Speech by Fabio Panetta, Member of the Executive Board of the ECB, at an online seminar organised by the Robert Schuman Centre for Advanced Studies and Florence School of Banking and Finance at the European University Institute |
Faced with exceptionally high uncertainty, we should accompany the economic recovery with a light touch, adjusting our monetary policy moderately and progressively as we receive feedback on the effects of our actions, says Executive Board member Fabio Panetta.
After many years of too-low inflation in the euro area, fears have turned to the prospect that inflation may remain too high for too long. Across advanced economies, the current inflation spike is proving to be broader and more persistent than initially expected, leading central banks to reassess the risk that it could become entrenched. This is no easy task, especially in the euro area.
Economic conditions in the euro area have benefited from the strong response of monetary policy and its positive interactions with fiscal policy during the pandemic. But this is not a typical business cycle, and we are not seeing a typical recovery.
The current inflation spike is for the most part not being driven by domestic factors – by an economy that is “running hot”, in other words. Demand remains below its pre-crisis trend.
Instead, the economy is experiencing a series of imported supply shocks that are pushing up inflation and depressing demand. The exit from the pandemic is characterised by global mismatches between demand and supply – in energy and goods markets in particular – with uneven effects across sectors.
As a result, past economic regularities may be a poor guide for the future.
This makes medium-term developments extremely hard to anticipate. There are forces at play that could delay the recovery and contain underlying price pressures, and others that could lead to accelerating inflation. Policy mistakes in either direction could push the economy onto an unfavourable path.
Faced with such uncertainty, there is a case for the central bank to accompany the recovery with a light touch, taking moderate and careful steps in adjusting policy, so as not to suffocate the as yet incomplete recovery.
If we are to durably escape the low inflation and low growth environment that has defined the past decade, we cannot afford to waste the progress we have made so far. In the spirit of William Brainard[1], we should take small steps in a dark room.
The dramatic conflict in Ukraine is now weighing negatively on both supply and demand conditions, making uncertainty more acute and exacerbating risks to the medium-term inflation outlook on both sides. In this environment, it would be unwise to pre-commit on future policy steps until the fallout from the current crisis becomes clearer. And the ECB stands ready to act to avoid any dislocation in financial markets that could stem from the war in Ukraine and to protect the transmission of monetary policy.
Inflation as an imported phenomenon
The recent inflation data in the euro area do not make for easy reading. Headline inflation reached 5% in January and is expected to stay above 2% for the entire year, while core inflation is at 2.3%. Inflation pressures are becoming widespread (Chart 1).[2]
To determine how monetary policy should respond, we need to understand the drivers of this inflation spike. I have previously spoken about “good”, “bad” and “ugly” inflation in this context, and each of these has different implications for policy.[3]
In short, good inflation is driven by domestic demand and wages consistent with our target, which monetary policy should seek to nurture until that target is reached. Bad inflation instead reflects negative supply shocks that raise prices and depress economic activity, which monetary policy should look through. Ugly inflation – the worst type of inflation – is driven by a de-anchoring of inflation expectations, which monetary policy should immediately stamp out.
Data indicate that bad inflation is still dominating in the euro area today.
Unlike in the United States, our economy is not experiencing excess domestic demand. Household nominal income has not recovered its pre-pandemic trend and households are saving more of their income than they did before the pandemic (Chart 2). Consumer spending and investment both remain well below their pre-crisis trends (Chart 3).
Inflation is largely imported, reflecting global shocks to supply and demand that are spilling over to our economy through import prices (Chart 4, left panel).
Around 60% of inflation in January was energy, of which the euro area is a net importer (Chart 4, right panel). This is the consequence of the recent extraordinary increases in oil and gas prices (Chart 5, left panel). These in turn mainly reflect shocks that compress energy supply, rather than stronger aggregate demand (Chart 5, right panel). The rise in the cost of energy has further accelerated after the Russian aggression against Ukraine.
Inflation is also being fuelled by the global shift in consumer spending from services to manufactured goods at a time when the pandemic has disrupted production. This has translated into global supply chain bottlenecks, high durable goods prices and strong pipeline pressures. This effect, which also represents a supply shock for the euro area, is now being reabsorbed, but at a different pace in different economies (Chart 6).
These global supply-driven increases in prices – above all energy and industrial goods, but also food – explain a good part of the currently high headline inflation (Chart 7, left panel).
In contrast, services inflation – the most domestic inflation component – has so far largely come from high-contact sectors (Chart 7, right panel). These sectors are experiencing frictions created by the pandemic and the reopening of the economy, and some of them (such as transport services) are also sensitive to energy prices.

Chart 1
Broadening and accelerating inflation pressures

(left-hand scale: percentages; right-hand scale: annual percentage changes)
Sources: Eurostat and ECB calculations.
Note: The latest observations are for December 2021.

Chart 2
Income and savings in the United States and euro area
Sources: Left panel: Eurostat and Federal Reserve System; right panel: Eurostat, Bureau of Economic Analysis and ECB calculations.
Notes: US quarterly data are computed as averages of monthly data. The latest observations are for the fourth quarter of 2021 for the United States and the third quarter of 2021 for the euro area.

Chart 3
Domestic demand in the United States and euro area
Sources: ECB and Federal Reserve System.
Notes: The latest observations are for the fourth quarter of 2021 for the United States and the third quarter of 2021 for the euro area. For the right panel, Ireland is excluded from the euro area aggregate due to the volatility it would impose on the data series, as large multinational firms use Ireland as their base of operations, which leads to large swings in investment in intellectual property products.

Chart 4
Strength of imported inflation
Sources: Left panel: World Input-Output Database, Eurostat and ECB staff calculations; right panel: Eurostat and ECB calculations.
Notes: Energy intensity is measured as the ratio between gross available energy and real GDP. The latest observations are for December 2021 for the left panel, and 2020 for the right panel.

Chart 5
Energy supply shocks in the euro area
Sources: Refinitiv and ECB staff calculations.
Notes: An energy equivalent price compares the price of two energy sources for the same energy content. Structural shocks are estimated using the spot price, futures to spot spread, market expectations of oil price volatility and stock price index. The latest observations are for 24 February 2022.

Chart 6
Shift in spending between goods and services
Sources: Bureau of Economic Analysis, Eurostat and ECB staff calculations.
Notes: Aggregation of all euro area countries except Slovenia, Greece, Lithuania, Slovakia, Portugal and Belgium, and using estimated values for Spain. The latest observations are for December 2021 for the United States and the third quarter of 2021 for the euro area.

Chart 7
Uncertain domestic inflation
Sources: Left panel: ECB and ECB staff calculations; right panel: Eurostat and ECB staff calculations.
Note: The latest observations are for December 2021.

