Check against delivery.
Let me start by stressing the historical nature of this meeting. The three of us standing here today – Ukraine, North Atlantic Treaty Organisation (NATO) and the European Union. Standing here today for the first time in this constellation of three is a clear demonstration of our unity to continue supporting Ukraine.
We have done it since day one. Since the first day of the Russian invasion against Ukraine, the European Union and NATO have been standing together – not only in condemning in the strongest terms the Russian aggression, but working together in order to provide Ukraine with the capacity to defend itself.
Today, we are reaffirming the unwavering support to Ukraine’s territorial integrity and its right to self-defence. Our resolve has been strong from the beginning, and we will continue doing so.
I think that today’s discussion has been crucial to coordinate – the key word that [Ukrainian Foreign Minister, Dmytro] Kuleba has said: to coordinate, speed up, and increase our support.
It is necessary in order to make the rule of law prevail over the rule of the gun, the rule of the force. It is the only way that Ukraine can win this war: to speed up, to increase, [and] to coordinate better our support. Because we are facing a situation where the war [is showing] its awful face, with bombing of hospitals, starving entire cities to death. This is what Russia is doing instead of taking steps to cease the fire. This is something that we are asking for.
Remember, Russia is a permanent member of the United Nations Security Council. Russia is a nuclear power. And, in spite of that, it has violated the [UN] Charter, invading a peaceful neighbour.
And, in line with the United Nations Charter, Ukraine has the sovereign right to defend itself against this unfounded aggression. And [as] the international community, we have the right to support it. To support the aggressor is not in accordance with the United Nations Charter. To support the aggressed, it is perfectly legitimate.
Ukraine needs all the support we can provide, starting with weapons and ammunitions – they need them more than ever. We are looking for the ways to accelerate the deliveries from Member States to Ukraine.
For that, we have a tool: the European Peace Facility which has been working since the beginning [of the war], since day one. All together, the Member States and the European institutions have provided more than €12 billion worth of weapons and related supplies to Ukraine.
We have launched a great [military] training programme [EU Military Assistance Mission in support of Ukraine] that will train about 30,000 Ukrainian soldiers by the end of the year.
But it is still not enough. We have to accelerate our military support to Ukraine. Today, especially [by providing] ammunition. Tomorrow, with other kinds of arms in order to fulfil all your needs.
I think this meeting will provide us with better coordination procedures in order to continue doing that in a united and efficient manner.
Q&A
Q: High Representative, about speeding up the process to deliver ammunition to Ukraine. You said yesterday that decisions will be taken by EU Ministers of Defence next week, but Ukraine needs ammunition today. Can they expect the process – the decision-making process – to be sped up?
Thank you. Well, yesterday we had the Foreign Affairs Council meeting. And we will have [an informal meeting of] Defence Ministers [meeting] in some days – it is at the beginning of March [7-8 March]. And, after, a Jumbo meeting [bringing] together Defence and Foreign Affairs Ministers. But defence is an issue of the Ministers of Defence. Defence remains a competence – inside the European Union – of the Member States, and it is up to the Defence Ministers to take these decisions. But we have to prepare these decisions and we have to act with a sense of urgency.
After listening to my colleagues, [the] Foreign Affairs Ministers, yesterday – immediately after, yesterday night – I sent a letter to all Defence Ministers which they will be receiving today, asking them to provide ammunitions to Ukraine from their stockpiles and from the contracts they have already [contracted] with the industry, giving Ukraine [the] priority. Because the “time” parameters of what is happening and what we have to do is measured in weeks, not in months.
So, [the] first thing to do is to use what we have.
Second, [it is] to have more. And, to have more, we have to procure to [from] the industry. [Some] Member States have already done [that], many of them alone. Doing that together is better.
Third, we have to increase the industry’s capacities. Because today the rhythm of using ammunitions is greater than the rhythm of production. So, you know, even if the water goes [out] quicker than it comes in, in the end, it is empty.
So, we have to increase these three things: procurement methods, industrial capacities and mobilising quickly the resources that we already have.
This is the purpose of this strategic coordination that takes place – do not forget it – while Russia is demolishing the security system.
Today, there is a lot of [evidence] of that. As Secretary-General [of NATO, Jens Stoltenberg] mentioned: Russia’s announcement of suspending the [New] START Treaty. It is another proof that what Russia is doing is demolishing the security system that was built after the end of the Cold War.
So, we have to work on the short-term providing ammunition quickly – it is a matter of weeks. And we have to start thinking about [what] will be the future security system. But [for] the time being, let’s concentrate on the most urgent issues.
Q: With regards to the Secretary-General’s comments about being increasingly concerned about China, you have said that you have had assurances this weekend at the Munich Security Conference from State Counsellor Wang Yi that they are not going to send more weapons. Have you been shown proof by NATO or the United States that there really is a problem here?
Yes, about China. I have to confess that I had a good personal relation with State Counsellor Wang Yi for a long time, when I was Minister of Foreign Affairs of Spain, and he was Minister of Foreign Affairs of China. And we had a frank conversation in Munich, and he was very clear. I can repeat his words: that “China does not provide arms to countries at war”, and “they are not providing arms to Russia”, and “they will not provide arms to Russia”. That is what he told me, stressing clearly that this is a principle of the foreign affairs policy of China. And by the way, [he asked] me: “why do you show concern for me maybe providing arms to Russia when you are providing arms to Ukraine?” And I had to explain the big difference. I had to explain what is at stake for us, Europeans, in the war in Ukraine. So, that is what China told me. Nevertheless, we have to remain vigilant. But as far as I know, there is no evidence that China has been doing what they claim not to be doing.
Q: How fast can you move on the European Union’s side on this proposal by the Estonians to put €4 billion in a fund and make joint procurement that way? As some people say, like you did with the vaccines to give [the] industry the security.
Well, look, the time parameters of the production of warfare material in Europe today are still not in accordance with the urgency in the frontline. It is [They are] still not. So, it is a matter of speeding up. And it can be done quickly because the European Peace Facility – which is the instrument that we have been using – has much more flexibility than the European [Union] budget. In fact, it is not part of the European [Union] budget. If I can say, it is a kind of inter-governmental club, where Members States can decide among them to increase the funding available. And they have already decided: some weeks ago, they decided to top up the initial amount of money of the European Peace Facility with €2 billion more.
So, it is a decision that can be taken without any kind of complex procedure involving the European Parliament and changing the European Union’s budget because it is not part of the European Union’s budget. It is an island managed by the Member States among them. So, it can be done quickly depending on the political will of all of us – of all of them, Member States. And that is what we are trying to do.
But, to provide ammunitions to Ukraine through the European Peace Facility is nothing new. We have been doing that since the beginning of the war: asking Member States, “provide us with your ammunition to be sent to Ukraine” and being co-financed by the fund [European Peace Facility]. So, the only thing is to do it quicker and at a larger scale.

Link to the video (starting from 11:45): https://audiovisual.ec.europa.eu/en/video/I-237554

