. See, for example, Ahmed, S., Levin, A. and Wilson, B. (2004), “Recent U.S. Macroeconomic Stability: Good Policies, Good Practices, or Good Luck?”, The Review of Economics and Statistics, MIT Press, Vol. 86, No 3, pp. 824-832; and Blanchard, O. and Simon, J. (2001), “The Long and Large Decline in U.S. Output Volatility”, Brookings Papers on Economic Activity, Vol. 2001, No 1, pp. 135-164.
5. In 2009 volatility was already about four times higher than average volatility since 2000. Output growth volatility is defined as the eight-quarter rolling standard deviation of quarterly GDP growth rates.
6. Schnabel, I. (2020), “When markets fail – the need for collective action in tackling climate change”, speech at the European Sustainable Finance Summit, Frankfurt am Main, 28 September. In a recent survey conducted by the ECB, around 80% of firms saw increased risks of interruptions to their production because of climate change. See ECB (2022), “The impact of climate change on activity and prices – insights from a survey of leading firms”, Economic Bulletin, Issue 4.
7. European Drought Observatory, Drought in Europe, August 2022.
8. Goodhart, C. and Pradhan, M. (2020), “The Great Demographic Reversal: Ageing Societies, Waning Inequality, and an Inflation Revival”, Palgrave Macmillan.
9. Also, the number of international armed conflicts doubled from 2010 to 2020 and global military expenditure reached a new record even before the war. See Stockholm International Peace Research Institute (2022), “Environment of Peace: Security in a New Era of Risk”.
10. ECB (2019), “The economic implications of rising protectionism: a euro area and global perspective”, Economic Bulletin, Issue 3.
11. IMF (2022), “Global Trade and Value Chains During the Pandemic”, World Economic Outlook. The IMF’s estimates suggest that in the face of a large shock, greater diversification would reduce the decline in GDP by about half. Recent events in the United States illustrate these risks. Production stoppages at a key supplier of infant formula – a market in which 98% of consumption is produced domestically by just four companies – led to severe shortages, causing the administration to invoke the Defence Production Act to boost domestic production.
12. Baumeister, C. and Kilian, L. (2016), “Forty Years of Oil Price Fluctuations: Why the Price of Oil May Still Surprise Us”, Journal of Economic Perspectives, Vol. 30, No 1, pp. 139-160.
13. Balke, N., Jin, X. and Yücel, M. (2020), “The Shale Revolution and the Dynamics of the Oil Market”, Working Papers, No 2021, Federal Reserve Bank of Dallas; Schnabel, I. (2020), “How long is the medium term? Monetary policy in a low inflation environment”, speech at the Barclays International Monetary Policy Forum, 27 February.
15. Schnabel, I. (2022), “A new age of energy inflation: climateflation, fossilflation and greenflation”, speech at a panel on “Monetary Policy and Climate Change” at The ECB and its Watchers XXII Conference, Frankfurt am Main, 17 March.
16. Blanchard, O. and Galí, J. (2007), “Real Wage Rigidities and the New Keynesian Model”, Journal of Money, Credit and Banking, Vol. 39, No 1, pp.36-65.
17. In the context of the 1970s, this is sometimes referred to as the “monetary policy neglect hypothesis”. See Nelson, E. (2005), “Monetary Policy Neglect and the Great Inflation in Canada, Australia, and New Zealand”, International Journal of Central Banking.
18. Onatski, A. and Stock, J.H. (2002), “Robust monetary policy under model uncertainty in a small modelof the U.S. economy”, Macroeconomic Dynamics, Vol. 6, No 1, pp. 85-110; Giannoni, M. (2002), “Does Model Uncertainty Justify Caution? Robust Optimal Monetary Policy in a Forward-Looking Model”, Macroeconomic Dynamics, Vol. 6, No 1, pp. 111-144.
19. Brainard, W. (1967), “Uncertainty and the Effectiveness of Policy”, American Economic Review, Vol. 57, No 2, pp. 411-425.
20. Reifschneider, D. and Williams, J. (2000), “Three Lessons for Monetary Policy in a Low-Inflation Era”, Journal of Money, Credit and Banking, Vol. 32, No 4, Part 2: Monetary Policy in a Low-Inflation Environment (Nov., 2000), pp. 936-966; and Dupraz, S., Guilloux-Nefussi, S. and Penalver, A. (2020), “A Pitfall of Cautiousness in Monetary Policy”, Working Paper Series, No 758, Banque de France.
21. Söderström, U. (2002), “Monetary Policy with Uncertain Parameters”, Scandinavian Journal of Economics, Vol. 104, No 1, pp. 125-145; Coenen, G. (2007), “Inflation persistence and robust monetary policy design”, Journal of Economic Dynamics and Control, Vol. 31, No 1, pp. 111-140; and Reinhart, V. (2003), “Making monetary policy in an uncertain world”, Proceedings – Economic Policy Symposium – Jackson Hole, Federal Reserve Bank of Kansas City.
22. For forecasting errors, see ECB (2022), “What explains recent errors in the inflation projections of Eurosystem and ECB staff?”, Economic Bulletin, Issue 3. For the costs of underestimating inflation persistence, or the non-accelerating inflation rate of unemployment, see Primiceri, G. (2006), “Why Inflation Rose and Fell: Policy-Makers’ Beliefs and U.S. Postwar Stabilization Policy”, The Quarterly Journal of Economics, Vol. 121, No 3, pp. 867-901.
23. Walsh, C. (2003), “Implications of a Changing Economic Structure for the Strategy of Monetary Policy”, Proceedings – Economic Policy Symposium – Jackson Hole, Federal Reserve Bank of Kansas City. See also Walsh, C. (2022), “Inflation Surges and Monetary Policy”, IMES Discussion Paper Series, No 2022-E-12, Bank of Japan.
24. James, H. (2022), “All That Is Solid Melts into Inflation”, Project Syndicate, 5 July.
25. For the euro area, see Eurobarometer 96, Winter 2021-2022.
26. ECB (2022), “Consumer Expectations Survey”. Medium-term inflation refers to inflation three years ahead.
27. Systematic data on firms’ medium-term inflation expectations remain scarce. Recent analysis, however, suggests that firms may use price changes observed along the supply chain to form their expectations. See Albagli, E., Grigoli, F. and Luttini, E. (2022), “Inflation Expectations and the Supply Chain”, IMF Working Papers, No 22/161, International Monetary Fund.
28. Reis, R. (2022), “Inflation expectations: rise and responses”, ECB Forum on Central Banking, Sintra, 29 June.
29. Reis, R. (2021), “Losing the Inflation Anchor”, Brookings Papers on Economic Activity, Fall 2021.
30. There is abundant empirical evidence suggesting that inflation expectations are adaptive, meaning that the current long period of very high energy and food prices will shape people’s beliefs about the future. See, for example, Burke, M. and Manz, M. (2014), “Economic Literacy and Inflation Expectations: Evidence from a Laboratory Experiment”, Journal of Money, Credit and Banking, Vol. 46, No 7, October, pp. 1421-1456; Weber, M. et al. (2022), “The Subjective Inflation Expectations of Households and Firms: Measurement, Determinants, and Implications”, NBER Working Papers, No 30046, National Bureau of Economic Research; and Malmendier, U. (2022), “Experiencing inflation”, ECB Forum on Central Banking, Sintra, 29 June.
31. Clarida, R., Gali, J. and Gertler, M. (2000), op. cit.
32. The conviction behind this focus was that monetary policy could effectively deal with high inflation.
33. The choice of how much weight to put on output stabilisation will determine the optimal policy horizon. See Smets, F. (2003), “Maintaining price stability: how long is the medium term?”, Journal of Monetary Economics, Vol. 50, No 6, pp. 1293-1309.
34. Caggese, A. and Pérez-Orive, A. (2022), “How stimulative are low real interest rates for intangible capital?”, European Economic Review, Vol. 142; and Döttling, R. and Ratnovski, L. (2020), “Monetary policy andintangible investment”, Working Paper Series, No 2444, ECB.
35. Cao, G. and Willis, J. (2015), “Has the U.S. economy become less interest rate sensitive?”, Economic Review, Issue Q II, Federal Reserve Bank of Kansas City, pp. 5-36.
36. See, for example, Del Negro, M. et al. (2020), “What’s Up with the Phillips Curve?”, Brookings Papers on Economic Activity, Spring, pp. 301-357; and Ratner, D. and Sim, J. (2022), “Who Killed the Phillips Curve? A Murder Mystery”, Finance and Economics Discussion Series, No 2022-28, Board of Governors of the Federal Reserve System.
37. There are studies suggesting that the slope of the structural Phillips curve may be steeper. See Hazell, J. et al. (2020), “The Slope of the Phillips Curve: Evidence from U.S. States”, NBER Working Papers, No 28005, National Bureau of Economic Research; McLeay, M. and Tenreyro, S. (2020), “Optimal Inflation and the Identification of the Phillips Curve,” in Eichenbaum, M.S., Hurst, E. and Parker, J.A., NBER Macroeconomics Annual 2019, Volume 34, National Bureau of Economic Research; and Jørgensen, P. and Lansing, K. (2022), “Anchored Inflation Expectations and the Slope of the Phillips Curve”, Working Paper Series, No 2019-27, Federal Reserve Bank of San Francisco.
38. Schnabel, I. (2022), “The globalisation of inflation”, speech at a conference organised by the Österreichische Vereinigung für Finanzanalyse und Asset Management, Vienna, 11 May; and Forbes, K. (2019), “Inflation Dynamics: Dead, Dormant, or Determined Abroad?”, NBER Working Papers, No 26496, National Bureau of Economic Research.

