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1、J-P.SERVAIS IOSCO takes a leading role in addressing some of the most pressing challenges facing the financial sectorP.GRAMEGNA The reform of the EU fiscal rules:time is of the essenceD.LABOUREIX Building a common European crisis management framework fit for all banksVIEWSTH EE U R O F IMAGAZINEA P
2、R I L 2 0 2 ELISABETH SVANTESSON Minister for Finance,SwedenThe Swedish Presidencys priorities for a more competitive and financially resilient EUVISIT OUR WEBSITEWWW.EUROFI.NETfor our latest publicationson EU economic challenges,actions for relaunching growth and on-going trends and policy developm
3、entsin the financial sectorEUROFI REGULATORY UPDATEEUROFI VIEWS MAGAZINETHE EUROFI VIEWS MAGAZINEAPRIL 2023This bi-annual Views Magazine comprises contributions from a wide range of public and private sector representatives on the macro-economic challenges Europe is facing and their implications for
4、 finance,potential financial stability risks,on-going industry trends such as digitalisation and sustainable finance and key on going policy initiatives in the banking,insurance and capital market sectors.4|VIEWS|The EUROFI Magazine|Stockholm 2023| 1.ECONOMIC CHALLENGES AND IMPLICATIONS FOR FINANCEW
5、hat economic governance in the euro area .26Implications of inflation and de-globalisation for finance .30Stagflation in Europe:way forward .36Fostering investment in the green transition .42 Key trends in the Nordic-Baltic financial sector .502.BANKING AND INSURANCE REGULATION PRIORITIESBasel III i
6、mplementation .60Competitiveness of the EU banking sector .66Enhancing the EU bank crisis management framework .74Taking advantage of bank diversity in Europe .783.DIGITALISATION AND PAYMENTSDigitalisation trends in financial services .92Cryptoasset and stablecoin regulation .100The potential of cry
7、pto technology in finance .106AI and ML applications in finance .112Digital operational and cyber-resilience .118Open Finance:ambition and policy approach .124Digital Euro:use cases and design .130PSD2 review priorities .136Cross-border payments and global infrastructures .140Instant payment attract
8、iveness for EU citizens .144CONTENT|Stockholm 2023|The EUROFI Magazine|VIEWS|54.THE EU AND GLOBAL SUSTAINABILITY AGENDA FOR FINANCEAvoiding greenwashing .152Transition of financial activities towards net zero .160ESG issues in the asset management area .166Sustainability reporting standards global c
9、onvergence .170Climate change insurance needs.1745.CMU NEXT STEPS AND CHALLENGESCMU:what can be achieved by Q1 2024?.186Retail Investment Strategy .194EU capital market competitiveness and integration .202MiFIR review .208Strengthening EU clearing .214Impacts of digitalisation on trading and post-tr
10、ading.222 SME equity funding:Listing Act and ESAP proposals .230Investment product frameworks and investor needs .234Securitisation in the EU .2406.FINANCIAL STABILITY CHALLENGES AND VULNERABILITIESFinancial stability risks in Europe .250Sovereign debt challenges .254Managing risks in the banking se
11、ctor .260Fund liquidity issues .264Sustainability risk in the banking sector .272Sustainability risks in the insurance sector .278AML:key success factors .284 ELISABETH SVANTESSONMinister for Finance,SwedenThe Swedish Presidencys priorities for a more competitive and financially resilient EU .12VALD
12、IS DOMBROVSKISExecutive Vice-President for an Economy that Works for People,with responsibility for Trade-European Commission Investing in Europes growth:from crisis reaction to building future prosperity.14MAIREAD MCGUINNESSCommissioner for Financial Services,Financial Stability and Capital Markets
13、 Union-European Commission Behind every challenge lies an opportunity:how the financial sector can support EU competitiveness in difficult times .16JEAN-PAUL SERVAISChair of the Board-International Organization of Securities Commissions and Chairman-Financial Services and Markets Authority,Belgium I
14、OSCO takes a leading role in addressing some of the most pressing challenges facing the financial sector.18MONIQUE GOYENS Director General-The European Consumers OrganisationEnsuring financial markets deliver for consumers:a work in progress.20JACQUES DE LAROSIREHonorary President-EUROFICentral bank
15、s must get out of the control of the yield curve .22 JEAN LEMIERREChairman-BNP Paribas Overcoming the obstacles to financing europes green transition .58INTERVIEWSSCOTT MULLINSManaging Director&General Manager,Worldwide Financial Services-AWSClouds role in building a modern and secure European finan
16、cial services sector .86KRISTIN JOHNSON Commissioner-U.S.Commodity Futures Trading CommissionLessons learned from the recent failures in the crypto market .88 TOMOKO AMAYAVice Minister for International Affairs,Financial Services Agency,JapanThe crypto-asset world is sobering up .90JRME GRIVET Deput
17、y Chief Executive Officer-Crdit Agricole S.A.Why a retail digital Euro?.92HESTER M.PEIRCE Commissioner-U.S.Securities and Exchange Commission Climate,crypto,convergence,conflict.152PATRICK THOMSONChief Executive Officer,EMEA-JPMorgan Asset Management Increase investor confidence and regulatory consi
18、stency to further the CMU .186ADENA FRIEDMANChair and Chief Executive Officer-NasdaqAccelerating the fight against financial crime .250This new edition of the Eurofi Magazine is published at a time that continues to be very challenging for the European economy and financial sector.Europe has entered
19、 a period of stagflation with inflation close to 7%in the Euro area in March 2023 and weak growth prospects below 1%for 2023.Labour productivity and productive investment are stagnating and indebtedness is reaching record levels in many European countries following the Covid crisis,limiting the grow
20、th potential of Europe.The macro context and the tightening of financing conditions also increase vulnerabilities in the banking and non-banking sectors,as shown by the recent failures of certain medium-sized US banks and the LDI crisis in the UK pensions sector in September 2022.At the same time,th
21、e financing needs to relaunch growth and increase the strategic autonomy of Europe are huge-with the objectives of moving towards net-zero,boosting digitalization to enhance competitiveness and diversifying supply chains.Actions have been undertaken to fight inflation with the initiation of a progre
22、ssive normalization of monetary policy and interest rate increases,but rates remain negative in real terms,which continues to hinder investment with an insufficient remuneration of risk.In addition,indebtedness is holding back economic recovery and increasing debt spill-over risks,requiring a reform
23、 of the Stability and Growth Pact.The“Next Generation EU”Recovery plan is providing significant resources,but money alone will not ensure recovery if the conditions for investment do not improve more significantly.On-going EU initiatives in the financial sector such as the Banking Union,the Capital
24、Markets Union,the sustainable finance agenda and the Digital Finance Strategy should help to strengthen the EU financial sector,diversify sources of financing and support the green and digital transitions,but they need to move at a fast enough pace and deliver results that match the initial ambition
25、s of these initiatives.Further developing capital markets is essential in particular in a context where public investment and bank financing will not be sufficient to provide the financing needed to relaunch growth in the EU and where risk capital is needed to support innovation.This should be a key
26、 objective in the coming months and also for the upcoming legislature.We are grateful to the 200+public and private sector representatives who have provided us with input on these important questions for this Magazine,and we are sure that you will read their thoughts and proposals with great interes
27、t.The Eurofi Secretariat has also published several papers on these topics in the latest edition of the Eurofi Regulatory Update,which we invite you to read.The Eurofi economic and monetary scoreboards have also been updated providing a detailed perspective on the European macro environment.DIDIER C
28、AHENMARC TRUCHETJEAN-MARIE ANDRES EUROFI SECRETARIAT FOREWORDAll Eurofi publications are available on our website:Contact:10|VIEWS|The EUROFI Magazine|Stockholm 2023|EDITORIALDAVID WRIGHTPresident,EUROFI A very warm welcome to all distinguished speakers and delegates to EUROFI,Stockholm,our 35th edi
29、tion.We are delighted to be visiting Stockholm again,one of the great European cities.We thank the Swedish Presidency of the European Union firstly for all their expert assistance in helping EUROFI organise this event which is much appreciated and secondly,in advance,for their warm welcome and hospi
30、tality.Never does a EUROFI meeting goes by without there being new European political,economic and financial challenges to confront-new trends,new nuances,new risks,new dangers both international and European in nature.This is evidently the case as we prepare for EUROFI,Stockholm.Financial markets a
31、re once again nervous,volatile,jittery.There is no end in sight to the war in Ukraine;there have been some significant recent banking failures in the United States and Switzerland;macroeconomic prospects are at best mixed with inflation still running high in many economies;and as interest rates have
32、 risen more financial market segments could come under pressure,commercial property lending and leverage being perhaps one example.As this European political cycle enters its last phase before the European Parliament elections and institutional changes next year,it is my view that this European Comm
33、ission has many impressive successes to its credit.Its fair and very effective handling of the COVID epidemic;its environmental leadership;the New Generation Economic Programme-800 billion of structural reform expenditure backed up,inter alia,by common,ongoing EU bond issuance;the cohesive EU approa
34、ch to the tragedy of the war in Ukraine and the demonstration of strong European solidarity with Ukraine illustrated by its robust sanctions regime against Russia;plus an emerging articulation of a stronger,more self-sufficient“future proof”EU concerning critical areas of its economy-“strategic auto
35、nomy”-replicating,to some degree,the strategic industrial policies of both the U.S and China.However in the European financial policy areas progress in this political cycle has been more patchier and uneven.Perhaps this is due to the limited amount of high-level European political oxygen left after
36、dealing with all the critical issues above.If that is the case,it can be partially understood.What is less understandable is still the lack of recognition that in order to achieve the EUs laudable,long-term political investment goals-whether social,digital,environmental,infrastructure,research and i
37、nnovation etc-without EU capital markets functioning far more efficiently they will either be unachievable or result,at most,in third best outcomes.The European public sector,already highly indebted,pressured and deteriorating as the EU ages and as public sector demands grow incessantly,will be unab
38、le to pick up the tab.Profound,newly strengthened levels of public-private partnership are needed to succeed underpinned by a real single pan-European capital market.True the European Council conclusions in March this year requested the Council and the European Parliament to accelerate work on Capit
39、al Markets Union and Banking Union-the first text of its type in nearly 5 years.However,they would have been far stronger if the European Parliament had been a co-signatory and if precise deadlines had been set to deliver each of the major files with a strong tripartite institutional monitoring mech
40、anism.Be that as it may,and looking more positively,at long last the highest political levels of the EU are now beginning to realise what is at stake.Let us hope then that the European Council text can galvanise the negotiators to strike timely agreements in the short time left before the European P
41、arliament breaks for its elections in Q2,2024.Agreeing also the contours of the Eurozone Growth and Stability Pact as part of the same package.Pan-EU pension products should not be forgotten either.These challenges are immense,I do not underestimate them.But only politicians,the heads of State and G
42、overnment and the European Parliaments leaders can accelerate their pace of delivery.I have written many times in these EUROFI editorials that nothing will spur on the European Union more economically than good,balanced agreements in these vital financial policy areas.International investors will im