Compliments of European Union External Action, The Diplomatic Service of the European Union.
The post Ukraine: Remarks by High Representative/Vice-President Josep Borrell at the joint press conference with Ukrainian Foreign Minister Kuleba and NATO Secretary-General Stoltenberg first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The announcement of the launch of the FTC’s Office of Technology is an important next-step development in the agency’s commitment to protecting consumers in the digital marketplace. As we look forward to the challenges the Office of Technology will take on, it’s an opportune time to look back at the ground-breaking work of the Bureau of Consumer Protection’s Office of Technology Research and Investigation (OTECH), which will bring its experience and expertise to the newly-formed Office of Technology.
Established in 2012 as BCP’s Mobile Technology Unit, OTECH has proven essential to BCP’s mission through its work in research, innovation, and litigation support. To ensure that our approach has been grounded in evidence-based research, OTECH led the way with first-of-its-kind studies on topics like kids’ apps, consumer-generated health data, mobile device tracking, and alternative credit scoring products. OTECH also built bridges to the academic community – initiatives that encouraged researchers to put people first in considering the impact that technological developments have on consumers.
OTECH taught us that the most innovative consumer protection policies aren’t formulated in isolation. Bringing together experienced litigators, savvy technologists, and thoughtful economists, OTECH conducted novel studies, some of which confirmed – and some of which disproved – popular assumptions about protecting consumers in the digital marketplace. For example, OTECH designed and conducted cost-effective research into social media algorithms, voice cloning, email authentication, and ransomware.
OTECH’s research into how fraudsters use breached credit card numbers and other personal information merits a special mention. In one study, OTECH intentionally leaked authentic-looking data onto a “paste site.” How long did it take fraudsters to use what they thought was stolen information? Nine minutes. In another study, OTECH identified 50 websites that had a particular web skimming security vulnerability in their shopping cart plugin. After OTECH attempted to make controlled purchases that were rejected, their “consumer data” was used by fraudsters many months after the unsuccessful purchase, suggesting that the actual injury from data breaches may be far greater than experts initially believed.
Although the full story can’t be told in detail, OTECH’s confidential contribution to BCP investigations and litigation further demonstrates the essential role they’ve played in protecting consumers. Legal education may still focus on torts and trusts, but thanks to OTECH’s expertise, BCP attorneys have developed the sophisticated understanding of technology necessary to probe the facts, build cases, and challenge unfair and deceptive practices in court.
As OTECH’s many roles transition to the Commission’s Office of Technology, the agency will benefit from the successful collaboration model that OTECH pioneered. In just the past year, working collaboratively with colleagues across the FTC, OTECH was instrumental in developing the Commission’s “right to repair” strategy to expand consumer choice and encourage competition. The Bureau of Consumer Protection is proud of OTECH’s decade of service and looks forward to the new frontiers the Office of Technology will explore in service to America’s consumers.
Author:

Samuel Levine, Director, FTC Bureau of Consumer Protection

Compliments of the Federal Trade Commission, Bureau of Consumer Protection.
The post FTC | Looking back – and looking ahead – at the FTC’s commitment to protecting consumers in the digital marketplace first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The US Federal Reserve has been raising interest rates to restore price stability and to bring balance to the labor market. The demand for new hires is exceeding the supply of available workers in the US, as the unemployment rate has fallen to its lowest level in over 50 years, and this has contributed to higher inflation. To help bring the economy back into balance, IMF analysis shows that staying the course and keeping interest rates elevated this year will tame inflation. Although these higher rates will temporarily increase unemployment, they will pave the way for stable inflation and sustainable economic growth, which will ultimately help create more jobs in the future.
When prices began rising in 2021, they were initially limited to goods affected by pandemic-related disruptions, such as vehicles. However, by early 2022, rising prices had spread to housing and other services such as hotels and restaurants. Growth of prices in the personal consumption expenditure index is now around 5½ percent, well above the 2 percent target.

Image courtesy of the IMF.
A hot labor market
Since mid-2021, as the US economy rapidly recovered, the demand for workers has far outstripped the supply. Workers have become more likely to quit jobs and look for new ones, and early retirements have also held down the supply of available workers. These factors have ultimately increased workers’ bargaining power to negotiate pay raises, contributing to both higher wages and prices, as firms increased prices to cover rising wage costs. This has especially been the case in labor-intensive industries, such as hotels and restaurants.

Image courtesy of the IMF.
A balancing act
The Fed’s mandate is to achieve price stability and maximum employment. To achieve these, model-based analysis by Fund staff using the Fed’s FRBUS model shows that the Fed could achieve these goals by raising interest rates to a peak of 4-5 percent, sustaining that for around 1-1½ years, taking into account workers’ strong bargaining position and the high number of vacancies per unemployed worker. The higher interest rates would weaken the demand for workers and increase unemployment modestly. This would reduce the pressure for large wage and price increases, particularly in the services sector, helping to lower inflation.

Where things stand
Most Federal Open Market Committee members project further interest rate hikes, so that the federal funds rate would remain around 5–5½ percent at the end of 2023. There are encouraging signs that the Fed’s policy moves are having the intended impact. Inflation slowed in the last quarter of 2022 (relative to the summer), driven by declining goods prices. However, inflation in services prices remains elevated and will likely only fall once wage growth slows.
Bringing inflation down to the Fed’s 2 percent target is crucial for stable job growth and sustainable increases in incomes over the medium to long-run, and it will offset the cost of temporarily higher unemployment
Author:

Andrew Hodge, Senior Economist, IMF

Compliments of the IMF.
The post IMF | Bringing the US Economy Back into Balance first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Dow Lecture by Philip R. Lane, Member of the Executive Board of the ECB, at the National Institute of Economic and Social Research | London, 16 February 2023 |

Introduction
It is an honour to deliver this year’s Dow Lecture. Christopher Dow had a distinguished career as an applied macroeconomist, both in the United Kingdom (at the Bank of England, the Treasury and here at NIESR) and internationally (as OECD Chief Economist from 1963 to 1973).[1] Moreover, he extensively analysed my topic today – the impact of interest rate movements on the financial system, the economy and inflation – including in the context of the cost-push inflation pressures of the 1970s and 1980s.[2] While the current inflation environment is quite different in many respects – having been driven predominantly by extraordinary external factors such as the COVID-19 pandemic, supply bottlenecks and energy shocks – much can still be learned by re-visiting the analysis by Christopher Dow of the macro-financial dynamics and policy challenges associated with cost-push inflation.
My aim today is to provide an interim analysis of the ECB’s current policy rate tightening cycle.[3] I will first describe the projected impact of monetary policy in the range of macroeconomic models maintained by the ECB. Next, I will report on the accumulating evidence about the impact of the policy tightening cycle on the financial system, the economy and inflation. In view of the long and differential lags in the transmission of monetary policy, this evidence is necessarily partial and of an interim nature. Still, it is essential to monitor closely the incoming evidence, since the efficient calibration of monetary policy must take into account the feedback loops between monetary policy, the financial system, the economy and inflation.
Beginning in December 2021, the ECB unwound its highly accommodative monetary policy stance in several phases. First, the pace of net asset purchases was reduced, including through the ending of net purchases under the pandemic emergency purchase programme in March 2022. Net asset purchases under the asset purchase programme further shifted down from April 2022 and concluded in June 2022. In July 2022, we began raising the ECB key interest rates. The €STR forward curve – the benchmark for key overnight lending in the euro area – began shifting up in December 2021, as markets began pricing in the start of ECB policy normalisation. This induced a tightening impulse even before we began raising actual policy rates.
The speed and the scale of the back-to-back rate adjustments since July stand out in the history of the monetary union (Chart 1). By now, we have raised rates by a cumulative 300 basis points, bringing the deposit facility rate – which, in the current conditions of ample excess liquidity, constitutes the main instrument for steering the monetary policy stance – to 2.5 per cent. Furthermore, we have also signalled that we intend to raise the deposit facility rate by another 50 basis points at our March meeting and we will then evaluate the subsequent path of our monetary policy. This evaluation will necessarily turn on two basic considerations: first, an updated assessment of the medium-term inflation outlook (both the modal path and the risks to this outlook) second, an updated assessment of the appropriate monetary policy stance to make sure that inflation returns to our two per cent target in a timely manner. In turn, both parts of this assessment involve judgements on the impact of the monetary policy adjustments that have already occurred since December 2021.

Chart 1
Changes in the key ECB policy rates
(percentage point changes)

Source: ECB.
Note: The latest observation is for 8 February 2023.