Uncertainty in the inflation outlook
Imported supply shocks that underpin bad inflation increase the uncertainty surrounding the medium-term inflation outlook in two main ways.
First, energy-driven inflation acts as a “tax”[4] on consumption and a brake on production, over time generating effects akin to an adverse demand shock. This adds to the uncertainty around the growth outlook, making it harder to judge when the economy is likely to reach full capacity.
Before the invasion of Ukraine, the economy was seeing a bounceback after the slowdown created by the Omicron wave. But we were still some way short of returning to our pre-crisis GDP trend, across a range of possible estimates (Chart 8). In my view, GDP reaching the bottom end of this range would be the bare minimum needed to conclude that resources are fully utilised[5] – and current projections suggest that this will not happen until the middle of 2023.
The terms of trade tax from higher energy prices could further delay the return to that growth path. The heavier energy bill has already reduced household purchasing power by around 2% (Chart 9, left panel) and is negatively affecting consumer confidence (Chart 9, right panel). It is also eroding the financial buffers built up during the pandemic, especially for households with low incomes, reducing the degree to which dissaving can support consumption in the future (Chart 10).
Second, prolonged imported price shocks make it harder to assess whether inflation is feeding into domestic price pressures. The fact that core inflation is increasing above 2% may initially seem to suggest that domestic inflationary pressures are accumulating. However, rising core inflation is partly due to higher energy prices, which are pushing up costs in almost all sectors (Chart 11).
Similarly, industrial goods inflation may remain elevated in the near term due to higher input costs, but beyond that its dynamics are hard to predict. Inventory levels are starting to return to normal, which suggests that demand might have peaked. The memory of supply shortages might prompt firms to build precautionary stocks that initially prolong tensions but ultimately lead to excess inventories once bottlenecks ease. This would amplify the manufacturing cycle and the volatility of goods inflation.
The Russian invasion of Ukraine is now intensifying this uncertainty.
We face greater financial volatility in the short term. There is a risk of renewed market dislocations as investors anticipate the potential impact of sanctions and possible retaliatory actions. And these dislocations might be felt unevenly, threatening the smooth transmission of our monetary policy across the euro area.
But we also face greater macroeconomic uncertainty in the medium term. The higher energy prices triggered by the conflict in Ukraine point to a longer period of above-target inflation, while supply disruptions of raw materials and food could prove more persistent[6]. At the same time, these factors increase the terms of trade tax and depress economic confidence, aggravating downside risks to growth and further delaying the return to full capacity.

Chart 8
Real GDP remains below pre-pandemic trends

(Index: Q1 2015 = 100)
Sources: Eurostat, European Commission, ECB and ECB staff calculations.
Note: Potential growth based on European Commission estimates.

Chart 9
Impact of “bad” inflation on demand
Sources: Left panel: ECB and ECB staff calculations; right panel: European Commission.
Notes: Changes in purchasing power due to energy price fluctuations are computed as the year-on-year percentage change in the real price of energy, weighted by the nominal energy expenditure share (see Edelstein, P. and Kilian, L. (2009), “How sensitive are consumer expenditures to retail energy prices?”, Journal of Monetary Economics, Vol. 56, No 6, pp. 766-779). A negative value indicates a loss in consumer purchasing power. The latest observations are for January 2022.

Chart 10
Erosion of household savings due to higher energy inflation in 2021

(percentage points of income; income quintile)
Sources: ECB Consumer Expectations Survey and ECB staff calculations.
Notes: The chart refers to average aggregate effects across the income distribution, to savings cut for those households that have positive savings and rely on them to face the shock, and to dissaving for households that do not have positive savings and thus rely on alternative sources, like accumulated savings or payment deferrals, to face the shock. In 2021 the perceived average price change for utilities was 11%, and for transport services it was 9%. The actual inflation rates for energy items could suffer from an underestimation bias in cases of rising prices because domestic energy consumption is billed with a delay. The latest observations are for January 2022.

Chart 11
Impact of oil price changes on HICP excluding energy and food

(percentage points)
Sources: ECB and ECB staff calculations
Notes: The impact of oil price changes on HICP excluding energy and food are computed using the September 2021 basic model elasticities (BMEs) of the forecasting models in use in the national central banks of the Eurosystem.

The path to price stability
This uncertainty means the path to price stability is exposed to pitfalls on both sides.
As imported inflation now looks set to last longer, we will need to see wages catch up sufficiently to avoid a further fall in purchasing power. If that does not happen, we might face an adverse scenario of a slower closure of the output gap and renewed disinflationary pressures once bad inflation subsides.
However, we could be also confronted with an opposite, equally adverse scenario where high inflation proves to be so persistent that it destabilises inflation expectations. That could feed into wage negotiations and domestic price pressures, entrenching inflation above our target.
Whether the economy can avoid these risks and move along a stable path depends crucially on our policy response. In such a finely balanced situation, any errant policy measure could easily push the economy onto the wrong path and put at risk what we have achieved so far.
If we respond to a false signal and react to a rise in inflation that might not be lasting, we could suffocate the recovery. But if we are too timid in the face of mounting signs that inflation is becoming a domestic process, we might inadvertently give the impression that we lack determination to secure price stability.
In both scenarios, we should not infer the medium-term inflation outlook from present inflation figures. We need to carefully assess the prospects for wage growth, productivity growth and inflation expectations. This requires us to cross-check forward-looking indicators with evidence of what we can observe in the real economy.
So far, the labour market is not looking excessively tight, especially in comparison with other jurisdictions (Chart 12, left panel), and even a significant increase in wage growth would not put it much above trend productivity growth plus our inflation target (Chart 12, right panel).[7] Wage growth has remained moderate to date[8], perhaps reflecting workers’ concerns about job security, and the shock from the Ukraine conflict could prompt further caution. Different measures of inflation expectations also show no signs of de-anchoring on the upside (Charts 13 and 14).[9]
Therefore, the danger of high inflation becoming entrenched seems contained at the moment. At the same time, I would like to see more evidence that improvements in labour markets are translating into wage growth consistent with our 2% target to be confident that the low-inflation scenario has fully disappeared.
Indeed, a key conclusion of our strategy review was that, when coming out of a long period of low inflation, we should wait to see underlying inflation sufficiently advanced before adjusting policy, of which wages are a central component. And option-implied probabilities of tail events suggest that markets still see risks of eventually falling back into a too-low inflation regime.[10]
In the current situation, the task for the ECB is therefore twofold.
First, with the crisis in Ukraine raising uncertainty to unprecedented levels, our immediate priority is to protect the functioning of the financial sector and bolster confidence, in order to contain the impact of the shock on the economy and keep in place the conditions for the smooth implementation of monetary policy.
Second, we should aim to accompany the recovery with a light touch, taking moderate and careful steps as the fallout from the current crisis becomes clearer.

Chart 12
Wage pressures are not a cause for concern
Sources: Left panel: Eurostat, Bureau of Labour Statistics and ECB staff calculations; right panel: Eurostat and ECB staff calculations.

Chart 13
Consumer inflation expectations rise but fall back
Note: These data are derived from responses to the quantitative question on inflation expectations in the ECB’s Consumer Expectations Survey.

Chart 14
Inflation expectations are re-anchoring at 2%
Sources: Left panel: ECB Survey of Professional Forecasters; right panel: ECB Survey of Monetary Analysts.
Note: Values were rounded to one decimal place prior to aggregation.

