After headline inflation had already reached very high levels in the United States in the first half of 2021, euro area inflation also recorded a very rapid increase in the second half of the year but remained much lower than in the United States. Comparing inflation developments in both economic areas could help to separate idiosyncratic factors from those related to the cyclical position, taking into account the fact that the euro area is lagging the US cycle. By December 2021 inflation in the United States, as measured by the US consumer price index (CPI), had reached 7.0% (up by 5.6 percentage points since January 2021), compared with inflation in the euro area, as measured by the Harmonised Index of Consumer Prices (HICP), which stood at 5.0% (up by 4.1 percentage points since January 2021) – see Chart A.[1] Energy inflation made a 2.2 percentage point contribution to headline inflation in the United States and a 2.5 percentage point contribution in the euro area in December, thereby accounting for around half of headline inflation for the euro area and around one-third for the United States in that month.[2] In January 2022 headline inflation in the euro area – according to Eurostat’s flash release – increased slightly further to 5.1%

Chart A
Headline inflation
(annual percentage changes, percentage point contributions)
Sources: US Bureau of Labor Statistics and ECB staff calculations.
Note: The latest observation is for December 2021 for the United States and January 2022 (flash release) for the euro area.

Most of the difference in overall inflation developments was due to the far stronger increase in inflation excluding energy and food (and from a higher starting point) in the United States than in the euro area. In the euro area, HICP inflation excluding energy and food (HICPX) started to increase in the second half of 2021 and stood at 2.6% in December – up 1.4 percentage points from the pre-crisis level of 1.2% recorded in February 2020. In the United States, by contrast, CPI inflation less food and energy, which had been substantially higher before the pandemic (standing at 2.4% in February 2020), began to soar from as early as April 2021 and increased substantially more (by 3.1 percentage points) to stand at 5.5% in December 2021 (Charts A and B). Part of the increase in HICPX inflation in the second half of 2021 in the euro area was due to base effects resulting from the temporary cut in value added tax in Germany in the second half of 2020. Without this temporary factor, HICPX inflation in the euro area would have been around 0.2 percentage points lower in each month of the second half of 2021 – leading to an even more marked difference in inflation excluding energy and food between the euro area and the United States. In January 2022 HICP excluding energy and food– according to Eurostat’s flash release – decreased to 2.3%.

Chart B
Inflation excluding food and energy
(annual percentage changes, percentage point contributions)
Sources: ECB and ECB staff calculations.
Notes: Items affected by supply disruptions and bottlenecks comprise new motor cars, second-hand motor cars, spare parts and accessories for personal transport equipment, and household furnishings and equipment (including electronics). Items affected by the reopening of the economy comprise clothing and footwear; recreation and culture; recreation services; hotels/motels; and domestic and international flight prices. Rents comprise actual rents paid by tenants – and for the United States also imputed rents for owner-occupied housing. The latest observation is for December 2021 for the United States and January 2022 (flash release) for the euro area.