43、mediately take |Stockholm 2023|The EUROFI Magazine|VIEWS|11A MESSAGE FROM THE EUROFI PRESIDENTnote.Delivery alone will boost European confidence.The EUs economic prospects will tick up and productivity will increase if we can implement a seamless,integrated and sufficient set of core macro-and micro
44、-financial rules backed up by logical institutional architecture with strong and consistent supervision.This is not a static challenge because new challenges are emerging,the most worrying of which is that the post-Great Financial Crisis Resolution resolution regime appears to be flawed in a number
45、of areas.Maybe not fatally holed beneath the waterline,but changes are needed,and quickly to reassure markets and investors.This is so important because financial crises,as history has shown so often,can have hugely damaging effects on economic welfare,sometimes devastatingly so.They nearly always p
46、ercolate through the banking sector.Coco instruments now appear to be questionable and have significant stigma effects.Will they really help save or rescue a failing bank,or multiple banks in stressed,systemic market conditions?The Fed has bailed out uninsured deposit holders in a medium sized U.S b
47、ank that was evidently not properly supervised,creating moral hazard.Investors are asking whether this policy approach will be available to all U.S banks under duress,permanently or temporarily?The Swiss Authorities did not follow the established international hierarchy of creditors and legal cases
48、lasting years are likely.EU banks,so far,have not been affected having been subject for a number of years to rigorous interest rate stress testing.The NSFR and LCR are applied to all banks in the EU,an important safety valve but not in the U.S.Surely we need more international resolution policy pred
49、ictability,some suggesting even stronger capital and liquidity requirements,even tougher supervision,tougher stress testing of all banks as far forward as possible.The rapid speed of deposit withdrawal now possible with electronic banking can be another rapid destabilising factor.Another big questio
50、n it seems to me is the accounting treatment of held to maturity assets-should we continue with valuing them at historical cost or shift to mark-to-market accounting to give a truer picture of bank balance sheets?These and other big issues like the future of ESG and crypto regulation and the EUs mac
51、roeconomic prospects will be discussed in depth at EUROFI.So let me conclude by wishing everyone at EUROFI,Stockholm a very productive 2 1/2 days of intense financial debate,European and international,debates that we hope will contribute to help advance the process of European financial integration
52、which is so vital for the future of the European Union.12|VIEWS|The EUROFI Magazine|Stockholm 2023|OPENING INTERVIEWSWhat are the priorities of the Swedish Presidency in the economic area?The Swedish Presidency takes place during a time of historic challenges for Europe,both for our security and our
53、 economy.Households and businesses across the EU are struggling to make ends meet,pressured by soaring inflation and declining economic growth.However,as shown by the EUs response to the invasion of Ukraine,we are strong when we act together.Our unity is paramount,especially in these times of econom
54、ic uncertainty and hardship.In the Ecofin Council,we monitor and regularly discuss the challenges associated with the economic situation and follow how the European economy develops.In terms of priorities,I would firstly like to underline that a top priority for our Presidency is to make sure that t
55、he EU remains committed in its support to Ukraine.Among the finance ministers,we are closely monitoring Ukraines funding needs and our Presidency stands ready to act if further financial support is needed.It is also important to look beyond the immediate needs of Ukraine,recognizing the urgency for
56、close cooperation between the EU,its bilateral partners,and international financial institutions concerning Ukraines reconstruction.Second,I would like to highlight the Economic Governance Review.We need to have a solid fiscal framework that can contribute to sustainable public finances and economic
57、 growth in all Member States in years to come.The Presidency has focused on building consensus among Member States,and I am very happy that we have reached a first important step with the Council Conclusions at the Ecofin meeting in March.Third,the Swedish Presidency has put the EUs long-term compet
58、itiveness and productivity at the forefront.We need a broad strategy to tackle future challenges,and the continued deepening of the Capital Markets Union is an important pillar of this work.Fourth,having our Presidency at the end of this institutional cycle means working with many legislative files
59、in parallel.To mention just a few things,we are prioritising work on the fight against money laundering and terrorism financing and the prevention of tax evasion,tax avoidance,aggressive tax planning and harmful tax competition.Are policy makers in Europe on the right track to cope with persistent i
60、nflation and the reduction of growth?Inflation increased at an alarming rate during 2022,fuelled by the war in Ukraine.Since its peak in September,inflation has fallen as a result of lower energy prices.Nevertheless,core inflation has continued to increase and has put immense pressure on households
61、and businesses.High inflation has led many central banks to tighten monetary policy,which has a dampening effect on economic activity in EU Member States.GDP growth decreased in the last quarter of 2022,driven by falling investments and private consumption.In its winter forecast,the European Commiss
62、ion predicted that inflation in the EU would gradually subside in 2023 and stabilize close to the inflation target at the end of 2024.GDP is expected to gain more traction as headwinds abate.Many EU Member States reacted to the energy crisis with fiscal measures aimed at decreasing the social and ec
63、onomic impact on households and businesses.The potential impact of these measures on growth is hard to estimate,especially at EU level.It is likely that the measures have had both positive and negative impacts on inflation.The initial support measures were to a large extent broad based,which might h
64、ave been warranted given the suddenness and strength of the initial energy price shock.However,broad based fiscal stimulus may be less warranted going forward.For the year ahead,the support measures should preferably be phased out,starting with the least The Swedish Presidencys priorities for a more
65、 competitive and financially resilient EUQ&AELISABETH SVANTESSON Minister for Finance,S|Stockholm 2023|The EUROFI Magazine|VIEWS|13Q&A ELISABETH SVANTESSONtargeted ones.This could limit fiscal costs and reduce energy consumption as well as increase energy efficiency.There is a need to strengthen fis
66、cal sustainability through fiscal consolidation while undertaking reforms and investments that increase long term growth.In the field of energy,the EU needs to end its dependence on Russian fossil fuel by focusing on measures that increase energy efficiency,diversify energy supply,and accelerate the
67、 development of fossil free energy sources in line with the RRF and REPowerEU.How important is it to achieve a swift agreement on the reform of the EU economic governance framework in the coming months?The reform of the EU economic governance framework is a priority for the Swedish Presidency,and th
68、e recent adoption of Council Conclusions on the economic governance framework is an important achievement.The efforts and the constructive spirit of the Member States and the Commission have resulted in an agreement covering general principles for the reform which will guide the Commission in its pr
69、eparation of legislative proposals to make the reform a practical reality.We have made important progress on the reform.However,it is clear that there are still outstanding issues concerning how the new framework will work in practice.These issues will have to be taken forward at the technical level
70、.With such an important reform,it is central that we develop and agree on a framework that works for all Member States,while still recognising the need and commitment to proceed swiftly.For our part,we will continue to take the reform forward in the Council for the remainder of our Presidency so tha
71、t our Spanish colleagues can hopefully reach the finish line during their own forthcoming Presidency.What should be the main elements of a reform of the Stability and Growth Pact?What measures would finally make it effective?In our recently adopted Council Conclusions on a reform of the economic gov
72、ernance framework,we highlight the main elements where Member States views have converged.Considering the Commissions orientations from November last year,we have had intense discussions in the Council and have aligned ourselves on the broad principles.We affirm the importance of the existing refere
73、nce values of 3 percent for the government deficit and 60 percent of GDP for public debt.These values should remain unchanged.When it comes to ensuring that these values are adhered to more effectively,we will move towards a system with a medium-term perspective where the Member States will make pla
74、ns for fiscal consolidation,reforms,and investments for the coming years.The proposal for a new framework also includes upgraded enforcement,which will be key to ensuring its effectiveness.The Council Conclusions provide a solid basis for the future work that is needed on the Economic Governance Rev
75、iew.They pave the way for a concrete reform that ensures sustainable public finances and economic growth in all Member States for years to come.14|VIEWS|The EUROFI Magazine|Stockholm 2023|OPENING INTERVIEWSIt is testament to the resilience of Europes economy and society that both are holding up so s
76、trongly against shocks that nobody was expecting:first,the COVID-19 pandemic and now,Russias relentless aggression against a sovereign neighbouring state,Ukraine.This resilience has been built up by learning the lessons of previous crises:above all,the importance of providing a rapid,focused and coo
77、rdinated EU response.Economic output returned to pre-pandemic levels relatively quickly.We have now made a substantial shift away from Russia as an energy supplier,diversifying to gas and LNG providers in countries such as the United States,Norway,Israel and Egypt.And take the SURE programme:this ha
78、s been a real EU success story at a time of immense hardship.It provided essential support to workers and firms in the darkest months of the crisis,keeping many millions in a job to protect their incomes.It has also contributed to the unprecedentedly strong labour market that Europe is still experie
79、ncing today.The many supply-side shocks,along with the shifting sands of geopolitics,have focused our minds towards devising innovative and flexible policies.They have worked well,and fit in with our longer-term policy ambitions too.There are now more promising signs for Europes economy.Energy price
80、s have moved lower;inflation is starting to cool off after hitting record highs last autumn.However,we are not out of the woods yet.There are also structural challenges we need to tackle:the EUs long-term energy dependence,the green and digital transitions and,more broadly,the need to strengthen our
81、 competitiveness.All this in a context of high uncertainty as Russia continues its aggression against Ukraine.Recent events have shown how excessive dependence on Russian fossil fuels,for example-can be used against the EUs own interests.This is why we intend to strengthen the resilience of Member S
82、tates and diversify supplies in strategically important areas.This applies not only to reducing our energy dependence we are already doing this via the REPowerEU inititiative-but also on inputs and advanced technologies that will be vital for advancing with the green and digital transitions.It inclu
83、des areas such as batteries,semiconductors,critical raw materials and hydrogen.For the next few years,we have the NextGenerationEU programme to help Member States to become more sustainable,prepare them to face future challenges and tackle these challenges-thanks to the foresight in the design of it