Accompanying the recovery with a light touch
More than 40 years ago, William Brainard proposed the “conservatism principle”, which calls for cautious action when policymakers are faced with uncertainty.[11]
This principle does not apply to all forms of uncertainty. For example, when faced with deflationary shocks that risk rooting interest rates at the lower bound, it pays to act more decisively.[12] The same is true when inflation expectations are at risk of becoming de-anchored.[13] Both these considerations informed the ECB’s resolute response during the first phase of the pandemic.
And if measures to avoid market dislocations prove necessary in response to the war in Ukraine, we should intervene with equal determination, using all our instruments.
In this respect, we reiterated in our February decisions that “within the Governing Council’s mandate, under stressed conditions, flexibility will remain an element of monetary policy whenever threats to monetary policy transmission jeopardise the attainment of price stability”.
But when policymakers are uncertain about the effects of their policy on the economy, it is advisable to take small steps – and this is the case for the path out of the pandemic. Confronted with supply shocks that are both inflationary and contractionary, we should adjust our policy moderately and progressively as we receive feedback on the effects of our actions.
We began reducing the pace of net asset purchases last year and we are on track to return to our pre-pandemic policy setting by September this year (Chart 15, left panel). Longer-term real yields have already returned to their pre-pandemic levels in the euro area (Chart 15, right panel).
The inflation outlook is stronger today than it was before the pandemic. Therefore, once the current crisis has abated, ensuring that monetary policy accompanies the recovery with a light touch may be consistent with a further adjustment in our net asset purchases. Beyond that, additional modifications to our stance should be considered carefully, for three main reasons.
First, in recent months euro area real yields have already risen more than in the United States, in spite of the different positions in the cycle (Chart 15, right panel). It would be imprudent to move further until we have strong confirmation that both actual and expected inflation is durably re-anchoring at 2% in a world of tighter financing conditions. This is especially important given that the equilibrium real interest rate is subject to large uncertainty (Chart 16), making it difficult to judge how far away we are from a neutral policy stance.
Second, we need to be certain that removing accommodation too suddenly will not trigger market turmoil, as this could lead to financial markets overreacting and financing conditions tightening abruptly. This would set back the recovery in underlying inflation and the re-anchoring of inflation expectations at our target.
We have already seen that, in the current environment, inflation expectations are highly sensitive to abrupt changes in the expected path of policy. Before the escalation of tensions in Ukraine, markets had brought forward their expectations of rate lift-off. This was associated with a reversal in the improvement of market-based inflation expectations (Chart 17, left panel).[14]
The fact that this decrease in inflation expectations was unique to the euro area[15] might have revealed concerns that the ECB would overreact to current inflation numbers and adjust its monetary policy too much and too quickly. These concerns were also hinted at by the shape of the €STR forward curve, which peaked in 2024 and then inverted somewhat, reflecting investors’ perceptions that the economy would be unable to sustain interest rates at those levels (Chart 17, right panel).
The end of net asset purchases in the euro area in 2018 was smooth mainly because short-term rates remained anchored by our forward guidance. We have not been in a situation before where markets are simultaneously reappraising the path of asset purchases and the path of rates, which could increase term premia along the yield curve. Moreover, markets are reappraising the tightening intentions of all major central banks at the same time, increasing the risk of undesirable spillovers on euro area financing conditions.
Third, a key lesson from the previous crisis is not only that rates should not be raised prematurely, but also that doing so without the right framework in place can lead to renewed financial fragmentation. And this fragmentation could force monetary policy into a trade-off: we would face a choice between triggering an excessive tightening of financing conditions in some parts of the euro area, which would result in domestic demand that is too low, or adjusting the stance by less than would be optimal.
Today, fragmentation could result from the legacy effects of the pandemic, so we need a different mechanism for addressing it than during the financial crisis.[16] We have a framework that has served us well over the last two years, when the flexibility of our pandemic emergency purchase programme and the European Commission’s Next Generation EU instrument proved sufficient to stem fragmentation. This gives us a good indication of the direction we should now take. And we know from experience that the more credible a backstop is, the less likely it is to be used.

Chart 15
The policy normalisation already achieved
Sources: Left panel: ECB and ECB calculations; right panel: Refinitiv, Bloomberg and ECB calculations.
Notes: APP stands for asset purchase programme. PEPP stands for pandemic emergency purchase programme. The euro area real rate is the difference between the nominal overnight index swap rate and the inflation-linked swap (ILS) rate. The US real rate represents the difference between treasury yields and the US breakeven inflation rate. The latest observations are for 15 February 2022 for the left panel, and 24 February 2022 for the right panel.

Chart 16
Econometric estimates of the real equilibrium rate

(percentages)
Sources: Brand, C., Bielecki, M. and Penalver, A. (eds.) (2018), “The natural rate of interest: estimates, drivers, and challenges to monetary policy”, Occasional Paper Series, No 217, ECB, December; Brand, C., Goy, G.; Lemke, W. (2020), “Natural Rate Chimera and Bond Pricing Reality”, DNB Working Papers, No 666, De Nederlandsche Bank, January; Ajevskis, Viktors (2018): “The natural rate of interest: information derived from a shadow rate model,” Latvijas Banka Working Paper, (2/2018); Brand, C. and Mazelis, F. (2019) “Taylor-rule consistent estimates of the natural rate of interest.” Working Paper Series 2257, European Central Bank; Fiorentini, G., Galesi, A., Pérez-Quirós, G. and Sentana, E. (2018): “The Rise and Fall of the Natural Interest Rate,” Banco de Espanã, Documentos de Trabajo, (1822); Geiger, F. and Schupp, F. (2018), “With a little help from my friends: survey-based derivation of euro area short rate expectations at the effective lower bound”, Bundesbank Discussion Paper, No 27; Holston, K., Laubach, T., and Williams, J. C. (2017). Measuring the natural rate of interest: International trends and determinants. Journal of International Economics, 108:59–75.; Jarocinski, Marek (2017): “VAR-based estimation of the euro area natural rate of interest,” ECB Draft Paper; Johannsen, B.K. and Mertens, E. (2021), “A Time-Series Model of Interest Rates with the Effective Lower Bound”, Journal of Money, Credit and Banking, 53: 1005-1046; ECB calculations.
Notes: Ranges span point estimates across models to reflect model uncertainty and no other source of r* uncertainty. The dark shaded area highlights smoother r* estimates that are statistically less affected by cyclical movements in the real rate of interest. The latest observations are for 16 February 2022.

Chart 17
Risks of a premature tightening
Sources: Left panel: Refinitiv and ECB Calculation; right panel: Refinitiv, Bloomberg and ECB calculations.
Notes: Left panel: The chart shows the one-year inflation linked-swap (ILS) rate four years ahead and the five-year ILS rate five years ahead. The solid vertical line refers to the day before the December Governing Council meeting (15 Dec), the day before the February Governing Council meeting (2 Feb) and the day of the Russian’s invasion of Ukraine (24 Feb). The solid vertical line refers to the day before the December Governing Council meeting (15 Dec). Latest observation: 24 February 2022. Right panel: The lift-off date is defined as the month during which the €STR forward rate exceeds by at least 10 bps the current €STR rate (respective red vertical lines). Latest observation: 24 February 2022 for realised €STR.

Conclusion
Let me conclude.
Whenever we are uncertain about the consequences of our actions, it makes sense to act prudently. Faced with high uncertainty surrounding the medium-term inflation outlook with pitfalls on both sides, we should adjust policy carefully and recalibrate it as we see the effects of our decisions, so as to avoid suffocating the recovery and cement progress towards price stability.
That was already the case before the invasion of Ukraine, but this terrible event has made the need for prudence even greater. The world has become darker, and our steps should be smaller still.
At the ECB we stand by the people of Ukraine, who are now seeing what they hold dearest threatened by an unjustifiable act of aggression that violates the most fundamental principles of international law. That a country can be subjected to a full military invasion should steel our determination to defend those principles wherever we are, however we can.
The ECB’s role is clear: we will take any measures necessary, using all our instruments to shore up confidence and stabilise financial markets. This is the duty of a central bank in times of emergency. And we will swiftly implement the sanctions decided on by the European Union.
The scenes we have witnessed this past week will scar our memories forever. But I hope that, one day, we will look back on this moment and be proud that we did our duty, showed resolve and unity, and sought to uphold the universal values of peace, freedom and prosperity.
Compliments of the European Central Bank.
The post ECB Speech | Small steps in a dark room: guiding policy on the path out of the pandemic first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Enterprise Florida, Florida’s economic development agency, published its latest report on foreign-direct investment in Florida in January 2022. It states that “according to the Bureau of Economic Analysis, Florida ranked fifth (5th) in the nation in 2019 in terms of foreign direct investment employment, and 1st in the Southeastern U.S. with a total of 366,100 jobs supported by majority foreign-owned companies.” Most notably, majority foreign-owned companies from Europe account for the largest share BY FAR at 62 percent of all FDI employment in Florida. That represents 227,600 jobs with the UK, Germany, France and Switzerland in the top 5, and Ireland, The Netherlands and Italy in the top 10.
With its network of pan-European chapters, EACC supports the transatlantic business relationship by opening up business opportunities across all of Europe for US companies & providing access to the US Market for companies from across Europe. EACC’s Florida Chapter was established in February 2020 to support EACC’s mission in Florida through seminars, panel discussions and roundtables to educate its members and the wider Florida business community on matters relevant to doing business on both sides of the Atlantic.
EFI’s latest numbers demonstrate the importance of European companies in supporting Florida’s economic development and the role that EACC plays for companies and executives active in the transatlantic corridor.
To read EFI’s report, click here.

