The devastation and destruction of climate change will only worsen if we fail to act now

Just this year we’ve seen the increasingly devastating effects of climate change—human tragedy and economic upheaval with typhoons in Bangladesh, unprecedented floods in Pakistan, heatwaves in Europe, wildfires in North America, dry rivers in China, and droughts in Africa.
This will only get worse if we fail to act.
If global warming continues, scientists predict even more devasting disasters and long-term disruption to weather patterns that would destroy lives and livelihoods and upend societies. Mass migration could follow. And, failure to get emissions on the right trajectory by 2030 may lock global warming above 2 degrees Celsius and risk catastrophic tipping points—where climate change becomes self-perpetuating.
If we act now, not only can we avoid the worst, but we can also choose a better future. Done right, the green transformation will deliver a cleaner planet, with less pollution, more resilient economies, and healthier people.
Getting there requires action on three fronts: steadfast policies to reach net zero by 2050, strong measures to adapt to the global warming that’s already locked in, and staunch financial support to help vulnerable countries pay for these efforts.
Net zero by 2050
First, it’s vital that we limit further temperature rises to less than 1.5 degrees to 2 degrees. Delivering on that by 2050 requires cutting emissions by 25‑50 percent by 2030 compared to pre-2019 levels.
The good news is that about 140 countries—accounting for 91 percent of greenhouse gas emissions—have already proposed or set net-zero targets for around mid-century.
The bad news is that net-zero rhetoric does not match reality.
Actually getting to net zero by 2050 means most countries need to do even more to strengthen their targets for cutting emissions—particularly large economies.
And there is an even bigger gap on the policy front. New IMF analysis of current global climate policies shows they would only deliver an 11 percent cut. The gap between that and where we need to be is massive—equivalent to more thanfive times the current annual emissions of the European Union.

We desperately need implementation to catch up.
That will require a mix of incentives to push firms and households to prioritize clean goods and technologies across all their decisions.
The ideal policy mix would include pricing carbon, including cutting fossil fuel subsidies, along with alternative measures that can achieve equivalent outcomes, such as feebates and regulations. To complement domestic policies, an international carbon price floor agreement would provide one way of galvanizing action: asking large emitters to pay a minimum price of $25-$75 per ton of carbon depending on their national income level. And with alternative policies, this does not mean taxes per se. It would be collaborative, pragmatic, and equitable.
Of course, the overall policy package should include measures to reduce methane. Cutting these emissions by half over the next decade would prevent an estimated 0.3 degree rise in the average global temperature by 2040—and help avoid tipping points.
It is also critical to include incentives for private investments in low-carbon technologies, growth-friendly public investments in green infrastructure, and support for vulnerable households.
The new IMF analysis has encouraging projections for an equitable package that would contain global warming to 2 degrees. We estimate that the net cost of moving to clean technology—including the savings made by avoiding unnecessary investments in fossil fuels—would be around 0.5 percent of global gross domestic product in 2030. This is a tiny amount in comparison the devastating costs of unchecked climate change.
But the longer we wait, making the shift would be far more costly and more disruptive.
Urgent need to adapt
But mitigation action is not enough. With some global warming already locked in, people and economies everywhere are paying the price every day.
And, while the world’s larger economies contribute the most and must deliver the lion’s share of cuts to global greenhouse gases, smaller economies pay the biggest costs and face the biggest bill for adaptation.
In Africa, a single drought can lower a country’s medium-term economic growth potential by 1 percentage point, creating a government revenue shortfall equivalent to a tenth of the education budget.
This underscores the importance of broad investments in resilience — from infrastructure and social safety nets to early warning systems and climate-smart agriculture. In fact, for around 50 low-income and developing economies, the IMF estimates annual adaption costs will exceed 1 percent of GDP for the next 10 years.
In many cases, these countries have exhausted fiscal space during nearly three years of crises ranging from the pandemic to rampant inflation. They urgently need international financial and technical support to build resilience and get back on their development paths.
Climate finance: innovate now
Doing more on climate financing is also vital. Advanced economies must meet or exceed the pledge of $100 billion in climate finance for developing countries—not least for equity reasons.
But public money alone is not enough—so innovative approaches and new policies to incentivize private investors to do more. After all, the green transformation brings vast opportunities for investments in infrastructure, energy, and more.
It starts with stronger governance and integrating climate considerations into public investment and financial management that can help unlock new sources of financing.
Proven financial instruments will also be important—such as closed-end investment funds that can pool emerging market assets to provide scale and diversify risks. And multilateral development banks or donors must do more to encourage institutional investors to come in—for example, by providing equity, which currently makes up only a small share of their commitments.
One promising new area: unlocking capital from pension funds, insurance companies and other long-term investors that collectively manage over $100 trillion of assets.
Another consideration is how better data facilitates decision and investment. That’s why the IMF and other global bodies are standardizing high-quality and comparable information for investors, harmonizing climate disclosures, and aligning financing with climate-related goals.
Role of the IMF
The IMF recognizes that the critical importance of the green transformation, and we have stepped up on this issue, including through our partnerships with the World Bank, the Organisation for Economic Co-operation and Development, Network for Greening the Financial System, and others.
We are already incorporating climate considerations in all aspects of our work. This includes economic and financial surveillance, data, and capacity development, together with analytical work. And our first ever long-term financing tool, the Resilience and Sustainability Trust, now has more than $40 billion in funding pledges, along with three staff-level agreements with Barbados, Costa Rica, and Rwanda.
The support for this instrument shows the enduring power of cooperation to overcome global challenges.
If we don’t act now, then the devastation and destruction of climate change—and the threat to our very existence—will only get worse.
But if we work together—and work harder and faster—a greener, healthier, and more resilient future is still possible.
Author:

Kristalina Georgiev, Managing Director, IMF

Compliments of the IMF.
The post IMF | Getting Back on Track to Net Zero: Three Critical Priorities for COP27 first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Keynote speech by Fabio Panetta, Member of the Executive Board of the ECB, at the ECB Money Market Conference |
The euro area is facing a sequence of unprecedented supply shocks resulting from the pandemic and Russia’s aggression against Ukraine. These shocks have compounded each other and caused the current spike in inflation. Price pressures have broadened as firms have sought to pass higher costs on to consumers as the economy reopened.
As a result, the ECB has accelerated the adjustment of monetary policy to keep inflation expectations anchored at levels consistent with its target. Across the last three Governing Council meetings, we have increased our interest rates by 200 basis points. This is the fastest rate hike in the ECB’s history.
Looking ahead, the medium-term inflation outlook presents clear upside risks in a general context of extraordinary uncertainty about the future evolution of the European economy.
Today I will argue that, at present, the direction of monetary policy is clear. A further policy adjustment is warranted in order to keep inflation expectations anchored and stave off second-round effects. However, the calibration of our stance should not rely on a one-sided view of risks − especially as we continue normalising our monetary policy in a highly uncertain economic environment. And it should remain focused on medium-term inflationary developments.
We need to bring inflation back to our 2% target as soon as possible, but not sooner.
We might otherwise create unintended effects, achieving little reduction of inflation in the short term, but causing excessive market volatility and a protracted economic slowdown beyond what is necessary to stabilise inflation in the medium term.
Implementing the correct calibration of monetary policy will be challenging. We will need to carefully consider the resilience of our economy, the implications of global monetary spillovers, and emerging threats to financial stability.
Trade-offs in setting the appropriate monetary policy stance
In the current situation, the direction of our monetary policy is clear.
Inflation in the euro area is too high and will remain above our target for an extended period. Headline inflation reached 10.7% in October. Core inflation is around 5%.[1]
Monetary policy normalisation is necessary when repeated supply shocks drive inflation higher for longer.[2] It signals that the central bank will not tolerate a de-anchoring of inflation expectations, reducing the likelihood of such a de-anchoring occurring. And it guards against the risk that monetary policy could exacerbate inflationary pressures by stimulating demand.[3]
But while the direction of the adjustment is clear, its calibration is not and its end point depends on the evolving medium-term economic and inflation outlook.
The neutral interest rate provides limited guidance here. It is an asymptotic concept that describes the point when interest rates are neither accommodative nor contractionary in a situation where growth is around potential, inflation is not far from target and no transitory shocks are disrupting the inflation path. But that is not the world in which we find ourselves.
Moreover, the neutral rate is unobservable. As I have argued elsewhere,[4] estimates of the neutral rate are imprecise and widely dispersed. They are subject to considerable uncertainty in a post-pandemic world that has undergone structural change.[5]
Today, I find it more helpful to discuss the target-consistent terminal rate.
This is the level of the policy rate that − if reached at the end of a short normalisation phase and then held constant − stabilises inflation at target by the end of the policy-relevant horizon in the absence of new shocks. I prefer the concept of the target-consistent rate to that of the neutral rate because it emphasises that we can gear our policy to a clear state-contingent reference in order to bring inflation back to target within a clearly defined period.
Eurosystem staff regularly calculate estimates of the target-consistent terminal rate, which are an input into the preparation of our monetary policy meetings.[6] But let me stress that these estimates are conditional on the economic and inflation outlook. They need to be continually reassessed in the light of incoming information.
Specifically, we need to navigate a complex set of risks to medium-term inflation.
On the upside, we could face the emergence of what I have called “ugly” inflation.[7] This arises when above-target inflation de-anchors expectations, causing excessive wage and price-setting dynamics that eventually fuel further inflation increases (the second-round effects).
At present, this risk is mostly driven by high energy prices and their pass-through to prices of other items. Annual energy inflation is running at around 42%. Energy has been the main contributor to headline inflation for the past 18 months (Chart 1). Higher energy input costs have contributed to extraordinarily high food inflation. They have been a key driver of goods and services inflation (Chart 2). And by dragging down the trade balance and weighing on the economic outlook, they are contributing to the depreciation of the euro, further reinforcing inflationary pressures (Chart 3).

Chart 1
Contributions of components of euro area headline HICP inflation

(annual percentage changes and percentage points contributions)

Sources: Eurostat and ECB calculations.
Notes: NEIG stands for “non-energy industrial goods”. The latest observation is for October 2022.

Chart 2
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 September 2022.

Chart 3
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 to 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. The latest observation is for 24 October 2022.

So far, inflation expectations have remained anchored and the risk of an incipient wage-price spiral in the euro area has been contained. Nominal negotiated wage growth has ticked up recently but is still far from compensating for the drop in real incomes caused by higher inflation.[8] And the outlook for wage growth and unit labour costs remains consistent with our target overall.[9] But we need to remain extremely vigilant in view of prolonged high inflation, which increases the likelihood of a pass-through to wage growth[10], especially as labour markets are now tighter than before the pandemic.
But other forces may increasingly push in the opposite direction and contain the risk of second-round effects, as what I have dubbed “bad” inflation – the inflation resulting from supply shocks – compresses real incomes.
The reduction in real wages and purchasing power is weakening domestic demand, with several leading indicators already pointing to a likely contraction in economic activity, starting from the last quarter of this year. The euro area PMI composite output index fell in October to its lowest level since November 2020,[11] with forward-looking indicators of activity particularly weak.[12] Consumer confidence plummeted to historical lows.[13] And financial and credit indicators also point to significant downside risks to GDP growth (Chart 4).[14]

Chart 4
Downside risks to euro area real GDP growth

Lower tail of the distribution of real GDP growth forecasts for Q1 and Q3 2023 based on “GDP-at-risk” models
(quarter-on-quarter change in percentage points)

Source: ECB calculations.
Notes: For each horizon, the chart shows the median of estimates of the lower quantile (10th percentile) forecast across the suite of “GDP-at-risk” models maintained by ECB staff, as well as the interquartile range to account for model uncertainty. These estimates are predicated mainly on developments in financial conditions, credit, risk, and the macroeconomy. Forecasts are conditional on financial data up to mid-October 2022 and real economy indicators up to the end of September 2022.

These forces pushing on the downside might be reduced if supply bottlenecks continue to ease (Chart 5) and energy commodity and electricity prices continue to fall from their highs (Chart 6).[15] But this would then also improve the inflation outlook and reduce the likelihood of “ugly” inflation taking hold.

Chart 5
Easing of supply chain bottlenecks

PMI suppliers’ delivery times (left panel) and Global Supply Shortages Index (right panel)
(diffusion indices)

Sources: S&P Global, Markit and ECB staff calculations.
Notes: The Global Supply Shortages Index measures how many selected items have been in short supply against their long-run average for each month. The long-run average refers to value 1 of the index. The shaded minimum-maximum range refers to the 5th-95th percentile range across 20 items (e.g. chemicals, electrical items, packaging, steel and textiles). The latest observation are for September 2022 and October 2022 (Flash PMI estimates for the United Kingdom and the euro area).

Chart 6
Spot prices of oil, gas, coal and electricity

(EUR/MWh for gas and electricity (left-hand scale), USD/barrel for oil (right-hand scale))

Sources: Refinitiv, HWWI, Energy Intelligence and ECB staff calculations.
Note: The latest observation is for October 2022.

To sum up, the implementation of monetary policy presents us with a difficult trade-off. On the one hand, our need to ensure that inflation expectations remain anchored speaks for targeting the upper part of the range of estimates of the target-consistent terminal rate. And this range would move higher if upside risks to medium-term inflation materialised.
But, on the other hand, in setting the monetary policy response we need to keep basing our decisions on the latest evidence and factor in downside risks to the economic outlook.
Policy normalisation, transmission lags and global spillovers
In recent months, the public debate has stressed the risks of doing too little to curb inflation, since this would require a more painful future adjustment. But this should not make us underappreciate the risk of doing too much.
First, we should bear in mind that it takes time before the full impact of our measures is felt in the economy.[16] Moreover, monetary policy is transmitted to different variables with different lags.
It immediately affects market expectations and financial market conditions through bond yields, equity prices and exchange rates. Since we started normalising monetary policy at the end of 2021, the one-year forward real rates have moved significantly higher across the entire term structure (Chart 7) and the one-year forward real rate one year ahead is now in positive territory. Likewise, nominal and real ten-year rates have increased by around 300 and 250 basis points respectively (Chart 8).

