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04 Aug
EACC

IMF | Global Current Account Balances Widen Amid War and Pandemic

‘The war in Ukraine and resulting increase in commodity prices are expected to contribute to a further widening this year.’
The lingering pandemic and Russia’s invasion of Ukraine are dealing a setback to the global economy. This is affecting trade, commodity prices, and financial flows, all of which are changing current account deficits and surpluses.
Global current account balances—the overall size of deficits and surpluses across countries—are widening for a second straight year, according to our latest External Sector Report. After years of narrowing, balances widened to 3 percent of global gross domestic product in 2020, grew further to 3.5 percent last year, and are expected to expand again this year.

Larger current account balances aren’t necessarily negative on their own. But global excess balances—the portion not justified by differences in countries’ economic fundamentals, such as demographics, income level and growth potential, and desirable policy settings, using the Fund’s revised methodology—could fuel trade tensions and protectionist measures. That would be a setback for the push for greater international economic cooperation and could also increase the risk of disruptive currency and capital flow movements.
Pandemic effects in 2021
The pandemic widened global current account balances, and it’s still having an asymmetric impact on countries depending, for example, on whether they are exporters or importers of tourism and medical goods.
The pandemic and associated lockdowns also shifted consumption to goods from services as people reduced travel and entertainment. This also widened global balances as advanced economies with deficits increased goods imports from emerging market economies with surpluses. In 2021, we estimate that this shift increased the United States deficit by 0.4 percent of gross domestic product and contributed to an increase of 0.3 percent of GDP in China’s surplus.

Surplus economies like China saw also increases due to greater shipments of medical goods that often flowed to the United States and other deficit economies. Surging transportation costs also contributed to widening global balances in 2021.
War and tightening in 2022
Commodity prices are one of the biggest drivers of external positions, and last year’s rally in oil prices from pandemic lows affected exporters and importers asymmetrically. Russia’s February invasion of Ukraine exacerbated the surge in energy, food, and other commodity prices, widening global current account balances by raising surpluses for commodity exporters.
Monetary policy tightening is driving currency movements as rising inflation is leading many central banks to accelerate the withdrawal of monetary stimulus. Revised expectations about the pace of the US monetary tightening brought about sizable currency realignment this year, contributing to the projected widening of balances.
Capital flows to emerging markets were disrupted so far in 2022 by increased risk aversion triggered by the war, with further outflows amid changing expectations about the increased pace of monetary tightening in advanced economies. Cumulative outflows from emerging markets have been very large, about $50 billion, with a magnitude that’s similar to outflows during March 2020 but a pace that’s slower.

Our outlook for next year and beyond is for a steady decline of global current account balances as pandemic and war impacts moderate, though this expectation is subject to considerable uncertainty. Global current account balances could continue to widen should fiscal consolidation in current account deficit countries take longer than expected. Moreover, the stronger dollar could widen the US current account deficit and increase global current account balances.
Other factors that could widen these balances include a prolonged war that keeps commodity prices elevated for longer, the varying degrees of central bank interest-rate increases, and greater geopolitical tension causing economic fragmentation, disrupting supply chains, and potentially triggering a reorganization of the international monetary system.
A more fragmented trade system could either increase or decrease global balances, depending on how trade blocs are reconfigured. Either way, though, it would reduce technology transfers, and decrease the potential for export-led growth in low-income countries and thus unambiguously erode welfare gains from globalization.
Policy priorities
The war in Ukraine has exacerbated existing trade-offs for policymakers, including between fighting inflation and safeguarding economic recovery and between providing support to those affected and rebuilding fiscal buffers. Multilateral cooperation is key in dealing with the policy challenges generated by the pandemic and the war, including to tackle the humanitarian crisis.
Policies to promote external rebalancing differ based on individual economies’ positions and needs. For economies with larger-than-warranted current account deficits that reflect large fiscal shortfalls, such as the United States, it’s critical to reduce government deficits with a combination of higher revenue and lower spending.
Rebalancing is a different proposition for countries with excessive surpluses, such as Germany and the Netherlands, which can be reduced by intensifying reforms that encourage public and private investment and discourage excessive private saving, including by expanding social safety nets in some emerging markets.
Authors:

Giovanni Ganelli
Pau Rabanal
Niamh Sheridan

Compliments of the IMF.
The post IMF | Global Current Account Balances Widen Amid War and Pandemic first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

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03 Aug
EACC

IMF | How Europe Can Protect the Poor from Surging Energy Prices

“With fossil fuels likely to remain expensive for some time, governments should let retail prices rise to promote energy conservation while protecting poorer households.”
Soaring energy prices have sharply increased living costs for Europeans. Since early last year, global oil prices doubled, coal prices nearly quadrupled and European natural gas prices increased almost seven-fold. With energy prices likely to remain above pre-crisis levels for some time, Europe must adapt to higher import bills for fossil fuels.
Governments cannot prevent the loss in real national income arising from the terms-of-trade shock. They should allow the full increase in fuels costs to pass to end-users to encourage energy saving and switching out of fossil fuels. Policy should shift from broad-based support such as price controls to targeted relief such as transfers to lower-income households who suffer the most from higher energy bills.
In a new working paper, we estimate that the average European household will see a rise of about 7 percent in its cost of living this year relative to what we expected in early 2021. This reflects the direct effect of higher energy prices as well as their pass-through to other goods and services. The large differences in impact across countries reflect different regulations, policy responses, market structures, and contracting practices. The spike in the cost of living could get worse in the event of a cutoff in gas supplies from Russia.
In most European countries, higher energy prices impose an even heavier burden on low-income households because they spend a larger share of their budget on electricity and gas. The chart below shows the divergence in the distributional impact of higher prices across countries and income groups.

