Keynote Speech by IMF Managing Director Kristalina Georgieva at the EU Parliamentary Conference
*As prepared for delivery*
Thank you for the opportunity to address you today.  As EU Commissioner I benefitted from interactions with this Conference and am honored to join you again at this critical time.
Jean Monnet once said: “People only act in a state of necessity and usually only recognize necessity in a situation of crisis.”
We are in a crisis and it is time for action.  In 2020, 90 percent of the countries finished the year with a smaller economy than at the start of it — the worst performance the world has had during peace time.  But it could have been much worse.  Exceptionally strong and coordinated actions by central banks and by finance authorities have played a critical role in mitigating the human and economic impacts.
I want to pay tribute to Christine Lagarde and the ECB for reacting swiftly with extraordinary policy accommodation, and to all the governments of the EU for putting in place massive fiscal support of over 3 trillion euros for firms and households, including job-retention schemes that helped over 54 million workers. And the Next Generation EU initiative is a remarkable achievement in joint mobilization of funds.
These actions—together with unprecedented scientific advances on vaccines and treatments (many home-grown in Europe) and progress in applying masks, social distancing, testing and contact tracking—have helped stabilize the economy and move the world and the EU towards recovery.
Currently, we are projecting global growth of 5.5 percent and 4.2 percent in the EU this year. But the path to recovery is highly uncertain and, most importantly, uneven.  Uncertain because of the ongoing race between the virus and the vaccines.  Uneven because of the difference in starting positions, economic structure and capacity to respond – causing inequalities to grow both across and within countries.
The latter is my deepest concern: that the Great Lockdown of 2020 could morph into a Great Divergence in 2021.
Divergence is most profound in the developing world where half of the countries that used to catch up in income levels with their wealthier peers are now falling further behind. But it is a risk for the EU as well.  Traditional tourist destinations have experienced much sharper contractions—more than 9 percent last year in Spain, Greece, and Italy—compared to an average contraction of 6.4 percent across the EU.
And we project that by the end of 2022, per capita income for the emerging markets of Central and Eastern Europe will be 3.8 percent below pre-crisis projections, compared to a shortfall of just 1.3 percent for the EU’s advanced economies—a negative impact almost three times larger that will slow the pace of convergence.
We also see increasing divergence within countries, in the form of worsening inequality.
Regions with lower GDP per capita went into the crisis with lower productivity, larger contact-intensive sectors, and fewer jobs that allow for remote working—so they have been hit all the harder. Millions of jobs have been lost, with women and young people suffering the most, especially those with lower incomes and savings.
So: the big question facing EU policymakers is: how can we ensure a strong recovery and tackle this threat of divergence?
First—end the health crisis. This year, vaccine policy is at the heart of economic policy, in Europe and around the world. Until we defeat the pandemic everywhere, we risk new mutations that threaten our progress. 
Scaling up production and distribution of vaccines is critical. So too, is additional financing to secure doses and pay for logistics, as well as timely reallocation of excess supplies. This requires cooperation. 
Second—fight the economic crisis. Until the pandemic is defeated, support for firms and households should continue.  Gradual withdrawal has to follow, not precede, a durable exit from the health crisis. It matters internally, and also in terms of spillovers – a premature tightening of policy when worse-hit economies are still deeply fragile could exacerbate divergence between countries.
While now is not the time to withdraw support, it is the time to ascertain the strength of insolvency regimes.  Massive support in 2020 led to lower than average bankruptcies.  Once support declines and with structural change accelerating, the risk of a higher rate of debt defaults will go up.  Insolvency arrangements and greater emphasis on equity support could help prevent debt overhangs and ratcheting bankruptcies.
Third—and most important over the long run—harness the response to the crisis to spur structural shifts to digitalization and greening, and power up Europe’s convergence engine.
A coordinated green infrastructure investment push is a must. Our analysis shows that this could boost global GDP over a 15-year period by about 0.7 percent each year, creating millions of new jobs. Carbon pricing can help repair fiscal balances, channel private investments into green sectors, and deliver substantial emissions reductions.  Increased access to high-speed internet in rural and underserved areas would raise productivity.  Education spending and job training programs would build the skills needed for a digital and green age.
And Europe can step up reforms to address persistent structural challenges. The Next Generation EU can be more than a catalyst for economic transformation: it is a forerunner to new shared fiscal tools to complement the ECB’s single monetary policy.  The EU can take further steps towards banking and capital market union to spur growth and integration.  And efforts to make international corporate taxation fit for the digital age can help boost revenues and address inequality.
Let me finish with a word of thanks for your support to the work of the IMF in this crisis.
From the outset we swiftly recalibrated policy advice.  Our message “Spend but keep the receipts” was unusual for the Fund, but appropriate for this crisis.  And we put our money where our mouth is.  We provided over $105 billion in new financing to 85 countries—including in Europe, to Albania, Bosnia and Herzegovina, Kosovo, Moldova, Montenegro, North Macedonia, and Ukraine. 
We adjusted our capacity development work to the needs and modalities of work during the pandemic. We strengthened focus on inclusive growth—especially with our European partners—on issues like progressive taxation and social spending.
And we have stepped up work on climate change — which is not only a threat to economic and financial stability, but also an opportunity for green growth and jobs.  Our analysis of policies to reach the EU’s ambitious carbon emission reduction goals shows our commitment to put climate change at the heart of our work.