Chart 7
Change in euro area forward real interest rates

(percentage points)

Sources: Bloomberg, Refinitiv and ECB calculations.
Notes: Real forward rates are calculated by subtracting the inflation-linked swap forward rates from the nominal overnight index swap forward rates for each maturity. The latest observation is for 20 October 2022.

Chart 8
Ten-year real, nominal and inflation-linked swap rates for the euro area

(percentages per annum)

Sources: Refinitiv and ECB calculations.
Note: The latest observation is for 20 October 2022.

Crucially, however, it takes longer for our decisions to be transmitted to the real economy through changes in lending conditions and, subsequently, demand and prices. The debate should thus not be distorted by an excessive focus on short-run inflationary developments, which cannot be controlled by monetary policy. The full impact of our measures will likely reach the economy when activity and inflation are already on a declining path.[17] This implies that our tightening will need to end when inflation is still above our target.
Second, we need to factor in global monetary policy spillovers when defining the domestic stance.
With central banks across advanced economies adjusting their policies simultaneously (Chart 9), they could accentuate each other’s policy impacts if they do not sufficiently factor in the feedback loop they create.[18] ECB analysis finds that a tightening by the Federal Reserve System generates spillovers to euro area real activity and inflation that are comparable to its effects on the US economy.[19]

Chart 9
Financial conditions indices in advanced economies and emerging market economies

(standardised indices)

Sources: Refinitiv, Bloomberg and ECB staff calculations.
Notes: National financial conditions indices are aggregated using GDP purchasing power parity shares. The latest observations are for 6 October 2022.

It is sometimes argued that domestic inflation having a large global component should mean that domestic monetary policy needs to be tightened more forcefully to compensate for this weakened grip on prices. But if central banks across advanced economies are simultaneously tightening monetary policy – as is the case today – the opposite is true.[20]
If central banks do not fully factor in the effects of other central banks’ policies, the current phase of global adjustment may give way to a more severe slowdown than anticipated. In recent decades, episodes of highly synchronised global monetary policy tightening have been associated with subsequent global recessions (Chart 10).

Chart 10
Inflation surges, tightening synchronisation and global recessions

(percentages of countries)

Sources: ECB calculations, BIS data and Haver Analytics.
Notes: The global “inflation surges” index (red dashed line) shows the share of countries which, at time t, are simultaneously experiencing: (1) year-on-year inflation that is higher than at time t-1; and (2) year-on-year inflation that is above a certain threshold. In this case, the threshold is given by the average of the year-on-year inflation in the post-Volcker period, from the first quarter of 1984 to the second quarter of 2022. The global “tightening synchronisation” index (blue solid line) is constructed using BIS data on the policy rates set by central banks and shows the share of countries which are tightening at time t. Global recessions are periods when: (1) annual growth of global GDP per capita is negative or close to zero; and (2) a high share of countries are in a technical recession. The latest observations are for the second quarter of 2022.

Such a scenario could have particularly negative implications for the euro area. Our economy is not only more vulnerable than others to the energy crisis, it is also more open than economies such as the United States, China and Japan, and thus more exposed to a global recession. And because it is less flexible than the US economy, reversing course may be more difficult if demand and production weaken too much.[21]
Avoiding unintended effects in a volatile market environment
Incorrectly calibrating our monetary policy could also have unintended effects for financial stability and the transmission of our monetary policy.
The highly uncertain outlook has increased the sensitivity of market rates to new developments and shifts in risk sentiment. In turn, higher rates are exacerbating risk aversion, exposing the vulnerabilities of certain highly leveraged segments – such as residential property markets[22] – and some types of non-bank financial intermediaries[23]. These segments are vulnerable to adverse loops, with falling prices and rising rates feeding into higher debt refinancing costs, especially as falling real incomes make those costs less affordable.
This market volatility is being compounded by global financial spillovers (Chart 11). These come mainly from the United States[24], but were also visible in the reaction of euro-denominated yields to the recent episode of market repricing in the United Kingdom.

Chart 11
Global component in yields

Correlation of sovereign bond yields in advanced economies, expectations components and term premia
(correlation coefficient)

Sources: Datastream and Haver Analytics.
Notes: The sample consists of ten advanced economies (Australia, Canada, Denmark, euro area, Japan, New Zealand, Sweden, Switzerland, United Kingdom and United States). The bilateral correlation coefficients are averaged across these countries and time periods. The term premia and expectations components are the average of estimates from three models (dynamic Nelson-Siegel, rotated dynamic Nelson-Siegel and dynamic Svensson-Soderlind). The latest observations are for 21 October 2022 (daily data).