Calibrating changes in the policy stance and monitoring the transmission to the financial system, the economy and inflation presents policymakers with three challenges. The first is to produce a reasonable (counterfactual) forecast of where inflation would head without an adjustment in monetary policy. The second is to develop reasonable estimates of how an adjustment in monetary policy would alter that inflation trajectory. The third is to carefully monitor each step in this transmission from monetary policy to the economy and inflation, gathering evidence along the way on how this transmission conforms with past regularities or, if it does not, to better understand how and why the specific features of the current macro-financial environment might alter the strength and speed of monetary policy transmission. It is worth pointing out that, regardless of the origin of an inflation shock, the working assumption is that monetary policy operates on the demand side, with rate hikes reducing inflation through the dampening impact of tighter financing conditions on the level of aggregate demand. Nevertheless, watching for heterogeneities in the transmission across sectors and analysing the potentially considerable and state-dependent lags in the transmission is essential and I will return to this point throughout this lecture.
In this lecture, I will leave the question of forecasting aside and focus on the latter two points: how to form a view on the typical transmission regularities, and how to cross-check them against the incoming data along the way.
Let me first review the set of models that ECB staff use to inform policy decisions and present the macroeconomic effects these assign to monetary policy. As the bulk of these effects on the economy and inflation are expected to materialise only over the coming two to three years, I will then go through a set of more timely signals that may be gathered along the way and that can act as checkpoints on the path of transmission.
To date, these signals for the most part point to a strong and orderly transmission of the ECB’s policy tightening to the relevant financial and real variables. But, especially since this transmission process is still unfolding, I will conclude with a set of open questions on the impact of the ongoing policy tightening that can only be settled conclusively at a more mature stage of the process.
CONTINUE READING HERE
Compliments of the European Central Bank.
The post ECB Speech | The euro area hiking cycle: an interim assessment first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Speech by Fabio Panetta, Member of the Executive Board of the ECB, at an event organised by the Centre for European Reform, the Delegation of the European Union to the United Kingdom and the ECB Representative Office in London | London, 16 February 2023 |
It is a pleasure to be with you here in London today.
The energy shock stemming from Russia’s aggression against Ukraine has prolonged and aggravated a sequence of unprecedented supply shocks.[1] These shocks, combined with the reopening of the economy after the pandemic, have driven inflation in the euro area to persistently high levels.[2]
To prevent inflation from becoming entrenched, the ECB tightened its monetary policy stance decisively. We needed to avert second-round effects in the form of a de-anchoring of inflation expectations or a wage-price spiral.
We started to adjust our stance in December 2021[3]. Since July we have increased rates by 300 basis points. We have also started to normalise our balance sheet, which has shrunk by about €1 trillion since its peak. And from March we will reduce our asset purchase programme holdings by an average of €15 billion per month[4].
After this pronounced tightening, we need to carefully reassess the medium-term outlook for inflation and the risks surrounding it. In this respect, risks to the inflation outlook are now more balanced than at the time of our projections in December.
The economic environment is changing. Supply shocks have started to reverse, with energy and food commodity prices receding from their peaks last year and supply bottlenecks easing. It will take time for this to be fully reflected in retail prices across the economy and ultimately in core inflation.
We also face formidable sources of economic and geopolitical uncertainty globally. And major central banks are tightening their monetary policy stance simultaneously, the overall effects of which are difficult to assess.
In the euro area, market rates have increased significantly and bank lending is decelerating sharply. While housing and business investment has already weakened, the effect of our monetary policy impulses on domestic demand will only be felt in full over the coming quarters.
In this setting, I will argue that the ECB should not unconditionally pre-commit to future policy moves. Instead, we need to calibrate our monetary policy in a way that is data-dependent, forward-looking and adaptable to changing developments.
This approach can be best implemented by providing clarity on our monetary policy reaction function and then being guided by that reaction function in our decisions. We should respond to incoming information on the medium-term inflation outlook and the balance of risks surrounding it. And we should keep our policy tight until we see inflation firmly converging back to 2% over our policy horizon, taking into account the lags with which our monetary policy operates.
When we were normalising rates the pace of adjustment was key. But with rates now moving into restrictive territory, it is the extent and duration of monetary policy restriction that matters. By smoothing our policy rate hikes – that is, moving in small steps – we can ensure that we calibrate both elements more precisely in the light of the incoming information and our reaction function.
This framework will allow us to return to our target without undue delay. And it will allow us to do so at minimal cost to the economy and employment, reducing the risk that we tighten too much.
The uncertain economic environment
The current uncertain economic environment makes forecasting inflation particularly challenging.
The medium-term inflation outlook was revised substantially upwards in our staff projections last December. Headline inflation was projected to stand at 3.4% in 2024, before falling to 2% in the third quarter of 2025 (Chart 1). And core inflation was expected to remain above target throughout our horizon, declining to 2.4% on average by 2025. The risks to this outlook were primarily on the upside.

Chart 1
Euro area HICP headline inflation and inflation projections
(annual percentage changes and percentage point contributions)

Source: Eurosystem staff macroeconomic projections for the euro area, December 2022.
Notes: The dashed yellow line denotes projections. The latest observations are for the fourth quarter of 2022.

But key assumptions underpinning economic projections can change quickly. In fact, recent surveys and the latest European Commission forecast see headline inflation significantly below our December projections for 2024.[5] And risks have become more balanced.
Let me now review the key factors making projections difficult in the current environment.
Energy prices
Energy inflation has slowed more than projected in December. As a result, headline inflation is also falling: in January it was well below what we expected in December, driven by the energy component (Chart 2). If the drop in energy prices is sustained, headline inflation may fall below 3% towards the end of the year.

Chart 2
Inflation in the euro area
(annual percentage changes and percentage point contributions)

Sources: Eurostat and ECB calculations.
Note: NEIG stands for “non-energy industrial goods”.

The deceleration in headline inflation is particularly visible from indicators of inflation momentum, which may be more informative than the usual year-on-year inflation rate when inflation is changing rapidly.[6] These indicators are also showing signs of deceleration in core inflation (Chart 3).

Chart 3
Short-run inflation momentum: three-month HICP change, annualised, working-day and seasonally adjusted
(percentage changes)

Sources: Eurostat and ECB.
Note: The latest observation is for December 2022.

Wholesale electricity and gas prices are currently lower than assumed in the December projections, pointing to a continued decline in energy inflation. And wholesale energy prices will affect all inflation components as they remain the largest driver of both goods and services inflation (Chart 4).

Chart 4
Contributions of energy-sensitive components to goods and services inflation in the euro area
(annual percentage changes and percentage point contributions)

Sources: Eurostat and ECB staff calculations.
Notes: The term “energy-sensitive component” reflects items with a share of energy in direct costs above the average share of energy across services items (left-hand panel) and non-energy industrial goods (NEIG) items (right-hand panel). The latest observations are for December 2022

Core inflation has been less affected by the fall in energy prices so far. This is not surprising, as energy typically has a gradual and indirect impact on the price of goods and services through changes in the cost of inputs. For example, the cost of offering goods will over time benefit from lower transportation costs. Similarly, the cost of producing food will benefit from lower fertiliser costs, and the cost of providing hospitality services will benefit from lower heating costs.
Core inflation cannot turn on a dime, and the speed at which lower energy prices will pass through to core inflation is uncertain. If lower energy prices strengthen consumer demand, the pass-through could be slower as firms seize the opportunity to increase margins. At the same time, over the past year we have seen more frequent price adjustments, which could make downward price rigidities less binding. In any case, the direction of core inflation will eventually follow that of headline inflation, just like what happened on the way up.
Lower energy prices will help to temper core inflation through other channels too.
For example, improving terms of trade due to lower energy prices have contributed to the euro’s appreciation both directly[7] and indirectly by supporting the growth outlook (Chart 5). In turn, the appreciation of the euro against the dollar – by 12% from the through in September and 4% since the December projections – further reduces the cost of dollar-denominated commodities and other inputs imported in the euro area[8].

Chart 5
Drivers of the euro-US dollar exchange rate
(cumulative changes since January 2022, percentage changes and percentage point contributions)

Sources: ECB and ECB calculations.
Notes: A decrease denotes a euro depreciation against the US dollar. The decomposition of exchange rate changes is based on an extended two-country Bayesian vector autoregression (BVAR) model including ten-year euro area overnight index swap rate, euro area stock price, EUR/USD, ten-year euro area overnight index swap-US Treasury spread, US stock prices and the relative Citi commodities terms-of-trade index in the euro area compared with the United States. An adverse euro area terms-of-trade shock is assumed to depreciate the euro against the dollar, reduce euro area equity prices, and increase euro area yields and yield spreads against the United States. Identification via sign and narrative restrictions, using daily data. “Dec. projections” refers to the December 2022 Eurosystem staff macroeconomic projections for the euro area. The latest observation is for 10 February 2023.