In Estonia and the United Kingdom, for instance, living costs for the poorest 20 percent of households are set to rise by about twice as much as those for the wealthiest. Putting in place relief measures to support low-income households—who have the least means to cope with spiking energy prices—is therefore a priority.
So far, Europe’s policymakers have responded to the energy cost surge mostly with broad-based, price-suppressing measures, including subsidies, tax cuts and price controls. But suppressing the pass-through to retail prices simply delays the needed adjustment to the energy shock by reducing incentives for households and businesses to conserve energy and enhance efficiency. It keeps global energy demand and prices higher than they would otherwise be.
Moreover, the increasing cost of these measures is squeezing economies’ limited fiscal space as high prices persist. In many countries the cost will exceed 1.5 percent of economic output this year, mostly on account of broad price-suppressing measures.
Targeted relief
Policymakers should shift decisively away from broad-based measures to targeted relief policies, including income support for the most vulnerable. For example, fully offsetting the increase in the cost of living for the bottom 20 percent of households would cost governments 0.4 percent of GDP on average for the whole of 2022. It would cost 0.9 percent of GDP to fully compensate the bottom 40 percent.
The share of the population that receives compensation would vary across countries depending on societal preferences and fiscal space. But it should ideally be designed in a way that avoids “cliff effects”, with benefits tapering off gradually at higher income levels.
Some governments are also supporting businesses. This is appropriate only if a short-lived price surge would cause otherwise viable firms to fail. There would, for instance, be a strong case for support if Europe faced a complete cutoff of gas flows and countries had to temporarily ration gas to industry. Companies that play a critical role in importing and distributing energy may also need support when prices spike.
In most cases, however, it is difficult to implement a well-targeted support scheme for firms without introducing distortions and blunting the incentives for energy conservation. Since prices are expected to remain high for several years, the case for supporting businesses is generally weak.
Authors:

Oya Celasun
Dora Iakov
Ian Parry
This blog also reflects research contributions by Anil Ari, Nicolas Arregui, Simon Black, Aiko Mineshima, Victor Mylonas, Iulia Teodoru, and Karlygash Zhunussova.

Compliments of the IMF.
The post IMF | How Europe Can Protect the Poor from Surging Energy Prices first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

02 Aug
EACC

Digital Economy and Society Index 2022: overall progress but digital skills, SMEs and 5G networks lag behind

Today the European Commission published the results of the 2022 Digital Economy and Society Index (DESI), which tracks the progress made in EU Member States in digital. During the Covid pandemic, Member States have been advancing in their digitalisation efforts but still struggle to close the gaps in digital skills, the digital transformation of SMEs, and the roll-out of advanced 5G networks. The Recovery and Resilience Facility, with about €127 billion dedicated to reforms and investments in the area of digital, offers an unprecedented opportunity to accelerate the digital transformation, which the EU and its Member States cannot afford to miss.
The findings show that while most of the Member States are making progress in their digital transformation, the adoption of key digital technologies by businesses, such as Artificial Intelligence (AI) and Big Data remains low. Efforts need to be stepped up to ensure the full deployment of connectivity infrastructure (notably 5G) that is required for highly innovative services and applications. Digital skills is another important area where Member States need to make bigger progress.
Executive Vice-President for a Europe Fit for the Digital Age, Margrethe Vestager, said: “Digital transition is accelerating. Most Member States are progressing in building resilient digital societies and economies. Since the start of the pandemic we have made significant efforts to support Member States in the transition. Be that through the Recovery and Resilience Plans, EU Budget or, more recently also through the Structured Dialogue on Digital Education and Skills. Because we need to make the most of the investments and reforms necessary to meet the Digital Decade targets in 2030. So change must happen already now.”
Commissioner for the Internal Market, Thierry Breton, added: “We are making progress in the EU towards our digital targets, and we must continue our efforts to make the EU a global leader in the technology race. The DESI shows where we need to further strengthen our work, for example in spurring digitisation of our industry, including SMEs. We need to step up the efforts to make sure that every SME, business, and industry in the EU have the best digital solutions available to them and have access to a world-class digital connectivity infrastructure.”
The Commission’s proposal on the Path to the Digital Decade, agreed upon by the European Parliament and EU Member States, will facilitate deeper collaboration between Member States and the EU to advance in all dimensions covered by the DESI. It provides a framework for Member States to undertake joint commitments and establish multi-country projects that will reinforce their collective strength and resilience in the global context.
Finland, Denmark, the Netherlands and Sweden remain the EU frontrunners. However, even they are faced with gaps in key areas: the uptake of advanced digital technologies such as AI and Big Data, remains below 30% and very far from the 2030 Digital Decade target of 75%; the widespread skill shortages, which are slowing down overall progress and lead to digital exclusion.