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When people seek medical care or visit other sensitive locations, they may think their presence is confidential. Little do most consumers know that if they have their phones with them, their location – for example, at a women’s health clinic, a therapist’s office, an addiction treatment center, or a place of worship – may be collected by tech companies. From there, that uniquely personal data becomes yet another commodity bought and sold in the shadowy information marketplace. An FTC lawsuit against data broker Kochava Inc. alleges that the company acquired consumers’ precise geolocation data and then marketed it in a form that allowed Kochava clients – both subscribers and prospective customers who took Kochava up on a free “sample” –  to track consumers’ movements to and from sensitive locations. The complaint charges that Kochava’s conduct is an unfair trade practice, in violation of the FTC Act.
Kochava acquires location data from other data brokers based on information collected from consumers’ mobile devices. Kochava then compiles it in customized data feeds, which it markets to commercial clients eager to know where consumers are and what they’re doing. The amount of location data Kochava has about consumers is staggering. In pitching its products, Kochava offers what it describes as “rich geo data spanning billions of devices globally,” further claiming that its location feed “delivers raw latitude/longitude data with volumes around 94B+ geo transactions per month, 125 million monthly active users, and 35 million daily active users, on average observing more than 90 daily transactions per device.”
The FTC says Kochava wasn’t kidding in describing both the breadth and the specificity of the data it sells. For example, in the Amazon Web Services (AWS) Marketplace, Kochava used this table to attract new customers:

Image courtesy of the FTC.
According to the FTC, Kochava was explaining to prospective clients that its data would link together two key pieces of information for marketers: the timestamped longitudinal and latitudinal coordinates of where a mobile device is located and its Mobile Advertising ID (MAID) – a unique identifier assigned to a consumer’s mobile device. The FTC alleges that Kochava’s location data wasn’t anonymized and, as a result, “[i]t is possible to use the geolocation data, combined with the mobile device’s MAID, to identify the mobile device’s user or owner.”
How do those tech specs translate in the sensitive contexts cited in the FTC’s complaint? It means that Kochava’s data would let customers know that Joe Jones’ cell phone (and therefore Joe Jones) entered a psychiatrist’s office or stayed at a homeless shelter or that Mary Smith visited a center that provides abortion services. According to the complaint, the information could be even more specifically tied to an individual: “[I]t is possible to identify a mobile device that visited a women’s reproductive health clinic and trace that mobile device to a single-family residence. The data set also reveals that the same mobile device was at a particular location at least three evenings in the same week, suggesting the mobile device user’s routine.”
Compounding that concern is the FTC’s allegation that Kochava sold access to its data feeds on publicly accessible information marketplaces and, until just recently, even made free samples available with what the FTC describes as “only minimal steps and no restrictions on usage.” According to the complaint, to gain access to a sample, a potential customer could use an ordinary personal email address and describe their intended use with something as generic as “business.” And let’s be clear: the sample was much more than a smattering. The FTC says it consisted of a seven-day subset of the paid data feed. Converted to a spreadsheet, the sample allegedly filled 327,480,000 rows and 11 columns of data, corresponding to over 61,803,400 mobile devices. According to the complaint, even the free sample included highly sensitive data: “In fact, the Kochava Data Sample identifies a mobile device that appears to have spent the night at a temporary shelter whose mission is to provide residence for at-risk, pregnant young women or new mothers.”
You’ll want to read the complaint for details, but another troubling allegation is that, according to the FTC, “Kochava employs no technical controls to prohibit its customers from identifying consumers or tracking them to sensitive locations. For example, it does not employ a blacklist that removes from or obfuscates in its data set location signals around sensitive locations, such as women’s reproductive health clinics, addiction recovery centers, and other medical facilities.”
From the FTC’s perspective, the injury to consumers is substantial, given that Kochava’s disclosure of highly sensitive information – for example, that a person may be considering an abortion, seeking mental health care, or attending a particular house of worship – could subject them to stigma, stalking, discrimination, job loss, and even physical violence. What’s more, consumers could hardly be expected to take steps to avoid those injuries since they didn’t know Kochava was trafficking in their information in the first place.
The one-count complaint, which is pending in federal court in Idaho, charges that Kochava’s sale, transfer, or licensing of precise geolocation data associated with unique persistent identifiers that reveal consumers’ visits to sensitive locations is an unfair practice, in violation of the FTC Act.
Author:

Lesley Fair

Compliments of the Federal Trade Commission.
The post FTC says data broker sold consumers’ precise geolocation, including presence at sensitive healthcare facilities first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Brussels, 29 August 2022 |
The EU and Canada are trusted and like-minded partners that share the same goals when it comes to promoting open, sustainable and fair trade. Our EU-Canada Comprehensive Economic and Trade Agreement (CETA) aims to support our common objective of climate protection. In this context, the European Commission has engaged in constructive discussions with the German Federal Government to prepare a text that clarifies certain provisions in CETA. The result of these technical discussions is a more precise definition of the concepts of ‘indirect expropriation’ and ‘fair and equitable treatment’ of investors. The aim is to ensure that the parties can regulate in the framework of climate, energy and health policies, inter alia, to achieve legitimate public objectives, while at the same time preventing the misuse of the investor to State dispute settlement mechanism by investors.
The new draft text agreed by the Commission and the Federal Government provides legal certainty and it now needs to be supported by all other EU Member States. Once this is the case, we will consult our Canadian partners so that the new definitions can be adopted by the CETA Joint Committee as soon as possible.
Download the statement on CETA agreement here
Contact:

Miriam GARCIA FERRER | miriam.garcia-ferrer@ec.europa.eu

Compliments of the European Commission.
The post Statement from the Commission on clarifications discussed with Germany regarding investment protection in the context of the CETA agreement first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