Moreover, current developments alleviate the concerns that high energy prices could lead to a loss of potential output and thus exacerbate inflationary pressures[9]. I recently argued that this was still a conjecture rather than a fact.[10] But if energy prices continue to fall, potential output will prove more resilient.
In my view, even though we need to be cautious as energy prices are highly volatile, recent developments in energy markets have made the risks surrounding the inflation outlook more balanced.
Fiscal measures
One major factor behind the upward revision to the December inflation projections for 2024-25 was the assessment made by Eurosystem staff about the fiscal measures taken since 2022 to attenuate the impact of the energy shock.
The projections foresaw that the price-based measures – introduced or announced by governments in order to contain changes in consumers’ purchasing power over time – would reduce inflation this year. The projections also reflected the expectation that the bulk of these measures would be withdrawn next year, increasing inflation by 0.7 percentage points in 2024 and generating significant carry-over effects for 2025. And this delayed the moment at which inflation was projected to return to our 2% target, with important implications for our monetary policy decisions. Moreover, according to the projections, most of these measures would not be limited to vulnerable population groups, potentially creating an expansionary impulse for demand.
As I argued recently[11], this risked creating a highly inefficient interaction between monetary and fiscal policies. Fiscal measures that were introduced to protect consumers’ purchasing power might paradoxically trigger a contractionary monetary policy reaction that would hit the real economy, reducing household incomes and increasing the interest bill for governments. This would be like giving with one hand and taking away with the other.
This assessment of the inflationary effects of the fiscal measures is however surrounded by high uncertainty. Discretionary fiscal spending is hard to predict accurately, and the measures could be adjusted to avoid inefficient interactions with monetary policy. Indeed, some governments have announced that they may reduce spending on energy price brakes or move to more targeted income-based measures. Moreover, falling energy prices are likely to imply that energy support measures will be less extensive than foreseen in the December projections. This is also contributing to the rebalancing of risks to inflation.
Wage developments
Another factor that drove up our projections was wage growth. As workers sought compensation for high inflation, we expected wages to accelerate. This robust wage dynamic boosted the baseline projection and the risks surrounding it, as accelerating wages coupled with a tight labour market could raise the spectre of a wage-price spiral.
Wages are still a source of upside risk. In the seven countries covered by the ECB’s wage tracker, recently concluded agreements signal that wage pressures are rising (Chart 6), albeit remaining consistent with the December projections.

Chart 6
Wage developments
(annual percentage changes)

Sources: Left panel: Eurostat, ECB, national sources. The difference between the ECB wage tracker and negotiated wage growth series in 2022 is mostly due to different series of negotiated wage growth for France, with the ECB euro area tracker using wage growth in sectoral negotiations in France. Data on Indeed wage trackers can be found here.
Right panel: Calculations based on micro data on wage agreements provided by Bundesbank, Banco de España, the Dutch employer association AWVN, Oesterreichische Nationalbank, Bank of Greece, Banca d’Italia and Banque de France. Data for FR are based on an updated version of Gautier, E. (2022): “Negotiated wage rises for 2022: the results so far”, Eco Notepad, No 269, Banque de France.
Notes: Euro area aggregate is based on ES, IT, GR, AT, DE, NL and FR.
The latest observations are November 2022 for negotiated wages (excluding NL), fourth quarter of 2022 for the wage trackers.

But so far there is no convincing evidence that inflation expectations are de-anchoring, which is a necessary condition for a wage-spiral to take hold. Survey evidence suggests that consumers expect inflation to moderate over the medium term.[12] And longer-term inflation expectations remain firmly anchored.[13]
The upside movement in wages might reflect a one-off rebalancing in the income distribution between workers and firms. Workers have so far borne the brunt of the “Putin tax”, suffering a large loss of real income while, on balance, firms’ mark-ups remained stable or even increased in some sectors.[14] Ultimately, the “tax” will be absorbed by the factors of production – labour and capital – in proportion to their respective bargaining power in the labour market.
Moreover, lower energy prices limit workers’ loss of real income, thereby containing their drive to seek compensation through higher wages. And lower energy bills reduce input costs, allowing firms to better absorb wage increases without having to raise prices in response. In this way, we could see strong one-off wage growth but limited aggregate “cost-push” effects that raise core inflation.
All in all, higher wage increases do not necessarily signal a persistent divergence from our 2% inflation target. But we cannot rule out that stronger and sustained wage dynamics will take hold if above-target inflation proves to be persistent. I consider this risk broadly unchanged compared with the December projections.
Risks to the growth outlook
The same supply shocks that are rebalancing the risks to inflation are also rebalancing the risks to growth.
Since December, economic activity and labour markets have proven more resilient than expected. And the outlook may improve further as lower energy prices support the economy and economic confidence in the current context of robust job growth. That could reduce the downside pressure on the prices of core goods and services.
These positive developments could be partly counterbalanced by the appreciation of the exchange rate and the tightening of credit conditions observed in recent months. And macro-econometric models may only partially capture the contractionary effects of our sizeable monetary policy tightening.[15]
There is also high uncertainty surrounding the international environment. While the US economy is decelerating, its labour market has recently surprised on the upside. In China, the exit from zero-COVID policy has led to a wave of infections that have adversely affected the economy, but the outlook is expected to improve as the economy reopens. More broadly, global demand and supply remain difficult to predict in view of geopolitical unknowns and the synchronised tightening by major central banks across the world.[16]
In short, the next steps facing monetary policy are anything but obvious.
A data-dependent monetary policy with a clear reaction function
So how should policy respond to this environment?
The benefits of data dependency
There are times when it makes sense to commit to a specific future course of monetary policy action – this is what we call forward guidance. That is the case when the economy faces deflationary risks and interest rates are at their lower bound.[17] And it can also be true when faced with inflationary risks: if the outlook changes rapidly and the monetary stance becomes clearly inappropriate, the commitment to normalise policy rates quickly is key to anchor inflation expectations.[18]
But today we are in a different situation. Monetary policy has already made a sizeable adjustment, and we now face inflation uncertainty in both directions. Moreover, we are not constrained in using interest rates to return to our target.
Forward guidance is therefore unnecessary. In fact, it would be tantamount to tying our own hands at a time when the inflation outlook can change rapidly.
In such circumstances, a truly data-dependent approach to calibrating monetary policy is preferable since it enables us to react nimbly to the incoming data. And it gives us enough time to see how our decisions affect the wider economy – a process that is hard to assess today.
Given the extent and speed of our tightening so far, there is a question mark over just how fast and how strong its effects on the economy will be.
Very early evidence suggests that bank lending rates are increasing more quickly than in previous hiking cycles, in line with the steeper increase in policy rates. And lending to firms and households is decelerating rapidly (Chart 7).

Chart 7
Key macro-financial variables during hiking cycles
(cumulative changes in percentage points for policy and lending rates; index (t=1) for total credit to firms and loans to households for house purchase)

Sources: ECB, Eurostat and ECB calculations.
Notes: The ECB-relevant policy rate is the Lombard rate up to December 1998, the MRO up to May 2014 and the DFR thereafter. Total credit to firms includes borrowing from banks and debt securities issued by non-financial corporations. Monetary financial institution loans to firms and households are adjusted for sales, securitisation and cash pooling. Data for debt securities and private residential investment before 1989 are not available and have been estimated. Latest observations are December 2022 for lending rates and loans, January 2022 for HICP and February 2022 for the DFR.

But given the long lags with which monetary policy is transmitted to the real economy,[19] most of the effects of our tightening are still ahead of us. This means, for example, that the current adjustment in the credit market – involving higher loan rates, as well as tighter lending standards and lower demand for loans to firms and households (Charts 8 and 9) – will likely compress consumption and investment in the coming months.