84、s priorities.Its flexible centrepiece instrument,the Recovery and Resilience Facility(RRF),is the vehicle for countries to carry out structural reforms and investments,to accelerate the green and digital transitions and to shore up the EUs ability to withstand future shocks.This should be done in cl
85、ose partnership with the private sector,including financial institutions.For the medium term,the Commission estimates that the investments funded by NextGenerationEU could boost the EUs GDP by around 1.5%in 2024.Its reforms will have a long-lasting impact on our economies and societies even after th
86、e RRF ceases to exist.Member States are firmly into the implementation phase of their investment and reform agendas as set out in each national Recovery and Resilience Plan.The money is flowing to Member States.The latest RRF payment to Spain brings total RRF disbursements to more than 150 billion.T
87、his year will be critical,since we will be halfway through the RRFs lifetime.By the end of 2023,more than half of the milestones and targets will be due,so it will be essential for all Member States to get their reforms and investments into place as soon as possible.Investing in Europes growth:from
88、crisis reaction to building future prosperityQ&AVALDIS DOMBROVSKIS Executive Vice-President for an Economy that Works for People,with responsibility for Trade-European C|Stockholm 2023|The EUROFI Magazine|VIEWS|15Q&A VALDIS DOMBROVSKISAt the same time,it is vital to maintain an anchor of macroeconom
89、ic and financial stability.This means ensuring sound public finances across all EU Member States.The importance of investment for stimulating economic growth cannot be stressed enough.However,for Member States to invest,they require fiscal space-especially for the large investments needed for the gr
90、een and digital transitions.That said,we are now living in a high-debt environment.The unprecedented fiscal support provided during the pandemic has increased public debt and reduced the potential for fiscal manoeuvre.Overall,debt and deficit levels are now significantly higher than a decade ago.Som
91、e countries have public debt ratios well above 100%of their GDP.It is now time to start phasing out the support measures and improve their targeting,to avoid unfocused spending and adding to inflation.Overall,fiscal policies need to become more prudent.They should prioritise rebuilding fiscal buffer
92、s and underpinning balanced growth.This will put us in a good position to tackle future challenges.These are some of the priorities of the economic governance review:our blueprint for the EUs future fiscal rules.They should be credible,effective and enforceable,improving debt sustainability and boos
93、ting potential growth in a sustainable way.It is how we can arrive at lower interest rates,create fiscal space for investment and allow countries to build buffers to cope with future economic shocks.We are aiming for a simpler rules system,with greater country ownership and more latitude for debt re
94、duction but combined with stronger enforcement.Above all,we aim to ensure public debt sustainability.This will require fiscal adjustment as well as growth-enhancing reforms and investments.Under the proposed new governance set-up,Member States will have the possibility to moderate their fiscal effor
95、ts in conjunction with carrying out reforms and investments in line with EU priorities that boost fiscal sustainability and potential growth.This will help us to secure sustainable growth for the future.However,todays new geopolitical realities make it urgent to tackle long-standing challenges conce
96、rning our global competitiveness.Here,the key element is the single market:our most valuable asset,now celebrating its 30-year anniversary.This must be preserved as a key source of productivity and innovation with more reduction of barriers and more integration,especially for services.In the last 30
97、 years,for example,the level of integration for trade in both goods and services has doubled.But integration in services which account for some 70%of the EUs GDP is well below that for goods.To maintain the EUs long-term competitiveness,the Commission has identified key areas to focus on:along with
98、the single market,they include availability of private funding,public investments,energy,open trade,research and development,digitalisation,skills and circularity.These will come with key performance indicators that will help us to carry out annual monitoring.We also need smooth access to private ca
99、pital and that means pushing ahead with the Capital Markets Union.Deepening and further integrating Europes capital markets is the most cost-effective step that we can take to drive investment.At such a challenging time for the blocs economies,we need functioning capital markets more than ever to st
100、imulate financing around Europe.More financing opportunities to help start-ups,to help larger companies to thrive,to create more opportunities for Europeans to invest safely.Regulation must be simple,smart and targeted:for example,by looking at how we can reduce administrative burdens and reporting
101、requirements.In particular,there will be a new push for streamlining reporting requirements across the EUs green,digital and economic legislation,with first proposals by the autumn aiming for a 25%reduction in burden.A globally attractive business environment,friendly to innovation.Targeted and prod
102、uctive investments based on sound public finances.Strong,resilient economic and financial architecture.These are the priorities and areas where we will focus to boost Europes long-term growth.16|VIEWS|The EUROFI Magazine|Stockholm 2023|OPENING INTERVIEWSDuring challenging times,the European Union is
103、 acting to support a competitive,resilient and sustainable financial system.The EUs financial sector has recently weathered major shocks brought by the Covid-19 pandemic and Russias war of aggression against Ukraine.The comprehensive reforms adopted after the 2008 global financial crisis played no s
104、mall part in this resilience.Still,there is no room for complacency.Higher inflation and rising interest rates present different challenges to financial stability than low-for-long interest rates.The economic outlook remains uncertain,and significant market corrections are possible,as shown by the d
105、ifficulties experienced by banks in the US and Switzerland in March.On top of this,the EU economy faces challenges on competitiveness.Energy prices have risen,increasing costs to businesses.There is a shortage of skilled workers in key industries.And there is the challenge presented by the transitio
106、n towards a net-zero economy.To support the competitiveness of EU industry,in February the European Commission revealed a Green Deal Industrial Plan.This is based on four pillars:a simplified regulatory environment,speeding up access to finance,supporting skills,and open trade for resilient supply c
107、hains.Weve moved quickly to put this plan into action.On 16 March,the Commission proposed the Net-Zero Industry Act,to help the EU scale up the manufacturing of clean technologies.We also put forward the Critical Raw Materials Act to support raw material supply chains for those clean technologies.In
108、 a Communication published the same day,the Commission outlined its long-term plans to foster competitiveness,supporting better access to private capital and investment,research and innovation,circularity,and digitalisation.The Green Deal Industrial Plan will require investment.On 9 March,the Commis
109、sion adopted temporary changes to the state aid framework,allowing Member States to grant State aid in sectors that support the transition to net-zero.However,not all Member States have the same ability to grant State aid,and we need to pay attention to the level playing field in the Single Market.W
110、e also need to step up EU funding and utilise REPowerEU,the InvestEU Programme and the Innovation Fund.In addition,a future European Sovereignty Fund would have a major role to play to crowd in private investment in critical and emerging technologies for the green and digital transitions.But when we
111、 talk about the need for investment,its important to note that public money will not be enough.We need private financing too.Thats where the Capital Markets Union comes in.European capital markets are too fragmented along national lines,with companies in smaller markets losing out on access to a lar
112、ge investor base and finding it harder to get long-term capital.The Commission has a number of initiatives that are about tackling obstacles to market integration,notably in the areas of taxation and non-bank insolvency.Europe has one of the highest individual savings rates in the world,but retail i
113、nvestor participation in capital markets remains comparably very low.The Commission will soon come out with a Retail Investment Strategy to help retail investors make the most of their money.Other initiatives to support the Capital Markets Union include a one-stop shop for financial and sustainabili
114、ty-related company information,the European Single Access Point,and a new EU Listing Act to make listing easier,especially for smaller companies.Finally,the co-legislators recently agreed changes to the regulation on European long-term investment funds(ELTIFs).These changes will make it easier and m
115、ore attractive for fund managers to offer ELTIFs,and for investors to access them.This will directly contribute to providing more long-term private capital for unlisted companies,listed SMEs,and sustainable energy,transport and social infrastructure projects.We also want to help investors make infor
116、med choices,especially around sustainability.The EU sustainable finance Behind every challenge lies an opportunity:how the financial sector can support EU competitiveness in difficult timesQ&AMAIREAD MCGUINNESS Commissioner for Financial Services,Financial Stability and Capital Markets Union-Europea
117、n Commission |Stockholm 2023|The EUROFI Magazine|VIEWS|17Q&A MAIREAD MCGUINNESS framework can help prepare EU companies and financial institutions to face the challenge of the transition to sustainability.And that preparedness can translate into a genuine competitive advantage.In just four years,the
118、 EU has created the most advanced sustainable finance framework in the world,helping reorient capital flows towards the green transition.We have the EU Taxonomy,which provides common definitions for sustainable economic activities.We are developing the Taxonomy further by adding activities that can
119、contribute to four environmental objectives:the circular economy,biodiversity,pollution and water.We also have the Regulation recently agreed by the co-legislators on the European Green Bond Standard.This will create a gold standard for companies and public authorities that want to use green bonds t
120、o raise funds for their transition.And then there is the Corporate Sustainability Reporting Directive(CSRD),which is putting sustainability reporting on the same footing as financial reporting.Companies will have to get an assurance opinion on their sustainability reporting.This will improve the rel
121、iability of the information and reduce the risk of greenwashing.The information reported will be made available in a digital format making it easily accessible and supporting our agenda in digital finance.When adopting the European Sustainability Reporting Standards under the CSRD,we are mindful of
122、providing investors with useful sustainability-related information,while not creating excessive administrative burdens on companies.Digital finance has a key role to play in shaping a more competitive,sustainable,resilient economy and a more inclusive,modern,prosperous society.We need to make the mo
123、st of these new opportunities,while managing the risks.We want to help consumers access digital services across the single market.And we want to help European financial companies scale up their digital operations across the single market as well.Were supporting digital identification across the sing
124、le market the Commission has proposed a European Digital Identity,which would give EU citizens access to a digital wallet that works across the European Union.Weve also proposed harmonising Customer Due Diligence rules.The Commission is preparing a legislative proposal on Open Finance.Open Finance w
125、ould allow a broader range of data to be shared to allow more tailored financial products and services,while putting users of financial services,whether they are consumers or businesses,in control of their data how it is used and who can access it.The European Union is setting clear rules for previo