To find out more about EACC Florida, contact Christina Sleszynska, Executive Director at EACC Florida at csleszynska@eaccfl.com or click here.
The post Europe Accounts for 62% of all FDI Employment in Florida first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

As part of the ongoing work of the OECD/G20 Inclusive Framework on BEPS to implement the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy, the OECD is seeking public comments on the Draft Rules for Tax Base Determinations under Amount A of Pillar One.
The purpose of the tax base determinations rules is to establish the profit (or loss) of an in-scope MNE that will be used for the Amount A calculations to reallocate a portion of its profits to market jurisdictions. The rules determine that profit (or loss) will be calculated on the basis of the consolidated group financial accounts, while making a limited number of book-to-tax adjustments. The rules also include provisions for the carry-forward of losses.
The OECD/G20 Inclusive Framework on BEPS has agreed to release this public consultation document (également disponible en français) in order to obtain public comments, but the draft rules do not reflect consensus regarding the substance of the document. The stakeholder input received on the Draft Rules for Tax Base Determinations will assist members of the Inclusive Framework in further refining and finalising the relevant rules.
Interested parties are invited to send their written comments* no later than 4 March 2022. Instructions for submitting comments can be found in the consultation document.
Further information on the two-pillar solution for addressing the tax challenges arising from digitalisation and globalisation of the economy is available at https://oe.cd/bepsaction1.
Contact:

For further information or inquiries, please contact tfde@oecd.org.

Compliments of the OECD.
The post OECD | Tax challenges of digitalisation: OECD invites public input on the draft rules for tax base determinations under Amount A of Pillar One first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Today, the Commission presents its Communication on Decent Work Worldwide that reaffirms the EU’s commitment to champion decent work both at home and around the world. The elimination of child labour and forced labour is at the heart of this endeavour.
The latest figures show that decent work is still not a reality for many people around the world and more remains to be done: 160 million children – one in ten worldwide – are in child labour, and 25 million people are in a situation of forced labour.
The EU promotes decent work across all sectors and policy areas in line with a comprehensive approach that addresses workers in domestic markets, in third countries and in global supply chains. The Communication adopted today sets out the internal and external policies the EU uses to implement decent work worldwide, putting this objective at the heart of an inclusive, sustainable and resilient recovery from the pandemic.
As part of this comprehensive approach, the Commission is preparing a new legislative instrument to effectively ban products made by forced labour from entering the EU market, as announced by President von der Leyen in her State of the Union address 2021. This instrument will cover goods produced inside and outside the EU, combining a ban with a robust enforcement framework. It will build on international standards and complement existing horizontal and sectoral EU initiatives, in particular the due diligence and transparency obligations.
Decent work: the EU as responsible global leader
The EU has already taken strong action to promote decent work worldwide, contributing to the improvement in the lives of people all over the globe. The world has also seen a significant reduction over the past decades of the number of children in child labour (from 245.5 million in 2000 to 151.6 million in 2016). However, the number of children in child labour has increased by more than 8 million between 2016 and 2020, inverting the previous positive trend. At the same time, the global COVID-19 pandemic and transformations in the world of work, including through technological advances, the climate crisis, demographic changes and globalisation, can have an impact on labour standards and workers’ protection.
Against this background, the EU is committed to build on its existing engagement and further strengthen its role as responsible leader in the world of work by using all the instruments at hand and developing them further. Consumers are increasingly demanding goods, which are produced in a sustainable and fair way that ensures decent work of those that produce them. As reflected in debates in the Conference on the Future of Europe, European citizens expect the EU to take a leading role in promoting the highest standards around the globe.
The EU will reinforce its actions, guided by the four elements of the universal concept of decent work as developed by the International Labour Organisation (ILO) and reflected in the United Nations (UN) Sustainable Development Goals. These elements include: (1) promoting employment; (2) standards and rights at work, including the elimination of forced labour and child labour; (3) social protection; (4) social dialogue and tripartism. Gender equality and non-discrimination are crosscutting issues in these objectives.
Key tools for decent work worldwide
The Communication sets out upcoming and existing EU tools in four areas:

EU policies and initiatives with outreach beyond the EU. Key tools include:

EU policies setting standards that are global frontrunners for corporate responsibility and transparency, such as the proposal for a directive on corporate sustainability due diligence and the forthcoming legislative proposal on forced labour.
EU guidance and legal provisions on socially sustainable public procurement will help the public sector lead by example.
EU sectoral policies, for instance on food, minerals and textiles, strengthen respect for international labour standards.

EU bilateral and regional relations: Key tools include:

EU trade policy, which promotes international labour standards.
Respect for labour rights in third countries is an essential part of EU human rights policies.
EU enlargement and neighbourhood policy, which promotes decent work in neighbouring countries.

The EU in international and multilateral fora: Key tools include:

EU support for the implementation of UN instruments on decent work, and the EU’s active contribution to setting labour standards through the ILO.
EU support for the reform of the World Trade Organisation (WTO) to integrate the social dimension of globalisation.
In the G20 and G7 formats, the EU works with other global economic powers to promote decent work.

Engagement with stakeholders and in global partnerships: Key tools include:

EU support for social partners to ensure respect of labour rights in supply chains.
EU engagement with civil society actors to promote safe and enabling environments for civil society.
EU support for global partnerships and multi-stakeholder initiatives on decent work, in areas such as occupational safety and health.

As part of its “Just and sustainable economy package”, the Commission today also tables a proposal for a Directive on corporate sustainability due diligence. The proposal aims to foster sustainable and responsible corporate behaviour throughout global value chains.
Members of the College said
President Ursula von der Leyen said: “Europe sends a strong signal that business can never be done at the expense of people’s dignity and freedom. We don’t want the goods people are forced to produce on the shelves of our shops in Europe. This is why we are working on a ban of goods made with forced labour.”
Executive Vice-President for an Economy that Works for People, Valdis Dombrovskis, said: “The EU economy is connected to millions of workers around the world through global supply chains. Decent work is in the interest of workers, businesses and consumers everywhere: they all have the right to fair and appropriate conditions. There is no place for lowering basic labour standards as a means to gain competitive advantage. We will continue to promote decent labour standards worldwide, making sure of a key role for social dialogue as we work for a fair and strong recovery.”
Commissioner for Jobs and Social Rights, Nicolas Schmit, said: “Decent work is the foundation of a decent life. Many workers worldwide still see their labour and social rights threatened on a daily basis. The EU will continue to play a leading role in promoting decent work that puts people at the centre, making sure their rights and their dignity are respected.”
Next steps
The Commission invites the European Parliament and the Council to endorse the approach set out in this Communication and to work together to implement its actions. The Commission will regularly report on the implementation of this Communication.
Background
President von der Leyen highlighted the Commission’s zero-tolerance policy on child labour in her Political Guidelines. In her 2021 State of the Union address, she stressed that business and global trade “can never be done at the expense of people’s dignity and freedom” and that “human rights are not for sale”.
The European Pillar of Social Rights Action Plan announced a “Communication on Decent Work Worldwide” to provide a comprehensive overview of relevant EU instruments and a blueprint for an EU strategy on taking forward the social dimension in international action.
Compliments of the European Commission.
The post EU Commission sets out strategy to promote decent work worldwide and prepares instrument for ban on forced labour products first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