Chart 8
Changes in credit standards and demand for loans to euro area firms
(net percentages)

Source: Bank Lending Survey (BLS).
Notes: The net percentage for credit standards refers to the difference between the sum of the percentages of banks responding “tightened considerably” and “tightened somewhat” and the sum of the percentages of banks responding “eased somewhat” and “eased considerably”. The net percentage for loan demand refers to the difference between the sum of the percentages of banks responding “increased considerably” and “increased somewhat” and the sum of the percentages of banks responding “decreased somewhat” and “decreased considerably”. Net percentages for the “Other factors” refer to further factors which were mentioned by banks as having contributed to changes in credit standards.
Latest observation: January 2023 BLS.

Chart 9
Changes in credit standards and demand for loans to euro area households for house purchases
(net percentages)

Source: BLS.
Notes: The net percentage for credit standards refers to the difference between the sum of the percentages of banks responding “tightened considerably” and “tightened somewhat” and the sum of the percentages of banks responding “eased somewhat” and “eased considerably”. The net percentage for loan demand refers to the difference between the sum of the percentages of banks responding “increased considerably” and “increased somewhat” and the sum of the percentages of banks responding “decreased somewhat” and “decreased considerably”. Net percentages for the “Other factors” refer to further factors which were mentioned by banks as having contributed to changes in credit standards.
Latest observation: January 2023 BLS.

In the light of this, we increasingly need to consider the risk of overtightening. After many years of low growth, tipping the economy into a full-scale recession could trigger a permanent destruction of productive capacity and harm future employment opportunities, especially for the vulnerable members of society. Even if subsequently corrected, such overtightening would be very costly, given the low flexibility of the European economy.[20]
Overall, monetary policy needs to react forcefully when major shocks hit the economy and push inflation in a clear direction. But when risks are more balanced, a data-dependent approach is a prerequisite to avoiding costly mistakes.
Clarifying the reaction function
For such a data-dependent approach to be effective and avoid exacerbating uncertainty, we need to give some guidance on our future policy. Although we should avoid giving unconditional forward guidance on the policy rate path many months ahead, a meeting-by-meeting approach alone may not suffice. It may leave investors in the dark, having to guess our future moves and focusing on the near term[21].
To deal with this conundrum, we must instead provide investors with a framework for how we evaluate and respond to the incoming information. In other words, we need to clarify our reaction function.
In line with our price stability mandate, our reaction function is informed by the inflation outlook as well as the risks surrounding it. And it is designed to ensure that inflation returns to 2% without undue delay, taking into account the lags with which our monetary policy operates.
A proper understanding of this reaction function can benefit from two important clarifications.
The first is what will contribute to determining our reaction – that is, the set of factors that will affect inflation the most at our medium-term policy horizon[22].
At the global level, the most significant of these factors are energy prices, simply because lower energy prices are crucial for current inflationary pressures to unwind.
As for the domestic economy, a key factor in the coming months will be how rapidly lower energy prices and the associated lower cost pressures for firms are passed on to retail prices. In this respect, we need to carefully monitor mark-ups and wage growth, which could push in the opposite direction; for wages, we need to distinguish one-off adjustments from generalised increases, which could trigger self-sustaining wage-price rises. The conditions in the credit market are also important: we need to assess how fast credit to the economy is contracting and what its effects are on consumption and investment.
Second, we need to clarify how we should react to new information.
Last year, the need to normalise monetary policy quickly from a very accommodative starting point placed emphasis on the pace of rate hikes to prevent inflation becoming entrenched.
But now that we have made a major policy adjustment, the extent and duration of restriction have become increasingly relevant. By smoothing our policy rate hikes – that is, moving in small steps – we can ensure that we calibrate these two elements more precisely, remaining truly data-dependent and avoiding mistakes. This means that we will need to act in a non-mechanical way, keeping a genuine forward-looking approach and avoiding overreacting to individual data points.
We also need to ensure consistency across our tools. It is natural to normalise the size of the balance sheet in a tightening phase, thereby making it “push” in the same direction as our interest rate policy. But we are in unprecedented territory, and the pace of normalisation should be gradual and prudent, with rates remaining the key instrument to steer our monetary stance. There is little reliable experience of balance sheet tightening. It is hard to assess how a contraction of our balance sheet will affect bond markets and financial stability – especially if it happens in conjunction with an abrupt increase in interest rates.
What we do know is that we must preserve the singleness of our monetary policy by ensuring that our policy impulse is transmitted smoothly across all euro area countries. We should remain committed to all our lines of defence, which reinforce each other. First, a measured approach to hikes and balance sheet normalisation. Second, the flexibility embedded in our reinvestments under the pandemic emergency purchase programme. And third, the Transmission Protection Instrument.
Conclusion
Let me conclude.
The energy shock has coincided with the post-pandemic reopening of the economy to result in persistently high inflation in the euro area.
That in turn has increased the risk of a de-anchoring of inflation expectations and inflationary wage-price dynamics. In response, we have tightened our monetary policy decisively to prevent inflation becoming entrenched in the economy.
But as policy rates move more firmly into restrictive territory and the energy shock abates, the risks to the inflation outlook have become more balanced. And the outlook for the economy and inflation has become increasingly uncertain, both globally and in the euro area.
In this environment, we no longer need to overweight upside risks to avoid worst-case scenarios. We now need to take into account the risk of overtightening alongside the risk of doing too little.
A data-dependent calibration of monetary policy – firmly rooted in a clear reaction function – offers the best way forward. It will enable us to clarify our policy intentions, providing markets with the necessary guidance while keeping volatility in check. In parallel, by smoothing our policy moves we ensure that their cost to the economy is minimal.
This doesn’t mean we will not be resolute in the fight against inflation. It means being resolute in the right direction. What we do not want is “to drive like crazy at night with our headlights turned off” – as Italian singer Lucio Battisti once put it.[23]
Thank you.
Author:

Fabio Panetta, Member of the ECB’s Executive Board

Compliments of the European Central Bank.
The post ECB Speech | Monetary policy after the energy shock first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Most countries in the world agreed on a major tax reform in 2021. Now it’s time to follow through with implementation.

The international tax system—shaped by the League of Nations in April 1923—has come under intense pressure in recent years. Globalization, digitalization, and tax competition have made it increasingly hard for countries to raise revenue from multinational companies in an effective, fair, and efficient manner. Following a decade of debate, 138 countries recently agreed to the first major overhaul of the international tax system in a century.
Our new IMF paper assesses the reform and finds that it is a major step in the right direction. But to reap its benefits countries need to implement it, with the optimal policy response depending on each country’s circumstances. Our paper argues that other reform efforts—both international and domestic—should continue, not least so that poorer countries can raise more revenue to meet their development needs.
The reform in a nutshell
The reform was agreed in 2021 by the members of the Organisation for Economic Co-operation and Development/Group of Twenty Inclusive Framework—a body with now 142 members tasked to address international tax avoidance by multinational companies and deal with the tax challenges arising from digitalization of the economy. The reform contains two pillars:

Pillar 1 includes a new method to allocate profits to countries where multinational companies may have significant business but few (or no) local operations. This is increasingly common when firms sell through digital channels. Under the existing system, countries have no right to tax such profits in the absence of a physical establishment such as a warehouse or factory on their territory.
Pillar 2 introduces a global minimum effective tax rate of 15 percent. This is enforced through a set of top-up tax rules. For instance, if a country where operations take place levies taxes below this minimum, then the country where the corporate headquarters are located can collect additional taxes to reach the minimum rate.