126、usly unregulated crypto-assets.The Markets in Crypto-Assets Regulation is expected to be published by the end of this spring.It will give legal certainty to market participants and promote innovation in the market.But it will also ensure that crypto-assets and crypto-asset service providers are subj
127、ect to regulation and supervision to ensure consumer protection,market integrity and financial stability.The Distributed Ledger Technology pilot regime entered into application in March.This pilot allows market participants to experiment with this technology in a safe environment,which is expected t
128、o bring more efficiency in trading and post-trading processes.It will also allow regulators and supervisors to learn from the experience and we may make changes to EU legislation depending on what we learn.We are also working closely with the European Central Bank on a possible digital euro.This wou
129、ld make central bank money available to people and businesses in digital form supporting the European economy in the digital age.The digital euro would be a complement for physical cash.And it would co-exist with private means of payment.Digital finance brings new risks,as financial institutions dep
130、end more and more on IT services and software.That makes them vulnerable to threats like cyber-attacks,especially in the current geopolitical context.The Digital Operational Resilience Act entered into force in January.This will help ensure that all financial firms have safeguards to mitigate agains
131、t cyber-attacks and other risks to their digital resilience.In the European Union,we want a financial sector that is both competitive and that supports the competitiveness of the wider European economy.Thats the reasoning behind the EU financial services agenda,based on resilience,sustainability and
132、 digitalisation.18|VIEWS|The EUROFI Magazine|Stockholm 2023|OPENING INTERVIEWSWhat are the key priorities of IOSCO for 2023 and their implications for the EU financial policy agenda?Needless to say,the financial sector has become increasingly interconnected over the past decades.This presents global
133、 challenges,such as those relating to financial stability,but also opportunities,provided we are able to formulate globally coordinated and consistent responses to these challenges as regulators.The IOSCO membership of securities supervisors regulates more than 95%of the worlds financial markets acr
134、oss 130 jurisdictions,including more than 90 members from Growth and Emerging Markets.This feature makes IOSCO unique amongst other financial standard setters in its ability to reach jurisdictions.It is my view that despite the risks of fragmentation arising from geopolitical tensions,global trends
135、within our remit,such as crypto-assets or climate change risks,can benefit from a globally coordinated response.Since my appointment as IOSCO Board Chair in October 2022,I have stressed the importance of delivering on previously identified priorities relating to sustainable finance,crypto-assets,and
136、 Non-Bank Financial Intermediation.Our recently published work programme for 2023-2024 reflects our determination to focus our resources and attention on these key priorities.Our Financial Stability Engagement Group will continue to help advance IOSCOs role in shaping international discussions on fi
137、nancial stability risks in the capital markets,as well as enhance IOSCOs working relationship with the FSB and other international standard-setting bodies.Firstly,IOSCO is focusing on sustainable finance,with the aim of protecting investors by mitigating greenwashing and promoting well-functioning c
138、arbon markets that operate with integrity.Secondly,IOSCO will contribute to the swift rollout of global crypto-asset policy standards,critical in light of the crypto winter and most recently the collapse of FTX.In this regard,we will soon launch a consultation with the aim of releasing final policy
139、recommendations before the end of the year.Thirdly,IOSCO is conscious of the structural vulnerabilities within NBFI,including liquidity and leverage risks.We will take further steps in 2023 to ensure that robust liquidity management frameworks are in place,both at the design phase and in the day-to-
140、day operations of investment funds,to address vulnerabilities arising from non-bank financial intermediation.What are IOSCOs key priorities and actions to mitigate greenwashing and protect investors in financial markets?I spoke at COP27 in Sharm-al-Sheikh to underline that sustainability disclosures
141、 can make a significant difference in combating climate change and here,IOSCO and securities regulators can and will play an important role in supporting the transition to a low carbon economy.As securities regulators,our view is that climate-related risks are a source of financial risk that can aff
142、ect not only specific firms or sectors but,more broadly,the stability of the financial system as a whole and can be a source of significant investor harm through greenwashing.This issue is therefore relevant to all the three IOSCO core objectives of(1)protecting investors,(2)ensuring fair,efficient
143、and transparent markets,and(3)reducing systemic risk.We aim to protect investors against the risks of greenwashing in financial markets by contributing to the development of sustainability disclosure standards that benefit issuers and investors alike.I welcome the efforts of the standard setters tha
144、t are likely to result in both sustainability-related disclosure standards and related assurance standards to be ready for use by corporates for their end-2024 accounts.This is in response to the significant investor demand for high quality and reliable sustainability disclosures.We need a global la
145、nguage for sustainability disclosures to replace the current IOSCO takes a leading role in addressing some of the most pressing challenges facing the financial sectorQ&AJEAN-PAUL SERVAISChair of the Board-International Organization of Securities Commissions(IOSCO)and Chairman-Financial Services and
146、Markets Authority,Belgium(FSMA)|Stockholm 2023|The EUROFI Magazine|VIEWS|19Q&A JEAN-PAUL SERVAISalphabet soup of private disclosure frameworks,in order to promote greater consistency and comparability of disclosures.We therefore welcome the International Sustainability Standards Boards commitment to
147、 publishing its global standards for climate disclosures and general requirements in Q2.Once they have been released,it will be IOSCOs responsibility to consider potential endorsement of the ISSB standards.A potential endorsement should be a game changer and give impetus for the adoption or use of t
148、he first global and inclusive framework for sustainability-related disclosures by corporates.Three factors will be key to achieving global uptake.First,maximising interoperability between the global framework and jurisdictional frameworks will be an important factor.Second,IOSCO will be receptive to
149、 the mechanisms designed to allow for a sufficient degree of proportionality to ensure all jurisdictions can get on board.Third,we see merit in building in limited flexibility for some disclosure requirements,in order to alleviate legitimate concerns relating to data availability and the preparednes
150、s of companies to comply in a timely manner.This takes into account the reality that,while the direction of travel is the same,we may not all travel at the same speed.We are in constant dialogue with the ISSB,and I welcome their determination to address global entities diverse levels of ability and
151、preparedness to implement the final standards.How is IOSCO addressing the opportunities and risks from crypto-assets,stablecoin and DeFi activities?What are the next steps in the ongoing work of IOSCO in this area?Another area of focus for IOSCO is the regulation of crypto-assets in order to deal wi
152、th the severe investor protection and market integrity risks crystallising in this market.IOSCO has been,and continues to be,deeply involved in the global response to risks,issues and vulnerabilities in the crypto-asset markets,having first identified this area as a corporate priority in 2017.Follow
153、ing an intense period of regulatory risk analysis,information sharing and capacity building,where we concentrated on understanding market functioning and assessing the risks to our regulatory objectives,we have now shifted gears and have moved into policy development to address the very clear and pr
154、esent risks to investor protection and market integrity.Increasing numbers of securities regulators around the world agree that investor protection,market integrity and financial stability issues relating to crypto-assets are already within their regulatory remit.About a year ago,IOSCO established a
155、 Board-level taskforce to lead its regulatory policy agenda with respect to fintech,which consists of two work streams:Crypto and Digital Assets(CDA)and DeFI.In light of recent developments and the risks arising from intermediation and centralisation in the crypto asset market,we have accelerated wo
156、rk on CDA with a view to developing a detailed set of global principles for regulating crypto-assets and related service providers by year-end.In December 2022,the FSB Plenary re-emphasised the urgency of advancing the FSBs financial stability-focussed policy work programme,and that of the standard-
157、setting bodies like IOSCO,to establish a coordinated global framework of regulation and supervision for crypto-assets,including in non-FSB member jurisdictions.The complementarity of the expertise of central banks,securities and market regulators,and treasuries is more critical than ever.We are work
158、ing together in a collaborative spirit.We bear responsibility for translating the basic key tenets of our globally recognized standards for capital markets regulation to crypto-assets and their service providers.We examine substance over form when it comes to innovations,in order to focus on underly
159、ing economic attributes and behaviours and to deliver the right regulatory outcomes from a policy and implementation standpoint.Our policy approach follows the paramount principle of same activity,same risk,same regulatory outcome informed by our expertise as securities markets regulators.We will be
160、 issuing a public consultation in the coming months,which we expect to attract significant attention.I cannot emphasise enough the importance of delivering a coordinated and comprehensive framework for crypto-assets in a way that adequately protects investors.20|VIEWS|The EUROFI Magazine|Stockholm 2
161、023|OPENING INTERVIEWSWhat are your views on the prospects of the digital euro?What are the conditions to ensure consumer acceptance of this project?If properly designed the digital euro could boost digital financial inclusion,ensure privacy when paying online and create a non-commercial alternative
162、 for consumers in digital retail payments.However,we see strong pressure from the private sector to design the digital euro as a“business as usual”private digital payment method.This would not bring any added value for consumers.Instead,we are aiming for a digital euro which is a digital equivalent
163、of cash.This means that everyone should be able to use it,no matter their income,digital skills or disabilities.In practice this means that an inclusive digital euro relies on a dense network of ATMs and bank branches allowing consumers without digital skills or personal devices to use it and receiv
164、e personal support by bank staff.As for cash,there will be a systemic cost but using the digital euro should be free of charge for allconsumers.A digital euro should also ensure privacy by design and by default.We ask for full anonymity in case of low-value transactions and limits to transaction dat
165、a sharing in all cases.Money laundering preventions are of course a legitimate purpose but should not be used as an excuse to make payment data available to all sorts of commercial parties.Are the opportunities and risks from cryptoassets for retail customers appropriately addressed in the MiCA regu
166、lation?We need to be mindful of the fact that we are talking about very volatile products therefore from a retail investor perspective,it is extremely important to be aware of the risks they entail.MiCA is certainly a welcome step to ensure crypto markets are regulated and supervised.ESMA and the ot
167、her European supervisors have been looking at crypto already for a while,raising the alarm about the risks for consumers putting their money in crypto schemes,which are often presented as offering promising returns,when the reality has told a different story.In addition,we see more and more pseudo-f