We are working closely with the EU to do more for low-income countries—they face painful choices between tackling the health crisis, meeting peoples’ basic needs, and fostering macroeconomic stability and boosting public investment that are essential for sustainable growth.
EU citizens can be proud of their assistance to vulnerable countries during this crisis. You have backed up all our efforts and have contributed to our debt relief and concessional lending capacity.  And you are seeking ways for us to do more, including through a new SDR allocation to boost reserves without compounding debt burdens.  I greatly appreciate EU finance ministers’ support in this regard.
You can count on us. As we count on you.
The European Union was one of the best inventions of the 20th century.  Its values of solidarity and inclusion remain the 21st century’s best hope.
Compliments of the IMF.
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Today, the Commission presents an Action Plan on Synergies between civil, defence and space industries to further enhance Europe’s technological edge and support its industrial base. The Action Plan is devised against the background that, for the first time, EU funding presents opportunities to reinforce European innovation by exploring and exploiting the disruptive potential of technologies at the interface between defence, space and civil uses, such as cloud, processors, cyber, quantum and artificial intelligence.
Margrethe Vestager, Executive Vice-President for ‘a Europe fit for the Digital Age’, said: “With the European Defence Fund we have a strong potential for synergies between innovation in space, defence and civil research & innovation. We need this for a number of critical technologies. This action plan is a systematic and methodological approach to synergies in critical technologies across the three worlds. The idea is for innovations to systematically reach multiple uses by design. And to allow tapping into the huge innovation potential of researchers and start-ups.”
Thierry Breton, Commissioner for Internal Market, said: “Making the most of the European Defence Fund and ensuring strong synergies between defence, space and civil technologies will generate disruptive innovations and allow Europe to remain a global standard setter. It will also reduce our dependencies in critical technologies and boost the industrial leadership we need to recover from the crisis.”
The main goals of the Action Plan are to:

Enhance the complementarity between relevant EU programmes and instruments covering research, development and deployment to increase efficiency of investments and effectiveness of results (the synergies);
Promote that EU funding for research and development, including on defence and space, has economic and technological dividends for European citizens (the spin-offs) and;
Facilitate the use of civil industry research achievements and of civil-driven innovation in European defence cooperation projects (the spin-ins).

With these goals in mind, the Commission announces eleven targeted actions that focus on the interplay between civil, defence and space industries. In particular, they:

Create a framework that enhances synergies and cross-fertilisation among all relevant EU programmes and instruments, for example in the field of digital, cloud and processors;
Frame in a systematic and consistent way the development of critical technologies with first the identification of critical technologies and future capability requirements and then the development of technology roadmaps. Finally, the launch of flagship projects aims to reduce dependencies, foster standardisation and interoperability, stimulate cross-border cooperation, create new value chains and answer to societal and EU strategic needs;
Support, throughout the Union, innovation from start-ups, Small and Medium Businesses (SMEs) and Research and Technology Organisations (RTOs), by facilitating their access to new opportunities, including by setting up an ‘innovation incubator’ network;
Prepare for the launch of three flagship projects with the potential to become game changers: drone technologies, enhancing the competitiveness of EU industry in this critical technology area with a strong defence dimension, a space-based secure connectivity that should provide for a resilient connectivity system and high-speed connectivity for everyone in Europe based on quantum encryption; and space traffic management, required to avoid collision events that may result from the proliferation of satellites and space debris, while ensuring an autonomous access to space.

While the remit of this Action Plan is limited to EU programmes and instruments, it may also trigger similar positive synergetic effect at national level due to co-funding by Member states of EU projects. The transatlantic partnership and cooperation with other like-minded countries can support EU efforts in this area.
Background
Upon taking office, President von der Leyen tasked her Commission to “ensure cross-fertilisation between civil, defence and space industries” and “focus on improving the crucial link between space and defence and security”. To this end, in March 2020, the Industrial Strategy announced “an Action Plan on synergies between civil, defence and space industries, including at the level of programmes, technologies, innovation and start-ups”.
The Council of the EU, in its Conclusions on Security and Defence of 17 June 2020 “welcomed the call for more synergies between civil, and defence industries, including space, in EU programmes, while respecting the different natures and legal bases of respective EU programmes and initiatives, including the civilian nature of European space programmes, with a view to making more effective use of resources and technologies and create economies of scale.”
At a time when Europe faces unprecedented global competition in a changing geo-political context and new opportunities arise from the emergence of rapidly evolving technologies and new business models, the increased size of investments in technologies of civil, defence or space application can help Europe maintain its industrial base, respond to the geopolitical competition and strengthen its technological sovereignty.
Compliments of the European Commission.
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Speech by Christine Lagarde, President of the ECB, at the opening plenary session of the European Parliamentary Week 2021 in virtual format
I would like to thank you warmly for inviting me to speak to you today. It is a privilege to have an opportunity to talk to the citizens’ representatives at the heart of European democracy.
Events like this one allow us to consider national debates in discussions about our common challenges as Europeans.
For all of us, the past year of the pandemic has been an extraordinary challenge. And, at all levels, the public policy response has been truly impressive. National responses have spearheaded the policy effort, with fiscal measures amounting to, on average, 4.5% of euro area GDP.