On 23 February 2022, the Commission proposes new rules on who can use and access data generated in the EU across all economic sectors. The Data Act will ensure fairness in the digital environment, stimulate a competitive data market, open opportunities for data-driven innovation and make data more accessible for all. It will lead to new, innovative services and more competitive prices for aftermarket services and repairs of connected objects. This last horizontal building block of the Commission’s data strategy will play a key role in the digital transformation, in line with the 2030 digital objectives.
Margrethe Vestager, Executive Vice-President for a Europe fit for the Digital Age, said: “We want to give consumers and companies even more control over what can be done with their data, clarifying who can access data and on what terms. This is a key Digital Principle that will contribute to creating a solid and fair data-driven economy and guide the Digital transformation by 2030.”
Thierry Breton, Commissioner for Internal Market, added: “Today is an important step in unlocking a wealth of industrial data in Europe, benefiting businesses, consumers, public services and society as a whole. So far, only a small part of industrial data is used and the potential for growth and innovation is enormous. The Data Act will ensure that industrial data is shared, stored and processed in full respect of European rules. It will form the cornerstone of a strong, innovative and sovereign European digital economy.”
Data is a non-rival good, in the same way as streetlight or a scenic view: many people can access them at the same time, and they can be consumed over and over again without impacting their quality or running the risk that supply will be depleted. The volume of data is constantly growing, from 33 zettabytes generated in 2018 to 175 zettabytes expected in 2025. It is an untapped potential, 80% of industrial data is never used. The Data Act addresses the legal, economic and technical issues that lead to data being under-used. The new rules will make more data available for reuse and are expected to create €270 billion of additional GDP by 2028.
The proposal for the Data Act includes:

Measures to allow users of connected devices to gain access to data generated by them, which is often exclusively harvested by manufacturers; and to share such data with third parties to provide aftermarket or other data-driven innovative services. It maintains incentives for manufacturers to continue investing in high-quality data generation, by covering their transfer-related costs and excluding use of shared data in direct competition with their product.
Measures to rebalance negotiation power for SMEs by preventing abuse of contractual imbalances in data sharing contracts. The Data Act will shield them from unfair contractual terms imposed by a party with a significantly stronger bargaining position. The Commission will also develop model contractual terms in order to help such companies to draft and negotiate fair data-sharing contracts.
Means for public sector bodies to access and use data held by the private sector that is necessary for exceptional circumstances, particularly in case of a public emergency, such as floods and wildfires, or to implement a legal mandate if data are not otherwise available. Data insights are needed to respond quickly and securely, while minimising the burden on businesses.

New rules allowing customers to effectively switch between different cloud data-processing services providers and putting in place safeguards against unlawful data transfer.

In addition, the Data Act reviews certain aspects of the Database Directive, which was created in the 1990s to protect investments in the structured presentation of data. Notably, it clarifies that databases containing data from Internet-of-Things (IoT) devices and objects should not be subject to separate legal protection. This will ensure they can be accessed and used.
Consumers and businesses will be able to access the data of their device and use it for aftermarket and value-added services, like predictive maintenance. By having more information, consumers and users such as farmers, airlines or construction companies will be in a position to take better decisions such as buying higher quality or more sustainable products and services, contributing to the Green Deal objectives.
Business and industrial players will have more data available and benefit from a competitive data market. Aftermarkets services providers will be able to offer more personalised services, and compete on an equal footing with comparable services offered by manufacturers, while data can be combined to develop entirely new digital services as well.
Today, in support of the European strategy for data, the Commission has also published an overview of the common European data spaces that are being developed in various sectors and domains.
Background
Following the Data Governance Act, today’s proposal is the second main legislative initiative resulting from the February 2020 European strategy for data, which aims to make the EU a leader in our data-driven society.
Together, these initiatives will unlock the economic and societal potential of data and technologies in line with EU rules and values. They will create a single market to allow data to flow freely within the EU and across sectors for the benefit of businesses, researchers, public administrations and society at large.
While the Data Governance Act, presented in November 2020 and agreed by co-legislators in November 2021, creates the processes and structures to facilitate data sharing by companies, individuals and the public sector, the Data Act clarifies who can create value from data and under which conditions.
An open public consultation on the Data Act ran between 3 June and 3 September 2021 and gathered views on measures to create fairness in data sharing, value for consumers and businesses. The results were published on 6 December 2021.
Compliments of the European Commission.
The post Data Act: EU Commission proposes measures for a fair and innovative data economy first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Why is the Commission presenting this initiative?
The transformation to a sustainable economy is a key political priority of the EU. It is essential for the wellbeing of our society and our planet. Companies play a key role in creating a sustainable and fair economy and society but they need support in the form of a clear framework. EU-level legislation on corporate sustainability due diligence will advance the green transition, and protect human rights in Europe and beyond.
In addition to the European Parliament and Council, civil society as well as companies also call for action. Around 70% of companies participating in the 2020 preliminary Study on due diligence as well as the 2021 Open public consultation agreed that a harmonized EU legal framework on due diligence for human rights and environmental impacts is needed. Based on 2020 consumer survey, nearly eight in 10 respondents indicate that sustainability is important for them.
Why is voluntary action by companies not sufficient to address human rights and environmental impacts?
Many companies are already putting in place corporate sustainability tools. For instance, in the 2020 Study on due diligence requirements through the supply chain, a third of respondents from companies across all sectors, said that their companies undertake work in this area, taking into account all human rights and environmental impacts. Such own commitments or voluntary initiatives are laudable, and have helped tackle sustainability problems to a certain extent.
However, research shows that when companies take voluntary action, they focus on the first link in the supply chains while human rights and environmental harm occurs more often further down in the value chain. Furthermore, progress is slow and uneven.
This is why it is time to have clear rules in place.
What will companies be required to do?
The new proposal sets out a corporate due diligence duty to identify, prevent, bring to an end, mitigate and account for adverse human rights and environmental impacts in the company’s own operations, its subsidiaries and their value chains. It builds on the UN’s Guiding Principles on Business and Human Rights and OECD Guidelines for Multinational Enterprises and responsible business conduct, and is in line with internationally recognised human rights and labour standards.
In practice, the new proposal will require the companies within its scope to:

Integrate due diligence into policies.
Identify actual or potential adverse human rights and environmental impacts.
Prevent or mitigate potential impacts.
Bring to an end or minimise actual impacts.
Establish and maintain a complaints procedure.
Monitor the effectiveness of the due diligence policy and measures.
Publicly communicate on due diligence.