In the euro area, an additional source of volatility is the risk of financial fragmentation along national lines, which can impair the homogenous transmission of monetary policy throughout the euro area.
The current environment therefore requires us to be prudent in adjusting our monetary policy across all instruments. There are three key considerations here.
First, our decisions and communication on the pace of normalisation should avoid amplifying market volatility.
There is a case for frontloading our policy adjustment given the need to keep expectations anchored, especially in view of the very accommodative stance from which normalisation started. But such frontloading should remain commensurate to the benefits and risks it creates.
When it comes to managing inflation expectations, ECB staff analysis finds that the benefits of surprising markets with bigger-than-expected rate increases is limited in the euro area.[25] And if these bigger-than-expected increases are interpreted as signalling a higher terminal rate, rather than simply frontloading the normalisation, we could have a stronger impact on financing conditions – and ultimately on economic activity – than intended.
Additionally, a bigger-than-expected rate increase may heighten volatility and have a stronger impact in the current highly leveraged environment after a decade of very low rates and ample liquidity. So when calibrating our stance, we need to pay close attention to ensuring that we do not amplify the risk of a protracted recession or trigger market dislocation.[26]
Second, we must be clear about the sequencing of the normalisation process. We should avoid “cliff effects”, continually monitor the market response to our measures and consider the feedback between our different instruments.
Currently, our policy rate remains a suitable marginal instrument of normalisation. It is the instrument we know best. We have a comparatively limited understanding of the effects of reducing the size of our balance sheet.[27]
The size of our balance sheet will be significantly reduced as targeted longer-term refinancing operations (TLTROs) mature and banks likely make early repayments after the decision we took last week to adapt the TLTROs’ terms and conditions to the current monetary policy context.
We should take the necessary time to assess the impact of our rate hikes and of phasing out the TLTROs. As we normalise our monetary policy, we should expect bank lending conditions to tighten. What we need to avoid, though, is a sudden stop in the supply of credit to the broad economy.
We should ensure that TLTRO repayments have been absorbed before we stop fully reinvesting the principal payments from maturing securities purchased under our purchase programmes. And when considering how we would then reduce the size of our bond portfolios, a controlled reduction – whereby only redemptions above a cap are not rolled over – is preferable to active sales, which may unsettle markets in an already volatile financial environment.[28]
Third, we must ensure the smooth transmission of our stance as we normalise monetary policy.
Maintaining ample liquidity in the system will help ensure smooth money market functioning. This will allow us to continue tightly steering money markets through changes in our deposit facility rate.
But preserving smooth transmission also means being ready to intervene in a timely manner to counter unwarranted market dysfunctions, should they arise.
Our reinvestment flexibility under the pandemic emergency purchase programme – alongside the availability of the Transmission Protection Instrument, if required – protects the transmission of our monetary policy to all parts of the euro area, allowing us to set the appropriate stance. Recent months have shown that a credible ex ante commitment helps to establish a good market equilibrium, where higher yields do not drive spreads to higher levels that are disconnected from fundamentals.
We also need to stand ready to address collateral issues. Collateral scarcity has recently impaired the pass-through of our policy rates to repo rates.[29] The change in TLTRO III conditions should help alleviate tensions in the repo market[30], but we will continue to monitor the situation closely.
The importance of a consistent policy mix
As recently seen in other economies, an inconsistent policy mix can prove destabilising. So a successful normalisation process requires other policies to be consistent with monetary policy. For instance, well-designed energy and fiscal policies can make a key contribution to dampening short-term inflationary pressures, thereby helping to keep inflation expectations anchored[31] and reducing the amount of monetary tightening necessary.
To take a concrete example, the measures that have been taken to find alternatives to Russian gas, reduce gas demand and refill gas storage are likely playing an important role in bringing down gas prices. Likewise, joint initiatives at European level, common purchases and the redistribution of surplus energy sector profits can mitigate the impact of supply disruptions on energy prices. At the same time, energy policies should preserve price incentives and support energy efficiency.
Fiscal policies should aim to cushion the impact on the most exposed and fragile households and firms, while not hindering the necessary trend reduction of energy demand and adding to inflationary pressures. At the same time, they should protect economic potential and ensure that the energy shock does not permanently reduce productive capacity. Just as excessively high energy demand would risk keeping inflation high for longer, so would a slump in economic potential.
In response to the pandemic, Europeans acted together with consistent policies to protect productive capacity during the downturn.[32] To tackle the energy shock effectively, we can take inspiration from some of the EU pandemic-era instruments – such as SURE – to protect jobs and businesses that may be forced to temporarily reduce their activity. Common interventions at European level would preserve a level playing field, avoiding competitive distortions that would otherwise be detrimental to economic efficiency and the integrity of the Single Market.
Beyond targeted support in the short term, however, fiscal policy will need to focus on investment to reduce the European economy’s exposure to supply shocks, strengthen its strategic autonomy and support potential growth. Here we could take inspiration from the Next Generation EU (NGEU) instrument and move beyond reshuffling existing funds in the financing of Repower EU, matching additional investment and reform needs with adequate resources.[33]
But we should also ensure that we are implementing, in full, the agreed investments and reforms that are tied to NGEU. This will contribute to economic resilience and debt sustainability, which are crucial in view of the prevailing interest rates and growth outlook.
Conclusion
Let me conclude.
We find ourselves in an exceptionally volatile environment, with multiple and complex risks for the inflation outlook and the appropriate monetary policy response.
We are normalising our monetary policy to keep inflation expectations anchored and bring inflation back to 2% over the medium term.
But we cannot ignore the sizeable challenges that we are facing.
So we must calibrate our monetary policy carefully to ensure that inflation durably returns to our target, while also guiding market expectations and limiting excess volatility.
Our policy stance must remain evidence-based and adapt to changes in the medium-term inflation outlook, avoiding an excessive focus on short-run developments and fully taking into account the risks emanating from the domestic and global economic and financial environment.
This approach will allow us to successfully navigate the risks we face while avoiding the danger of tripping over unintended effects.
Let’s therefore mind the step in adjusting our monetary policy, so we can proceed steadily through the current shocks and bring the economy back to price stability and solid growth.
Compliments of the European Central Bank.
Footnotes:

When excluding energy, food, alcohol and tobacco. Core inflation is calculated by excluding more volatile components from headline inflation.

Panetta, F. (2022), “Normalising monetary policy in non-normal times”, speech at a policy lecture hosted by the SAFE Policy Center at Goethe University and the Centre for Economic Policy Research, 25 May.

Lagarde, C. (2022), “Monetary policy in the euro area”, Karl Otto Pöhl Lecture organised by Frankfurter Gesellschaft für Handel, Industrie und Wissenschaft, 20 September.

Panetta, F. (2022), op.cit.

See Weber, A., Lemke, W. and Worms, A. (2008), “How useful is the concept of the natural rate for monetary policy?”, Cambridge Economic Journal, October, Vol. 32, No 1, January, pp. 49-63.

For instance, recent estimates by Banco de España staff suggest that the median value of the target-consistent terminal rate across a suite of macroeconomic models lies in a range between 2.25% and 2.5%. See Hernández de Cos, P. (2022), “Monetary policy in the euro area: where do we stand and where are we going?”, XXI Congreso de Directivos CEDE, Bilbao, 29 September.

Panetta, F. (2021), “Patient monetary policy amid a rocky recovery”, speech at Sciences Po, 24 November.

In the euro area, the pick-up of wage growth has been more moderate and gradual than in the United States. The annual growth rate of compensation per employee is still distorted by the impact of the government measures to prevent job losses during the pandemic. Negotiated wage growth, which is less affected by these measures, stood at 2.4% (including volatile one-off payments) in the second quarter of 2022.

To be consistent with the 2% inflation target under typical conditions, nominal wage growth should be equal to productivity growth plus 2%, which the September ECB staff projections expect to be the case in 2024.

Inflation can play a formal or an informal role in wage setting. For more than half of the private sector employees in the euro area, inflation does not play a formal role in wage setting – but is an important factor in wage negotiations especially if inflation is high. While indexation of wages to inflation applies only to around 3% of private sector employees in the euro area, inflation plays a formal role in wage setting for one fifth of euro area private sector employees. Countries in which only minimum wages are indexed to inflation account for another fifth of private sector employees. For details, see Koester, G. and Grapow, H. (2021), “The prevalence of private sector wage indexation in the euro area and its potential role for the impact of inflation on wages”, Economic Bulletin, Issue 7, ECB.

Excluding the pandemic lockdown months, this was the lowest level since April 2013. See S&P Global Flash Eurozone PMI (2022), “Eurozone economic contraction intensifies in October”, October.

The weakening is especially pronounced for indicators of new business and new orders.

The series starts in January 1985. See European Commission (2022), “Flash Consumer Confidence Indicator”, 21 October.