Items affected by supply disruptions and bottlenecks and by the reopening of the economy play an important role as drivers of inflation excluding food and energy in the euro area and the United States. As illustrated in Chart B, one important factor in the differences in inflation excluding food and energy between the United States and the euro area is rents, which contribute much more strongly to inflation in the United States. This is in part linked to the fact that rents have recorded substantially stronger growth in the United States, but it also reflects the larger share of rents in the US consumption basket, which includes not only actual rents but also imputed rents for owner-occupied housing. While the impact of rents can help to explain differences in the level of inflation between the euro area and the United States, including before the pandemic, the high level of inflation excluding food and energy observed recently has been driven mainly by supply disruptions and bottlenecks and by effects related to the reopening of the economy. Supply chain bottlenecks have particularly affected prices for used and new cars, and car components, as well as household furnishings and equipment. In the United States, the prices for this group of items soared during the second quarter of 2021 and, after briefly easing, regained momentum in the last quarter of 2021. In particular, used car prices alone accounted for around 1.6 percentage points of CPI inflation less food and energy in December. Overall, items affected by supply disruptions and bottlenecks made a contribution of 2.6 percentage points to the annual growth rate of core CPI inflation in the United States in December (Chart D), whereas the average monthly contribution of this aggregate of items in 2015-19 had been marginally negative. In the euro area, the role of this aggregate has also increased – but its monthly contribution to HICPX inflation remained around 0.5 to 0.6 percentage points up to December 2021 and, thus, substantially smaller than in the United States (Chart B). Additionally, the prices of some goods and services have rebounded owing to the reopening of the economy, with their levels returning to or even exceeding pre-crisis levels. In the United States, this rebound is visible in prices for apparel and, among services, in prices for travel-related services and transportation, which have all risen strongly following the easing of containment measures. This contributed substantially to core CPI inflation in the second quarter of 2021 and remained significant in the last quarter, at around 0.7 to 0.8 percentage points in year-on-year terms (compared with a historical contribution of 0.04 percentage points). In the euro area, the contribution from such reopening effects only started to increase from late summer – in part linked to the later lifting of containment measures – but in recent months it has been similar in size to the contribution seen in the United States.
Turning to the underlying drivers of inflation developments, the United States is more advanced in the business cycle than the euro area and the US labour market has tightened, which has started to be reflected in some upward pressure on wages. Real GDP had already surpassed its pre-crisis level in the United States in the second quarter of 2021 – while in the euro area GDP reached its pre-crisis level only in the fourth quarter of 2021. In the United States, labour market tightness has increased sharply over recent months and the employment cost index for civilian workers has shown a relatively large increase (Chart C). This stands in contrast to the euro area, where so far wage growth – as measured by negotiated wages or, for example, the labour cost index – has remained quite subdued. It should be kept in mind that wage indicators are being distorted by the effects of the crisis, including the important role of job retention schemes, especially in the euro area, which complicates their interpretation.

Chart C
Developments in wages and labour costs
(annual percentage changes, ratio, share of survey respondents)
Sources: US Bureau of Labor Statistics, NBER, ECB, European Commission and ECB staff calculations.
Notes: The latest observation is for October 2021. For the United States, civilian workers comprise workers in the private non-farm economy, except those employed in private households, and workers in the public sector, except the federal government. Wage indicators are being distorted by the effects of the crisis, which complicates their interpretation.

Upside surprises in inflation data releases have continued to be larger for the United States than for the euro area over recent quarters. Consensus Economics forecasts, produced at a monthly frequency (Chart D, panel a), show that in recent months inflation developments have been higher than forecast in the euro area and even more so in the United States. Looking ahead, the latest monthly Consensus Economics forecasts published in January 2022 see headline inflation remaining elevated over most of 2022 both in the United States and in the euro area. Overall, headline inflation in the United States – which had exceeded 2% before the start of the pandemic – is expected to remain above 2% much longer than in the euro area (Chart D, panels a and b).

Chart D
Inflation expectations based on Consensus Economics surveys for US headline CPI inflation and euro area headline HICP inflation
a) Monthly inflation forecasts (annual percentage changes)

b) Annual inflation forecasts (annual percentage changes)
Sources: Consensus Economics, Eurostat, Haver Analytics and ECB calculations.
Note: In panel b) the shaded blue and yellow areas denote the ranges of forecasts included in Consensus Economics surveys.

Looking ahead, the degree of uncertainty around the outlook for inflation seems to be much larger for the United States than for the euro area. The latest Consensus Economics forecasts published in January 2022 expect headline inflation in the euro area to be 3.1% in 2022 and 1.6% in 2023. This was broadly in line with the December 2021 Eurosystem staff macroeconomic projections, which foresaw euro area annual inflation at 3.2% in 2022 and 1.8% in 2023 and 2024. The range of annual forecasts included in Consensus Economics, which can be seen as a measure of uncertainty, is especially wide for 2022 and somewhat narrower for 2023. For 2023, all annual forecasts included in the January 2022 Consensus Economics survey round see inflation in the euro area at between 0.8% and 2.2%, while for the United States all forecasts are in a range between 1.9% and 4% and only one forecaster sees inflation being below 2%. This higher level of inflation in the United States can be linked to differences in economic slack and labour market tightness compared with the euro area, leading to stronger wage pressures in the United States. At the same time, the pandemic is a unique situation with considerable differences compared with inflation developments in “normal” times, which require close monitoring and add to the uncertainty surrounding the inflation outlook in the United States as well as in the euro area.
Authors:

Sofía Cuquerella Ricarte
Ramon Gomez-Salvador
Gerrit Koester

Compliments of the European Central Bank.