Key achievements
The reform breaks with century-old norms. The move toward taxing profits in the destination country—that is, where final consumers are located—marks a paradigm shift, rendering the system more robust to tax base erosion since consumers are less mobile than intangible capital such as patents or technology. Moreover, the simplified allocation of profits by a formula reduces scope for aggressive tax planning. This currently occurs, for instance, when multinational companies manipulate transfer prices of transactions between group entities to shift profits to lower-tax countries—eroding countries’ tax bases and creating tax competition pressures.
The new minimum tax in Pillar 2 addresses this race to the bottom by putting a global floor on rates and raising the prospect of ending the decadelong downward trend in corporate tax rates. It also cuts back on profit shifting into investment hubs. The reduced pressure to compete, including through tax incentives, enables countries to design better domestic policies. Our paper shows that these indirect effects indeed might well yield bigger gains in revenue than the estimates of the direct impact of the reform suggest.
More work to be done
The reform initially has limited coverage. It covers only the largest multinational companies—and in case of Pillar 1, just over 100 firms. Under both pillars, relatively large chunks of profits are excluded. The reform is therefore unlikely to be the end point of change for the international tax system, although there are political and practical advantages to phasing in such a major overhaul.
The reform is still quite complex, creating implementation challenges especially for developing countries. Further simplification will be needed, with work currently under way in areas important to this group of economies, such as simplified approaches to taxing routine marketing and distribution operations.
The additional revenue raised by the reform is welcome, but small (at initially just 0.2 percent of global gross domestic product). Low-income countries that wish to tackle their development needs will therefore need to raise domestic taxes and should not just rely on expected revenue from international tax agreements. We estimate that the reform will boost global revenue by just under 0.2 percent of GDP initially, although reduced tax competition might double the gains in the future.
These estimated revenue gains are nowhere near what developing countries need to meet the sustainable development goals. At the same time, we see the potential for low-income countries to increase their tax revenues by as much as 8 percent of GDP through domestic tax increases, based on estimates of their tax capacity—that is, the amount of tax they could raise based on their economic and demographic characteristics.

One option would be to use the scope created by reduced pressures for low tax rates and tax incentives and introduce a corporate tax system with fewer loopholes. Governments could also consider collecting more from other major taxes—such as the value-added tax, where there is significant untapped potential in many countries. They must also invest urgently in revenue administration—both to reap the full benefits of the reform and to support tax collection more generally.
The global tax agreement is an important step in the right direction, but it is not yet operational. While monitoring and evaluation are critical and further reforms likely, the most important next step is for countries to implement it swiftly.
Authors:

Ruud de Mooij
Alexander Klemm
Christophe Waerzeggers

Compliments of the IMF.
The post IMF | The Unfinished Business of International Business Tax Reform first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Today, the European Commission has proposed ambitious new CO2 emissions targets for new heavy-duty vehicles (HDVs) from 2030 onwards. These targets will help to reduce CO2 emissions in the transport sector – trucks, city buses, and long-distance buses are responsible for over 6% of total EU greenhouse gas (GHG) emissions and more than 25% of GHG emissions from road transport. These strengthened emissions standards would ensure that this segment of the road transport sector contributes to the shift to zero-emissions mobility and the EU’s climate and zero pollution objectives.
The Commission proposes phasing in stronger CO2 emissions standards for almost all new HDVs with certified CO2 emissions, compared to 2019 levels, specifically:

45% emissions reductions from 2030;
65% emission reductions from 2035;
90% emissions reduction from 2040.

To stimulate faster deployment of zero-emission buses in cities, the Commission also proposes to make all new city buses zero-emission as of 2030.
In line with the European Green Deal and REPowerEU objectives, this proposal will also have a positive impact on the energy transition, by lowering demand for imported fossil fuels and enhancing energy savings and efficiencies in the EU’s transport sector. It will provide benefits for European transport operators and users by reducing fuel costs and total cost of ownership, and ensure a wider deployment of more energy-efficient vehicles. It will also improve air quality, notably in cities, and the health of Europeans.
Moreover, this is a key sector to support the European clean tech industry and boost international competitiveness. The EU is a market leader in the production of trucks and buses and a common legal framework helps to secure that position for the future. In particular, the revised standards provide a clear and long-term signal to guide EU industry investments in innovative zero-emission technologies and boost the rollout of recharging and refuelling infrastructure.
Background
Emissions in the HDV sector have been increasing year-on-year since 2014 with the exception of 2020 due to the COVID-19 pandemic. Especially in the freight sector, emissions are increasing rapidly. This is mainly due to growing road transport demand, which is expected to keep rising in the future. In 2019, freight emissions were 44% higher than emissions from the aviation sector and 37% higher than maritime transport emissions.
The vast majority of heavy-duty vehicles in the EU fleet (99%) currently run on internal combustion engines, fuelled largely by imported fossil fuels such as diesel. This adds to the EU’s energy dependency and current volatility of the energy market.
The current HDV emissions standards date from 2019, but are no longer in line with the EU’s climate objectives. Existing legislation does not provide a sufficiently clear and long-term signal to investors and does not reflect the new reality in the energy sector and the rapid developments in the HDV industry globally. The proposed new CO2 standards are in line with the EU’s increased climate ambitions, the Fit for 55 package and the Paris Agreement.
To support this proposal, investments need to be channelled into zero-emission vehicles and into the recharging and refuelling infrastructure, and the Commission has already proposed the Alternative Fuels Infrastructure Regulation to develop the necessary charging infrastructure to support the green transition of the heavy duty vehicles sector. In particular, the Commission proposed to install charging and fuelling points at regular intervals on major highways: every 60 kilometres for electric charging and every 150 kilometres for hydrogen refuelling. The Commission is working intensively with the co-legislators to finalise the negotiations on these proposals.
Compliments of the European Commission.
The post European Green Deal: Commission proposes 2030 zero-emissions target for new city buses and 90% emissions reductions for new trucks by 2040 first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Almost one year after Russia launched its war of aggression against Ukraine, the EU economy entered 2023 on a better footing than projected in autumn. The Winter interim Forecast lifts the growth outlook for this year to 0.8% in the EU and 0.9% in the euro area. Both areas are now set to narrowly avoid the technical recession that was anticipated for the turn of the year. The forecast also slightly lowers the projections for inflation for both 2023 and 2024.
Outlook improves thanks to enhanced resilience
Following robust expansion in the first half of 2022, growth momentum abated in the third quarter, although slightly less than expected. Despite exceptional adverse shocks, the EU economy avoided the fourth-quarter contraction projected in the Autumn Forecast. The annual growth rate for 2022 is now estimated at 3.5% in both the EU and the euro area.
Favourable developments since the Autumn Forecast have improved the growth outlook for this year. Continued diversification of supply sources and a sharp drop in consumption have left gas storage levels above the seasonal average of past years, and wholesale gas prices have fallen well below pre-war levels. In addition, the EU labour market has continued to perform strongly, with the unemployment rate remaining at its all-time low of 6.1% until the end of 2022. Confidence is improving and January surveys suggest that economic activity is also set to avoid a contraction in the first quarter of 2023.
Headwinds, however, remain strong. Consumers and businesses continue to face high energy costs and core inflation (headline inflation excluding energy and unprocessed food) was still rising in January, further eroding households’ purchasing power. As inflationary pressures persist, monetary tightening is set to continue, weighing on business activity and exerting a drag on investment.
The Winter interim Forecast’s projected growth for 2023 of 0.8% in the EU and 0.9% in the euro area is respectively 0.5 and 0.6 pps higher than in the Autumn Forecast. The growth rate for 2024 remains unchanged, at 1.6% and 1.5% for the EU and the euro area, respectively. By the end of the forecast horizon, the volume of output is set to be almost 1 per cent above that projected in the Autumn Forecast.
After peaking in 2022, inflation to ease over the forecast horizon
Three consecutive months of moderating headline inflation suggest that the peak is now behind us, as anticipated in the Autumn Forecast. After reaching an all-time high of 10.6% in October, inflation has decreased, with the January flash estimate down to 8.5% in the euro area. The decline was driven mainly by falling energy inflation, while core inflation has not yet peaked.
The inflation forecast has been revised slightly downwards compared to autumn, mainly reflecting developments in the energy market. Headline inflation is forecast to fall from 9.2% in 2022 to 6.4% in 2023 and to 2.8% in 2024 in the EU. In the euro area, it is projected to decelerate from 8.4% in 2022 to 5.6% in 2023 and to 2.5% in 2024.
Risks to the outlook are more balanced
While uncertainty surrounding the forecast remains high, risks to growth are broadly balanced. Domestic demand could turn out higher than projected if the recent declines in wholesale gas prices pass through to consumer prices more strongly and consumption proves more resilient. Nonetheless, a potential reversal of that fall cannot be ruled out in the context of continued geopolitical tensions. External demand could also turn out to be more robust following China’s re-opening – which could, however, fuel global inflation.
Risks to inflation remain largely linked to developments in energy markets, mirroring some of the identified risks to growth. Especially in 2024, upside risks to inflation prevail, as price pressures may turn out broader and more entrenched than expected if wage growth were to settle at above-average rates for a sustained period.
Background
The Winter 2023 Economic Forecast provides an update of the Autumn 2022 Economic Forecast, which was presented on 11 November 2022, focusing on GDP and inflation developments in all EU Member States.
This forecast crucially hinges on the purely technical assumption that Russia’s aggression of Ukraine will not escalate but will continue throughout the forecast horizon. It is also underpinned by a set of technical assumptions concerning exchange rates, interest rates and commodity prices with a cut-off date of 27 January. For all other incoming data, including assumptions about government policies, this forecast takes into consideration information up until and including 1 February.
The European Commission publishes two comprehensive forecasts (spring and autumn) and two interim forecasts (winter and summer) each year. The interim forecasts cover annual and quarterly GDP and inflation for the current and following year for all Member States, as well as EU and euro area aggregates.
The European Commission’s next forecast will be the Spring 2023 Economic Forecast, scheduled to be published in May 2023.
Compliments of the European Commission.
The post Winter 2023 Economic Forecast: EU economy set to avoid recession, but headwinds persist first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