Downside risks are reflected in Chart 3 by depicting the lower tail (specifically the 10th percentile) of the distribution of quarterly real GDP growth forecasted for the first and third quarters of 2023 respectively. Notably, the current estimates are well below the unconditional estimate which reflects average tail risks over a long horizon. An analysis of the underlying drivers suggests that the intensification of the downside risks to real GDP growth can be traced back predominantly to heightened financial and geopolitical risk, a bleaker macroeconomic outlook, and some deterioration in credit and financial conditions.

Supply bottlenecks have started to ease in recent months and orders-to-inventory ratios have been falling rapidly. European gas prices have also fallen sharply in recent weeks.

Model-based analysis by ECB staff suggests that, on average, the impact on inflation of a 100 basis point policy rate shock builds up gradually over time to reach its peak impact during the second year following the initial shock. See Lane, P. (2022), “The transmission of monetary policy”, speech at the SUERF, CGEG|COLUMBIA|SIPA, EIB, SOCIÉTÉ GÉNÉRALE conference on “EU and US Perspectives: New Directions for Economic Policy”, 11 October.

ECB staff estimates that the downward impact on GDP growth coming from policy normalisation is on average 1 percentage point per year until 2024, while the downward impact on inflation increases gradually, reaching 1 percentage point in 2024. The estimated impact refers to the average across a set of models used by the ECB for policy simulations, including the NAWM-II model (Coenen, G., Karadi, P., Schmidt, S. and Warne, A. (2018), “The New Area-Wide Model II: an extended version of the ECB’s micro-founded model for forecasting and policy analysis with a financial sector“, Working Paper Series, No 2200, ECB, November (revised December 2019)), the ECB-BASE model (Angelini, E., Bokan, N., Kai, C., Ciccarelli, M. and Zimic, S. (2019), “Introducing ECB-BASE: The blueprint of the new ECB semi-structural model for the euro area”, Working Paper Series, No 2315, ECB, September), and the MMR model (Mazelis, F., Motto, R. and Ristiniemi, A. (2022), “Monetary policy strategies in a low interest rate environment for the euro area”, forthcoming).

Obstfeld, M. (2022), “Uncoordinated monetary policies risk a historic global slowdown”, Realtime Economics Blog, Peterson Institute for International Economics, 12 September.

Estimates are obtained based on a sample spanning 1991 to 2019, using high frequency-based US monetary policy shocks (sum of conventional, Odyssean forward guidance and quantitative easing) in monthly smooth local projections (see Jarociński, M. (2021), “Estimating the Fed’s Unconventional Policy Shocks”, Working Paper Series, No 2585, ECB, August (revised June 2022)).

Obstfeld, M. (2022), op. cit.

Recent analyses show that the euro area lags notably behind the United States in terms of labour market efficiency (although levels for individual euro area countries vary, see Chart 1 in Sondermann, D. (2018), “Towards more resilient economies: The role of well-functioning economic structures”, Journal of Policy Modeling, Vol. 40, No 1, pp. 97-117). Productivity growth has also generally been lower in the euro area than in the United States for some time (see Chart 7 in Masuch, K. et al. (eds.) (2018), “Structural policies in the euro area”, Occasional Paper Series, No 210, ECB, June). These factors may limit the euro area’s relative capacity to bounce back from a recession.

ESRB (2022), “Warning of the European Systemic Risk Board”, 22 September.

Work stream on non-bank financial intermediation (2021), “Non-bank financial intermediation in the euro area: implications for monetary policy transmission and key vulnerabilities”, Occasional Paper Series, No 270, ECB, September (revised December 2021); Financial Stability Board (2021), “Global Monitoring Report on Non-Bank Financial Intermediation 2021”, December; European Systemic Risk Board (2022), “EU Non-bank Financial Intermediation Risk Monitor 2022”, July.

These financial spillovers work partly through the exchange rate. In particular, monetary policy tightening in the United States is seen as exporting inflation through the exchange rate and driving further tightening elsewhere. It is notable that this market reaction reflects the expectation that central banks are reacting to the short-term effects of exchange rates on inflation, since the empirical evidence suggests that these short-term effects are outweighed over time by the disinflationary spillovers of the Federal Reserve’s tightening.

ECB staff analysis, based on a sensitivity exercise of longer-term market-based measures of inflation compensation to larger versus smaller monetary policy shocks, suggests that, unlike in the United States, in the euro area larger monetary policy surprises do not significantly lower five-year forward five-year ahead inflation-linked swap (ILS) rates compared with smaller policy surprises.

Several episodes in the recent past – such as the “taper tantrum” of 2013, the developments in the US repo market in 2019 and the recent turmoil triggered in the UK bond market by liability-driven investors – have emphasised the importance of managing risks to market functioning.

As Olivier Blanchard recently observed in a tweet on 29 September, “When you have two instruments, and the effects of one are much better understood than those of the other, rely mainly on the instrument you know better. Focus on using interest rates, go slow on QT. There will be time to decrease your balance sheet.”

Panetta, F. (2022), op. cit.

Repurchase agreements, or repos, essentially function as a short-term secured loan in which cash is exchanged for a security (or collateral), under the agreement that the transaction is reversed at some point in the future. Repo markets are of critical importance for the smooth functioning of secondary sovereign bond markets and for providing short-term secured funding and investment opportunities for a wide range of market participants.

The change in the terms and conditions of TLTRO III makes early repayments of banks’ TLTRO borrowing more likely. These repayments will alleviate banks’ balance sheet constraints and release collateral that is currently pledged with the Eurosystem, which will increase the intermediation capacity of banks in repo markets and help to mitigate the current collateral shortage.

Respondents to the Consumer Expectations Survey who have become more positive in rating the adequacy of governmental measures in preserving their spending capacity have increased their inflation expectations by a smaller amount. Likewise, they have decreased their expectations of economic growth over the next 12 months by a smaller amount.

Panetta, F. (2022), “Europe’s shared destiny, economics and the law”, Lectio Magistralis on the occasion of the conferral of an honorary degree in Law by the University of Cassino and Southern Lazio, 6 April; Panetta, F. (2022), “Europe as a common shield: protecting the euro area economy from global shocks”, keynote speech at the European Parliament’s Innovation Day “The EU in the world created by the Ukraine war”, 1 July.

See footnote 28.