168、inancial advisors on social media providing advice and guidance to consumers about crypto.We even see crypto advertising in football matches and billboards.This creates the wrong impression about what crypto really is and how risky is to invest in them without knowing or understanding the system.Thi
169、s is why we believe that we need to be even stricter about advertising and promotion of crypto across media and we hope the European Supervisory Authorities,together with the consumer authorities will take a strong stand to protect consumers against scams and misleading claims surrounding crypto.Wha
170、t are the key drivers for developing retail investment in the EU and the obstacles to overcome?The most fundamental and important issue is the quality of financial advice.Financial advice is essential,because consumers cant all be finance experts.They need assistance to find suitable products and th
171、ey rely on advisors to do so.Finance is a complex world full of jargon and educating consumers to help them navigate it will not boost participation on its own,unfortunately.We need to fix the market first to create the conditions that allow for more consumer engagement.We have concerns with the cur
172、rent advice system:“financial advisors”receive kickbacks from the industry for the products they sell,meaning they are sales agents rather than advisors.This leads to a conflict of interests:to earn money they must sell products,and its best for them to sell the product with the highest rate of indu
173、cements.The financial industry,Ensuring financial markets deliver for consumers:a work in progressQ&AMONIQUE GOYENS Director General-The European Consumers Organisation(BEUC)|Stockholm 2023|The EUROFI Magazine|VIEWS|21Q&A MONIQUE GOYENS who pay the“advisor”,take this money from the consumers investm
174、ent as product cost.This reduces the net-returns of the investment product,which is bad because returns are the point of investing in the first place.Higher inducements sell more products,but they decrease the quality of the products sold.This is adverse selection;the worst products get the most tra
175、ction.Accordingly,product quality is very poor in the EU,satisfaction on the consumer side is low and market participation is also low.This must change!We must ensure that all advisors are independent.We have done this already with other markets where consumers rely on experts:lawyers and doctors do
176、 not work for the industry but for theconsumer.The EU needs to fix the advice issue to be able to do meaningful work on other investment matters.For example:Disclosures could be designed to be much less burdensome and confusing,if there was less risk of advisors selling bad products.The Commission s
177、eems to be willing to propose the solution here:A ban on inducements.We strongly support this direction,and we support it as an absolute priority in investment issues.If we manage to take this step,we can then spend the next ten years finetuning a market where consumers choose with the help of advis
178、ors,instead of one where the industry chooses which products to push.What are the expected benefits and possible shortcomings of the Sustainable Finance Disclosure Regulation(SFDR)for retail investors?The CSRD will lead to a fundamental shift in the way companies report about their sustainability,wh
179、ich until now has focused mainly on financial figures.This would certainly be an improvement on the current state of affairs,as reporting is for now a mostly voluntary and unstandardised free-for-all,full of fluffy language,lofty promises and rife with social-and greenwashing.This will benefit consu
180、mers who want to invest sustainably.If,that is,the European Sustainability Reporting Standards,which set the rules of the game,survive the current industry lobbying onslaught that want to dilute them.Another disclaimer is that the CSRD only applies to companies that operate in the EU,but funds often
181、 invest into other world regions,too.It remains to be seen how solid the sustainability reporting for third-country companies will be in the future.As for the SFDR,it is currently severely flawed.It was meant to be a disclosure regulation,but has become a product standard and does not define sustain
182、able investment products in a sufficiently clear and rigorous manner to be able to do this.Everybody agrees that a legislative review is needed,but we do not expect that to happen before the next European Parliament and Commission have settled in.The SFDR should function as a genuine product standar
183、d by setting criteria and minimum requirements for different types of sustainable investment products.It should also define sustainable investment and the do-no-significant-harm principle in a rigorous manner that is consistent over the relevant EU laws,such as the Taxonomy and MiFID.We support curr
184、ent efforts by the European supervisory agencies to curb greenwashing in retail financial services,in particular ESMAs proposal to set minimum requirements for investment products with sustainability-related terms in their names.However,these can only be stopgap measures until a robust legal framewo
185、rk is in place.22|VIEWS|The EUROFI Magazine|Stockholm 2023|OPENING INTERVIEWSHow did the ultra-accommodating monetary policies of the last 10 years create the conditions for a financial crisis?The policy stance has been continuously accommodative and interest rates have been kept too low for two lon
186、g.Even if secular factors(ageing,globalization,)explain that interest rates have been declining,it remains that the Fed funds rate have been kept negative,in real terms for 20 years.After the worst was over after the Global Financial Crisis and the EU sovereign debt crisis,policy rates should have b
187、een gradually raised above zero.But monetary policies have been asymmetric especially in the euro area:as soon as the economy showed slight signs of weakening,monetary policy was immediately loosened while it was reluctantly tightened in case of overheating.The fear of deflation was overdone and was
188、 not based on objective facts(fall in prices never happened).Lasting very low interest rates favored the growth of debt,which reached unprecedented levels and increased financial leverage which undermined financial stability.A normal monetary policy includes the monitoring of credit growth in its in
189、dicators,but the credit growth rates for 20 years have exploded without control by the central banks.Between 2000 and 2019,M3 grew between three and four times faster than GDP,in the US(2.9 times)and in the Eurozone(3.8 times).But it is always the explosion of credit that is the source of financial
190、crises!The fact that central banks turned a blind eye to the explosion of credit is incomprehensible.This created the conditions for financial and real estate asset prices inflation and discouraged productive investment.The entire financial system and the real economy have been weakened over the las
191、t 20 years by this addiction to permanently zero interest rates.A Mc Kinsey report shows that 75 per cent of the trebling of net wealth observed in the global balance sheet over the last 20 years came from higher market valuations of“speculative”assets and only 25 per cent resulted in real investmen
192、ts and wages!Central banks were convinced that interest rates would remain at zero for a very long time,to the point that the markets were convinced of this.The risk of rising interest rates has even not been included in the US stress test in February 2022.They have therefore prepared the financial
193、crisis to come.Faced with inflation,which they wrongly considered to be transitory,central banks are raising nominal rates since several months,which reduced the value of fixed-rate bond portfolios.Risk management,and in particular interest rate risk,is becoming essential.This is where we are today.
194、Last but not least,instead of stimulating money creation and public debt,it would have been better to undertake structural reforms capable of increasing productivity and thus potential growth.The mistake that has been made for a very long time is to believe that the deficiency in potential growth li
195、es mainly in the insufficiency of demand,whereas this deficiency was and remains above all a problem of supply.When monetary policy is too lose,it damages aggregate supply.In the current macroeconomic context,what does normalizing monetary policy mean?Central banks must get out of the control of the
196、 yield curve.QE has been used and abused to reduce artificially long-term yields while such yields should be the result of demand and supply on the financial markets.If central banks were to reduce their balance sheet only in a limited or symbolic way,the excess liquidity which is the source of fina
197、ncial instability would persist.We need to stop telling fairy tales.We need to recognize that the policies that have been pursued over the past 20 years or so have caused serious damage to the soundness of the financial system.We must not cling to positions that have proven dangerous in an attempt t
198、o pretend that we were right all along.Central banks must get out of the control of the yield curveQ&AJACQUES DE LAROSIRE Honorary President-EUROFI |Stockholm 2023|The EUROFI Magazine|VIEWS|23Q&A JACQUES DE LAROSIREDenial is not a strategy.It is the recognition of the facts and the willingness to ge
199、t out of the problem that justifies public action.A gradual,but determined,return to a more traditional and sensible monetary policy is of the essence.It should:Restore the oversight of credit expansion.Reintroduce symmetry in monetary policy and not stimulate continuously.Not give the market a form
200、 of free insurance against possible losses;moral hazard has pleagued the system,upset the risk-reward relation and encouraged short term speculation.Be more careful on the risk of fiscal dominance;having created money to buy some 70%of GDP in the euro area,the central bank is getting so deeply invol
201、ved in fiscal affairs that its independence is questionable.Should refrain central banks from the temptation of being“popular”and having too many goals(green,social inclusion.)that are not at the heart of their primary mission which should be monetary and financial stability.But havent monetary cond
202、itions tightened much in the Eurozone since July 2022?This is not the case in real terms.It is true that central banks have raised their policy rates by 350 basis points in the euro area between July 2022 and March 2023,and by 475 basis points in the US between March 2022 and March 2023.Nevertheless
203、,real interest rates in the euro area are more negative than they were before the war in Ukraine.It seems difficult to fight inflation with such a debt premium.The ECB,for its part,bases its policy not on realised and observa-ble inflation but on the expectations of economic agents.Market expectatio
204、ns seem reassuring.However,there is a risk in relying on these expectations.Just because inflation expectations are lim-ited does not mean that they are accurate.These expectations are always subjective and rarely based on a rational forecast of future price increases.The investors interviewed are o
205、ften tempted to play down their expectations in order to reduce or hide the disadvantages that could arise from too much inflation.Having suffered only a part of the losses caused by the rise in rates(central banks having borne a third of them),investors even if they feel relatively“serene”,want to
206、stop the rise in rates.Investors are also influenced by the emblematic centrality of the 2%target,as created by central banks.It can also be shown that positive real interest rates would force over-indebted states to reduce their deficits and debts;savings would no longer be taxed but remunerated an
207、d medium and long-term investments would be encouraged because they would be remunerated.Zero or very low interest rates foster the“liquidity trap”as Keynes taught:they push households to choose increasingly liquid forms of savings and to move away from long-term investments whose risk is not remune
208、rated.Actually,the huge monetary and accommodative fiscal stances of the last decades have not led to productive investment or growth.How important is it to achieve a swift agreement on the reform of the EU economic governance framework in the coming months?When the house is burning(when deficits an