US historian Gary Gerstle explains how globalization helped entrench neoliberalism while also bringing about its demise

Some moments in US history need decades to be fully grasped—they aren’t bound by the two-, four-, and six-year election cycles. Such periods, called “political orders” by US historian and Cambridge professor of American history Gary Gerstle, author of The Rise and Fall of the Neoliberal Order, are a new way of rethinking political time. The New Deal and the neoliberalism that followed were political orders that shaped US policy—and greatly influenced the global order—from the 1930s to the 2010s.
In a conversation with former IMF official Sunil Sharma, Gerstle discusses how the neoliberal order—committed to releasing capitalism from state-imposed constraints—failed in its promises, the contours of an emerging political order, and what this means for globalization.
SS: Let’s start with the basics—What is a political order?
GG: A political order is a way of rethinking political time. It arises when a political party wins not just one election but several, and develops an enduring appeal in American politics. A political order must be undergirded by a program of political economy that can plausibly claim to promote prosperity and opportunity and connect that program to a vision of the good life that appeals to voters.
A mark of a political order’s success is when it compels the opposition party—the Republicans during the New Deal order, the Democrats during the neoliberal order—to accept the dominant party’s political economy and vision of the good life as its own.
SS: To understand the rise of the neoliberal order, it’s important to understand the preceding New Deal order. What circumstances led to the New Deal?
GG: The New Deal order, lasting from the 1930s to the early 1970s, arose out of a moment in US history where capitalism was substantially unregulated by the state. The levels of unemployment, bankruptcies, poverty, and insecurity were such that many people concluded in the 1930s that capitalism, left to its own devices, was destructive—too prone to depressions and speculations to survive.
The simple but powerful idea of the Democrats’ New Deal order was that a strong interventionist state was necessary to regulate capitalism. This would both stabilize markets and redistribute the wealth via progressive taxation, support for strong unions, an expanded welfare state, and greater educational opportunity. The idea of states regulating markets in the public interest became so compelling that the Republicans, when taking back the presidency in 1952, didn’t roll back the major New Deal programs that had government intervening in the economy. This was a sign that a political order had triumphed.
SS: How did the neoliberal order emerge from the demise of the New Deal order?
GG: New political orders tend to emerge in periods of economic crisis. There was nothing new about neoliberal ideas in the 1970s. But they had been marginal. The economic crisis of the 1970s gave those ideas an opportunity to become mainstream. Keynesianism had dominated economic decision-making for decades; it was a tool kit central to the New Deal order. But those tools were no longer delivering economic prosperity. Unemployment and inflation had both spiked, plunging the economy into crisis. The Democrats were turned out of power, and Ronald Reagan transformed the Republican Party into a free market party. This free market orientation is best understood by the label “neoliberal,” which connotes injecting dynamism into a capitalist economy by freeing markets from state constraints.
The 1970s and 1980s marked the moment of this new political order’s ascent. It triumphed in the 1990s under the Democrat Bill Clinton. When he led the Democrats to power in 1993, he didn’t roll back the Reagan revolution of deregulation. I interpret his actions as signifying the triumph of a new political order—a neoliberal one.
SS: In your book, you discuss how globalization helped entrench the neoliberal order while also bringing about its demise. Can you explain?
GG: Neoliberalism promised that societies adopting free market practices would unlock the secrets to growth in ways that had been denied before. At its best, it imagines a world of peace, where people everywhere are trading, improving their livelihoods, realizing opportunities long denied to them.
Neoliberalism did allow capitalism to become global in ways it hadn’t been since before the First World War. Some of the wealth that had been concentrated in the West, for example, has been redistributed to places that had been denied that wealth. But neoliberalism overlooked the way in which this unleashing of economic power advantages elites who control the levers of capitalist development, deepening inequality. The justification is that economic growth will be so substantial that the difference between rich and poor won’t matter much because all boats will rise.
Neoliberalism’s greatest weakness—not only in the moral but also in the economic sense—was its inability to address economic inequality. Rather, it papered the matter over with promises of dramatic growth and then by coughing up easy credit when that growth failed to materialize.
After the global financial crisis, it was no longer possible to believe that all boats were rising. There were clearly losers as well as winners in the globalization struggle.
SS: How did the global financial crisis delegitimize neoliberalism?
GG: The global financial crisis fractured the neoliberal order, costing it the power and legitimacy that neoliberalism possessed in the 1990s and first decade of the 21st century. That’s not to say that neoliberal policies aren’t still around. But their authority began to be challenged in ways they weren’t during the heyday of the neoliberal order.
Quantitative easing during the financial crisis opened all kinds of possibilities in the US. That was the moment to engage in a massive infrastructural improvement project. President Obama wasn’t able to do that. He was in a sense the last of the neoliberal presidents, operating within the constraints of the neoliberal order. One of the principles of that order is that state intervention in the private economy must be strictly limited.
The course of history might have been quite different had there been a big infrastructure investment in 2009–10 to reboot the economy. The recovery would have flowed more quickly and directly to ordinary people. Had this kind of political leadership emerged sooner in the neoliberal order, the world might have been spared some of the political volatility that has rocked so many countries in the last 10 years.
SS: Given where we are, what are the contours of an emerging political order?
GG: We can see that the Biden administration has a plan for a new political order grounded in a political economy that looks more like the New Deal order than the neoliberal order, one that is trying to make some corrections for the errors of the neoliberal order.
Neoliberalism was mistaken in thinking that markets could be insulated completely from politics. Any set of economic policies, even the ones that encouraged the freest markets, has political and social consequences. For the economic realm to prosper, state involvement is needed at a level that was deemed unacceptable during the neoliberal era. There is a growing recognition that states must intervene in markets to address questions of economic security, opportunity, and welfare. Beneath some of the hubbub of American politics, a new political economy along these lines is indeed taking shape.
SS: How have the pandemic and the war in Ukraine affected the emergence of this new political order?
GG: They both have had a major impact. In the neoliberal heyday, the aim was to have output produced in the cheapest way. It didn’t matter where—as long as transportation was inexpensive and reliable. During the pandemic, goods couldn’t move, or they moved much more slowly and unpredictably. Neoliberalism also presumed a world of peace; few worried about a war obstructing international trade. That world vanished with Russia’s attack on Ukraine and the threats that China is making toward Taiwan. Governments now ask, What goods and services are essential for national security? What resources must every nation have for ensuring that the core needs of its people are met?
Suddenly, it matters where semiconductor chips and pandemic protective gear are produced; so, too, does secure access to rare minerals to build batteries and to energy supplies that can’t be interrupted by war.
National security always has had an economic component to it. What does a nation have to do to make sure that it has what its economy needs? Once you enter that frame of mind, you’re not in a neoliberal world anymore, because now you’re privileging national security over market freedom. This kind of thinking—underway in virtually every nation right now—is profoundly recalibrating the relationship of states to markets, of politics to economics.
SS: What does this mean for the future of globalization?
GG: It doesn’t mean we stop thinking about globalization. It doesn’t mean that countries become islands with no connection to each other. It means a strategic globalization—a globalization where nations can manage the flow of capital, commodities, energy, goods, and supply chains under adverse circumstances.
This points us away from free trade and financial flows, which was the model of globalization under a neoliberal world, and points more in the direction of managed trade and finance for the sake of some national or public interest.
This interview has been edited for length and clarity.