There is an overall positive convergence trend: the EU continues to improve its level of digitalisation, and Member States that started from lower levels are gradually catching up, by growing at a faster rate. In particular, Italy, Poland and Greece substantially improved their DESI scores over the past five years, implementing sustained investments with a reinforced political focus on digital, also supported by European funding.
As digital tools become an integral part of everyday life and participation in society, people without appropriate digital skills risk being left behind. Only 54% of Europeans aged between 16 -74 have at least basic digital skills. The target of the Digital Decade is at least 80% by 2030. In addition, although 500.000 ICT specialists entered the labour market between 2020 and 2021, the EU’s 9 million ICT specialists fall far short of the EU target of 20 million specialists by 2030 and are not enough to bridge the skills shortages businesses currently face. During 2020, more than half of the EU enterprises (55%) reported difficulties in filling ICT specialist vacancies. These shortages represent a significant obstacle for the recovery and competitiveness of EU enterprises. Lack of specialised skills is also holding the EU back in its efforts to achieve the Green Deal targets. Massive efforts are therefore required for the reskilling and upskilling of the workforce.
Regarding the uptake of key technologies, during the Covid pandemic, businesses have pushed the use of digital solutions. The use of cloud computing, for example, reached 34%. However, AI and Big Data use by business stand only at 8% and 14% respectively (target 75% by 2030). These key technologies bring a huge potential for significant innovation and efficiency gains, particularly among SMEs. For their part, only 55% of EU SMEs have at least a basic level in digitalisation (target: at least 90% by 2030), indicating that almost half of SMEs are not availing of the opportunities created by digital. The Commission has today published a survey of enterprises on the data economy.
In 2021, Gigabit connectivity increased further in Europe. The coverage of networks connecting buildings with fibre reached 50% of households, driving overall fixed very high capacity network coverage up to 70% (100% target by 2030). 5G coverage also went up last year to 66% of populated areas in the EU. Nonetheless, spectrum assignment, an important precondition for the commercial launch of 5G, is still not complete: only 56% of the total 5G harmonized spectrum has been assigned, in the vast majority of Member States (Estonia and Poland are the exceptions). Moreover, some of the very high coverage figures rely on spectrum sharing of 4G frequencies or low band 5G spectrum, which does not yet allow for the full deployment of advanced applications. Closing these gaps is essential to unleash the potential of 5G and enable new services with a high economic and societal value, such as connected and automated mobility, advanced manufacturing, smart energy systems or eHealth. The Commission has also today published studies on mobile and fixed broadband prices in Europe in 2021 and broadband coverage in Europe.
The online provision of key public services is widespread in most of the EU Member States. Ahead of the introduction of a European Digital Identity and Wallet, 25 Member States have at least one eID scheme in place, but only 18 of them have one or more eID schemes notified under the eIDAS Regulation, which is a key enabler for secure digital cross-border transactions. The Commission has today published the eGovernment benchmark for 2022.
The EU has put on the table significant resources to support the digital transformation. €127 billion are dedicated to digital related reforms and investments in the 25 national Recovery and Resilience Plans that have so far been approved by the Council. This an unprecedented opportunity to accelerate digitalisation, increase the Union’s resilience and reduce external dependencies with both reforms and investments. Member States dedicated on average 26% of their Recovery and Resilience Facility (RRF) allocation to the digital transformation, above the compulsory 20% threshold. Member States that chose to invest more than 30% of their RRF allocation to digital are Austria, Germany, Luxembourg, Ireland and Lithuania.
Identifying digital as a key priority, providing political support and putting in place a clear strategy, robust policies and investments are indispensable ingredients to accelerate the path towards the digital transformation and put the EU on track to achieve the vision set out with the Digital Decade.
Today the European Commission published the results of the 2022 Digital Economy and Society Index (DESI), which tracks the progress made in EU Member States in digital. During the Covid pandemic, Member States have been advancing in their digitalisation efforts but still struggle to close the gaps in digital skills, the digital transformation of SMEs, and the roll-out of advanced 5G networks. The Recovery and Resilience Facility, with about €127 billion dedicated to reforms and investments in the area of digital, offers an unprecedented opportunity to accelerate the digital transformation, which the EU and its Member States cannot afford to miss.
The findings show that while most of the Member States are making progress in their digital transformation, the adoption of key digital technologies by businesses, such as Artificial Intelligence (AI) and Big Data remains low. Efforts need to be stepped up to ensure the full deployment of connectivity infrastructure (notably 5G) that is required for highly innovative services and applications. Digital skills is another important area where Member States need to make bigger progress.
Executive Vice-President for a Europe Fit for the Digital Age, Margrethe Vestager, said: “Digital transition is accelerating. Most Member States are progressing in building resilient digital societies and economies. Since the start of the pandemic we have made significant efforts to support Member States in the transition. Be that through the Recovery and Resilience Plans, EU Budget or, more recently also through the Structured Dialogue on Digital Education and Skills. Because we need to make the most of the investments and reforms necessary to meet the Digital Decade targets in 2030. So change must happen already now.”
Commissioner for the Internal Market, Thierry Breton, added: “We are making progress in the EU towards our digital targets, and we must continue our efforts to make the EU a global leader in the technology race. The DESI shows where we need to further strengthen our work, for example in spurring digitisation of our industry, including SMEs. We need to step up the efforts to make sure that every SME, business, and industry in the EU have the best digital solutions available to them and have access to a world-class digital connectivity infrastructure.”
The Commission’s proposal on the Path to the Digital Decade, agreed upon by the European Parliament and EU Member States, will facilitate deeper collaboration between Member States and the EU to advance in all dimensions covered by the DESI. It provides a framework for Member States to undertake joint commitments and establish multi-country projects that will reinforce their collective strength and resilience in the global context.
Finland, Denmark, the Netherlands and Sweden remain the EU frontrunners. However, even they are faced with gaps in key areas: the uptake of advanced digital technologies such as AI and Big Data, remains below 30% and very far from the 2030 Digital Decade target of 75%; the widespread skill shortages, which are slowing down overall progress and lead to digital exclusion.