Yet the response to this crisis stands out from previous ones in that the level of policy alignment achieved has been truly unprecedented. The strength of Europe’s crisis response has crucially depended on the strength of national and European responses across all areas: monetary, fiscal, supervisory and regulatory.
But the pandemic is not over yet. Policy alignment will continue to be imperative for what lies ahead. So I would like to look at the ways in which our policies can keep reinforcing each other in addressing two common challenges: shielding the economy and subsequently transforming it.
Shielding the economy
While people are drawing hope from the start of vaccination campaigns, the first challenge – “shielding” – calls for us to continue to bridge the gap until widespread immunity is achieved. Across Europe, people are still grappling with the economic and social consequences of the pandemic. And it is still highly uncertain how the next stages of the pandemic will unfold.
In this context, our pandemic emergency purchase programme (PEPP) has been tailored to the pandemic, helping to stabilise markets and ease our policy stance to support the recovery. It will continue to be a crucial tool. The PEPP envelope of €1.85 trillion gives us considerable firepower and flexibility in conducting purchases.
Moreover, our targeted longer-term refinancing operations will remain an attractive source of funding for banks, supporting the flow of credit to households and firms. SMEs tend to benefit disproportionately from abundant and cheap credit, and smaller firms have been able to borrow at the lowest rates ever recorded.
The ECB will continue to support all sectors of the economy by preserving favourable financing over the pandemic period, as it has done since the start of the crisis. This commitment implies looking at indicators along the whole transmission chain of our monetary policy – from risk-free rates to government borrowing costs to capital markets to bank lending for firms and households.
Within the broad-based set of indicators that we monitor to assess whether financing conditions are still favourable, risk-free overnight indexed swap (OIS) rates and sovereign yields are particularly important, because they are good early indicators of what happens at downstream stages of monetary policy transmission, since banks use those yields as a reference when setting the price of their loans to households and firms. Accordingly, the ECB is closely monitoring the evolution of longer-term nominal bond yields.
The overall policy mix, however, remains essential. While the pandemic persists – and lockdowns and heightened uncertainty continue – firms and households will only be able to take full advantage of favourable financing conditions if national policy measures are deployed to help monetary policy unfold its full potential.
By continuing to take the lead in protecting the firms and sectors most exposed to the crisis, fiscal policy can help brighten economic prospects for firms and households, thereby strengthening monetary policy transmission. The ECB’s Consumer Expectations Survey demonstrates this: people who consider government support to be more adequate display less precautionary behaviour. Those people are in turn more likely to respond to favourable financing conditions and increase their consumption.
In the euro area, the budget balance is expected to be -6.1% of GDP in 2021. With monetary and fiscal policies working in tandem, we hope that we will finally cross the bridge and reach the other side of the pandemic.
Transforming the economy
The second policy challenge will arise as the economy gradually reopens. And this second challenge will be quite a different one.
It won’t be about returning to the pre-pandemic status quo. It will be about bringing the economy rapidly back to potential, while using the thrust of the recovery to transform our economies.
The focus will then be on reducing the damage caused by the pandemic, such as permanent job reductions, which one in five firms are considering. At the same time, it will be crucial to harness the potential offered by the pandemic, which has spurred a multi-year leap in digital progress and has brought a new focus on sustainability. Digital and green technologies present massive possibilities for more vibrant, inclusive and sustainable growth. In the energy sector alone, scaling up green investment to the necessary levels could create an estimated 1.1 million jobs across Europe by 2030.[1]
Europe is leading the way in addressing this double policy challenge. Its Next Generation EU (NGEU) recovery package is designed to support demand today and generate growth potential tomorrow through investment and reforms. Indeed, NGEU is expected to provide, on average, around 1% of GDP in grants and loans per year over the next three years, while committing 37% of funds to green investment, and 20% to digital.
Next to EU policies, national policy action will have to play a vital enabling role in smoothing the transition and promoting change.
First, by ensuring that NGEU funds can be fully operational when the decisions on own resources are ratified in all Member States, which in many cases involves national parliaments.
And second, by creating the right economic environment to boost the impact of NGEU. This means improving the quality of government spending and ensuring that NGEU is firmly rooted in sound structural policies conceived and implemented at the national level. If used for productive public investment, NGEU funds could increase real output in the euro area by around 1.5% of GDP over the medium term.[2] So these must be priority areas if we are to reform, modernise and come out of this crisis with renewed vigour.
Conclusion
Let me conclude by emphasising that all of us, across all policy levels, must pull together to meet our shared challenges and ensure that Europe can emerge stronger from the pandemic.
Today, 22 February, is the birthday of Lord Robert Baden-Powell, the pioneer of scouting. The scout’s motto, “be prepared” is apt for us too. For Europe to be prepared and bring about positive change in 2021 and beyond, national and European decision-makers need to uphold our team effort. The ECB will continue to play its part.
Compliments of the European Central Bank.
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The European Union has announced today an additional €500 million for the COVAX Facility, doubling its contribution to date for the global initiative that is leading efforts to secure fair and equitable access to safe and effective COVID-19 vaccines in low and middle-income countries. This new pledge brings us closer to achieving COVAX’s target to deliver 1.3 billion doses for 92 low and middle income countries by the end of 2021. Team Europe is one of the lead contributors to COVAX with over €2.2 billion, including another €900 million pledged today by Germany.