To facilitate a comparison with the euro area, this box focuses on developments in CPI inflation in the United States, rather than developments in the US price index for total personal consumption expenditures (PCE). Although an indicator of HICP inflation is also available for the United States, the CPI is chosen as it allows for a greater level of detail for the analyses.

For a discussion of developments up to August 2021, see the box entitled “Comparing recent inflation developments in the United States and the euro area”, Economic Bulletin, Issue 6, ECB, 2021.

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Following the agreement reached in October 2021 by over 135 members of the OECD/G20 Inclusive Framework on BEPS to a two-pillar solution to address the tax challenges arising from digitalisation and globalisation of the economy, work on the implementation of the two-pillar plan is well underway. As part of this next phase, the Inclusive Framework will consult stakeholders on a number of aspects of Pillar One and Pillar Two over the coming months.
Pillar One
For Amount A of Pillar One, the Inclusive Framework is launching a public consultation that will occur in stages, by releasing Secretariat working documents on each building block to obtain feedback quickly and before the work is finalised. This approach, rather than waiting for a comprehensive document to be ready, will allow work to continue in parallel, in order to remain within the political timetable agreed in October 2021.
Today the first building block is released for public comments. The Draft Rules for Nexus and Revenue Sourcing have been agreed for release by the Inclusive Framework to obtain public comments, but the draft rules do not reflect consensus regarding the substance of the document. Interested parties are invited to send their written comments no later than 18 February 2022.
For Amount B of Pillar One, a public consultation document will be issued in mid-2022, with a public consultation event to follow the comment period.
Pillar Two
The Pillar Two Model Rules issued in December 2021 provide a template for domestic implementation of the GloBE Rules. These Rules will be supported by a Commentary to provide tax administrations and taxpayers with guidance on the interpretation and application of those Rules, which is currently under development, also drawing on input from a Business Advisory Group set up by BIAC.
An Implementation Framework is being developed to facilitate the co-ordinated implementation of the GloBE rules and will address administrative and compliance issues, including the development of safe harbours. A public consultation on the Implementation Framework will be launched later this month, with a consultation event to follow in March.
For the Subject to Tax Rule (STTR) of Pillar Two, the draft model provision and its commentary will be released in March 2022 with a defined set of questions set for input. A public discussion draft on the development of a multilateral instrument to facilitate the implementation of the STTR would also be released for comment at the same time.
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.
Compliments of the OECD.
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The Winter 2022 Economic Forecast projects that, following a notable expansion by 5.3% in 2021, the EU economy will grow by 4.0% in 2022 and 2.8% in 2023. Growth in the euro area is also expected at 4.0% in 2022, moderating to 2.7% in 2023. The EU as a whole reached its pre-pandemic level of GDP in the third quarter of 2021 and all Member States are projected to have passed this milestone by the end of 2022.
Economic growth set to regain traction
After the robust rebound in economic activity that started in spring last year and continued unabated through early autumn, the growth momentum in the EU is estimated to have slowed to 0.4% in the last quarter of 2021, from 2.2% in the previous quarter. While a slowdown was already expected in the Autumn 2021 Economic Forecast, after the EU economy closed the gap with its pre-pandemic output level in 2021-Q3, it was sharper than projected as headwinds to growth intensified: notably, the surge in COVID-19 infections, high energy prices and continued supply-side disruptions.
Growth continues to be shaped by the pandemic, with many EU countries under pressure from a combination of increased strain on healthcare systems and staff shortages due to illness, precautionary quarantines or care duties. Logistic and supply bottlenecks, including shortages of semiconductors and some metal commodities, are also set to keep weighing on production, at least throughout the first half of the year. Last but not least, energy prices are now expected to remain elevated for longer than expected in the Autumn Forecast, thereby exerting a more protracted drag on the economy and higher inflationary pressures.