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Banks must adapt the way they do business to account for climate-related and environmental risks. The ECB Blog takes a fresh look at their progress and the road ahead. This is the first post in a series of climate-related entries on the occasion of COP27.
The economy needs stable banks, especially as it goes through the green transition. As supervisors, our role is to ensure that banks remain prudentially sound, now and long into the future. For this to happen, banks must be able to identify, assess, control and mitigate the inevitable risks materialising from the climate and environmental crises. Although banks have started to do this, there is a long way to go before they are climate change proof. We will therefore continue to scale up our supervisory activities. We expect banks to be able to fully manage their climate-related and environmental risks by the end of 2024.
Today we have published the results of our thematic review on these risks. We have closely examined banks’ strategies, governance and risk management practices. Together with 21 national competent authorities, we assessed 186 banks holding total assets of €25 trillion and took further actions to create the most comprehensive picture of how banks have been dealing with these risks.
The glass is not even half full
Simply put, the glass is filling up slowly but it is not yet even half full. Yes, climate change has made it to the top levels within banks and some first steps have been taken. But there is a difference between talking about steps and beginning to act; and there is an even bigger difference in doing what is needed. Here are three examples of shortcomings in risk identification, strategy and living up to commitments.
First, we detected blind spots at 96% of banks in their identification of climate-related and environmental risks in terms of key sectors, regions and risk drivers. Where banks do assess the risks, they are not yet able to grasp the full magnitude as most do not actively collect granular counterparty and asset-level data. And almost all boards are still unaware of how these risks will develop over time, what precise risk level the bank can accept and what action it will take to rein in excessive risk.
Second, most banks’ strategy documents are full of references to climate change, but actual shifts in revenue sources remain rare. Banks are certainly keen on new forms of sustainable business and have plans to allocate more funds to them soon. Many are also phasing out specific activities, such as thermal coal power generation, and have started discussing the transition with their most carbon-intensive clients. However, it is too often still unclear how these initial steps shelter banks’ business models from the consequences of climate change and environmental degradation in the years to come. For instance, some banks have committed to reaching net-zero emissions by 2050 but fail to define “net zero” and fail to set interim targets. Such targets would allow banks to actively steer towards their commitments. That would bring them closer to reaching their goals on time.
Most banks have thus not yet answered the question of what they will do with clients who may no longer have sustainable revenue sources because of the green transition. In other words, too many banks are still hoping for the best while not preparing for the worst.
Third, more than half of banks have put policy frameworks in place or have made green commitments but have not put them into action. For instance, some banks have policies explaining how to deal with clients engaged in risky activities. However, when assessing real cases, we see that clients – even notorious polluters – have sometimes been exempted from these policies. We also find that certain banks have ignored clear warnings from their own specialists. These banks risk serious repercussions on their balance sheets, particularly where they publicly make “green” claims.
But the glass is slowly filling up
But as I said, the glass is no longer empty and things are getting better. Several good practices have been identified, demonstrating that swift progress is possible. Here are three examples of good practices.
Starting with strategy, we have seen that some banks are already using transition planning tools. This involves using scientific pathways to assess the alignment of their portfolios with the Paris Agreement. These pathways set concrete intermediate targets showing how portfolios must evolve over time to meet longer-term objectives. One of these objectives is reaching net-zero emissions by 2050. The banks take actions when individual clients are not on track to meet the objectives set and address cases where engagement fails. Ultimately, such action can include abandoning client relationships.
Second, we have observed banks that map out data needs for their disclosures, risk management, business objectives and commitments. They collect data from a variety of internal and external sources. The banks tend to favour actual client data, which they collect from a broad customer base via questionnaires. And these banks do not take no for an answer. Instead, they experiment with ways of encouraging customers to fill in the questionnaires. When acquiring data from third-party providers, the banks assess the methodologies used and the quality of the data supplied. In taking this approach, banks ultimately aim to report granular risk indicators to their board, providing a forward-looking view on risk exposures.
Finally, when assessing capital needs, some banks take into account forward-looking climate and environmental factors over a longer time horizon. These assessments cover both physical and transition risks. Frontrunners have even put aside capital specifically to manage material climate-related risks based on the outcome of their capital adequacy assessments.
Some banks are ahead of the pack
So, we see groups of banks leading the way and showing that swift progress is possible. And they are from all “walks of life”: big and small, local and international, specialised and universal, and from a variety of jurisdictions. But time is of the essence. That is why we have given each bank clear timelines. We expect that by the end of 2024 they will be fully aligned with all of our supervisory expectations on these risks.[1] There can be no more questions about responsibilities. Banks must have risks fully measured and priced. Boards need to have set their banks on an unequivocal course to longstanding resilience. In doing so, banks should not limit themselves to reaping the fruits of a greening economy and addressing transition risks. They must also respond to the physical impacts of climate change. Moreover, they must properly handle the risks related to biodiversity loss and broader environmental risk.
We have also told banks the supervisory consequences they face if they fail to meet their climate responsibilities. Deadlines will be closely monitored and, if necessary, enforcement action will be taken.
Laggards need to catch up quickly
Banks need to adjust before it is too late. They must look further into the future and take the necessary actions now to fill the glass. It takes time to fundamentally adapt and design concrete pathways to maintain a resilient business model. These efforts will make each bank and our financial system more resilient and better equipped for an economy that faces the climate and environmental crises while also working through the green transition.
Author:

Frank Elderson, Member of the ECB’s Executive Board

Footnotes:

The ECB has given each supervised entity an individual timeline to meet the climate-related expectations laid down in the 2020 Guide on climate-related and environmental risks by the end of 2024. While there can be exceptions in individual cases, the ECB has communicated its expectation to banks to reach, at a minimum, the following milestones: 1 – In a first step, the ECB expects banks to adequately categorise climate and environmental risks and conduct a full assessment of their impact on the banks’ activities by the end of March 2023, at the latest. 2 – In a second step, and at the latest by the end of 2023, the ECB expects banks to include climate and environmental risks in their governance, strategy and risk management. 3 – In a final step, by the end of 2024 banks are expected to meet all remaining supervisory expectations on climate and environmental risks outlined in 2020, including full integration in the Internal Capital Adequacy Assessment Process and stress testing.

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Tighter credit terms and conditions offered by banks to counterparties, mainly attributed to deterioration in general market liquidity and functioning
Higher maximum amount of funding but shorter maximum maturity against domestic government bonds
Deterioration in liquidity conditions continued for most collateral types
Higher initial margin requirements for most OTC derivative types, especially commodity derivatives

On balance, overall credit terms and conditions tightened over the June-August 2022 review period across all counterparty types. Price terms tightened for all counterparty types, but in particular for banks and dealers, investment funds and hedge funds. Non-price terms tightened for hedge funds and banks and dealers. The overall tightening of credit terms and conditions − mainly attributed to a deterioration in general market liquidity and functioning − continued the trend reported for the previous five quarters and was in line with the expectations expressed in the June 2022 survey. Overall credit terms are expected to tighten further over the September-November 2022 review period. The amount of resources dedicated to managing concentrated credit exposures increased in the June-August 2022 review period, while the use of financial leverage and the availability of unutilised leverage decreased.
In the case of securities financing transactions, the maximum amount of funding offered against collateral in the form of euro-denominated domestic government bonds increased, while the maximum maturity offered decreased. For other types of collateral, respondents reported a mixed picture. Haircuts applied to euro-denominated collateral either increased or remained unchanged, while financing rates/spreads increased for financing secured against all collateral types. The liquidity of most collateral types continued to deteriorate, with the largest percentage of respondents reporting a decrease in the liquidity of high-yield corporate bonds.
Turning to non-centrally cleared over-the counter (OTC) derivatives, initial margin requirements for most OTC derivatives, and especially commodity derivatives, increased during the June-August 2022 review period. While liquidity and trading deteriorated somewhat for credit derivatives referencing corporates or structured credit products as well as commodity derivatives and total return swaps, they remained unchanged for all other OTC derivative types. Respondents also reported an increase in the volume, duration and persistence of valuation disputes for OTC commodity derivatives contracts.
The September 2022 SESFOD survey, the underlying detailed data series and the SESFOD guidelines are available on the European Central Bank’s website, together with all other SESFOD publications.
The SESFOD survey is conducted four times a year and covers changes in credit terms and conditions over three-month reference periods ending in February, May, August and November. The September 2022 survey collected qualitative information on changes between June 2022 and August 2022. The results are based on the responses received from a panel of 27 large banks, comprising 14 euro area banks and 13 banks with head offices outside the euro area.
Contact:

For media queries, please contact William Lelieveldt | William.Lelieveldt@ecb.europa.eu | tel.: +49 69 1344 7316.