Announcing the new contribution at the G7 virtual leaders’ meeting, President of the European Commission, Ursula von der Leyen, said: “Last year, as part of our Coronavirus Global Response, we committed to ensuring universal access to vaccines everywhere on Earth, for everyone who would need them. COVAX is best placed to help us reach this goal. This is why we decided to double the European Commission’s contribution to COVAX, to €1 billion. With this new financial boost we want to make sure vaccines are soon delivered to low and middle-income countries. Because we will only be safe if the whole world is safe.”
Jutta Urpilainen, Commissioner for International Partnerships, added: “We are in a race against the virus and COVAX is our best hope that all our partners, in Africa and elsewhere, have access to safe and effective COVID-19 vaccines. The EU has been leading efforts in international fora, such as the G20 and G7, to guarantee that collectively we ensure that COVID-19 vaccines become a global public good. This is why today we are doubling our support to COVAX.”
Stella Kyriakides, Commissioner for Health and Food Safety, stressed: “Humanism and solidarity are essential values for Europe. These values have been our compass since the onset of the pandemic. The EU has invested close to €3 billion to pre-finance the production of safe and effective vaccines, which will benefit not only the EU but citizens across the world.  Vaccines produced in Europe are now going all over the world and we as Team Europe are working to share doses secured under our advanced purchase agreements preferably through COVAX with the Western Balkans, Neighborhood and Africa – benefitting above all health workers and humanitarian needs.”
The contribution announced today is composed of a new €300 million EU grant and €200 million in guarantees by the European Fund for Sustainable Development plus (EFSD+) that will back a loan by the European Investment Bank. This is subject to the adoption of the Neighbourhood, Development and International Cooperation Instrument (NDICI) by the Council and the European Parliament. The EIB loan to be guaranteed by EFSD+ is subject to the approval of the EIB’s Board of Directors. These funds will complement a previous €100 million grant and €400 million in guarantees from the EU budget.
To date, a total of 191 countries participate in the COVAX Facility, 92 of them low and middle-income economies eligible to get access to COVID-19 vaccines through Gavi COVAX Advance Market Commitment (AMC). Most of these are in Africa. Through these contributions, the Commission and its partners will secure purchase options for future COVID-19 vaccines for all the participants in the Facility.
Vaccines will be procured and delivered to countries by the UNICEF Supply Division and the PAHO’s Revolving Fund for Access to Vaccines. The fast arrival of safe and effective COVID-19 vaccines has shown that multilateralism and multi-actor partnerships work to solve the most pressing problems of our time.
Background
COVAX is the vaccines pillar of the Access to COVID-19 Tools (ACT) Accelerator, a global collaboration to accelerate the development, production, and equitable access to COVID-19 tests, treatments, and vaccines.
The COVAX Facility aims to purchase 2 billion doses by the end of 2021, including at least 1.3 billion doses for low and middle-income country. It will help to develop a diversified portfolio of vaccines, negotiated with different suppliers, and covering different scientific technologies, delivery times and prices. The COVAX Facility is a risk-sharing mechanism: it reduces the risk for manufacturers who invest without being sure about future demand, and it reduces the risk that countries would fail to secure access to a viable vaccine.
The European Commission is committed to ensuring that everyone who needs a vaccine gets it, anywhere in the world, and to promote global health. This is why together with partners it has helped raised almost €16 billion since 4 May 2020 under the Coronavirus Global Response, the global action in support of universal access to tests, treatments and vaccines against coronavirus and for the global recovery. Team Europe’s contribution was as follows: EU Member States (€3.1 billion), European Commission (over €1.4 billion) and EIB (almost €2 billion pledged in May and €4.9 billion pledged in June).
The EU’s efforts to develop and produce an effective vaccine will benefit all in the global community. The EU investment in scaling up manufacturing capacity will be to the service of all countries in need. Through its Advanced Purchase Agreements, it requires manufacturers to make their production capacity available to supply all countries and calls for the free flow of vaccines and materials with no export restrictions. For instance, the pharmaceutical company Sanofi-GSK, with whom the Commission concluded an Advanced Purchase Agreement in September, will endeavour to provide a significant portion of their vaccine supply through the COVAX facility.
Building on the EU Vaccines Strategy, the EU is in the process of setting up vaccine sharing mechanism to allow EU Member States to redirect some of the doses procured under the advanced purchased agreement, preferably through COVAX.
Compliments of the European Commission.
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After ending last year with unexpectedly strong vaccine success and hope that the pandemic and economic distress it caused would recede, we woke up to the reality of new virus variants and the unpredictable, winding road that it can lead the world down.
Something similar has happened with the discourse on inflation. At the end of last year, after a historic collapse of the global economy estimated at -3.5 percent, inflation was below target in 84 percent of countries. This was expected to allow for continued low interest rates and government spending to support growth, especially in advanced economies. The U.S. plan for an additional $1.9 trillion of fiscal spending has challenged this view, with even traditionally dovish economists raising concerns about an overheated economy that could push inflation well above the comfort zone of central bankers.
The evidence from the last four decades makes it unlikely, even with the proposed fiscal package, that the United States will experience a surge in price pressures that persistently pushes inflation well above the Fed’s 2 percent target. Despite the large swings in the U.S. unemployment rate from 10 percent in 2009 to 3.5 percent in 2019, inflation remained remarkably stable, even as wages rose. As of now, U.S.2008 employment gaps are large and understated by the headline unemployment rate. Our preliminary estimate is that the proposed U.S. package, equivalent to 9 percent of GDP, would increase U.S. GDP by a cumulative 5 to 6 percent over three years. Inflation, as measured by the Fed’s preferred index, would reach around 2.25 percent in 2022, which is nothing to be concerned about and, indeed, would help underpin the achievement of the goals outlined in the Fed’s policy framework.