In order to achieve a meaningful contribution to the sustainability transition, due diligence under this Directive should be carried out with respect to all adverse human rights and environmental impacts identified in its Annex.
This means that companies must take appropriate measures to prevent, end or mitigate impacts on the rights and prohibitions included in international human rights agreements, for example, regarding workers’ access to adequate food, clothing, and water and sanitation in the workplace. Companies are also required to take measures to prevent, end or mitigate negative environmental impacts that run contrary to a number of multilateral environmental conventions.
In addition, the new proposal requires certain large companies to adopt a plan to ensure that their business strategy is compatible with limiting global warming to 1.5 °C in line with the Paris Agreement.
What are directors obliged to do and how will their duties be enforced?
The Directive also introduces duties for the directors of the EU companies that it covers. These duties include setting up and overseeing the implementation of the due diligence processes and integrating due diligence into the corporate strategy. In addition, when directors act in the interest of the company, they must take into account the human rights, climate and environmental consequences of their decisions and the likely consequences of any decision in the long term. Companies have to duly take into account the fulfilment of the obligations regarding the corporate climate change plan when setting any variable remuneration linked to the contribution of a director to the company’s business strategy and long-term interests and sustainability.
The rules on directors’ duties are enforced through existing Member States’ laws.
Will all companies be affected by these rules?
The new rules will only apply to large limited liability companies with substantial economic strength. Small and Medium Enterprises are excluded from the direct scope. This is about companies with 500+ employees and a net turnover over €150 million worldwide. 2 years after the new rules start applying, new rules will also be extended to other limited liability companies with 250+ employees and a net turnover over €40 million worldwide, in sectors where a high-risk of human rights violations or harm to the environment has been identified, e.g. in agriculture, textiles or minerals. The Directive will also apply to non-EU companies active in the EU with a turnover threshold aligned with the above, generated in the EU.
Will SMEs be affected by the new rules?
SMEs do not fall under the scope of the Directive. Nevertheless, they might be indirectly affected by the new rules as a result of the effect of large companies’ actions across their value chains. Therefore, the proposal foresees specific support addressed to SMEs, such as guidance and other tools to help them gradually integrate sustainability considerations in their business operations. Member States shall provide further technical support, and may provide financial support to SMEs to facilitate adaptation. The proposal will also contain elements to protect SMEs from excessive requirements from large companies.
What happens if companies do not comply with the new rules?
Member States will supervise that companies comply with their due diligence obligations. Member States could impose fines to companies, or issue orders requiring the company to comply with the due diligence obligation.
It is particularly important to enable victims to obtain compensation for damage. Therefore, the proposal will also give those affected by harm the opportunity to hold companies to account. This means that victims will have the possibility to bring a civil liability claim before the competent national courts. Such civil liability concerns companies’ own operations and its subsidiaries and established business relationships with which a company cooperates on a regular and frequent basis, where the harm could have been identified, and prevented or mitigated, with appropriate due diligence measures.
How will effective enforcement be ensured?
Member States will designate an authority to ensure effective enforcement. The Directive also requires Member States to adapt their rules on civil liability to cover cases where damage results from failure by a company to comply with due diligence obligations, building on their existing regimes on civil liability.
At European level, the Commission will set up a European Network of Supervisory Authorities that will bring together representatives of the national bodies, in order to ensure a coordinated approach and enable knowledge and experience sharing.
What are the benefits for citizens?
Citizens will become more aware of the impact of the products they buy and services they use. The main benefits will be the following:

More transparency and reliability on how products are made and services delivered.

Protection of human rights – sustainable business models have to prevent human rights abuses.

Healthier environment and a longer-term commitment to the environment from companies. Citizens could also feel more motivated to protect the environment, knowing that they are not alone in their efforts and companies are doing their share as well.

What are the benefits for companies?
For the first time ever, companies operating in the EU market will have common and clear rules on corporate sustainability due diligence.  The main benefits will be the following:

Preventing legal fragmentation. Some EU countries have developed national rules (such as France, Germany or the Netherlands) or want to do so (e.g. Austria, Belgium, Finland, Denmark) but the scope of these measures varies a lot from one country to the other. Moreover, there are many voluntary initiatives in place. This causes legal uncertainty for companies across the EU.

Meeting consumers’ expectations. Consumers are drawn increasingly to products made in an ethically and environmentally sustainable way, for example, without using harmful substances. They also perceive greater benefit and value from products sold by a socially responsible company, like ethical cocoa.

Meeting investor expectations. Investors prompt transparency requirements. Without mandatory action, investors and consumers would miss consistent benchmarks to be assured about the value chain standards.

Reinforcing risk management. Thanks to the new rules, companies will have a clearer view of their operations and supply chain, including higher awareness of their negative impacts, and will be able to detect problems and risks (including reputational risks) early.

Generating economic benefits. Research shows that companies which incorporate sustainability factors into their policy generate higher returns.

Increasing resilience. Researchers found that companies which had integrated social, environmental and health considerations into their strategies weathered the COVID-19 crisis better and saw a milder drop in stock prices during the pandemic than those who had not.

What are the costs for companies?
The new rules on due diligence will apply to companies of significant size and economic strength and those operating in high impact sectors such as textiles, agriculture, extraction of minerals. While SMEs are not subject to direct obligations in the proposal, accompanying measures will support SMEs that may be indirectly affected.
In order to comply with the new rules, companies may incur costs related to establishing and operating due diligence processes and procedures. In addition, companies may also incur additional transition costs from investments needed to change their own operations and value chains to address adverse impacts.
How will this proposal ensure EU companies remain competitive?
Companies’ competitiveness increasingly relies on their ability to ensure sustainable practices all along their value chains. Consumers are more and more aware of the choices they make with their purchases, raising demands for sustainable and responsibly sourced products and services. At the same time, investors are also increasingly considering businesses’ sustainability when looking for new investment opportunities. The varying existing and planned national due diligence rules as well as numerous voluntary initiatives cause legal uncertainty for companies across the EU, fragmentation of the Single market, additional costs and complexity. The proposal therefore aims to provide a harmonised, clear and coherent framework. It will also potentially become a model worldwide on sustainable value chains.
By helping companies better address the impacts in their value chains, the proposal will not only improve companies’ competitiveness, but also their efficiency and financial performance, preparedness and long-term resilience.
What is the impact of the new rules on developing countries?
The new rules will bring multiple benefits for developing countries, including a better protection of human rights and the environment, better adoption of international standards and facilitation of better access to remedies for victims of harmful corporate practices.
The proposal should achieve the most significant positive impacts in the EU’s main trading partners in developing countries. The Commission looks forward to working further with EU trading partners to ensure mutually reinforcing initiatives, including development of voluntary sustainability standards, support of multi-stakeholder alliances and industry coalitions, as well as accompanying support provided through EU development policy and other international cooperation instruments.
The proposal also aims to address potential negative effects on trading partners in developing countries, which could include companies withdrawing from very risky territories if they cannot mitigate harm due to systemic issues. In this regard, the proposal contains accompanying measures, such as capacity-building support for SMEs with a view to mitigating such possible impacts. The aim is to make clear that companies should prioritise engagement with business relationships in the value chain, instead of disengaging, which should stay a last resort.
Are there international standards on corporate sustainability due diligence?
2011 United Nations Guiding Principles on Business and Human Rights state that companies should avoid infringing the human rights of others and should address adverse human rights impacts with which they are involved in their own operations and through their direct and indirect business relationships. The OECD Guidelines for Multinational Enterprises, related Guidance on Responsible Business Conduct and sectoral guidance specify and further develop this concept of due diligence. The recommendations of the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy also embed this concept. The OECD framework extended the application of due diligence to cover environmental harm.
What are examples of mitigating measures?
The Commission has conducted a comprehensive mapping of existing EU-funded actions whose objectives and results are accompanying the implementation of the Directive. The mapping identified about 75 relevant ongoing Commission actions.  An example of such action is the garment traceability project with UNECE and ITC. This project provides tools for companies that are immediately relevant for their due diligence obligations.
Compliments of the European Commission.
The post Questions and Answers: Proposal for a Directive on corporate sustainability due diligence first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Today, the European Commission has adopted a proposal for a Directive on corporate sustainability due diligence. The proposal aims to foster sustainable and responsible corporate behaviour throughout global value chains. Companies play a key role in building a sustainable economy and society. They will be required to identify and, where necessary, prevent, end or mitigate adverse impacts of their activities on human rights, such as child labour and exploitation of workers, and on the environment, for example pollution and biodiversity loss. For businesses these new rules will bring legal certainty and a level playing field. For consumers and investors they will provide more transparency. The new EU rules will advance the green transition and protect human rights in Europe and beyond.
A number of Members States have already introduced national rules on due diligence and some companies have taken measures at their own initiative. However, there is need for a larger scale improvement that is difficult to achieve with voluntary action. This proposal establishes a corporate sustainability due diligence duty to address negative human rights and environmental impacts.
The new due diligence rules will apply to the following companies and sectors:

EU companies:

Group 1: all EU limited liability companies of substantial size and economic power (with 500+ employees and EUR 150 million+ in net turnover worldwide).
Group 2: Other limited liability companies operating in defined high impact sectors, which do not meet both Group 1 thresholds, but have more than 250 employees and a net turnover of EUR 40 million worldwide and more. For these companies, rules will start to apply 2 years later than for group 1.