209、d public debt are increasing in certain countries),we must not postpone the arrival of the fire department(absence of European rules and endless discussion on the economic governance of Europe).This is the reason why an EU agreement on the reform of the economic governance framework needs to be achi
210、eved in the coming months.It is important to understand that if fiscal policies were to remain expansionary,central banks would have to tighten monetary policies even further to curb inflation and reduce inflationary expectations exacerbated by this fiscal stimulus.Moreover,as public debt ratios wor
211、sen,the problem of debt sustainability becomes more acute.Since the pandemic hit in 2020,the general escape clause of the Stability and Growth Pact has been applied and the Commission motivated the Member States to pursue an expansionary fiscal policy.Reacting to the economic consequences of the Rus
212、sian invasion of Ukraine,the European Commission postponed again the renewed enforcement of its fiscal rules by a year,to 2024.However,the problem of excessive public deficits and indebtedness of some EU Member States constitutes the central explanation for the financial fragmentation within the eur
213、ozone.Without an effectively implemented European fiscal framework,it is not possible to resolve this issue and thus to reduce the growing heterogeneity in terms of budget and debt between the virtuous states and the others.As we have observed,these fundamental problems have been with us for nearly
214、20 years and were not created by the war in Ukraine or the Covid crisis.These two shocks have exacerbated these problems but are not the cause.By renewing the suspension of European fiscal rules once again in May 2022,policy makers believed that they would have an easier time later.In reality,postpo
215、ning has solved nothing,and only complicated the resolution of problems that are likely to become even more acute.24|VIEWS|The EUROFI Magazine|Stockholm 2023|1ECONOMIC CHALLENGES AND IMPLICATIONS FOR FINANCE Implications of inflation and de-globalisation Stagflation threats in Europe Euro area econo
216、mic governance challenges Investment needs for the green transition Trends in the Nordic-Baltic |Stockholm 2023|The EUROFI Magazine|VIEWS|25WHAT ECONOMIC GOVERNANCE IN THE EURO AREA .26Pierre Gramegna-European Stability Mechanism/Vincent Van Peteghem-Ministry of Finance,Belgium/Gintar Skaist-Ministr
217、y of Finance of the Republic of Lithuania/Harald Waiglein-Federal Ministry of Finance,AustriaIMPLICATIONS OF INFLATION AND DE-GLOBALISATION FOR FINANCE .30Irene Tinagli-European Parliament/Emmanuel Moulin-Ministry of the Economy,Finance and Industrial and Digital Sovereignty,France/Vittorio Grilli-J
218、.P.Morgan/Kristine Braden-Citi/Odile Renaud-Basso-European Bank for Reconstruction and Development STAGFLATION IN EUROPE:WAY FORWARD.36Axel A.Weber-Center for Financial Studies/Alfred Kammer-International Monetary Fund/Declan Costello-European Commission/Michala Marcussen-Socit Gnrale/Dino Kos-CLSFO
219、STERING INVESTMENT IN THE GREEN TRANSITION .42Mindaugas Liutvinskas-Ministry of Finance of the Republic of Lithuania/Ludk Niedermayer-European Parliament/Harald Waiglein-Federal Ministry of Finance,Austria/Niall Bohan-European Commission/Cornelia Andersson-London Stock Exchange Group/Pier Carlo Pado
220、an-UniCredit S.p.A./Debora Revoltella-European Investment Bank/Philippe Blanchot-Caisse de Dpts GroupKEY TRENDS IN THE NORDIC-BALTIC FINANCIAL SECTOR .50Henrik Braconier-Swedish Financial Supervisory Authority/Lga Klavina-Ministry of Finance of the Republic of Latvia/Carl Magnus Magnusson-Organisati
221、on for Economic Co-operation and Development/Bjrn Sibbern-Nasdaq/Roger Storm-Euroclear Sweden AB/Erik Savola-CitiECONOMIC CHALLENGES AND IMPLICATIONS FOR FINANCEWHAT ECONOMIC GOVERNANCE IN THE EURO AREAOver the past 15 years,the euro area has been confronted with several crises.Unwavering determinat
222、ion,new tools,institutional reforms,and an increasing degree of solidarity have helped the euro area overcome these crises and become moreresilient.Following the severe pandemic-induced recession,the euro area experienced a strong economic rebound before waking up to the horrors of war at its doorst
223、ep.Beyond the unbearable human toll it has been engendering,the war on Ukraine has also significantly exacerbated inflationary pressures that had emerged during the COVID-19 crisis.Despite this new shock,the euro area narrowly escaped a new recession.Even so,challenges remain.While headline inflatio
224、n is receding,it remains elevated and core inflation has remained uncomfortably sticky.Both the pandemic and the energy crisis have required substantive fiscal stimulus,thereby augmenting public debt.In the short-term,this increase doesnt pose an imminent risk,as governments have been able to lock i
225、n their refinancing at very low rates during an extended period.However,as interest rates go up,vulnerabilities will increase over time.While economic policies did reinforce each other during the pandemic,the current economic context necessitates a new alignment between monetary and fiscal policies.
226、Government spending needs to remain in check to avoid undermining the effective transmission of monetary policy.In the same vein,prudent fiscal policies are imperative to safeguard debt sustainability over the medium-term.Against this backdrop,the ongoing reform of the EU fiscal rules is crucial.Wit
227、h the general escape clause phasing out by the end of this year,time is of the essence.Reverting completely to the old set of rules would entail a clear risk:imposing an overly ambitious consolidation path on countries with higher debt level and thereby confronting them with unwarranted economic har
228、dship.This would not only weaken these member states,but also the euro area as a whole.The future fiscal framework will need to include several features so it can better serve its purpose:First,it will have to be transparent.Making rules less complex automatically leads to increased transparency.In
229、this regard,setting targets in the form of simple and observable variables that are under the direct control of governments would help considerably.Second,the framework needs to gain in credibility.Once agreed,all parties will have to abide by the rules.If not,trust in the system will be undermined
230、and fail to send reliable signals to the markets.Third,the reformed framework should be based on the clear tenet that any debt consolidation path should reconcile both stability and growth.Both should go hand in hand.This would foster ownership and generate superior outcomes.Finally,the emphasis sho
231、uld be on“sustainable”growth,as sustainable growth constitutes a strong foundation for stability.The European Commissions communication on orientations for a reform of the EU economic governance provides a good basis for discussion.The proposal incorporates many of the features that policymakers,aca
232、demics and analysts have been calling for in recent years.It represents a welcome step forward with its medium-term orientation and the move toward observable fiscalvariables.The consideration of members states different starting points and the possibility to lengthen adjustment paths by up to three
233、 years to implement reforms and make investments are also welcome.Yet,such reforms and investments should be well-planned and growth-enhancing to justify longer adjustment paths.This reform is critical from the standpoint of the ESM because it has several implications for its work.First,debt sustain
234、ability,which is central to the Commissions proposal,is at the core of the ESMs work.Unsustainable public debts put at risk financial stability,the safeguard of which is the ESMs primary mandate.Furthermore,access to ESM financial assistance,particularly its precautionary credit lines,is tightly lin
235、ked to criteria related to EU fiscal rules.Finally,the ability of the ESM to track countries ability to repay their ESM loans the so-called early warning system is inextricably linked to post-programme surveillance,which is also addressed in the Commissions communication.Agreeing on a reformed fisca
236、l framework that strikes the right balance between sustainable growth and stability is key to make the euro area prosper and become even more resilient.Thecoming months present a unique window of opportunity to do so.PIERRE GRAMEGNAManaging Director-European Stability Mechanism(ESM)The reform of the
237、 EU fiscal rules:time is of the essence26|VIEWS|The EUROFI Magazine|Stockholm 2023|WHAT ECONOMIC GOVERNANCE IN THE EURO AREAThe European budgetary rules have been temporarily put on hold due to the severe energy and purchasing power crises,allowing Member States to support households and companies.B
238、ut starting in 2024,we will again fall under this EU framework.Thirty years ago,the Maastricht Treaty created those debt and deficit rules.Because a monetary union without a full-fledged budgetary capacity,requires at least some stringent budgetary coordination.But up to now,those European debt rule
239、s have not been a great success.The major starting point of those rules was its countercyclical nature:building up buffers in good economic times that can be used during economic downturn.However,recent decades do not show this in practice.In periods of economic prosperity,we did not build up suffic
240、ient buffers.And after the 2008 financial crisis Member States put in place austerity measures,that additionally caused a drop in public investment rates.So the existing European budgetary rules did not work in the past,and would not do so in the future.Because these rules do not take into account t
241、he different foundations on which our economies are built.They do not recognize the heterogeneity of economic and fiscal performance between euro area countries.One-size clearly does not fit all,when it comes to debt reduction trajectories.Moreover,the budgetary rules are not adapted to the current
242、macro-economic environment.The average public debt ratio of euro area countries has been close to 100%of GDP over the lastyears.The European fiscal framework sets the pace(1/20th rule)at which Member States must reduce their debt levels to the 60%benchmark(the average when the rules were created in
243、1992).For many Member States,that pace is far too high,making compliance unachievable.In order for the rules to be applied,they should at least be realistic.Therefore,more than ever,a thorough reform of those rules is needed.Of course,the starting point of the European fiscal rules remains unchanged
244、:we need sustainable debt ratios in the medium and long term.This should ensure the smooth functioning of our monetary union,and ensure governments find funds on financial markets at reasonable rates.But the current rules did not manage to keep debt ratios under control.The current focus is too one-
245、sided.In addition to a healthy budget,we also need a strong economy.Productivity and future economic growth-through investments and reforms-must also have their place.Because those also have a positive effect on future debt levels.In order to incorporate reforms and investments into the European fis
246、cal framework,I plead for a commitment-based approach which could be based on the RRF mechanism.Member States could set up a package of investments and reforms according to their country-specific needs.This could create more ex-ante flexibility,by giving governments the possibility to extend their d
247、ebt reduction trajectory,in exchange for this package of investments and reforms.But ex-post,this RRF mechanism will also enhance compliance,due to strict control of this package.The eligible investments allowing for a prolonged debt trajectory need to be of high-quality and should be growth-enhanci
248、ng.This requires a clear labelling of investment,preferably by independent EU institutions such as for example the European Fiscal Board.Moreover,those labelled investments would need approval by the Member States.This more country-specific approach will not only create more ownership for Members St
249、ates,it will also encourage Member States to see debt reduction,investments,and reforms as one package for increasing the resilience of their economies.Therefore,our future budgetary framework should shift away from the one-sided focus on debt reduction,towards a tripartite European budgetary framew
250、ork with a focus on nd debt reduction nd investments nd reforms.VINCENT VAN PETEGHEMMinister of Finance,BelgiumTowards a tripartite framework:with debt reduction,investments,and reformsWe need a tripartite budgetary framework with a focus on debt reduction,investments and |Stockholm 2023|The EUROFI