This forecast assumes that the strain on the economy caused by the current wave of infections will be short lived. Economic activity is set to regain traction, also as supply conditions normalise and inflationary pressures moderate. Looking beyond the short-term turbulence, the fundamentals underpinning this expansionary phase continue to be strong. A continuously improving labour market, high household savings, still favourable financing conditions, and the full deployment of the Recovery and Resilience Facility (RRF) are all set to sustain a prolonged and robust expansionary phase.
Upward revision to the inflation outlook
The forecast for inflation has been considerably revised upwards compared to the Autumn Forecast. This reflects the effects of high energy prices, but also the broadening of inflationary pressures on other categories of goods since autumn.
After reaching a record rate of 4.6% in the fourth quarter of last year, inflation in the euro area is projected to peak at 4.8% in the first quarter of 2022 and remain above 3% until the third quarter of the year. As the pressures from supply constraints and high energy prices fade, inflation is expected to decline to 2.1% in the final quarter of the year, before moving below the European Central Bank’s 2% target throughout 2023.
Overall, inflation in the euro area is forecast to increase from 2.6% in 2021 (2.9% in the EU) to 3.5% (3.9% EU) in 2022, before declining to 1.7% (1.9% EU) in 2023.
Uncertainty and risks remain high
Even though the impact of the pandemic on economic activity has weakened over time, ongoing containment measures and protracted staff shortages could drag on economic activity. They could also dent the functioning of critical supply chains for longer than expected. By contrast, weaker demand growth in the near-term may help to resolve supply bottlenecks somewhat earlier than assumed.
On the upside, household demand could grow more strongly than expected, as already experienced with the reopening of economies in 2020, and investments fostered by the RRF could generate a stronger impulse to activity.
Inflation may turn out higher than expected if cost pressures are eventually passed on from producer to consumer prices to a larger extent than projected, amplifying the risk of second-round effects.
Risks to the growth and inflation outlook are markedly aggravated by geopolitical tensions in Eastern Europe.
Members of the College said:
Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People said: “The EU economy has now regained all the ground it lost during the height of the crisis, thanks to successful vaccination campaigns and coordinated economic policy support. Unemployment has reached a record low. These are major achievements. As the pandemic is still ongoing, our immediate challenge is to keep the recovery well on track. The significant rise in inflation and energy prices, along with supply chain and labour market bottlenecks, are holding back growth. Looking ahead, however, we expect to switch back into high gear later this year as some of these bottlenecks ease. The EU’s fundamentals remain strong and will be boosted further as countries start to put their Recovery and Resilience Plans into full effect.”
Paolo Gentiloni, Commissioner for Economy said: “Multiple headwinds have chilled Europe’s economy this winter: the swift spread of Omicron, a further rise in inflation driven by soaring energy prices and persistent supply-chain disruptions. With these headwinds expected to fade progressively, we project growth to pick up speed again already this spring. Price pressures are likely to remain strong until the summer, after which inflation is projected to decline as growth in energy prices moderates and supply bottlenecks ease. However, uncertainty and risks remain high.”
Background
The Winter 2022 Economic Forecast provides an update of the Autumn 2021 Economic Forecast, which was presented in November 2021, focusing on GDP and inflation developments in all EU Member States.
This forecast is based on a set of technical assumptions concerning exchange rates, interest rates and commodity prices with a cut-off date of 27 January. For all other incoming data, including assumptions about government policies, this forecast takes into consideration information up until and including 1 February.
The European Commission publishes two comprehensive forecasts (spring and autumn) and two interim forecasts (winter and summer) each year. The interim forecasts cover annual and quarterly GDP and inflation for the current and following year for all Member States, as well as EU and euro area aggregates.
The European Commission’s next forecast will be the Spring 2022 Economic Forecast, scheduled to be published in May 2022.
Compliments of the European Commission.
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Why a European Chips Act?