There is an overall positive convergence trend: the EU continues to improve its level of digitalisation, and Member States that started from lower levels are gradually catching up, by growing at a faster rate. In particular, Italy, Poland and Greece substantially improved their DESI scores over the past five years, implementing sustained investments with a reinforced political focus on digital, also supported by European funding.
As digital tools become an integral part of everyday life and participation in society, people without appropriate digital skills risk being left behind. Only 54% of Europeans aged between 16 -74 have at least basic digital skills. The target of the Digital Decade is at least 80% by 2030. In addition, although 500.000 ICT specialists entered the labour market between 2020 and 2021, the EU’s 9 million ICT specialists fall far short of the EU target of 20 million specialists by 2030 and are not enough to bridge the skills shortages businesses currently face. During 2020, more than half of the EU enterprises (55%) reported difficulties in filling ICT specialist vacancies. These shortages represent a significant obstacle for the recovery and competitiveness of EU enterprises. Lack of specialised skills is also holding the EU back in its efforts to achieve the Green Deal targets. Massive efforts are therefore required for the reskilling and upskilling of the workforce.
Regarding the uptake of key technologies, during the Covid pandemic, businesses have pushed the use of digital solutions. The use of cloud computing, for example, reached 34%. However, AI and Big Data use by business stand only at 8% and 14% respectively (target 75% by 2030). These key technologies bring a huge potential for significant innovation and efficiency gains, particularly among SMEs. For their part, only 55% of EU SMEs have at least a basic level in digitalisation (target: at least 90% by 2030), indicating that almost half of SMEs are not availing of the opportunities created by digital. The Commission has today published a survey of enterprises on the data economy.
In 2021, Gigabit connectivity increased further in Europe. The coverage of networks connecting buildings with fibre reached 50% of households, driving overall fixed very high capacity network coverage up to 70% (100% target by 2030). 5G coverage also went up last year to 66% of populated areas in the EU. Nonetheless, spectrum assignment, an important precondition for the commercial launch of 5G, is still not complete: only 56% of the total 5G harmonized spectrum has been assigned, in the vast majority of Member States (Estonia and Poland are the exceptions). Moreover, some of the very high coverage figures rely on spectrum sharing of 4G frequencies or low band 5G spectrum, which does not yet allow for the full deployment of advanced applications. Closing these gaps is essential to unleash the potential of 5G and enable new services with a high economic and societal value, such as connected and automated mobility, advanced manufacturing, smart energy systems or eHealth. The Commission has also today published studies on mobile and fixed broadband prices in Europe in 2021 and broadband coverage in Europe.
The online provision of key public services is widespread in most of the EU Member States. Ahead of the introduction of a European Digital Identity and Wallet, 25 Member States have at least one eID scheme in place, but only 18 of them have one or more eID schemes notified under the eIDAS Regulation, which is a key enabler for secure digital cross-border transactions. The Commission has today published the eGovernment benchmark for 2022.
The EU has put on the table significant resources to support the digital transformation. €127 billion are dedicated to digital related reforms and investments in the 25 national Recovery and Resilience Plans that have so far been approved by the Council. This an unprecedented opportunity to accelerate digitalisation, increase the Union’s resilience and reduce external dependencies with both reforms and investments. Member States dedicated on average 26% of their Recovery and Resilience Facility (RRF) allocation to the digital transformation, above the compulsory 20% threshold. Member States that chose to invest more than 30% of their RRF allocation to digital are Austria, Germany, Luxembourg, Ireland and Lithuania.
Identifying digital as a key priority, providing political support and putting in place a clear strategy, robust policies and investments are indispensable ingredients to accelerate the path towards the digital transformation and put the EU on track to achieve the vision set out with the Digital Decade.
Background
The annual Digital Economy and Society Index measures the progress of EU Member States towards a digital economy and society, on the basis of both Eurostat data and specialised studies and collection methods. The DESI supports EU Member States by identifying priority areas requiring targeted investment and action. The DESI is also the key tool when it comes to analysing digital aspects in the European Semester.
The Path to the Digital Decade, presented in September 2021, and expected to come into force by the end of the year, sets out a novel governance mechanism in the form of a cycle of cooperation between EU institutions and the Member States to ensure they jointly achieve the Digital Decade targets, objectives and principles. It assigns the monitoring of the Digital Decade targets to the DESI and because of this, DESI indicators are now structured around the four cardinal points of the 2030 Digital Compass.
The annual Digital Economy and Society Index measures the progress of EU Member States towards a digital economy and society, on the basis of both Eurostat data and specialised studies and collection methods. The DESI supports EU Member States by identifying priority areas requiring targeted investment and action. The DESI is also the key tool when it comes to analysing digital aspects in the European Semester.
The Path to the Digital Decade, presented in September 2021, and expected to come into force by the end of the year, sets out a novel governance mechanism in the form of a cycle of cooperation between EU institutions and the Member States to ensure they jointly achieve the Digital Decade targets, objectives and principles. It assigns the monitoring of the Digital Decade targets to the DESI and because of this, DESI indicators are now structured around the four cardinal points of the 2030 Digital Compass.
Compliments of the European Commission.
The post Digital Economy and Society Index 2022: overall progress but digital skills, SMEs and 5G networks lag behind first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

01 Aug
EACC

European Commission disburses first tranche of the new €1 billion macro-financial assistance for Ukraine

The European Commission, on behalf of the EU, has today disbursed the first half (€500 million) of a new €1 billion macro-financial assistance (MFA) operation for Ukraine. The second tranche (another €500 million) will be disbursed tomorrow, 2 August. The decision about this new exceptional MFA was adopted by the European Parliament and the Council on 12 July 2022.
This additional MFA of €1 billion is part of the extraordinary effort by the EU, alongside the international community, to help Ukraine to address its immediate financial needs following the unprovoked and unjustified aggression by Russia. It is the first part of the exceptional MFA package of up to €9 billion announced in the Commission’s communication of 18 May 2022 and endorsed by the European Council of 23-24 June 2022. It complements the support already provided by the EU, including a €1.2 billion emergency MFA loan paid out in the first half of the year. Taken together, the two strands of the programme bring the total MFA support to Ukraine since the beginning of the war to €2.2 billion.
The MFA funds have been made available to Ukraine in the form of long-term loans on favourable terms. The assistance supports Ukraine’s macroeconomic stability and overall resilience in the context of Russia’s military aggression and the ensuing economic challenges. In a further expression of solidarity, the EU budget will cover the interest costs on this loan. As for all previous MFA loans, the Commission borrows funds on international capital markets and transfers the proceeds on the same terms to Ukraine. This loan to Ukraine is backed for 70% of the value set aside from the EU budget.
This financial assistance comes in addition to the unprecedented support provided by the EU to date, notably humanitarian, development and defence assistance, the suspension of all import duties on Ukrainian exports for one year or other solidarity initiatives, e.g. to address transport bottlenecks so that exports, in particular of grains, could be ensured.
Members of the College said:
Valdis Dombrovskis, Executive Vice-President for An Economy that Works for People said: “This €1 billion payment is a first part of our €9 billion macro-financial assistance package to help Ukraine meet its emergency financial needs caused by Russia’s brutal war. At the same time, we are working closely with EU Member States and our international partners on the next steps to rebuild Ukraine for the longer term. The EU will provide all political, financial, military and humanitarian support required to assist Ukraine and its people in the face of Russia’s continued illegal aggression – for as long as it takes.”
Josep Borrell, High Representative of the European Union for Foreign Affairs and Security Policy, said: “Our support to Ukraine is unwavering. We will continue to support the Ukrainian people -politically, financially and with military means – in facing the adversity and challenges caused by Russia’s aggression. Ukraine is defending its sovereignty and right to exist with determination and dignity. The EU is standing by Ukraine in these endeavours and will continue to do so”.
Johannes Hahn, Commissioner for Budget and Administration, said: “The Commission’s quick disbursement of the first tranche of the exceptional MFA loan of €1 billion shows the EU’s unwavering solidarity with Ukraine and its people. The EU budget plays a central role in this solidarity by backing these funds for 70% of their value and covering the interest costs of this loan. A further example that the EU budget delivers also for our partners in times of crisis.”
Paolo Gentiloni, Commissioner for Economy, said: “With this disbursement the European Commission continues to support Ukraine in shoring up its public finances. In the face of Russia’s unrelenting and brutal aggression, the EU must remain unwavering in its solidarity with the Ukrainian people. Work is ongoing on a proposal for the second part of this exceptional macro-financial assistance, as announced in May and endorsed by the European Council.”
Background
The EU has already provided significant assistance to Ukraine in recent years under its MFA programme. Since 2014, the EU has provided over €5 billion to Ukraine through five MFA programmes to support the implementation of a broad reform agenda in areas such as the fight against corruption, an independent judicial system, the rule of law, and improving the business climate. In addition, earlier this year the Commission granted an MFA emergency loan of €1.2 billion, for which the Commission raised funds in two private placements in the first half of 2022. On 18 May, the Commission set out plans in a Communication for the EU’s immediate response to address Ukraine’s financing gap, as well as the longer-term reconstruction framework. On 25 July, the Board of the EIB, the EU bank, approved €1.59 billion in financial assistance, supported by guarantees from the EU budget, to help Ukraine repair the most essential damaged infrastructure and resume critically important projects addressing the urgent needs of Ukrainian people.
To finance the MFA, the Commission borrows on capital markets on behalf of the EU, in parallel to its other programmes, most notably NextGenerationEU and SURE. The possible borrowing for Ukraine is foreseen in the Commission’s funding plan for the second half of 2022. More information on the aid that the EU has provided to Ukraine since the start of Russia’s war of aggression is available online.
Macro-financial assistance (MFA) operations are part of the EU’s wider engagement with neighbouring countries and are intended as an exceptional EU crisis response instrument. They are available to EU neighbourhood countries experiencing severe balance-of-payments problems. In addition to MFA, the EU supports Ukraine through several other instruments, including humanitarian aid, budget support, thematic programmes, and technical assistance and blending facilities to support investment.
Compliments of the European Commission.
The post European Commission disburses first tranche of the new €1 billion macro-financial assistance for Ukraine first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