Compliments of the European Central Bank.
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High Representative/Vice President Josep Borrell will travel to Latin America, the third time of his current mandate, starting in Uruguay on 24 October and continuing to Argentina from 25 October. His mission aims to further strengthen both bilateral and regional relations, in particular through co-chairing the EU-CELAC Foreign Ministers Meeting which will pave the way for further high-level bi-regional engagement in view of a summit next year.
In Uruguay, the High Representative will meet President Luis Lacalle Pou on 24 October – with press remarks planned at 10:30 GMT-3 – Vice President Beatriz Argimon, as well as Foreign Affairs Minister Francisco Bustillo, following which a joint press statement is planned. HR/VP will also deliver a speech at the IV EU-Uruguay Investment Forum.
In Argentina, HR/VP Borrell will meet Foreign Affairs Minister Santiago Cafiero on 25 October (press remarks planned at 16:30 +/-), and later that day President Alberto Fernandez.
On 26 October, HR/VP will attend the Ministerial meeting of the United Nations Economic Commission for Latin America and the Caribbean and have several bilateral meetings with Foreign Ministers of the Community of Latin American and Caribbean States member countries. On the same day, he will also meet Vice President Cristina Fernández de Kirchner. On 27 October, HR/VP will co-chair the third meeting of EU-CELAC Foreign Ministers together with Argentina’s Minister of Foreign Affairs, Santiago Andres Cafiero, as pro-tempore President of the Community of Latin American and Caribbean States (CELAC). It is the first meeting in this format since 2018. Ministers will discuss ways to strengthen the EU-LAC partnership including through high-level events on shared thematic priorities leading to a bi-regional Summit of Heads of State and Government to take place in 2023. A press point in the context of the CELAC meeting is planned that day. Finally, on 28 October HR/VP will visit Bariloche, to launch the biggest EU initiative on human rights and in support of civil society so far in the country.
Compliments of the European External Action Service.
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The Commission has today adopted a legislative proposal to make instant payments in euro, available to all citizens and businesses holding a bank account in the EU and in EEA countries. The proposal aims to ensure that instant payments in euro are affordable, secure, and processed without hindrance across the EU.
Instant payments allow people to transfer money at any time of any day within ten seconds. This is much faster compared to traditional credit transfers, which are received by payment service providers only during business hours and arrive at the payee’s account only by the following business day, which could take up to three calendar days. Instant payments significantly increase speed and convenience for consumers, for example when paying bills or receiving urgent transfers (e.g. in case of medical emergency). In addition, they help to significantly improve cash flow, and bring cost savings for businesses, especially for SMEs, including retailers. They free up money currently locked in transit in the financial system, the so-called ‘payment float’, which can be used sooner for consumption or investment (almost €200 billion euro are locked on any given day). But at the beginning of 2022, only 11% of all euro credit transfers in the EU were instant. This proposal aims to remove the barriers that prevent instant payments and their benefits to become more widespread.
Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People, said: “Instant payments are fast becoming the norm in many countries. They should be accessible to everyone in Europe too, so that we stay globally competitive and make the most of the innovation opportunities offered by the digital age. People gain with more choice and convenience, businesses gain with better control of their cash flow and lower operational costs. Today’s proposal will strengthen our economy, make it more efficient and help it to grow.”
Mairead McGuinness, Commissioner for financial services, financial stability and Capital Markets Union, said: “Moving from “next day” transfers to “ten seconds” transfers is seismic and comparable to the move from mail to e-mail. Yet today, nearly nine out of ten credit transfers in euro are still processed as traditional ‘slow’ transfers. There is no reason why many citizens and businesses in the EU are not able to send and receive money immediately, the technology to provide for instant payments has been in place since 2017. This facility to send and receive money in seconds is particularly important at a time when bills for households and SMEs are increasing and every cent counts. This initiative will directly benefit EU citizens and businesses.”
The proposal, which amends and modernises the 2012 Regulation on the Single Euro Payments Regulation (SEPA), consists of four requirements regarding euro instant payments:

Making instant euro payments universally available, with an obligation on EU payment service providers that already offer credit transfers in euro to offer also their instant version within a defined period.

Making instant euro payments affordable, with an obligation on payment service providers to ensure that the price charged for instant payments in euro does not exceed the price charged for traditional, non-instant credit transfers in euro.

Increasing trust in instant payments, with an obligation on providers to verify the match between the bank account number (IBAN) and the name of the beneficiary provided by the payer in order to alert the payer of a possible mistake or fraud before the payment is made.

Removing friction in the processing of instant euro payments while preserving the effectiveness of screening of persons that are subject to EU sanctions, through a procedure whereby payment service providers will verify at least daily their clients against EU sanctions lists, instead of screening all transactions one by one.