In parallel with the adoption of EU instruments in the area of civil and commercial law, the EU’s exclusive external competence to negotiate and conclude international conventions has also increased. As a result, the EU (represented by the Commission) has gradually replaced Member States internationally. Where the EU cannot be formally a Contracting Party to an international Convention (because the participation of regional/international organisations is not foreseen in the convention), the EU exercises its competence through its Member States.
The EU promotes multilateral conventions in its relations with third countries in order to rely on a common legal framework on a wide range of issues. The aim is to enhance EU values, promote trade and protect EU citizens and businesses at the global level. The main international partner of the EU on civil justice cooperation is the Hague Conference on Private International Law, of which the EU is a full Member since 2007. Other relevant organisations are Uncitral (United Nations Commission on International Trade Law) and Unidroit (International institute for the unification of private law), where the EU has an observer status. Conventions developed by these international organisations cover issues such as child protection ( in particular  child support and  prevention of child abduction), choice of court, recognition and enforcement of foreign judgments, security interests, insolvency or protection of vulnerable adults.
So far, four major multilateral conventions have been negotiated by the Commission on behalf of the Union: the Lugano Convention with Norway, Switzerland and Iceland on jurisdiction, recognition and enforcement of judgments in civil and commercial matters basically extending the Union’s system to these three countries; the 2007 Hague Child Support Convention (ratified  by the EU in 2014) and its Protocol on applicable law (concluded in 2010) ensuring the protection of children and spouses in need to maintenance beyond the EU’s borders; the 2005 Hague Choice of Court Convention, ratified  by the EU in 2015, which ensures that a court chosen by parties is respected and the resulting judgment is recognised and enforced and the 2019 Hague Judgments Convention, which sets up a comprehensive system for the recognition and enforcement of foreign judgments in civil or commercial matters.
The Commission has proposed on 16 July 2021 that the EU accedes to the Judgments Convention. The Council adopted the decision on accession on 12 July 2022 and the EU joined the Judgments Convention on 29 August of the same year. The EU accession to this convention aims at facilitating the recognition and enforcement of judgments given by courts in the EU in non-EU countries, while allowing foreign judgments to be recognised and enforced in the EU only where fundamental principles of EU law are respected.
Compliments of the European Commission.
The post International Cooperation on Civil Justice first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The European Commission has found Italy’s plan to enable the transfer of certain State guaranteed loans to a newly created platform managed by AMCO S.p.A. to be free of any State aid.
The Commission found that, under the scheme, the Italian State will be remunerated in line with market conditions. It also found that the sale of the loans to the platform managed by AMCO as well as any potential new loans granted by it will be carried out on market terms.
Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “This scheme will enable Italy to maximise the recovery of loans while reducing the impact of the existing State guarantees on the national budget and the effects on the borrowers with good prospects of viability. This is an important step towards recovery for the Italian economy, while ensuring that competition is not distorted.”
The Italian measure
AMCO is a full-service credit management company whose voting shares are fully owned by the Italian Ministry of Economy and Finance. It has set up a platform to (i) centralise the management of loans, (ii) maximise their long-term value and (iii) limit the payments from Italy due to the possible triggering of the State guarantees.
Italy notified the Commission of its intention to allow banks to transfer off their balance sheets around €12 billion in two types of loans: (i) loans benefitting from a State guarantee initially approved under the State aid Temporary Framework in April 2020 (SA.56966); and (ii) unguaranteed loans of either the same debtors or connected ones. The economic and legal terms of the State guarantees, namely their duration, coverage and premiums, will remain as initially approved by the Commission.
Under the scheme, the loans will first be transferred from the banks to AMCO’s platform. The price for those loans will be based on private investors’ bids. In return for the transferred loans, investors, which may include the originating banks, will receive notes.
If the originating banks decide to retain all notes, the price will be agreed among all banks, ensuring that no beneficial pricing will be set for any portfolio of loans. Additionally, the price will be independently verified by a third-party evaluator. In any case, AMCO will not buy any of these notes.
Once these loans are on the platform, AMCO will be responsible for managing them. While AMCO will focus on more complex loans, it will cooperate with private servicing companies for smaller loans portfolios. AMCO’s remuneration for these services has been benchmarked against comparable transactions for which data was available in the Italian market.
AMCO also may provide new financing to some of the borrowers, which must be viable companies that only face temporary difficulties. Such loans will be provided by AMCO alongside financing from private operators under the same terms and conditions.
Finally, AMCO may provide short-term liquidity assistance to the platform to cover mismatches between the inflows from the loans and the required payments for the notes. These loans will be remunerated with an interest rate that is in line with market benchmarks.
The Commission’s assessment
The Commission assessed the scheme under EU State aid rules, in particular Article 107(1) of the Treaty on the Functioning of the European Union (‘TFEU’).
Under EU State aid rules, if a Member State intervenes as a private investor would do and is remunerated for the risk assumed in a way a private investor would accept, then such an intervention does not constitute State aid.
In this case, the Commission found that the transfers of the loans as well as AMCO’s services will be carried out on market terms, i.e. in a manner that would be acceptable for a private operator. This is in particular ensured by the following elements:

First, the price of the loans transferred to the platform will be established through a mechanism driven by private investors via an open and competitive process. If the notes are retained by the originating banks, the price will also be set in line with market conditions, through an independently verified system. Finally, any public investor will be accepted as note holder only under the same terms and conditions as private investors.
Second, the remuneration for the management of the loans will be benchmarked to the fees negotiated by asset management companies in comparable transactions on the market, ensuring a sufficient level of profitability. Any sub-servicers will be selected through an open tender procedure to exclude any advantages.
Third, the new financing provided by AMCO to borrowers will be at the same rate that private operators would offer. As regards the liquidity assistance, the pricing charged for these loans is based on a methodology that takes into account the risk taken by AMCO and leads to a remuneration in line with market conditions.