Several structural factors underlie this diminished relation between inflation and economic activity in many countries. One such factor is globalization that has limited inflation in traded goods and even some services. In this crisis, despite some early disruptions, global supply chains have shown resilience and agility, and merchandise trade has recovered in lockstep with the recovery in manufacturing, surpassing pre-pandemic levels. Considerable slack remains in the global economy, with over 150 countries projected to have lower per capita incomes in 2021 relative to 2019.
A second factor is automation which, along with relative declines in the price of capital goods, has largely kept higher wages from being passed through to prices. This crisis is likely to accelerate that trend. Another structural trend over recent decades is the dominance of market share by firms with high profit margins. This has allowed these firms to absorb higher costs without raising prices, as was seen after the increase in U.S. tariffs. This crisis could likely increase the market share of such firms, as smaller firms have been harder hit than large businesses by the pandemic-related downturn.
Another important factor is that expectations of inflation have remained broadly stable around the targets set by central banks, thanks to central banks’ independence and the credibility of their policies. This credibility has also meant that even with high government debts there is no expectation that monetary policy will prioritize keeping government borrowing costs low at the expense of high inflation. As an example, Japan’s government debt has averaged over 200 percent of GDP since 2009, yet the challenge has been to raise inflation expectations. Indeed, inflation in Japan has averaged just 0.3 percent over the past decade.
None of this detracts, however, from the need to follow sound principles in the conduct of policy. First, even though there is limited risk of a steep rise in inflation, well targeted public spending would deliver the same improvement in employment and output but with a much smaller accumulation of debt, leaving more space for future spending that carries a high social return. High quality public investment would raise potential output, increase demand, and should be central to a comprehensive climate mitigation strategy to mitigate the catastrophic risks from climate change.
Second, because these are uncertain times with almost no parallel in history, extrapolating from the past is risky. Because of exceptional policy measures in 2020, including fiscal spending by G7 countries of 14 percent of GDP—well above the cumulative 4 percent of GDP spent during the financial crisis years of 2008–10—household savings rates in advanced economies are at multi-year highs and bankruptcies are 25 percent lower than before this pandemic. As vaccine protection becomes widespread, pent-up demand could trigger strong recoveries and defy inflation projections based on evidence from recent decades. On the other hand, bankruptcies may have only been delayed, and their eventual increase could dampen confidence, and weaken inflation and lead to further job losses.
Lastly, there is the danger of market turbulence that could be triggered by the discovery of new virus variants, transitory swings in inflation, or the possibility that major central banks raise interest rates sooner than expected. Such market reaction could tighten global financing conditions in unexpected ways. While central banks can’t do anything to change the course of the pandemic, they can and should pre-empt the possibility of sharp swings in borrowing costs. They can do this with early and clear communications of their intentions.
Author:

Gita Gopinath is the Economic Counsellor and Director of the Research Department at the IMF

Compliments of the IMF.
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WTO members made history today (15 February) when the General Council agreed by consensus to select Ngozi Okonjo-Iweala of Nigeria as the organization’s seventh Director-General.
When she takes office on 1 March, Dr Okonjo-Iweala will become the first woman and the first African to be chosen as Director-General. Her term, renewable, will expire on 31 August 2025.
“This is a very significant moment for the WTO. On behalf of the General Council, I extend our warmest congratulations to Dr Ngozi Okonjo-Iweala on her appointment as the WTO’s next Director-General and formally welcome her to this General Council meeting,” said General Council Chair David Walker of New Zealand who, together with co-facilitators Amb. Dacio Castillo (Honduras) and Amb. Harald Aspelund (Iceland) led the nine-month DG selection process.
“Dr Ngozi, on behalf of all members I wish to sincerely thank you for your graciousness in these exceptional months, and for your patience. We look forward to collaborating closely with you, Dr Ngozi, and I am certain that all members will work with you constructively during your tenure as Director-General to shape the future of this organization,” he added.
Dr Okonjo-Iweala said a key priority for her would be to work with members to quickly address the economic and health consequences brought about by the COVID-19 pandemic.
“I am honoured to have been selected by WTO members as WTO Director-General,” said Dr Okonjo-Iweala. “A strong WTO is vital if we are to recover fully and rapidly from the devastation wrought by the COVID-19 pandemic. I look forward to working with members to shape and implement the policy responses we need to get the global economy going again. Our organization faces a great many challenges but working together we can collectively make the WTO stronger, more agile and better adapted to the realities of today.” Her full statement is available here.
The General Council decision follows months of uncertainty which arose when the United States initially refused to join the consensus around Dr Okonjo-Iweala and threw its support behind Trade Minister Yoo Myung-hee of the Republic of Korea. But following Ms Yoo’s decision on 5 February to withdraw her candidacy, the administration of newly elected US President Joseph R. Biden Jr. dropped the US objection and announced instead that Washington extends its “strong support” to the candidacy of Dr Okonjo-Iweala.
Amb. Walker extended his thanks to all eight of the candidates who participated in the selection process and particularly to Ms Yoo “for her ongoing commitment to and support for the multilateral trading system and for the WTO”. His full statement is available here.