Non-EU companies active in the EU with turnover threshold aligned with Group 1 and 2, generated in the EU.

Small and medium enterprises (SMEs) are not directly in the scope of this proposal.
This proposal applies to the company’s own operations, their subsidiaries and their value chains (direct and indirect established business relationships). In order to comply with the corporate due diligence duty, companies need to:

integrate due diligence into policies;
identify actual or potential adverse human rights and environmental impacts;
prevent or mitigate potential impacts;
bring to an end or minimise actual impacts;
establish and maintain a complaints procedure;
monitor the effectiveness of the due diligence policy and measures;
and publicly communicate on due diligence.

More concretely, this means more effective protection of human rights  included in international conventions. For example, workers must have access to safe and healthy working conditions. Similarly, this proposal will help to avoid adverse environmental impacts contrary to key environmental conventions. Companies in scope will need to take appropriate measures (‘obligation of means’), in light of the severity and likelihood of different impacts, the measures available to the company in the specific circumstances, and the need to set priorities.
National administrative authorities appointed by Member States will be responsible for supervising these new rules and may impose fines in case of non-compliance. In addition, victims will have the opportunity to take legal action for damages that could have been avoided with appropriate due diligence measures.
In addition, group 1 companies need to have a plan to ensure that their business strategy is compatible with limiting global warming to 1.5 °C in line with the Paris Agreement.
To ensure that due diligence becomes part of the whole functioning of companies, directors of companies need to be involved. This is why the proposal also introduces directors’ duties to set up and oversee the implementation of due diligence and to integrate it into the corporate strategy. In addition, when fulfilling their duty to act in the best interest of the company, directors must take into account the human rights, climate change and environmental consequences of their decisions. Where companies’ directors enjoy variable remuneration, they will be incentivised to contribute to combating climate change by reference to the corporate plan.
The proposal also includes, accompanying measures, which will support all companies, including SMEs, that may be indirectly affected. Measures include the development of individually or jointly dedicated websites, platforms or portals and potential financial support for SMEs. In order to provide support to companies the Commission may adopt guidance, including about model contract clauses. The Commission may also complement the support provided by Member States with new measures, including helping companies in third countries.
The aim of the proposal is to ensure that the Union, including both the private and public sectors, acts on the international scene in full respect of its international commitments in terms of protecting human rights and fostering sustainable development, as well as international trade rules.
As part of its ‘Just and sustainable economy package’, the Commission also presents today a Communication on Decent Work Worldwide. It sets out the internal and external policies the EU uses to implement decent work worldwide, putting this objective at the heart of an inclusive, sustainable and resilient recovery from the pandemic.
Members of the College said:
Věra Jourová, Vice-President for Values and Transparency, said: “This proposal aims to achieve two goals. First, to address consumers’ concerns who do not want to buy products that are made with the involvement of forced labour or that destroy the environment, for instance. Second, to support business by providing legal certainty about their obligations in the Single Market. This law will project European values on the value chains, and will do so in a fair and proportionate way.”
Didier Reynders, Commissioner for Justice said: “This proposal is a real game-changer in the way companies operate their business activities throughout their global supply chain. With these rules, we want to stand up for human rights and lead the green transition. We can no longer turn a blind eye on what happens down our value chains. We need a shift in our economic model. The momentum in the market has been building in support of this initiative, with consumers pushing for more sustainable products. I am confident that many business leaders will support this cause.”
Thierry Breton, Commissioner for the Internal Market, said:”While some European companies are already leaders in sustainable corporate practices, many still face challenges in understanding and improving their environmental footprint and human rights track record. Complex global value chains make it particularly difficult for companies to get reliable information on their suppliers’ operations. The fragmentation of national rules further slows down progress in the take up of good practices. Our proposal will make sure that big market players take a leading role in mitigating the risks across their value chains while supporting small companies in adapting to changes.”
Next steps
The proposal will be presented to the European Parliament and the Council for approval. Once adopted, Member States will have two years to transpose the Directive into national law and communicate the relevant texts to the Commission.
Background
European companies are global leaders in sustainability performance. Sustainability is anchored in EU values and companies show a commitment to respecting human rights and to reducing their impact on the planet. Despite this, companies’ progress in integrating sustainability, and in particular human rights and environmental due diligence, into corporate governance processes remains slow.
To address these challenges, in March 2021, the European Parliament called on the Commission to submit a legislative proposal on mandatory value chain due diligence. Similarly, on 3 December 2020, the Council in its conclusions called on the Commission to present a proposal for an EU legal framework on sustainable corporate governance, including cross-sector corporate due diligence along global value chains.
The Commission’s proposal responds to these calls, taking closely into account the responses gathered during an open public consultation on the sustainable corporate governance initiative launched by the Commission on 26 October 2020. In preparing the proposal, the Commission also considered the broad base of evidence collected through two commissioned studies on directors’ duties and sustainable corporate governance (July 2020) and on due diligence requirements in the supply chain (February 2020).
Compliments of the European Commission.
The post Just and sustainable economy: EU Commission lays down rules for companies to respect human rights and environment in global value chains first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