On this basis, the Commission approved the Italian measure under EU State aid rules.
Background
The EU Treaty is neutral when it comes to public versus private ownership. Under EU State aid rules, if a Member State chooses to intervene as a private investor would do, and is remunerated for the risk assumed in a way a private investor would accept, such an intervention does not constitute State aid and falls outside of EU State aid control. The choice of the type of intervention lies with the Member State and it is always the decision of the Member State whether to grant any State aid. The Commission, as the body responsible for EU State aid control, has to ensure that any measure implemented is in line with EU rules.
The non-confidential version of this decision will be made available under the case number SA.64169 in the State Aid Register on the competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.
Compliments of the European Commission.
The post State aid: EU Commission approves Italian market conform scheme to manage publicly guaranteed loans first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The European Commission published today the results of an external market study on the distribution practices of hotels in the EU.
The market study was conducted in 2021 and covers the period between 2017 and 2021. It focused on a representative sample of six Member States (Austria, Belgium, Cyprus, Poland, Spain and Sweden). The study aimed to:

obtain up-to-date facts on hotels’ distribution practices, following up on a similar monitoring exercise carried out by the European Competition Network (ECN) in 2016;
establish whether hotels’ distribution practices differ between Member States;
identify any changes in hotels’ distribution practices, as compared to the results of the ECN monitoring exercise of 2016;
find out whether laws banning the use of wide and narrow parity clauses by online travel agents in Austria and Belgium have led to changes in hotels’ distribution practices in those Member States. Parity clauses prevent hotels from offering better conditions on sales channels other than the website of the online travel agent with which the hotel has a contract. Wide parity clauses relate to the price and other conditions offered by the hotel on all other sales channels, whereas narrow parity clauses relate only to the prices published by the hotel on its own website.

The main results of the market study
The results of the market study do not indicate any significant change in the competitive situation in the hotel accommodation distribution sector in the EU compared to 2016. In particular:

  Online travel agencies (‘OTAs’) account for 44% of independent hotels’ room sales, a slight increase relative to 2016.
  Booking.com and Expedia remain the leading OTAs for hotel bookings and there is no sign of significant changes in OTA market shares or of new OTA entry.
  The commission rates paid by hotels to OTAs appear to have remained stable or slightly decreased.
  The level of room price and room availability differentiation applied by hotels both between different OTAs and between the hotels’ own websites and OTAs appears to have decreased.
  It appears that some OTAs use commercial measures, such as improved/reduced visibility on the OTA website, to incentivise hotels to give them the best room prices and conditions.
  The relative importance of hotel sales channels (online/offline, direct/indirect) differs to some extent between Member States, but there appear to be no significant differences in the conditions of OTA competition.
  Laws in Austria and Belgium banning the use of wide and narrow OTA parity clauses in the hotel sector do not appear to have led to material changes in hotel distribution practices, relative to the other Member States covered by the study.

The Commission consulted the EU National Competition Authorities (‘NCAs’) on the design of the market study and has discussed the results of the study with them.
Next steps
The results of the study will be taken into account by the Commission and NCAs in their ongoing monitoring and enforcement work in the hotel accommodation distribution sector.
The Digital Markets Act (‘DMA’), which is expected to enter into force in the autumn may also have an impact on competition in the hotel accommodation distribution sector. The DMA aims to ensure that platform markets are contestable and that gatekeeper platforms offer fair terms to business users. The DMA prohibits gatekeeper platforms from using wide or narrow retail parity clauses or equivalent commercial measures. The process for designating gatekeeper platforms will begin once the DMA becomes applicable, six months after entry into force.
Background
The distribution of hotel accommodation has been the subject of several antitrust and legislative interventions in recent years.
Since 2010, several NCAs have investigated the use of retail parity clauses by OTAs in their contracts with hotels. Wide retail parity clauses prevent the hotel from offering better room prices or increased availability on any other sales channel. Narrow retail parity clauses allow the hotel to offer better room prices on other OTAs and for offline sales, but prevent the hotel from publishing better prices on its website. As a result of these national investigations, in April 2015, the French, Italian and Swedish NCAs accepted binding commitments from Booking.com to change its wide retail parity clauses to narrow parity clauses throughout the European Economic Area (‘EEA’) for a period of five years. In August 2015, Expedia also decided to change its retail parity clauses from wide to narrow throughout the EEA. In December 2015, the German NCA prohibited Booking.com’s narrow parity clauses. Following an appeal by Booking.com, this decision was ultimately upheld by the German Supreme court.
Between 2015 and 2018, France, Austria, Italy and Belgium adopted laws banning the use of wide and narrow retail parity clauses by OTAs in the hotel sector.
In 2016, a group of ten NCAs and the Commission conducted a monitoring exercise in the hotel booking sector, to measure the effects of the changes to OTA parity clauses resulting from these regulatory interventions.
In February 2017, based on the results of the monitoring exercise, the ECN decided that the competition remedies already adopted should be given more time to produce effects and that the competitive situation would be re-assessed in due course.
In 2020, Booking.com and Expedia informed the Commission and NCAs that they would continue to refrain from using wide retail parity clauses throughout the EEA until at least June 2023.
In May 2022, the Commission adopted the new Block Exemption Regulation for Vertical Agreements (‘new VBER’), which provides a safe harbour for certain vertical agreements, and the accompanying Vertical Guidelines. Wide retail parity clauses used by online platforms are excluded from the new VBER’s safe harbour. However, other types of parity clause, including narrow retail parity clauses, continue to benefit from the safe harbour. The Vertical Guidelines provide guidance for companies on the application of the new VBER to parity clauses and on the assessment of parity clauses in individual cases falling outside the safe harbour.
Compliments of the European Commission.
The post Antitrust: EU Commission publishes market study on hotels’ distribution practices first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Clyde Caruana, Minister for Finance and Employment of Malta, and Paschal Donohoe, President of the Eurogroup and Minister for Finance of Ireland, met in Valletta, Malta, on 23 August 2022.
Their discussion focused on the evolving geopolitical and economic situation and its impact on Malta, Ireland, and the Euro Area as a whole. Against the backdrop of growing challenges such as rise of inflation and revisions in global growth prospects, both Ministers emphasised the benefit of close coordination of national economic and fiscal policies. Economic policy coordination will continue to be a key theme of Eurogroup’s work programme until the end of the year.
Ministers Caruana and Donohoe also discussed other Eurogroup priorities for the second half of the year, including the future of European fiscal rules, the deepening of the Economic and Monetary Union, and the digital Euro project. They also touched on the ongoing process for appointing a new Managing Director for the European Stability Mechanism.
Following the meeting, Minister Donohoe said:

It gives me particular pleasure to visit my Maltese colleague and friend, Clyde Caruana, here in Valletta. Today, we discussed the policy priorities for the Eurogroup until the end of the year, as we face a particularly uncertain outlook. While Malta’s economic performance is among the best in Europe there are a number of challenges ahead. It is more important than ever that we maintain and strengthen the close cooperation we established during the pandemic, to ensure that our actions at national level complement each other and that the Euro Area economy continues to grow.
Paschal Donohoe, President of the Eurogroup and Minister for Finance of Ireland

Minister Caruana said:

It is a great honour to welcome my friend, Minister for Finance of Ireland and President of the Eurogroup, Paschal Donohoe, here in Malta. Navigating these difficult times requires strong and flexible policies that are sustainable and offer support to vulnerable sectors of society. This must happen within the context of a fiscally responsible framework which does not jeopardise tomorrow’s well-being for todays. This is an inviolable principle. Europe’s competitive margin will be tested this winter due to spiralling energy costs, continuing supply chain issues and inflation. Our role as European Governments is to minimise the negative impacts on businesses, protect jobs and show resilience during this challenging period.
Clyde Caruana, Minister for Finance and Employment of Malta

Compliments of the European Council, the Council of the European Union.
The post Press release following the meeting between Clyde Caruana and Paschal Donohoe 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 securities markets regulator, today published the annual update of its Reporting Manual on the European Single Electronic Format (ESEF). This year’s highlight is the new guidance in relation to the ESEF regulatory technical standards (RTS) requirement to mark up the notes to the IFRS consolidated financial statement following the “block tagging” approach.
As the ESEF RTS requirement is applicable to 2022 financial year for the first time, the manual contains a new section providing guidance to market participants on ESMA’s expectations on how to perform such block-tagging – for example, what elements from the taxonomy are to be used, what level of granularity on tagging the information is expected etc.
Other novelties:

new section on ESMA’s expectations when issuers publish annual financial reports in other formats than the ESEF and further guidance when publishing annual financial reports in several languages; and
new technical guidance such as the construction of a block tag or ESMA’s expectation to also tag dashes or empty fields in figures even if they are not considered numbers.

The purpose of the ESEF reporting manual is to promote a harmonised and consistent approach for the preparation of annual financial reports in the format specified in the RTS on ESEF. It provides guidance on common issues that may be encountered when creating ESEF documents and explains how to address/resolve them.
Next steps
Issuers are expected to follow the guidance provided in the ESEF reporting manual when preparing their 2022 annual financial reports and software firms when developing software used for the preparation of annual financial reports in Inline XBRL.
Contact:

Dan Nacu-Manole, Communications Officer | press@esma.europa.eu

Compliments of the European Securities and Market Authority.
The post ESMA updates the European Single Electronic Format reporting manual first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Today, the European Commission adopted its proposal for fishing opportunities for 2023 for the Baltic Sea. Based on this proposal, EU countries will determine the maximum quantities of the most important commercial fish species that can be caught in the sea basin.
The Commission proposes to increase fishing opportunities for central herring and plaice, while maintaining the current levels for salmon and the levels of by-catch of western and eastern cod, as well as western herring. The Commission proposes to decrease fishing opportunities for the four remaining stocks covered by the proposal, in order to improve the sustainability of those stocks and to allow them to recover.
Virginijus Sinkevičius, Commissioner for Environment, Oceans and Fisheries, said: “I remain worried about the poor environmental status of the Baltic Sea. Despite some improvements, we are still suffering from the combined effects of eutrophication and slow response to tackle this challenge. We must all take responsibility and take action together. This is the only way to ensure that our fish stocks become healthy again and that our local fishers could rely again on them for their livelihoods. Today’s proposal goes in this direction.”
Over the past decade, EU fishermen and women, industry and public authorities have made major efforts to rebuild fish stocks in the Baltic Sea. Where complete scientific advice was available, fishing opportunities had already been set in line with the principle of maximum sustainable yield (MSY) for seven out of eight stocks, covering 95% of fish landings by volume. However, commercial stocks of western and eastern cod, western herring, and the many salmon stocks in both the southern Baltic Sea and the rivers of the southern Baltic EU Member States are under severe environmental pressure from habitat loss, due to the degradation of their living environment.
The total allowable catches (TACs) proposed today are based on the best available peer-reviewed scientific advice from the International Council on the Exploration of the Seas (ICES) and follow the Baltic multiannual management plan (MAP) adopted in 2016 by the European Parliament and the Council. A detailed table is available below. 
Cod
For eastern Baltic cod, the Commission proposes to maintain the TAC level limited to unavoidable by-catches and all the accompanying measures from the 2022 fishing opportunities. Despite the measures taken since 2019, when scientists first raised the alarm about the very poor status of the stock, the situation has not yet improved.
The condition of western Baltic cod has unfortunately grown worse and the biomass dropped to a historic low in 2021. The Commission, therefore, remains cautious and proposes to maintain the TAC level limited to unavoidable by-catches, and all the accompanying measures from the 2022 fishing opportunities.
Herring
The stock size of western Baltic herring remains below safe biological limits and scientists advise for the fifth year in a row a halt of western herring fisheries. The Commission, therefore, proposes to only allow a very small TAC for unavoidable by-catches and keeping all the accompanying measures from the 2022 fishing opportunities.
For central Baltic herring, the Commission remains cautious, with a proposed increase of 14%. This is in line with the ICES advice, because the stock size has still not reached healthy levels and relies on new-born fish only, which is uncertain. Again, in line with the ICES advice, the Commission proposes to decrease the TAC level for herring in the Gulf of Bothnia by 28%, as the stock has dropped very close to the limit below which it is not sustainable. Finally, for Riga herring, the Commission proposes decreasing the TAC by 4% in line with ICES advice.
Plaice
While the ICES advice would allow for a significant increase, the Commission remains cautious, mainly to protect cod – which is an unavoidable by-catch when fishing for plaice. New rules should soon enter in force, making obligatory the use of new fishing gear that is expected to substantially reduce cod by-catches. The Commission therefore proposes to limit the TAC increase to 25%.
Sprat
ICES advises a decrease for sprat. This is due to the fact that sprat is a prey species for cod, which is not in a good condition, so it would be needed for the cod recovery. In addition, there is evidence of misreporting of sprat, which is in a fragile condition. The Commission, therefore, remains cautious and proposes to reduce the TAC by 20%, in order to set it to the lower maximum sustainable yield (MSY) range.
Salmon
The status of the different river salmon populations in the main basin varies considerably, with some being very weak and others healthy. In order to achieve the MSY objective, ICES advised last year the closure of all salmon fisheries in the main basin. For the coastal waters of the Gulf of Bothnia and the Åland Sea, the advice stated that it would be acceptable to maintain the fishery during the summer. The ICES advice remains unchanged this year, so the Commission proposes to maintain the TAC level and all the accompanying measures from the 2022 fishing opportunities.
Next steps
The Council will examine the Commission’s proposal in view of adopting it during a Ministerial meeting on 17-18 October.
Background
The fishing opportunities proposal is part of the European Union’s approach to adjust the levels of fishing to long-term sustainability targets, called maximum sustainable yield (MSY), by 2020 as agreed by the Council and the European Parliament in the Common Fisheries Policy. The Commission’s proposal is also in line with the policy intentions expressed in the Commission’s Communication “Towards more sustainable fishing in the EU: state of play and orientations for 2023” and with the Multiannual Plan for the management of cod, herring and sprat in the Baltic Sea.
For more information
Proposal for a Council Regulation fixing the fishing opportunities for certain fish stocks and groups of fish stocks applicable in the Baltic Sea for 2023 and amending Regulation (EU) 2022/109 as regards certain fishing opportunities in other waters – COM/2022/415
Questions & Answers on fishing opportunities in the Baltic Sea in 2023
Table: Overview of TAC changes 2022-2023 (figures in tones except for salmon, which is in number of pieces)

 
2022
2023

Stock and
ICES fishing zone; subdivision
Council agreement   (in tonnes & % change from 2020 TAC)
Commission proposal
(in tonnes & % change from 2021 TAC)

Western Cod 22-24

489 (-88%)
489 (0%)

Eastern Cod 25-32

595 (0%)
595 (0%)

Western Herring 22-24

788 (-50%)
788 (0%)

Bothnian Herring 30-31

111 345 (-5%)
80 074(-28%)

Riga Herring 28.1

47 697 (+21%)
45 643 (-4%)

Central Herring 25-27, 28.2, 29, 32

53 653 (-45%)
61 051 (+14%)

Sprat 22-32

251 943 (+13%)
201 554 (-20%)

Plaice 22-32

9 050 (+25%)
11 313 (+25%)

Main Basin Salmon 22-31

63 811 (-32%)
63 811 (0%)

Gulf of Finland Salmon 32

9 455 (+6%)
9 455 (0%)

Compliments of the European Commission.
The post EU Commission proposes fishing opportunities for 2023 in the Baltic Sea in an effort to recover species first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

High-quality, reliable, and comparable gauges are lacking. Here’s how to close the gap.

Climate change is transforming the global investment landscape, creating new risks and opportunities. Physical risks, from rising sea levels to the lethal heat waves scorching Europe and elsewhere, affect asset values for everything from stocks to real estate and infrastructure. So-called transition risk—including government policies to reduce greenhouse gas emissions—lowers the value of fossil fuel companies.
To evaluate these risks and support the transition to a low-carbon economy, investors and others in the financial world need information. For example, they may want to know if a company’s assets are physically vulnerable, the volume of greenhouse gases it emits, and what its plans are for lowering emissions.
In addition, heightened geopolitical risks, notably due to Russia’s war in Ukraine, and the deterioration of the global economic outlook may make the transition to a low-carbon economy more complex, expensive and disorderly.