The General Council agreed on 31 July that there would be three stages of consultations held over a two-month period commencing 7 September. During these confidential consultations, the field of candidates was narrowed from eight to five and then two. On 28 October, General Council Chair David Walker of New Zealand had informed members that based on consultations with all delegations Dr Okonjo-Iweala was best poised to attain consensus of the 164 WTO members and that she had the deepest and the broadest support among the membership. At that meeting, the United States was the only WTO member which said it could not join the consensus.
The consultation process undertaken by the chair and facilitators was established through guidelines agreed by all WTO members in a 2002 General Council decision. These guidelines spelled out the key criteria in determining the candidate best positioned to gain consensus is the “breadth of support” each candidate receives from the members. During the DG selection processes of 2005 and 2013, breadth of support was defined as “the distribution of preferences across geographic regions and among the categories of members generally recognized in WTO provisions: that is (Least developed countries), developing countries and developed countries”. This same process, agreed by all members in the General Council in 2020, was strictly followed by Chair Walker and his colleagues throughout the 2020-21 DG selection process.
The process for selecting a new Director-General was triggered on 14 May when former Director-General Mr Roberto Azevêdo informed WTO members he would be stepping down from his post one year before the expiry of his mandate. He subsequently left office on 31 August.
Compliments of the World Trade Organization.
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We value innovation and diversity—including in money. In the same day, we might pay by swiping a card, waving a phone, or clicking a mouse. Or we might hand over notes and coins, though in many countries increasingly less often.
Today’s world is characterized by a dual monetary system, involving privately-issued money—by banks of all types, telecom companies, or specialized payment providers—built upon a foundation of publicly-issued money—by central banks. While not perfect, this system offers significant advantages, including: innovation and product diversity, mostly provided by the private sector, and stability and efficiency, ensured by the public sector.
These objectives—innovation and diversity on the one hand, and stability and efficiency on the other—are related. More of one usually means less of the other. A tradeoff exists, and countries—central banks especially—have to navigate it. How much of the private sector to rely upon, versus how much to innovate themselves? Much depends on preferences, available technology, and the efficiency of regulation.
So it is natural, when a new technology emerges, to ask how today’s dual monetary system will evolve. If digitalized cash—called central bank digital currency—does emerge, will it displace privately-issued money, or allow it to flourish? The first is always possible, by way of more stringent regulation. We argue that the second remains possible, by extending the logic of today’s dual monetary system. Importantly, central banks should not face a choice between either offering central bank digital currency, or encouraging the private sector to provide its own digital variant. The two can coincide and complement each other, for example, to the extent central banks make certain design choices and refresh their regulatory frameworks.
Public-private coexistence
It may be puzzling to consider that privately- and publicly-issued monies have coexisted throughout history. Why hasn’t the more innovative, convenient, user-friendly, and adaptable private money taken over entirely?
The answer lies in a fundamental symbiotic relationship: the option to redeem private money into perfectly safe and liquid public money, be it notes and coins, or central bank reserves held by selected banks.
The private monies that can be redeemed at a fixed face value into central bank currency become a stable store of value. Ten dollars in a bank account can be exchanged into a ten-dollar bill accepted as legal tender to settle debts. The example may seem obvious, but it hides complex underpinnings: sound regulation and supervision, government backstops such as deposit insurance and lender last resort, as well as partial or full backing in central bank reserves.
Moreover, privately-issued money becomes an efficient means of payment to the extent it can be redeemed into central bank currency. Anne’s 10 dollars in Bank A can be transferred to Bob’s Bank B because they are redeemed into central bank currency in between—an asset both banks trust, hold, and can exchange. As a result, this privately-issued money becomes interoperable. And so it spurs competition—since Anne and Bob can hold money in different banks and still pay each other—and thus innovation and diversity of actual forms of money.
In short, the option of redemption into central bank currency is essential for stability, interoperability, innovation, and diversity of privately-issued money, be it a bank account or other. A system with just private money would be far too risky. And one with just central bank currency could miss out on important innovations. Each form of money builds on the other to deliver today’s dual money system—a balance that has served us well.
Central bank currency in the digital age will face pressures
And tomorrow, as we step squarely into the digital age, what will become of this system? Will the digital currencies issued by central banks be so enticing that they overshadow privately-issued money? Or will they still allow for private sector innovation? Much depends on each central bank’s ability and willingness to consistently and significantly innovate. Keeping pace with technological change, rapidly evolving user needs, and private sector innovation is no easy feat.
Central bank digital currencies are akin to both a smart-phone and its operating system. At a basic level, they are a settlement technology allowing money to be stored and transferred, much like bits sent between a phone’s processor, memory, and camera. At another level, they are a form of money, with specific functionality and appearance, much like an operating system.
Central banks would thus have to become more like Apple or Microsoft in order to keep central bank digital currencies on the frontier of technology and in the wallets of users as the predominant and preferred form of digital money.
Innovation in the digital age is orders of magnitude more complex and rapid than updating security features on paper notes. For instance, central bank digital currencies may initially be managed from a central database, though might migrate to distributed ledgers (synchronized registries held and updated automatically across a network) as technology matures, and one ledger may quickly yield to another following major advancements. Phones and operating systems too benefit from major new releases at least yearly.