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01 Aug
EACC

IMF | Soaring Inflation Puts Central Banks on a Difficult Journey

Upside risks to the inflation outlook remain large, and more aggressive tightening may be needed if these risks materialize.

Central banks in major economies expected as recently as a few months ago that they could tighten monetary policy very gradually. Inflation seemed to be driven by an unusual mix of supply shocks associated with the pandemic and later Russia’s invasion of Ukraine, and it was expected to decline rapidly once these pressures eased.
Now, with inflation climbing to multi-decade highs and price pressures broadening to housing and other services, central banks recognize the need to move more urgently to avoid an unmooring of inflation expectations and damaging their credibility. Policymakers should heed the lessons of the past and be resolute to avoid potentially more painful and disruptive adjustments later.
The Federal Reserve, Bank of Canada, and Bank of England have already raised interest rates markedly and have signaled they expect to continue with more sizable hikes this year. The European Central Bank recently lifted rates for the first time in more than a decade.
Higher real rates to help push down inflation
Central bank actions and communications about the likely path of policy have led to a significant rise in real (that is, inflation-adjusted) interest rates on government debt since the start of the year.
While short-term real rates are still negative, the real rate forward curve in the United States—that is, the path of one-year-ahead real interest rates one to 10 years out implied by market prices—has risen across the curve to a range between 0.5 and 1 percent.
This path is roughly consistent with a “neutral” real policy stance that allows output to expand around its potential rate. The Fed’s Summary of Economic Projections in mid-June suggested a real neutral rate of around 0.5 percent, and policymakers saw a 1.7 percent output expansion both this year and next, which is very close to estimates of potential.
The real rate forward curve in the euro area, proxied by German bunds, has also shifted up, though remains deeply negative. That’s consistent with real rates converging only gradually to neutral.

The higher real interest rates on government bonds have spurred an even larger rise in borrowing costs for consumers and businesses, and contributed to sharp declines in equity prices globally. The modal view of both central banks and markets seems to be that this tightening of financial conditions will be enough to push inflation down to target levels relatively quickly.
To illustrate, market-based measures of inflation expectations point to a return of inflation to around 2 percent within the next two or three years for both the United States and Germany. Central bank forecasts, such as the Fed’s latest quarterly projections, point to a similar moderation in the rate of price increases, as do surveys of economists and investors.
This seems to be a reasonable baseline for several reasons:

The monetary and fiscal tightening in train should cool demand both for energy and non-energy goods, especially in interest-sensitive categories like consumer durables. This should cause goods prices to rise at a slower pace or even fall, and may also push energy prices lower in the absence of additional disruptions in commodity markets.
Supply-side pressures should ease as the pandemic relaxes its grip and lockdowns and production disruptions become less frequent.
Slower economic growth should eventually push down service-sector inflation and restrain wage growth.

Substantial risk inflation runs high
However, the magnitude of the inflation surge has been a surprise to central banks and markets, and there remains substantial uncertainty about the outlook for inflation. It is possible that inflation comes down more quickly than central banks envision, especially if supply chain disruptions ease and global policy tightening results in fast declines in energy and goods prices.
Even so, inflation risks appear strongly tilted to the upside. There is a substantial risk that high inflation becomes entrenched, and inflation expectations de-anchor.
Inflation rates in services—for everything from housing rents to personal services—appear to be picking up from already elevated levels, and they are unlikely to come down quickly. These pressures may be reinforced by rapid nominal wage growth. In countries with strong labor markets, nominal wages could start rising rapidly, faster than what firms reasonably could absorb, with the associated increase in unit labor costs passed into prices. Such “second round effects” would translate into more persistent inflation and rising inflation expectations. Finally, a further intensification of geopolitical tensions that ignites a renewed surge in energy prices or compounds existing disruptions could also generate a longer period of high inflation.
While the market-based evidence on “average” inflation expectations discussed above may seem reassuring, markets appear to put significant odds on the possibility that inflation may run well above central bank targets over the next few years. Specifically, markets signal a high probability of inflation rates of over 3 percent persisting in coming years in the United States, euro area and the United Kingdom.