Banks, pension funds, and other investment firms need better climate data to assess risks.

Energy policy decisions could also be affected by the amount of carbon lock-in—which occurs when fossil fuel-intensive systems perpetuate, delay or prevent the low-carbon transition—that is generated in the near term, including by a delayed phase-out of thermal coal.
Data deficit
Currently, however, financial market participants face a lack of high-quality, reliable, and comparable data needed to efficiently price climate related risks and avoid greenwashing—spurious attempts by financial or non-financial companies to burnish their environmental credentials.
This data deficit poses a serious obstacle to the energy and ecological transition, which requires migrating capital toward low-carbon industries and massive new investments in mitigation and adaptation. It also makes it more difficult for financial supervisors to assess risks to financial stability given uncertainties and challenges to quantifying climate-related impacts. Therefore policymakers urgently need to ensure that better climate data are made available.
A new report from the Network for Greening the Financial System takes an important step. It features a directory that evaluates available climate data, identifies gaps, and offers practical, concrete ways to close those gaps.
The report, a product of a working group co-chaired by the IMF and the European Central Bank, strengthens what we call climate information architecture. This has three building blocks: high quality, comparable data; global disclosure standards; and climate alignment approaches and methodologies, including taxonomies of assets and activities.
The report makes three contributions. First, it highlights that, despite the substantial progress on the climate data front since COP26, challenges remain, including:

Insufficient coverage in disclosures of non-publicly listed companies and small and medium-sized companies
Limited availability of comparable and science-based forward-looking information, such as targets, commitments, and emissions pathways, that are needed to assess physical and transition risks
Auditability is needed to build trust and enhance the quality of data, yet it remains limited

Second, the report makes tangible policy recommendations:

Foster convergence toward common and consistent global disclosure standards, for example by increasing availability of granular emissions data and improving the reliability of reported climate-related data
Increase efforts toward shared principles for taxonomies, for example by increasing the linkages between taxonomies and disclosures
Develop well-defined metrics and methodological standards, for example by better harmonizing forward-looking metrics and reinforcing public and private cooperation to improve methodologies
Better leverage available data sources, approaches, and tools, for example by improving use of new technologies

The third and most important contribution is the climate-data directory, which surveys available data based on the needs of the financial sector and how information is used.
For example, banks, pension funds, and other investment firms apply scenario analyses and stress testing to analyze climate-related risks from individual securities and companies themselves, in combination with credit ratings. They need climate-related data to assess vulnerability to these risks at the sector, company, household, and sovereign level, and to evaluate the determinants of physical risks and transition risks.
Policymakers may need other data to determine whether a sharp drop in asset prices could hurt balance sheets of financial companies, putting financial stability at risk.
Climate data directory
The climate data directory can shape evidence-based conclusions on the main data gaps. For example, it shows where raw data aren’t available to construct metrics such as the exposure to climate policy relevant sectors, or the share of assets such as coal-fired power plants in energy portfolios. Missing are accounting data and exact geographic location of assets, as well as data on greenhouse-gas emissions and effects related to biodiversity, forest depletion, floods, droughts, and storms.
Though not offering direct access to underlying data, the directory is a public good, a living tool aimed at better disseminating climate-related data and offering practical solutions to bridge data gaps. It’s designed to help financial professionals identify relevant sources to meet their needs, facilitate access, and better disseminate existing climate-related data. It can play a decisive role in fostering progress on the four policy recommendations described above.
The report’s findings and accompanying policy recommendations line up closely with the IMF’s work on climate data, disclosures, and taxonomies and other methodologies intended to align financial portfolios with Paris Agreement goals.
Metrics and methodologies
For example, the Fund’s Climate Change Indicators Dashboard, a statistical initiative to address the growing need for data used in macroeconomic and financial stability analysis, may benefit from the directory’s improved metrics and underlying methodologies.
The IMF is also leading a joint project to provide guidance on the Group of Twenty’s high-level principles for taxonomies and other sustainable-finance alignment approaches. This work is particularly relevant for emerging market and developing economies, which face considerable challenges in reducing greenhouse-gas emissions and attracting private capital to finance the transition.
The IMF participates in the International Financial Reporting Standards Foundation’s new standard-setting board for sustainability and climate disclosures, which plays a key role in such work. It also co-leads the Financial Stability Board’s Climate Vulnerabilities and Data workstream to incorporate climate in the organization’s regular vulnerabilities assessment.
These efforts aim to address areas of concern in climate vulnerabilities, metrics, and data based on their materiality and their cross-border and cross-sectoral relevance. Finally, the IMF has started to include climate-related risk analysis in its financial sector assessment programs.
Late last year, the IMF dedicated its annual statistical forum to gauging climate change, and discussed with other international bodies how to close climate finance data gaps. And in October, we will publish an analytical chapter of the Global Financial Stability Report that takes a more in-depth look at financial markets and instruments in scaling up of private climate finance in emerging market and developing economies.
Authors:

Charlotte Gardes-Landolfini
Fabio Natalucci

Compliments of the IMF.
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