251、Magazine|VIEWS|27ECONOMIC CHALLENGES AND IMPLICATIONS FOR FINANCEIn todays environment,marked with russias unjustified war against Ukraine,ensuing inflationary pressures,lasting negative effects of the pandemic,risks stemming from climate change and other challenges,review of EU fiscal framework may
252、 seem as a rather technical issue.Yet it could not be further from truth.Revision of the European fiscal ruleset could and should become part of the solution to these numerous challenges enabling governments response in terms of enhancing resilience and growth potential of our economies,while safegu
253、arding the overarching objective of fiscal sustainability.With the challenging landscape,there is room for optimism.We see that in principle agreement on key pillars of the economic governance review proposal put forward by the Commission is emerging.The proposed new framework is rightly focused on
254、a risk-based approach,with the central aim to boost domestic ownership.It also outlines a delicate balance between incentives to implement growth-enhancing reforms or investments,and commitment to credible debt reduction paths in high debt Member States.The fine line between tailored country-specifi
255、c solutions and multilateral character of the fiscal framework still needs to be drawn,but the direction of travel is overall appropriate.In this regard,a key issue is to ensure that the reviewed framework does not leave low debt Member States beyond the radar screen.A strong preventative element is
256、 needed in the system,in order to prevent unwarranted build-up of debt levels.Otherwise we face a risk that in several years time the currently low risk countries may jump into the medium or high risk basket.This would not be the envisaged outcome of the economic governance review.Having said this,i
257、t is important to ensure that national Governments retain the right to decide on concrete policy instruments and their design,as long as the agreed fiscal targets are met.Furthermore,a differentiated framework brings risks to transparency and equal treatment of Member States.To mitigate these risks,
258、transparency is key,as it helps build trust.Especially,given that the new system would likely be based on debt sustainability analysis(DSA)as its key pillar.It is crucial to ensure that the underlying DSA assumptions are clear and agreed upon in advance,with the exercise itself replicable.In this re
259、gard,a stronger role for the European Fiscal Board should be explored.For instance,it could provide an independent verification of the DSA,which would form the basis of Member States fiscal path.No matter how well designed rules are on paper,if we do not implement them in practice,we will not reach
260、the envisaged effect be it increasing long-term fiscal sustainability or enhancing resilience and growth potential of our economies.In this respect,effective enforcement is critical.We need to de-stigmatise financial sanctions and not be afraid to use them.Also,a higher degree of automaticity in app
261、lying the sanctions is necessary especially if a Member State deviates from the approved(extended)fiscal adjustment path or fails to implement the agreed reforms.Finally,while providing de facto more room for growth-enhancing and green investments,we must not forget about the current geopolitical co
262、ntext,which dictates the need to invest heavily in boosting our defence capacities.Guarding against an existential threat cannot be lost in scrutiny of debt sustainability.This new reality must be reflected appropriately in the new framework.To conclude,we have to aim for transparent and realistical
263、ly applicable fiscal framework leading to fiscal sustainability,including through growth-enhancing reforms and investment.We are on good track and I see all preconditions to complete this review by the end of this institutional cycle.GINTAR SKAIST Minister of Finance of the Republic of LithuaniaThe
264、new fiscal framework should help overcome EUs challengesGuarding against an existential threat cannot be lost in scrutiny of debt sustainability.28|VIEWS|The EUROFI Magazine|Stockholm 2023|Even before the pandemic crisis,the fiscal position of EU member states was quite heterogeneous.Countries enter
265、ed the recent difficult years with different levels of government debt and deficit.There was thus very different fiscal room for manoeuvre to cope with some common,but also some quite diverging challenges.For a long time,financing conditions were favourable due to a low interest rate environment.The
266、 window to buy time for reforms and adjustment to enhance resilience and create buffers is now closed again.The ECB cannot raise interest rates as vigorously as it would like in its fight against high inflation because it has to take account of countries with high debt levels.But what is even less f
267、easible is to lower the rates,at it would risk de-anchoring inflation expectations.Fiscal policy has sometimes relied too much on“low for long”,which reminds us that fiscal and monetary policies must always be well coordinated.And the inability to properly co-ordinate on measures to cushion the ener
268、gy price hike has its roots also in the General Escape Clause.It shows that a fiscal framework that ensures the sustainability of public finances is a key element of the economic architecture of the EU.Alternative narratives have not passed the reality-check.High deficits did not buy-in voters,nor m
269、arkets.With the presentation of the European Commissions ideas for a new EU economic governance framework last November,we have entered into concrete and intensive negotiations on a new Pact,taking into account shortcomings of the current framework.As the ECOFIN Council Conclusions of mid-March say,
270、we still have a lot of work to do and further clarifications and discussions are needed.And that brings us to what I see as the key points for a possible reform of the Pact and for further clarification:My first point concerns the agreement already reached by the Council to maintain the 3%deficit an
271、d 60%debt reference values.I am very satisfied with this agreement.These two targets are important reference points that are easy to communicate and clarify the direction in which public finances must move.My second point concerns the proposed possibility of extending the consolidation period if ref
272、orms and investments meet certain criteria.It will be important to work out clear criteria to distinguish between productive and sustainable investments and those that are not.We have to take a holistic view,because it is not only the amount of public investment that counts,but also the“right invest
273、ments”and the institutional environment.We should also focus more on the composition and quality of our budgets and transparency as regards implementation.For structural reforms,that are certainly urgently needed in many countries and areas,it is important to ensure that they are implemented at the
274、beginning of the adjustment period.In a new framework,we should generally adopt the approach of performance first.Not first the reward for a promise that may never be kept.Third,it has been and remains one of our central demands that we only agree to more flexibility,if enforcement is strengthened a
275、t the same time.After all,the weak enforcement of the Stability and Growth Pact in the past is one of the main weaknesses of the current fiscal framework.The design of a fiscal framework is essential for shaping expectations of politicians and market participants.No less important is the actual enfo
276、rcement of the fiscal requirements.To ensure maximum compliance,the actual Pact is equipped with a sanction mechanism.But so far,no fiscal sanctions have been imposed.We need to define more“effective”sanction rules.I can well imagine that we will reduce the size of the fines to make them politically
277、 easier to enforce.And we certainly also need to improve enforcement mechanisms.My final message is about the special role of common fiscal rules for the euro area.I am generally in favour of stricter rules for euro area countries,with a focus on those with very high debt ratios.As regards the futur
278、e of the Economic and Monetary Union and the repeated demand of the ECB and others,namely the establishment of a central fiscal capacity,I am very sceptical that this will solve our problems.If we use the enormous financial resources of the Recovery and Resilience Facility effectively and efficientl
279、y,and if all EU countries adhere consistently to the common EU fiscal rules,then we will not need a common borrowing capacity.In conclusion,I hope that we will soon see concrete progress.It is high time that we start to move out of the vacuum of applied fiscal surveillance that has now existed for s
280、everalyears.HARALD WAIGLEIN Director General Economic Policy,Financial Markets and Customs-Federal Ministry of Finance,AustriaA new economic governance framework:finally playing by the rulesWe have to play by sound and enforceable rules again.The sooner,the |Stockholm 2023|The EUROFI Magazine|VIEWS|
281、29WHAT ECONOMIC GOVERNANCE IN THE EURO AREAECONOMIC CHALLENGES AND IMPLICATIONS FOR FINANCEIMPLICATIONS OF INFLATION AND DE-GLOBALIZATION FOR FINANCEIRENE TINAGLIChair of the Committee on Economic and Monetary Affairs-European ParliamentCoordination is the magical word at this timeAfter more than a
282、decade with price changes almost permanently below the European Central Banks target,in the last year we have been faced with a sudden and unexpected increase in inflation.While at the beginning this increase was mainly driven by a sharp rise in the price of energy raw materials,only partly justifie
283、d by actual mismatches between supply and demand,as the months go by,inflation seems to be driven by endogenous factors,among which emerges in particular an average increase in mark-ups,albeit with a strong heterogeneity between countries,sectors andindustries.At first glance,inflation and negative
284、real interest rates may appear to be a big opportunity for some sectors,especially the financial sector.However,as time goes by,inflation is not a good deal even for banking and finance.Indeed,the longer a period of inflation lasts,the more difficult it is for investors to predict future price trend
285、s.As a reaction,they shorten the time horizon of their choices.The result of this process may be a progressive drying up of medium and long-term financial markets and of investment.All of this may shorten the average duration of financial and non-financial investment,thus determine a negative impact
286、 on potential economic growth.The fight against too-high inflation is therefore crucial.The ECB has taken up its role and engaged in raising the interest rates and in monetary tightening.What is important is that we should not be too demanding on what monetary policy can do in this context.If we giv
287、e the idea that central banks can always have full control of inflation,we might risk endangering their credibility and therefore their own effectiveness.We should not ask them too much,but we have to ask them what is right.Coordination is the magical word at this difficult time.However,coordination
288、 can be understood in different ways.First,coordination among central banks at international level.As the most recent OECD economic outlook shows,when all central banks hike interest rates simultaneously,the negative impact on GDP is larger but the impact on inflation is smaller because the foreign
289、exchange channel is muted.Coordination would therefore be essential,although we all know that it is historically extremely difficult to get.Second,coordination between fiscal and monetary policy.By its nature,fiscal policy can be more targeted than monetary policy and therefore may help households a
290、nd firms to face extra-large energy bills and can reduce possible second round effects on wages,making central banks task easier.Monetary and fiscal policy can be synergic in the sense that if you use both,you can use less of each if taken alone.Of course,the coordination of monetary and fiscal poli
291、cy is not easy too,in particular in the European Union where monetary policy is centralized while fiscal policies are left entirely to individual Member States.However,an uncoordinated solution may have a strong negative impact on real economy as well on financial stability.Third,coordination within
292、 Member States or within the Union.The risk of price-wage spiral is not a monetary problem.It is a distributional conflict.As Olivier Blanchard recently explained,this conflict stops only when the various players are forced to accept the outcome.Forcing the players to accept the outcome,and thus sta