Consumers and businesses have also become increasingly concerned about upside inflation risks in recent months. For the United States and Germany, household surveys show that people expect high inflation over the next year, and put considerable odds on the possibility that it runs well above target over the next five years.

More forceful tightening may be needed
The costs of bringing down inflation may prove to be markedly higher if upside risks materialize and high inflation becomes entrenched. In that event, central banks will have to be more resolute and tighten more aggressively to cool the economy, and unemployment will likely have to rise significantly.
Amid signs of already poor liquidity, faster policy rate tightening may result in a further sharp decline in risk asset prices—affecting equities, credit, and emerging market assets. The tightening in financial conditions may well be disorderly, testing the resilience of the financial system and putting especially large strains on emerging markets. Public support for tight monetary policy, now strong with inflation running at multi-decade highs, may be undermined by mounting economic and employment costs.
Even so, restoring price stability is of paramount importance, and is a necessary condition for sustained economic growth. A key lesson of the high inflation in the 1960s and 1970s was that moving too slowly to restrain it entails a much more costly subsequent tightening to re-anchor inflation expectations and restore policy credibility. It will be important for central banks to keep this experience firmly in their sights as they navigate the difficult road ahead.
Authors:

Tobias Adrian
Christopher Erceg
Fabio Natalucci

Compliments of the IMF.
The post IMF | Soaring Inflation Puts Central Banks on a Difficult Journey first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

28 Jul
EACC

EU Member states commit to reducing gas demand by 15% next winter

In an effort to increase EU security of energy supply, member states today reached a political agreement on a voluntary reduction of natural gas demand by 15% this winter. The Council regulation also foresees the possibility to trigger a ‘Union alert’ on security of supply, in which case the gas demand reduction would become mandatory.
The purpose of the gas demand reduction is to make savings ahead of winter in order to prepare for possible disruptions of gas supplies from Russia that is continuously using energy supplies as a weapon.

The EU is united and solidary. Today’s decision has clearly shown the member states will stand tall against any Russian attempt to divide the EU by using energy supplies as a weapon. Adopting the gas reduction proposal in record time has undoubtedly strengthened our common energy security. Saving gas now will improve preparedness. The winter will be much cheaper and easier for EU’s citizens and industry.
Jozef Síkela, Czech minister of industry and trade

Member states agreed to reduce their gas demand by 15% compared to their average consumption in the past five years, between 1 August 2022 and 31 March 2023, with measures of their own choice.
Whereas all EU countries will use their best efforts to meet the reductions, the Council specified some exemptions and possibilities to request a derogation from the mandatory reduction target, in order to reflect the particular situations of member states and ensure that the gas reductions are effective in increasing security of supply in the EU.
The Council agreed that member states that are not interconnected to other member states’ gas networks are exempted of mandatory gas reductions as they would not be able to free up significant volumes of pipeline gas to the benefit of other member states. Member states whose electricity grids are not synchronised with the European electricity system and are heavily reliant on gas for electricity production are also exempted, in order to avoid the risk of an electricity supply crisis.
Member states can request a derogation to adapt their demand reduction obligations if they have limited interconnections to other member states and they can show that their interconnector export capacities or their domestic LNG infrastructure are used to re-direct gas to other member states to the fullest.
Member states can also request a derogation if they have overshot their gas storage filling targets, if they are heavily dependent on gas as a feedstock for critical industries or if their gas consumption has increased by at least 8% in the past year compared to the average of the past five years.
Member states agreed to increase the role of the Council in triggering a ‘Union alert’. The alert would be activated by a Council implementing decision, acting on a proposal from the Commission. The Commission shall present a proposal to trigger a ‘Union alert’ in case of a substantial risk of a severe gas shortage or an exceptionally high gas demand, or if five or more member states that have declared an alert at national level request the Commission to do so.
When choosing demand reduction measures, member states agreed they should prioritise measures that do not affect protected customers such as households and essential services for the functioning of society like critical entities, healthcare and defence. Possible measures include reducing gas consumed in the electricity sector, measures to encourage fuel switch in industry, national awareness raising campaigns, targeted obligations to reduce heating and cooling and market-based measures such as auctioning between companies.
Member states will update their national emergency plans that set out the demand reduction measures they are planning, and regularly report to the Commission on the advancement of their plans.
The regulation is an exceptional and extraordinary measure, foreseen for a limited time. It will therefore apply for one year and the Commission will carry out a review to consider its extension in light of the general EU gas supply situation, by May 2023.
The text agreed today will be formally adopted through a written procedure. The written procedure will be launched and concluded in the days to come, following technical revisions of the text.
Background
The EU is facing a potential security of supply crisis with significantly reduced of gas deliveries from Russia and a serious risk of a complete halt, for which member states need to prepare immediately in a coordinated fashion and a spirit of solidarity. Although all member states are not currently facing a significant risk of security of supply, severe disruptions on certain member states are bound to affect the EU’s economy as a whole.
It complements existing EU initiatives and legislation, which ensure that citizens can benefit from secure gas supplies and that customers are protected against major supply disruptions, notably Regulation (EU) 2017/1938 on the security of gas supply.
This regulation follows other initiatives already in progress to improve the EU’s resilience and security of gas supply including a gas storage regulation, the creation of an EU Energy Platform for joint purchases and measures listed in REPowerEU.
Compliments of the Council of the EU.
The post EU Member states commit to reducing gas demand by 15% next winter first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

27 Jul
EACC

Opening remarks of Executive Vice-President Timmermans at the Extraordinary Energy Council on security of energy supply in the EU