This proposal will support innovation and competition in the EU payments market, in full conformity with existing rules on sanctions and fighting financial crime. It will also contribute to the Commission’s wider objectives on digitalisation and open strategic autonomy. This initiative aligns with the Commission’s priority of delivering an economy that works for people and creates a more attractive investment environment.
Background
The availability of instant payments and possible related fees vary strongly across Member States, which hinders the rollout of instant transfers in the Single Market. Legislative intervention is therefore necessary to scale up instant euro payments across the EU and unlock their benefits for EU citizens and businesses, especially SMEs. The latter would also benefit from improved cash flow and a greater choice of payment means.
Today’s proposal fulfils a key commitment in the Commission’s 2020 Retail Payments Strategy, which aimed for the full uptake of instant payments in the EU. It takes the form of an amendment to the 2012 Regulation on a Single Euro Payments Area, which already contains general provisions for all euro (SEPA) credit transfers, adding specific provisions for euro (SEPA) instant payments. The proposal contains phased implementation deadlines, differentiated for the different components of the initiative and between euro area and non-euro area Member States, to allow adequate implementation time and full proportionality.
Compliments of the European Commission.
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Joint op-ed on Ukraine Reconstruction Conference by German Chancellor Olaf Scholz and President of the European Commission Ursula von der Leyen
The courage shown by Ukrainians since Russia invaded their country is impressive. Their resilience and steadfastness in the face of this violation of international law are equally impressive. Ultimately, it is because of the courage shown by Ukraine that we will be gathering together on 25 October in Berlin, where we intend to discuss with experts how the international community can best help and support Ukraine with reconstruction.
The shape which that reconstruction takes will determine what kind of country Ukraine will be in the future. Will it be a state based on the rule of law with strong institutions? Will it have a dynamic and modern economy? Will it be a vibrant democracy which is part of Europe? Although we should always be careful when making historical comparisons, what is at stake here is nothing less than the creation of a new Marshall plan for the 21st century. This task will take generations and it must start now.
What can we and our Ukrainian partners learn from past experience of reconstruction? How can such a huge, long-term project be organised and financed? What structures are needed in order to ensure the necessary transparency and the essential confidence of investors? These are some of the questions that we intend to discuss on Tuesday in Berlin with experts and representatives from Europe, the G7, the G20, international organisations, civil society and, above all, Ukraine.
The suffering of the Ukrainians is immeasurable, the victims they mourn every day are numerous, and the impact of Putin’s war on the lives of millions of Ukrainians is deep. What we as a community can do – and have done since the very first day of the war – is to actively and reliably support Ukraine. We have imposed harsh sanctions on Russia. We have supplied weapons, supported the Ukrainian economy and helped people in their everyday lives. We have facilitated access to our internal market for Ukrainian exports and suspended import duties.
And for the time being more than 8 million Ukrainians have found refuge and protection from Putin’s bombs and missiles in Europe. Europe gave them immediate access to the labour market, to schools, medical care and housing. In the G7 and with partners in the G20, we have been fighting the global consequences of the war, including the worldwide hunger, energy and economic crises.
The international community has provided considerable financial support. G7 countries, the European Union and its members have so far provided more than 35 billion euro in emergency aid for Ukraine alone. This money is to help Ukraine meet its immediate financial needs, so that its administration can continue to function despite the war, and so that teachers, the police, doctors and soldiers can be paid and medical care can continue to be provided.
Besides this emergency aid, we need to start thinking today about the reconstruction of the country even though peace seems a long way off. We now need to start rebuilding ruined homes, schools, roads, bridges and infrastructure and restoring power supplies, so that the country can quickly get back on its feet again. For Ukraine needs the prospect of kick-starting its economy as soon as the war is over.
The key is to tackle this major undertaking together. There is agreement on this in the G7 and the European institutions. It is a huge task. The World Bank estimates the damage of the war so far at 350 billion euro. And the destruction goes on, as the most recent attacks in the last few days have shown. Neither Ukraine nor individual partners will be able to foot the bill alone. We must all lend a hand – the EU, the G7 and our partners far and wide. The international financial institutions and leading international organisations should of course be on board. In the long term, it will be important for private investors and companies to invest in Ukraine’s reconstruction too.
The clearer and more transparent the use of the money, the greater will be the willingness to help. We will therefore make sure with our Ukrainian friends that the support reaches the places where it is most needed. Together with our G7 partners and other countries, with the support of international organisations and Ukraine, we intend to lay the foundations for an inclusive donor platform to coordinate the process of immediately restoring destroyed infrastructure and embarking on long-term reconstruction. The joint platform will be the main instrument for cooperation and coordination of European and international support. It is about driving major reconstruction projects and providing technical support. In doing so, we will set the highest standards for transparency, efficiency, auditing and project monitoring.
The European Union has an important role to play here. Since the summer, Ukraine has had EU candidate status. So the road to reconstruction is at the same time Ukraine’s path towards the European Union. This also means making the Ukrainian economy more sustainable and more digital, since that is the economy of the future. It means enforcing the highest rule-of-law standards and setting up effective anti-corruption authorities. Because these are the values which Europe stands for and which will also help gain the trust of investors and donors.
We all agree that supporting Ukraine is not only the right thing to do, it is also in our very own interest. Ukraine is fighting not only for its own sovereignty and territorial integrity, but against Putin’s attempt to shift borders by force and inflict war and destruction on his neighbours. Ukraine is also defending the international rules-based order, the bedrock of our peaceful coexistence and of prosperity worldwide. So in supporting Ukraine, we are building our own future and the future of our common Europe.
Compliments of the European Commission.
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It’s been eight months since Russia launched its full-scale aggression against Ukraine. Already a year ago, in autumn last year, the military build-up became obvious, as were efforts to lay the ground for the aggression in the information space.
In the last three months leading up to the invasion of 24 February, EEAS East Stratcom Task Force observed a distinctive spike in disinformation narratives promoted by the Russian (dis)information ecosystem. In outlets known for spreading disinformation, the use of the keyword ‘Nazi’ in relation to Ukraine increased by almost 300%, while the keyword ‘genocide’ spiked by over 500%. In the last 12 months, over 1200 disinformation cases were recorded in the EUvsDisinfo repository – attacking Ukraine, the European Union, its Member States and the whole like-minded community that stood up to Russian aggression and keeps supporting Ukraine.
As the illegal military aggression continues, so do the information manipulation and disinformation campaigns. There are full-fledged disinformation and information manipulation activities ongoing in multiple languages and dozens of platforms, offline and online. It attempts to drive wedges in our society, feed on divisions, create confusion, and divert attention away from Russia’s aggression and its war crimes.
The 24th of October marks the start of the Global Media and Information Literacy Week. The last months have shown even more clearly how big a threat disinformation is, and how crucial it is to defend ourselves against it – also on the individual level. With its multi-tier approach, the EU has been at the forefront of the fight against foreign information manipulation and interference, including disinformation.
Today, East Stratcom Task Force is adding another tool that anyone could use to understand the threat better and to defend themselves against it. The EUvsDisinfo website, the EU’s first project raising awareness of disinformation, has been enriched with a new “Learn” section euvsdisinfo.eu/learn/.
This page explains the mechanisms, tactics, common narratives and actors behind disinformation and information manipulation. It offers insights into the pro-Kremlin media ecosystem, and also explains the philosophy behind foreign information manipulation and interference. The readers can also find easy response technics that anyone can apply, and afterwards they can practice their newly acquired skills through quizzes and games.
“Learn” aims to teach the readers how to judge the relevance and reliability of sources and their content as well as how to report and react to disinformation. These skills, according to the newly released Digital Competencies Framework for Citizens (DigComp 2.2), form part of the digital skills of the XXI century and are essential for informed citizens. The content of the page can be easily translated into practical exercises and case studies to discuss in a classroom.
Visit Learn to find out more.
Contacts:

Peter Stano, Lead Spokesperson for Foreign Affairs and Security Policy | peter.stano@ec.europa.eu

Paloma Hall Caballero, Press Officer for Foreign Affairs and Security Policy | paloma.hall-caballero@ec.europa.eu

Compliments of the European External Action Service, the European Commission.
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