In addition, user needs and expectations are likely to evolve much more quickly and unpredictably in the digital age. Information and assets may migrate to distributed ledgers, and require money on the same network to be monetized. Money may be transferred in entirely new ways, including automatically by chips imbedded in everyday products. These needs may require new features of money and thus frequent architectural redesigns, and diversity. Today’s, or even tomorrow’s, money is unlikely to meet the needs of the day after.
Pressures will come from the supply-side too. The private sector will continue innovating. New eMoney and stablecoin schemes will emerge. As demand for these products grows, regulators will strive to contain risks. And the question will inevitably arise: how will these forms of money interact with the digital currencies issued by central banks? Will they exist separately, or will some be integrated into a dual monetary system where the private and central bank offerings build on each other?
A partnership with the private sector remains possible
Keeping with the pace of change of technology, user needs, and private-sector competition will be challenging for central banks. However, they need not be alone in doing so.
First, a central bank digital currency may be designed to encourage the private sector to innovate on top of it, much like app designers bring enticing functionality to phones and their operating systems. By accessing an open set of commands (“application programming interfaces”), a thriving developer community could expand the usability of central bank digital currencies beyond offering plain e-wallet services. For instance, they could make it easy to automate payments, so that a shipment of goods is paid once received, or they could build a look-up function so money can be sent to a friend on the basis of her phone number alone. The trick will be vetting these add-on services so they are perfectly safe.
Second, some central banks may even allow other forms of digital money to co-exist—much like parallel operating systems—while leveraging the settlement functionality and stability of central bank digital currencies. This would open the door to faster innovation and product choice. For instance, one digital currency might compromise on settlement speed to allow users greater control over payment automation.
Would this new form of digital money be a stable store of value? Yes, if it were redeemable into central bank currency (digital or non-digital) at a fixed face value. This would be possible if it were fully backed by central bank currency.
And would this form of digital money be an efficient means of payment? Yes again, as settlement would be immediate on any given digital money network—just as it is between accounts of the same bank. And networks would be interoperable to the extent a payment from Anne’s digital money provider to Bob’s would be settled with a corresponding move of central bank currency, just as in today’s dual system.
This form of digital money (which we have called synthetic  currency in the past) could well co-exist with central bank digital currency. It would require a licensing arrangement and set of regulations to fulfill public policy objectives including operational resilience, consumer protection, market conduct and contestability, data privacy, and even prudential stability. At the same time, financial integrity could be ensured via digital identities and complementary data policies. Partnering with central banks requires a high degree of regulatory compliance.
A system for the ages
If and when countries move ahead with central bank digital currencies, they should consider how to leverage the private sector. Today’s dual-monetary system can be extended to the digital age. Central bank currency—along with regulation, supervision, and oversight—will continue to be essential to anchor stability and efficiency of the payment system. And privately-issued money can supplement this foundation with innovation and diversity—perhaps even more so than today. Where central banks decide to end up on the continuum between private-sector and public-sector involvement in the provision of money will vary by country, and ultimately depend on preferences, technology, and the efficiency of regulation.
Authors:

Tobias Adrian, Financial Counsellor and Director of the IMF’s Monetary and Capital Markets Department

Tommaso Mancini-Griffoli, Deputy Division Chief in the Monetary and Capital Markets Department at the IMF

Compliments of the IMF.
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The European Commission has today set out its trade strategy for the coming years. Reflecting the concept of open strategic autonomy, it builds on the EU’s openness to contribute to the economic recovery through support for the green and digital transformations, as well as a renewed focus on strengthening multilateralism and reforming global trade rules to ensure that they are fair and sustainable. Where necessary, the EU will take a more assertive stance in defending its interests and values, including through new tools.
Addressing one of the biggest challenges of our time and responding to the expectations of its citizens, the Commission is putting sustainability at the heart of its new trade strategy, supporting the fundamental transformation of its economy to a climate-neutral one. The strategy includes a series of headline actions that focus on delivering stronger global trading rules and contributing to the EU’s economic recovery.
Speaking about the new strategy, Executive Vice-President and Commissioner for Trade, Valdis Dombrovskis, said: “The challenges we face require a new strategy for EU trade policy. We need open, rules-based trade to help restore growth and job creation post-COVID-19. Equally, trade policy must fully support the green and digital transformations of our economy and lead global efforts to reform the WTO. It should also give us the tools to defend ourselves when we face unfair trade practices. We are pursuing a course that is open, strategic and assertive, emphasising the EU’s ability to make its own choices and shape the world around it through leadership and engagement, reflecting our strategic interests and values.”
Responding to current challenges, the strategy prioritises a major reform of the World Trade Organization, including global commitments on trade and climate, new rules for digital trade, reinforced rules to tackle competitive distortions, and restoring its system for binding dispute settlement.
The new strategy will strengthen the capacity of trade to support the digital and climate transitions. First, by contributing to achieving the European Green Deal objectives. Second, by removing unjustified trade barriers in the digital economy to reap the benefits of digital technologies in trade. By reinforcing its alliances, such as the transatlantic partnership, together with a stronger focus on neighbouring countries and Africa, the EU will be better able to shape global change.
In tandem, the EU will adopt a tougher, more assertive approach towards the implementation and enforcement of its trade agreements, fighting unfair trade and addressing sustainability concerns. The EU is stepping up its efforts to ensure that its agreements deliver the negotiated benefits for its workers, farmers and citizens.