“Check against delivery”
Thank you Jozef.
Dear Ministers
We saw during the pandemic, the COVID crisis, that if the EU comes together and we act together we are collectively so much stronger than the sum of 27 Member States. We also saw during that crisis that also here, Putin tried to divide and rule. And prove that we were not capable to do that, that he had a better vaccine and all of that. And it has turned out very differently. He couldn’t divide and rule us because we were united.
I believe the same issue should now dictate our choices in the coming winters.
We can make many predictions about what Putin will do. He will be unpredictable but there is one thing I am sure of. He will now try and use his gas, his oil to divide us, to create uncertainty in our societies, to create political turmoil. He is not new to that game. He has been doing that for 20 years. You know that: financing political parties, want to reject our way of life, buying influence in the media, buying influence in parts of the economy, and always with the aim to weaken and divide us because he fears a United Europe.
And rightly so because a United Europe stands for democracy. He hates democracy. He believes in autocracy. He thinks democracy is decadent and weak, and we will prove him wrong.
But as part of proving him wrong is also to create the right levels of solidarity in our energy system. So although many Europeans are making the choices to go for renewable energy because of the high prices, the unreliability, across our Member States many are buying solar panels as much as they can, looking for heat pumps, looking for alternatives to fossil fuels.
I was in Poland not that long ago and I was amazed to see how fast that country is transforming, also by the choices made by individual citizens.That’s heart-warming and inspiring to see across the European Union. But we also know this is not going to deliver us from a challenge in the coming, especially, two winters. What we need to do is to create security of supply.
 
The EU Energy Platform and the Task Force will rapidly take forward and coordinate the work of the five regional groups so that we make the most effective and efficient use of existing gas infrastructure across the Union, and fix problems when there are problems in this infrastructure. We are also moving ahead to facilitate joint purchasing of gas and hydrogen.
President von der Leyen and Kadri have had some real successes in recent days, in Azerbaijan and elsewhere. We are doing everything we can as a Union to diversify our gas supply ahead of next winter and we are on track to achieve the target of 60 bcm. I think we are beyond 35 bcm already.
With its other elements, RePowerEU can get us down to a third of the Russian gas imports we had last year. Already much more than we thought we were able to do in such a short space of time, and yet it might not be enough. Because if Putin closes the tap completely, you can be sure it happens in the moment he thinks will hurt us most.
To end this lingering vulnerability, we need to do more.
And we can. We have a choice to reduce our consumption of gas and to make solidarity work. These are steps we must take if we want to make sure that Putin doesn’t control our energy security.
If we don’t save 15% across the EU, under a voluntary or mandatory framework, we will be taking a dangerous gamble.
I salute you for adopting the compromise just now. And while that text is still an important step forward compared to where we are today, it is a hugely forward but we will need to be very much abreast on the developments so we can react to the developments, if that is needed.
Every day we postpone ambitious and difficult but also necessary savings. Wee increase the cost of facing an emergency. The longer you wait, the higher the costs. It is very clear. We would also make ourselves more vulnerable – in a colder winter, to higher competition on the LNG market, and to more Russian gas games.
We can be masters of our own energy security this winter but to do that we must save gas everywhere in the EU. And the good news is that if we do that we can also make a big hole in the export revenues of Putin. But much more importantly, we can prove to him we will stay the course until Ukraine is completely free of Russian’s aggression.
Compliments of the European Commission.
The post Opening remarks of Executive Vice-President Timmermans at the Extraordinary Energy Council on security of energy supply in the EU first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

26 Jul
EACC

NIST | Information and Communications Technology (ICT) Risk Management in the Enterprise: Two Draft Special Publications Available for Comment

NIST is posting two draft Special Publications (SP) on the Enterprise Impact of Information and Communications Technology (ICT) Risk, with a public comment period open through September 6, 2022.
The increasing dependency on ICT means that all enterprises must ensure ICT risks receive the appropriate attention along with other risk disciplines –legal, financial, etc. – within their enterprise risk management (ERM) programs. These documents and resources are intended to help ICT risk practitioners at all levels of the enterprise, in private and public sectors, to better understand and practice ICT risk management (ICTRM) within the context of ERM.  Using organizing constructs, such as risk appetite and tolerance statements, business impact analysis (BIA), risk registers, and key risk indicators, enterprises, can better identify, assess, communicate, monitor, and manage their ICT risks in the context of their stated mission and business objectives using language and constructs already familiar to senior leaders.

NIST Special Publication 800-221 ipd (initial public draft), Enterprise Impact of Information and Communications Technology Risk: Governing and Managing ICT Risk Programs Within an Enterprise Risk Portfolio, promotes a greater understanding of the relationship between ICT risk management and ERM, and the benefits of integrating those approaches.

NIST Special Publication 800-221A ipd, Information and Communications Technology (ICT) Risk Outcomes: Integrating ICT Risk Management Programs with the Enterprise Risk Portfolio, provides a set of desired outcomes and applicable references that are common across all types of ICT risk. It provides a common language for understanding, managing, and expressing ICT risk to internal and external stakeholders. It can be used to help identify and prioritize actions for reducing ICT risk, and it is a tool for aligning policy, business, and technological approaches to managing that risk. Using this approach for each type of ICT risk will help organizations improve the quality and consistency of ICT risk information they provide as inputs to their ERM programs. That, in turn, will help organizations address all forms of ICT risk more effectively in their ERM.  This publication complements SP 800-221 as the ICTRM catalog of outcomes. SP 800-221A can be browsed and downloaded in standardized JSON and Excel formats.

The public comment period for both drafts is open through September 6, 2022. See the publication details of SP 800-221 and SP 800-221A for downloads and instructions for submitting comments.
NOTE: A call for patent claims is included in each draft. For additional information, see the Information Technology Laboratory (ITL) Patent Policy–Inclusion of Patents in ITL Publications.
Compliments of the National Institute of Standards and Technology, the U.S. Department of Commerce.
The post NIST | Information and Communications Technology (ICT) Risk Management in the Enterprise: Two Draft Special Publications Available for Comment first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

26 Jul
EACC

Statement by the President of the European Commission following the political agreement on the Council Regulation on coordinated demand reduction measures for gas