“Check against delivery”
Good morning. It is a pleasure for me to take part in this joint ECFIN-EESC conference on the way forward for the EU’s economic governance framework.
This event forms part of our effort to engage in a wide-ranging and inclusive debate on the economic governance review with all stakeholders.
We have taken good note of the very useful European Parliament resolution of July 2021 that Ms Marques coordinated.
We have also paid close attention to the own-initiative opinion of the European Economic and Social Committee of March last year steered by Ms Biegon, as well as the discussions in the Committee of Regions.
And we have been engaging with Finance Ministers, in bilateral discussions and in the ECOFIN and Eurogroup meetings, and these exchanges will continue.
The online consultation that closed at the end of last year received a large number of contributions, which we are still analysing.
This conference as another opportunity for us to listen and learn from representatives of civil society.
[Economic outlook]
Thanks to our strong and coordinated policy response, the EU was able to cushion the pandemic’s socio-economic impact and rebound remarkably quickly.
However, downside risks to our economic outlook grew stronger in the last quarter of 2021 and weakened our momentum as we headed into the New Year: notably, the surge in COVID infections, high energy prices and continued supply-side disruptions.
Still, the fundamentals of our economy remain solid, which is why we expect that the EU economy will regain traction after the current winter slowdown. A continuously improving labour market, high household savings, still favourable financing conditions, and the full deployment of the Recovery and Resilience Facility are all projected to sustain a prolonged and robust expansionary phase.
Having considered all of these factors, on 10 February we revised slightly our growth forecast compared to our November projections: downwards for this year and upwards for 2023. GDP in the EU is now expected to increase by 4.0% in 2022 and 2.8% in 2023. But, uncertainty remains around us. And the violation of international law through Russian recognition of two separatist territories in Ukraine will strongly increase this uncertainty. So, huge challenges remain ahead of us:
First, challenges such as climate change and digitalisation and the resulting investment needs have become even more relevant with the COVID-19 crisis.
Second, the unprecedented economic downturn and policy response, which was necessary in a time of crisis, have led to an increase in government deficits and pushed public debt to historically high levels. But we must avoid an overly drastic adjustment that would risk choking growth and investment in the recovery period.
So, an ambitious challenge. We must achieve not merely a rebound, but durable, sustainable growth for the next decades, even beyond the end of the RRF in 2026.
[Investment]
The Recovery and Resilience Facility has been a game changer. As of today, the RRF has already disbursed € 56.5 billion in pre-financing to Member States and € 10 billion for the first payment to Spain. We have received further payment requests worth over € 33 billion from France, Italy, Greece and Portugal. And many more will come
Together with our traditional structural and investment funds, the RRF will help Member States to implement reforms and investments, but it will not be enough.
Our estimate is that the additional private and public investment needs related to the green and digital transitions will be around €650 billion per year until 2030.
We must reflect on the role of our economic governance framework to incentivise national investments and reforms in green and digital areas. Both public and private investments will be necessary to reach the goals of the twin transition.
Focusing on the quality of public finances could help to ensure debt sustainability while investing in key areas of our economies.
When we eventually begin to gradually consolidate our public finances, we must learn from the past. In the aftermath of the global financial crisis, public investment bore the brunt of consolidation and fell to zero in net terms. We must absolutely avoid repeating this mistake.
[Fiscal sustainability]
The investments needed to achieve our common objectives must be balanced against the need for fiscal sustainability.
The challenge will be to find the right balance between debt reduction and supporting growth, while placing growth at the front and centre of our framework of rules. Because it is clear that growth is essential to maintain debt sustainability.
Debt reduction can only be credible if it is done in a gradual, sustainable and growth-friendly way.
[Economic stabilisation and tackling imbalances]
Over the past decade – I should probably say over the past decades – EU fiscal policy has often displayed a pro-cyclical drift, and our rules have only partially mitigated this trend. That is, governments did not build fiscal buffers in good times and were then forced into austerity during economic recessions.
Going beyond the fiscal issues: After several years of gradual correction, macro-economic imbalances have revived during the pandemic. Private debt has increased again, alongside public debt, while for several Member States their external liabilities continue being sources of vulnerability. To respond to this, we also need to reflect on how the macroeconomic imbalances procedure can be improved, and how to promote structural reforms that increase competitiveness, or reduce debt biases.
[Simplification and enforcement]
Over the years, our fiscal rules have become too complex and hard to understand, due to the multiplication of sub rules and the reliance on variables that are subject to continuous revision. So simplifying the framework is also an essential objective of the review.
Simplifying the framework will also help to increase national ownership and support strong national fiscal frameworks. In this regard, we may look to the RRF for inspiration. This new instrument has a unique governance approach: on the one hand allowing Member States to take ownership of the reforms and investments presented in their recovery and resilience plans; on the other hand, ensuring that these plans all pull in the direction of commonly agreed European rules and policy priorities.
[Conclusion]
We intend to present our proposals on the way forward before the summer break, once we have listened to all stakeholders and digested their views. Our objective is to build a consensus on the new economic governance well in time for 2023. This will not be an easy task, but I am encouraged by the open minds I have encountered in all Member States. It is a unique opportunity to modernise our economic governance framework and ensure it is aligned with our ambition for strong, sustainable and inclusive growth in Europe.
In the meantime, next week we will put forward our fiscal policy guidance for 2023, focusing on how governments should pivot from crisis mode to recovery mode, and how to start a gradual reduction of high debt ratios, supporting in the meantime a durable and sustainable growth path.
Let me conclude by thanking DG ECFIN and the European Economic and Social Committee for organising this conference.
The involvement of civil society and social partners in the review is key, since the EU’s economic governance framework affects all sectors of the economy. I look forward to today’s event as an occasion to bridge different perspectives and to find new solutions together.
Thank you.
The post Speech by Commissioner Gentiloni at the European Economic and Social Committee: The way forward for EU economic governance first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

European security situation
The Foreign Affairs Council discussed on the European security situation.
The Council condemned the Russian military build-up around Ukraine, increased ceasefire violations and provocations from the Russia-backed separatists in eastern Ukraine. It also condemned actions, staged events and information manipulations aimed at creating a pretext for military escalation against Ukraine.
Furthermore, it commended Ukraine’s restraint in the face of intimidation and violations of the Minsk agreements and international law.
During their discussion, ministers had the opportunity to informally exchange views with the Ukrainian Foreign Minister Dmytro Kuleba. Ministers reaffirmed their unity, resolve and the EU solidarity’s with Ukraine.

Russia has created the biggest threat to peace and stability in Europe since the Second World War. We call upon President Putin to respect international law and the Minsk agreements. It is up to the Russian leadership to decide how they want to be seen by international community and by history.
Josep Borrell, High Representative for Foreign Affairs and Security Policy

The Council decided on a series of measures to support Ukraine’s resilience. It adopted a decision to provide €1.2 billion in macro-financial assistance, and decided to provide support for Ukraine’s professional military education under the European Peace Facility. The EU will also increase its support to counter cyber-attacks and disinformation by sending a mission of experts to the country.
EU embassies and diplomatic missions, as well as the EU delegation to Ukraine, will remain open and fully operational, with limited exceptions.
The High Representative also made clear that any aggression against Ukraine would have severe consequences for Belarus should an attack be conducted from its territory or with its involvement.

Council adopts €1.2 billion assistance to Ukraine (press release, 21 February 2022)
EU relations with Ukraine (background information)
EU restrictive measures in response to the crisis in Ukraine (background information)
EU sanctions against Russia over Ukraine (infographic)

Bosnia and Herzegovina
The Council discussed the situation in Bosnia and Herzegovina and how to preserve the sovereignty, territorial integrity and unity of the country.
The Council urged the country’s political leaders to take responsibility for preserving the Constitution, ensure the full return of competencies to the state institutions and deal with all open issues.

There is no place in Europe for a divided Bosnia and Herzegovina and those who work in this direction are strongly wrong. They are depriving their people of a prosperous European perspective and life.
Josep Borrell, High Representative for Foreign Affairs and Security Policy

Ministers expressed full support for the EU Special Representative in Bosnia and Herzegovina, Johann Sattler, the EUNAVFOR Operation ALTHEA, and the High Representative for Bosnia and Herzegovina, Christian Schmidt. Both the EU and the US are trying to facilitate political dialogue in order to reach an agreement on constitutional and electoral reform, including a limited constitutional amendment that could improve the functionality of the federation.
The EU remains ready to use all available instruments, if the situation so requires, including EU financial assistance and restrictive measures as a last resort.
Dialogue remains the priority to ensure the reforms needed prior to the forthcoming elections.
Climate diplomacy
The Council exchanged views on climate diplomacy and approved conclusions on the matter.

Climate Diplomacy: Council calls for accelerating the implementation of the Glasgow COP26 outcomes (press release, 21 February 2022)
Climate goals and the EUʼs external policy (background information)

Current Affairs
The Council was informed about the situation in Mali and the ongoing negotiations in the framework of the nuclear deal with Iran (the JCPOA).
Council conclusions
The Council also approved conclusions on the Coordinated Maritime Presences concept.

Coordinated Maritime Presences: Council extends implementation in the Gulf of Guinea for two years and establishes a new Maritime Area of Interest in the North-Western Indian Ocean (press release, 21 February 2022)

26th GCC-EU Joint Ministerial Council
In the margins of the EU FAC, foreign affairs ministers met their counterparts from the Gulf countries in the 26th joint council of the European Union and the Gulf Cooperation Council.
The EU is the biggest investor in the Gulf, and the second biggest trade partner with the region. Ministers agreed that it was time to commit to working more closely on green transition, development cooperation and humanitarian action. Yemen was also discussed.

Gulf Cooperation Council (European External Action Service)

The Council also adopted without discussion the items in the lists of legislative and non-legislative A items.
Compliments of the European Council.

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