Sunil Sharma is a distinguished visiting scholar at George Washington University’s Elliott School of International Affairs and senior associate, Council on Economic Policies, Zurich, Switzerland.

Compliments of the IMF.
The post IMF | A New Political Order Emerges: Sunil Sharma interviews Gary Gerstle first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Today, the first baseline reports on the implementation of the Code of Practice are available online, as the first version of the Transparency Centre of the Code of Practice on Disinformation goes live.

30 Signatories of the Code of Practice on Disinformation, including all major online platform signatories (Google, Meta, Microsoft, TikTok, Twitter), have submitted their first baseline reports on the implementation of the commitments they took under the Code of Practice on Disinformation.
Signatories had six months after signing the Code to put in place actions to fulfil the commitments they subscribed to. These baseline reports provide a first state of play of the steps taken to implement commitments and measures under the Code, and a first set of qualitative and quantitative reporting elements covering the first month of implementation.
The Transparency Centre
As of today, citizens can download the full reports or consult them online. The Transparency Centre  is one of the Code’s concrete deliverables, and it aims to ensure that the public receives accurate and timely information about the implementation of the Code. This is a step-change regarding transparency.
The Transparency Centre website has been set up and is maintained by the Signatories. The current version is a very first edition. Signatories should further improve and develop it in the coming weeks to make sure that it is user-friendly, well searchable and kept up to date, in line with the Signatories’ relevant commitments under the Code. The Commission also encourages Signatories to consider additional, new state-of-the art features, as foreseen in the Code, to give the best user experience.
The first baseline reports
The baseline reports follow a common harmonised template consisting of 152 reporting elements (111 qualitative reporting elements, and 42 service level indicators/quantitative indicators) across the Code’s chapters. The harmonised reporting templates – developed with the support of ERGA (European Regulators Group for Audiovisual Media Services) – are a great step ahead for the alignment, reviewability, and accuracy of the signatories’ reporting. Notably, all individual actions and metrics are matched with the commitments and measures of the Code that they implement.
Overall, this first exercise attests of the signatories’ efforts to ensure a timely delivery of complex reports with detailed data. It is the first time that platforms provide such insight into their actions to fight disinformation.
Most major online platforms (Google, Meta, TikTok and Microsoft) demonstrated strong commitment to the reporting, providing an unprecedented level of detail about the implementation of their commitments under the Code, and – for the first time –  data at Member State level. Twitter, however, provides little specific information and no targeted data in relation to its commitments.
Smaller signatories delivered reports along their obligations (proportionate with the size and type of the organisations), with useful information and data, showing their positive engagement and reflecting their active contribution to the Code.
These baseline reports mark an important first step in establishing the monitoring and reporting under the new 2022 Code of Practice, while the methodology and granularity of the data provision needs to be further developed. Signatories provide data for different periods of time, indicating difficulties to pull data for only one month of implementation. This shall be aligned for the next reporting period. As the reports contain certain gaps in data and have some shortcomings in granularity or Member State level data, we expect this to be improved by the next reporting period in line with the Code’s relevant provisions.
The next set of reports from major online platform Signatories are due in July and are expected to provide further insight on the Code’s implementation and more stable data, covering 6 months.
The Commission also expects Signatories to deliver the first set of Structural Indicators for the next reporting exercise in July. Such indicators can provide important insights feeding into the assessment of the implementation of the Code and its impact in reducing the spread of disinformation online.
The Permanent Task-force
The Code’s Permanent Task-force and its subgroups will continue their intense work in 2023. From June 2022, subgroups have been working on implementing the Code and deepening the work in different areas, for instance providing a common list of Tactics, Techniques and Procedures (TTPs), developing the indicator measuring demonetisation efforts, adopting the harmonised templates and establishing the Transparency Centre.
The Subgroups have also fostered exchanges between Signatories, in particular regarding fighting the spread of disinformation in the context of crisis, notably Russia’s war of aggression against Ukraine and COVID-19. In this context, major online platforms also delivered specific dedicated sections in their baseline reports with detailed information on what measures they have taken under the Code to reduce disinformation around these crises. Such targeted exchanges will continue further within the Task-force, with a strong focus on fighting disinformation on Ukraine.
New Signatories and Expressions of Interest to join the Code
The Code remains open for new Signatories to join, and expressions of interest can now be submitted through the Transparency Centre. Since the signature of the Code in June 2022, four additional Signatories joined the 2022 Code, attesting of the Code’s appeal for the sector: Alliance4Europe, Ebiquity plc, the Global Disinformation Index and Science Feedback.
Some examples of data from the reports

Google indicates that in Q3 2022 it prevented more than EUR 13 million of advertising revenues from flowing to disinformation actors in the EU.
MediaMath, a demand-side platform that allows ad buyers better management of programmatic ads, provides an EU overall estimate of EUR 18 million of advertising revenues prevented from funding sites identified as purveyors of disinformation and misinformation.
TikTok reported that in Q3 2022 they removed more than 800,000 fake accounts, while more than 18 million users were following these accounts. They also indicate that the fake accounts removed represent 0.6% of the EU monthly active users.
Meta reported that in December 2022, about 28 million fact-checking labels were applied on Facebook and 1.7 million on Instagram. When it comes to the effectiveness of these labels, Meta indicates that on average, 25% of Facebook users do not forward content after receiving a warning that the content has been indicated as false by fact-checkers. This percentage increases to 38% on Instagram. Meta also provides data on Member State level regarding fact-checking efforts.
Microsoft reported that the news reliability ratings provided under its partnership with Newsguard (itself also a signatory of the Code) were displayed 84,211 times in the Edge browser discover pane to EU users in December 2022
Twitch reported that, to preserve the integrity of their services, between October and December 2022, it blocked 270,921 inauthentic accounts and botnets created on its platform and took action against 32 hijacking and impersonation attempts. Additionally, thanks to collaboration with the Global Disinformation Index (GDI), Twitch successfully removed 6 accounts actively dedicated to promoting QAnon on the platform.
Faktograf, a factchecker from Croatia, within the contract agreements they have in place with major online platforms, published in Croatian language 41 articles in January 2023, and 248 articles in the last 6 months.
Maldita.es, a factchecker from Spain, inspired the creation of UkraineFacts, a debunk database open to fact-checkers from all around the world that resulted in sharing over 5,000 articles related to the war in Ukraine from almost 100 organisations.

Additional data examples from the Crisis section of the reports
On the war of aggression in Ukraine:

Google’s YouTube blocked more than 800 channels and more than 4 million videos related to the Russia/Ukraine conflict since 24 February 2022.
Microsoft Advertising prevented between February and December 2022 about 25,000 advertiser submissions relating to the Ukrainian crisis globally, and removed 2,328 domains.
TikTok, from October to December 2022, 90 videos were fact-checked related to the war, and 29 videos removed a consequence of fact-checking activity.

On COVID-19:

Meta, since the beginning of the pandemic, removed more than 24 million pieces of content globally for violating its COVID-19 misinformation policies across Facebook and Instagram.
Google AdSense, from 1 January 2020 to 30 April 2022, has taken action under the Misrepresentative Content Policy, for harmful health claims on over 31,900 URLs with COVID-19 related content.
TikTok, between October and December 2022, removed in the EU 1802 videos violating their misinformation policy on COVID-19 after being reported, and 1557 proactively.

Compliments of the European Commission.
The post Signatories of the Code of Practice on Disinformation deliver their first baseline reports in the Transparency Centre first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.