Today, the EU has taken a decisive step to face down the threat of a full gas disruption by Putin. I strongly welcome the endorsement by Council of the Council Regulation on coordinated demand reduction measures for gas.
The political agreement reached by Council in record time, based on the Commission’s proposal “Save gas for a safe winter” tabled last week, will ensure an orderly and coordinated reduction of gas consumption across the EU to prepare for the coming winter. It complements all the other actions taken to date in the context of REPowerEU, notably to diversify sources of gas supply, speed up the development of renewables and become more energy efficient.
The collective commitment to reduce by 15% is very significant and will help fill our storage ahead of winter.
Moreover, the possibility to declare a state of EU alert triggering compulsory gas consumption reductions across the Member States provides a strong signal that the EU will do whatever it takes to ensure its security of supply and protect its consumers, be it households or industry.
By acting together to reduce the demand for gas, taking into account all the relevant national specificities, the EU has secured the strong foundations for the indispensable solidarity between Member States in the face of the Putin’s energy blackmail. The announcement by Gazprom that it is further cutting gas deliveries to Europe through Nord Stream 1, for no justifiable technical reason, further illustrates the unreliable nature of Russia as an energy supplier. Thanks to today’s decision, we are now ready to address our energy security at European scale, as a Union.
Compliments of the European Commission.
The post Statement by the President of the European Commission following the political agreement on the Council Regulation on coordinated demand reduction measures for gas first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

22 Jul
EACC

Protocol on Ireland/Northern Ireland: EU Commission launches four new infringement procedures against the UK

The European Commission has today launched four new infringement procedures against the United Kingdom for not complying with significant parts of the Protocol on Ireland / Northern Ireland. They come in addition to the infringement procedures launched on 15 June 2022.
Despite repeated calls by the European Parliament, the 27 EU Member States and the European Commission to implement the Protocol, the UK government has failed to do so.
In a spirit of constructive cooperation, the Commission refrained from launching certain infringement procedures for over a year to create the space to look for joint solutions with the UK. However, the UK’s unwillingness to engage in meaningful discussion since last February and the continued passage of the Northern Ireland Protocol Bill through the UK Parliament go directly against this spirit.
The aim of these infringement procedures is to secure compliance with the Protocol in a number of key areas. This compliance is essential for Northern Ireland to continue to benefit from its privileged access to the European Single Market, and is necessary to protect the health, security and safety of EU citizens as well as the integrity of the Single Market.
In more detail
The Commission has decided to launch four new infringement procedures against the UK in respect of Northern Ireland for, respectively:

Failing to comply with the applicable customs requirements, supervision requirements and risk controls on the movement of goods from Northern Ireland to Great Britain. This significantly increases the risk of smuggling via Northern Ireland. For example, it opens the possibility for traders to circumvent EU rules on prohibitions and restrictions on the export of goods to third countries or provides possibilities for carousel trafficking of goods being declared for export in the EU and actually not exiting the customs territory via Northern Ireland. On 17 December 2020, the UK issued a unilateral declaration to ensure “unfettered access” for Northern Irish goods to move to the UK market. The EU agreed with the UK proposal to provide “equivalent” information through “alternative means” on a real time basis. To date, however, the UK does not collect the relevant export declaration data for goods moving from Northern Ireland to Great Britain. Nor does it provide information to the EU on these movements, making any supervision of those goods by Union representatives impossible.
Failing to notify the transposition of EU legislation laying down general EU rules on excise duties, which will become applicable from 13 February 2023. Member States and the UK in respect of Northern Ireland were required to transpose this Directive and notify the Commission of their transposition measures by 31 December 2021. To date, the United Kingdom has failed to do so. Non-implementation of these rules poses a fiscal risk to the EU (i.e. excise duties not levied or levied at a lower rate than in the EU) in relation to movements of goods subject to excise duties to/from Northern Ireland.
Failing to notify the transposition of EU rules on excise duties on alcohol and alcoholic beverages, which facilitate access for small and artisan producers to lower excise duty rates, among other provisions. Member States and the UK in respect of Northern Ireland were required to transpose this Directive by 31 December 2021. Non-implementation of these rules poses a fiscal risk to the EU (i.e. excise duties not levied or levied at a lower rate than in the EU) in relation to the excise duties to be paid on movements of alcohol and alcoholic beverages to/from Northern Ireland. Any divergence from EU harmonised excise duties would also distort competition in the supply of those goods within the Single Market.
Failing to implement EU rules on Value Added Tax (VAT) for e-commerce, namely the Import One-Stop Shop (IOSS). The IOSS is a special scheme that businesses can use since 1 July 2021 to comply with their VAT obligations on distance sales of imported goods. It allows suppliers and electronic interfaces selling imported goods not exceeding €150 to buyers in the EU to declare and pay the VAT via the tax authorities of one Member State instead of having to register in every Member State into which they sell. For EU consumers, this means a lot more transparency: when buying from either an EU or a non-EU seller or platform registered in the One Stop Shop, VAT is part of the price paid to the seller. To date, the UK in respect of Northern Ireland has not taken the necessary IT measures to implement the IOSS. This in turn poses a fiscal risk to the EU

Today’s decision marks the beginning of formal infringement procedures, as set out in Article 12(4) of the Protocol, in conjunction with Article 258 of the Treaty on the Functioning of the European Union. The letters sent to the UK request its authorities to take swift remedial actions to restore compliance with the terms of the Protocol. The UK has two months to reply to the letters, after which the Commission stands ready to take further measures.
Background
The European Union wishes to have a positive and stable relationship with the United Kingdom. This relationship must be based on the full respect of the legally binding commitments that the two sides have made to one another, based on the implementation of the Withdrawal Agreement and the Trade and Cooperation Agreement. Both parties negotiated, agreed and ratified these agreements.
After long and intensive discussions between the EU and the UK, the Protocol is the best solution found jointly to reconcile the challenges created by Brexit, and by the type of Brexit chosen by the UK government. The Protocol is an integral part of the Withdrawal Agreement. It avoids a hard border on the island of Ireland, protects the 1998 Good Friday (Belfast) Agreement in all its dimensions, and ensures the integrity of the EU’s Single Market.
The EU has shown understanding for the practical difficulties of implementing the Protocol, demonstrating that solutions can be found within its framework.
Compliments of the European Commission.
The post Protocol on Ireland/Northern Ireland: EU Commission launches four new infringement procedures against the UK first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

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