293、bilizing inflation,is typically left to the central bank.By slowing down the economy,it can force firms to accept lower prices given wages,and workers to accept lower wages given prices.In this perspective,leaving the fight against inflation entirely to central banks is probably not the most efficie
294、nt way to stop prices increase.Other policy tools might be useful to resolve this distributional conflict without necessarily having to go through a major recession.Last,but not least,coordination is important on a broader international level,in particular with regard to the Inflation Reduction Act(
295、IRA)adopted in the United State and other measures that might have the effect of trade barriers or incentives to delocalize Europes renewable energy industry.While IRAs objective is to promote clean production and innovation in clean technology,and to accelerate climate efforts,some component of tha
296、t act and the large amount of funding mobilized might pose challenges for transatlantic trade and investment.It is therefore important that the European Commission works for a mutual agreement with the US Administration based on the strong relationship/ties we share.As time goes by,inflation is not
297、a good deal even for the financial sector.30|VIEWS|The EUROFI Magazine|Stockholm 2023|Stockholm 2023|The EUROFI Magazine|VIEWS|31IMPLICATIONS OF INFLATION AND DE-GLOBALIZATION FOR FINANCEEMMANUEL MOULINDirector General of the Treasury-Ministry of the Economy,Finance and Industrial and Digital Sovere
298、ignty,FranceThe case for a European financial strategic autonomy is more relevant than everIn April 2022,under the French Presidency,the Council adopted ambitious conclusions on European financial strategic autonomy.Such conclusions were based on the consensus that the EU faces massive financing nee
299、ds for the transition to a sustainable economy,estimated at 350 bn additional financing every year until 2030,which requires a mobilization of the private sector.One year later,the need for true strategic autonomy is more relevant than ever as the situation on financial markets has deteriorated and
300、given protectionist tendencies in the world.First,the economic context has profoundly changed.Geopolitical uncertainties triggered by Russias war in Ukraine,the deterioration of the economic situation and the tightening of monetary policy have affected the European financial sector.It led to an incr
301、ease of the interest income earned by financial institutions,but also to a renewed cautiousness in asset prices,particularly in the loan portfolios of lending institutions,and emerging vulnerabilities of the non-bank financial sector,due to potential market corrections.The recent stress that followe
302、d the collapse of the Silicon Valley Bank and the takeover of Crdit Suisse has added further market pressure on the European financial sector.Nevertheless,European banks are generally in a very strong position when it comes to capital and liquidity.French banks are also well preserved from credit ri
303、sk,and deposits are stable thanks to fixed rates,regulated savings and macroprudential framework.It also shows that when confidence is at stake,we are as strong as our weakest link.This is the best reason not to go for a two-tier system in banking regulation.But this is also true of supervision,and
304、here as well we are better off the progress made with the implementation of the SSM:quality of supervision is key,and Europe is well endowed in this regard.Second,the Inflation Reduction Act,signed into law last August in the United States,has underlined the acute need to develop and target addition
305、al financing solutions for the transition in the EU.As the US proposal aims to catalyze investments in domestic green technologies through significant federal funding.In February,the European Commission presented a Green Deal Industrial Plan to enhance the competitiveness of EUs net-zero industry,wh
306、ich included public support to unlock huge amounts of private financing,and included legislation covering technologies that significantly contribute to decarbonization.Overall,according to estimates,the EU will mobilize 400-500 bn over 2021-2027.From these observations,I draw the urgent need of a co
307、ordinated response at European level.In the short-term,the priority is to reach an agreement on banking and insurance regulations,which will increase further their resilience while ensuring their capacity to provide sufficient financing to the European economy:in the current juncture,both aspects ar
308、e needed at the same time.This should be complemented by resolute actions to complete the Banking Union,which will further strengthen the resilience of the overall EU banking system and reduce perceived risks for savers and investors.As a first step,we look forward to the Commissions proposal on the
309、 crisis management framework.In addition,the launch of a European Sovereignty Fund,to finance joint EU projects in clean technologies,would certainly help to unlock private capital to reach the goals of the Green Deal.In order for such plan to be a success,it is even more critical to ensure that EU
310、and national governments put in place conditions to build a strong and competitive European home-market for financial services.Such home-market is best-placed to support EU strategic goals,by complementing public money and ensure that European private pools of capital can meet the European economys
311、strategic financing needs.To ensure that capital is appropriately channeled towards strategic and sustainable activities,the legislative proposals on Capital Markets Union must be completed before the end of the current legislative cycle.It will help to diversify the sources of capital,increase reta
312、il participation and better channel long-term capital towards riskier projects.The Capital Markets Union should catalyze the EU sustainable finance framework and support allocation of financial flows towards sustainable activities.In addition,trust from retail investors on green financial products s
313、hould be increased,by addressing greenwashing concerns and their long-term detrimental effects.National measures could also help channel private capital towards long-term ESG funds.Mobilizing these levers could unlock the financing needed for the ecological and digital transition without interruptio
314、n.In short,we are already well equipped to weather the current turmoil and uncertainties,but we should definitely take a very proactive stance to strengthen the European financial sector as a key means of funding the future.The IRA has underlined the urgency for the EU to unlock additional financing
315、 for its transition.ECONOMIC CHALLENGES AND IMPLICATIONS FOR FINANCEVITTORIO GRILLI Chairman of the Corporate&Investment Bank,EMEA-J.P.MorganInflation,de-globalisation and the provision of finance in the EUInflation and de-globalisation are two macro-trends impacting the financial sector.Policymaker
316、s should keep these in mind as we consider priorities for the next EU legislative cycle.InflationThe Eurozone is still experiencing higher than expected inflation into early 2023.This is likely due to lagging effects of the war-induced energy crisis from last year,which itself came on top of COVID-i
317、nduced supply chain issues and post-lockdown reopening effects.For example,the Eurozone is likely only now seeing the effects of high gas and electricity prices on processed food,while unprocessed food price inflation has declined.Negotiated wages have also remained on an upward trend in recent mont
318、hs,which might lead to continued services price inflation.These lagging effects should be temporary,meaning over the medium term,I would expect Euro area inflation to gradually return to its 2%target.The banking sector is already seeing some effects of recent inflation following several years of exp
319、ansive monetary policy.Some of the large amount of government debt in the market has ended up on the asset side of banks,especially as such debt has been considered highly liquid by regulators,carrying very low capital requirements due to its supposedly risk-free nature.The recent moderation in macr
320、oeconomic policy,including a reversal of asset purchases and higher rates,should have normally helped an ailing banking sector with increased spreads.However,the rapid rise of interest rates has also placed heightened focus on the potential for a deterioration in the fair value of held-to-maturity p
321、ortfolios,including those which are composed of risk-free government debt.This should give pause for thought on how risk-free debt is treated.Rising rates also hurt certain banks more acutely where interest rate risk was not appropriately managed and which had a highly concentrated and flighty depos
322、it base.While the regulators and the industry have made considerable progress with regards to improving the resiliency of the banking system through more stringent capital,liquidity and other requirements,particularly for the worlds largest banks,there is more work to do to ensure that the right set
323、 of requirements are applied to institutions of different sizes.De-globalisationThe recent banking troubles are a reminder of problems with high inflation.However,a trend towards de-globalisation could act as an obstacle to a return to pre-COVID and pre-war levels of low inflation.Empirical evidence
324、 is clear that globalisation,especially in the case of European trade with Asia,has had an important deflationary effect over the past decades.Reversing this trend will likely keep inflation higher than it otherwise would have been.Arguments for strategic autonomy are based on increasing the EUs res
325、ilience in specific strategic sectors,where trade flows should no longer be the main determinant for openness.The experience of COVID has shown where Europe has vulnerabilities in some of its external dependences.However,applying the EUs strategic autonomy objectives in the financial sector should b
326、e handled with care.By their nature,banking and financial markets increase their resilience and quality through the strength and breadth of their network.The more national they are,the less resilient they are.The transatlantic nature of financial markets is a sign of strength.Part of a concern about
327、“reliance”on US banks relates to the incorrect perception that all non-EU banks retreat to their home markets in times of crisis.However,the opposite has happened.For example,JPMorgan increased lending by 20%during COVID in 2020.Similarly,non-EEA firm market share in syndicated lending was more-or-l
328、ess stable between 2019(36%)and 2020(33%).Rather than retreating,the participation of global firms in the EU system brings added competition and market depth,to the benefit of EU clients.The EU should remain open to international financial markets,which fortifies its resilience.Policymakers should k
329、eep this in mind when looking towards the next EU mandate.The objectives of the Capital Markets Union(CMU)open and integrated EU financial markets should be taken forward with even greater levels of ambition.Recent events have shown how more diversified sources of financing in the EU and relatively
330、less dependence on bank funding increase resilience.Good progress has been made since the European Commissions 2015 CMU Green Paper,including on covered bonds,private pensions,long-term investment vehicles and listing rules.Going forward,fundamental securi-tisation reform should be a key part of the
331、se efforts to reduce pressure on banks and open up lending to help support the economy.Inflation and de-globalisation will impact financing in the EU.Policymakers should therefore ensure they draw the right lessons for the sake of financial stability and growth as they consider priorities for the ne
332、xt EU cycle.The EU should remain open to international financial markets,which fortifies its resilience.32|VIEWS|The EUROFI Magazine|Stockholm 2023|Stockholm 2023|The EUROFI Magazine|VIEWS|33IMPLICATIONS OF INFLATION AND DE-GLOBALIZATION FOR FINANCEKRISTINE BRADENHead of Europe and Chief Executive O
333、fficer of Citibank Europe plc-CitiAccess to global finance supports a strong autonomous EuropeThe global economy is going through a challenging time-again.A broad-based economic slowdown,with inflation higher than in multiple decades,the cost-of-living crisis,tightening financial conditions and Russias invasion of Ukraine,all weigh on the outlook.All of that was before the fate of SVB rattled ma