This strategy is based on a wide and inclusive public consultation, including more than 400 submissions by a wide range of stakeholders, public events in almost every Member State, and close engagement with the European Parliament, EU governments, businesses, civil society and the public.
Compliments of the European Commission.
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The annual accounts of the ECB reflect the financial position and the results of the ECB’s operations at year-end. They comprise the management report, the financial statements (i.e. the Balance Sheet, the Profit and Loss Account, a summary of significant accounting policies and other explanatory notes), the independent auditor’s report and the note on profit distribution/allocation of losses.
The financial statements are prepared in accordance with the accounting policies laid down in the relevant legislation and are specific to the European System of Central Banks and the ECB. Read more about the production of the ECB’s financial statements.
The annual accounts are an integral part of the ECB’s Annual Report. They are published in February, ahead of the respective Annual Report.
Compliments of the European Central Bank.
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Our ‘Next Generation EU’ recovery plan is about more than just money.
It’s a very strong message of solidarity and of trust in the European Union. Now it’s time to deliver! The Recovery and Resilience Facility – a key part of our recovery plan – is on its way to becoming a reality after today’s signature.
This will play a crucial role in helping Europe overcome the economic and social impact of the pandemic and will help us to secure the green and digital transitions.
By adopting guidance to protect the environment, we have reached an historic moment in our fight for achieving our target of climate neutrality by 2050. Our aim is to make sure all investments and reforms proposed by EU countries do no significant harm to our environmental objectives. A requirement that a minimum of 37% of expenditure on investments and reforms contained in each national recovery and resilience plan will support climate objectives.
It sets us on a path of digital transition, creating jobs and spurring growth in the process. Read more below !

The European Commission welcomes the European Parliament’s vote today, confirming the political agreement reached on the Recovery and Resilience Facility (RRF) Regulation in December 2020. This marks an important step towards making €672.5 billion in loans and grants available to Member States to support reforms and investments.
The RRF is the key instrument at the heart of NextGenerationEU, the EU’s plan for emerging stronger from the COVID-19 pandemic. It will play a crucial role in helping Europe recover from the economic and social impact of the pandemic and will help to make the EU’s economies and societies more resilient and secure the green and digital transitions.
Recovery and resilience plans
The approval of the European Parliament paves the way for the RRF to come into force in the second half of February. Member States will then be able to officially submit their national recovery and resilience plans, which will be assessed by the Commission and adopted by the Council. The recovery and resilience plans set out the reforms and public investment projects that will be supported by the RRF. The Commission is already engaged in intensive dialogue with all Member States on the preparation of these plans.
Pre-financing of 13% of the total amount allocated to Member States will be made available once recovery and resilience plans are approved, to ensure that RRF financing arrives where it is needed as quickly as possible.
Structure and objectives of the Recovery and Resilience Facility
The RRF is structured around six pillars: green transition; digital transformation; economic cohesion, productivity and competitiveness; social and territorial cohesion; health, economic, social and institutional resilience; policies for the next generation.
It will help the EU achieve its target of climate neutrality by 2050 and set it on a path of digital transition, creating jobs and spurring growth in the process. A minimum of 37% of expenditure on investments and reforms contained in each national recovery and resilience plan should support climate objectives. A minimum of 20% of expenditure on investments and reforms contained in each national plan should support the digital transition.
It will also help Member States effectively address the challenges identified in relevant country-specific recommendations under the European Semester framework of economic and social policy coordination.
Next steps
The Council now also needs to formally approve the agreement reached, before the Presidents of the ECOFIN Council and the European Parliament can sign it. The Regulation will then be published in the Official Journal, allowing it to enter into force on the day after publication. The Commission expects all the necessary formal steps to be concluded in time for the RRF to enter into force in the second half of February.
Members of the College said:
President Ursula von der Leyen said: “Defeating the virus thanks to vaccines is essential. But we also need to help citizens, businesses and communities exit the economic crisis. The Recovery and Resilience Facility will bring €672.5 billion to do just that. It will invest in making Europe greener, more digital, more resilient, for everyone’s long term benefit. I welcome the positive vote by the European Parliament as an important step towards activating the Recovery and Resilience Facility.”
Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People, said: “This Facility provides EU countries with a unique chance to rebuild and revamp their economies for the post-COVID world. It is an opportunity build resilience and to embrace a more digital and greener future. That requires both the right investments and the right reforms. To recover from the crisis and meet the challenges of the 21st century, Member States should seize the opportunity of the RRF funding to free their economies of bottlenecks and refresh outdated policies and practices. We call on Member States to continue working closely with the Commission on compiling robust and credible recovery and resilience plans so we can start disbursing the funding as soon as possible. I thank the European Parliament for its support and the speed with which it has approved the RRF.”
Paolo Gentiloni, Commissioner for Economy, said: “Today’s vote in the European Parliament brings us a step closer to the Recovery and Resilience Facility entering into force. Driven by the terrible shock of the pandemic, Europe has taken a historic step. We have done something that was unthinkable just one year ago: the creation of a common instrument, funded by common debt, to achieve a common goal. For several months the Commission has been working hard with governments as they draw up their recovery and resilience plans. Now we must all intensify our efforts and make sure we seize this unique opportunity to change our economies, for the common good of all Europeans.”
Compliments of the European Commission.
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