Semiconductor chips are the essential building blocks of digital and digitised products. From smartphones and cars, through critical applications and infrastructures for healthcare, energy, communications and industrial automation, chips are central to the modern digital economy. The COVID-19 pandemic has exposed a weakness in the eco-system within both Europe and other regions in the world experiencing significant shortages of chips. EU industries manufacture many types of high-tech products, of which chips are essential parts.
Europe must reinforce its capabilities in semiconductors to ensure future competitiveness and maintain its technological leadership and security of supply. The sector is both capital and knowledge intensive and chips supply chains are global, complex and currently rely on a few manufacturing sites.
What is Europe’s current situation in the chips market?
Europe has many strengths and some weaknesses in the semiconductor value chain. The semiconductor sector is characterised by intense R&D activity, with first-class companies reinvesting more than 15% of their revenues into research in next generation technologies. The EU is home to world-leading research and technology organisations  and many excellent universities and research institutes spread across the Union. These are pioneering the techniques behind the production of some of the world’s most advanced chips.
Moreover, Europe is very well positioned in terms of the materials and equipment needed to run large chip manufacturing plants, with many companies playing essential roles along the supply chain.
Despite these strengths, Europe has an overall global semiconductors production market share of less than 10% and is heavily dependent on third-country suppliers. In case of severe disruption of the global supply chain, Europe’s chips’ reserves in some industrial sectors (e.g. automotive or healthcare devices) could run out in a few weeks, bringing many European industries to a standstill.
As the digital transformation accelerates and penetrates every part of society, industrial needs for chips are set to increase, opening new market opportunities.
How has the Commission supported the semiconductors ecosystem so far?
The EU has a history of successful collaboration with industry in the framework of different programmes and actions in Research, Development & Innovation (R&D&I) in semiconductors e.g. in relevant Joint Undertakings, i.e. Public-Private Partnerships for research, development and innovation such as ECSEL and the Key Digital Technologies partnership (KDT). The European Innovation Council, which supports equity investment in breakthrough innovation, is already investing in creating dynamic and resilient semiconductor ecosystems, as part of its work. Reducing the cost and time of new chip designs, minimising the power consumption and waste generated during manufacturing, making chips faster and more efficient are only a few examples of the EIC funding portfolio. Through its Accelerator scheme, the EIC will reinforce its support to start-ups and SMEs with market creating innovation potential in the semiconductor and quantum technologies sector, and help them mature their innovations and attract investors.
A new Important Project of Common European Interest (IPCEI) on Microelectronics and Communication Technologies is currently being prepared by a significant number of Member States. An IPCEI is a State aid tool for Member States allowing public co-financing under the condition that it concerns large integrated cross-border projects to overcome market failures and enable breakthrough innovation in key sectors and technologies, up to first industrial deployment, as well as important infrastructure investments, with positive spill-over effects for the EU economy at large.
In addition as regards national R&D&I projects in the semiconductor sector, Member States can and are providing aid under the R&D&I State aid rules, in particular the R&D&I Framework and the corresponding provisions of the General Block Exemption Regulation.
Already in July 2021, the Commission launched the Industrial Alliance on Processors and Semiconductors, bringing together businesses, Member State representatives, academia, users, as well as research and technology organisations with the objective to identify current gaps in the production of microchips and the technology developments needed for companies and organisations to thrive, no matter their size.
With the Chips Act, the EU is strengthening and further expanding such collaboration within the industry to involve all actors of the value chain, including also the designers and players from the demand side.
What is the European Chips Act package?
The Commission has adopted a Communication, two proposals for a Regulation and a Recommendation. The Communication spells out the European Strategy and rationale behind the package.
The European Parliament and the Member States will now discuss the Commission’s proposals for a Regulation on a European Chips Act in the ordinary legislative procedure. Once adopted, the Regulation will be directly applicable across the EU.
In the meantime, the Member States are encouraged to follow the Recommendation. It sets out a toolbox for monitoring and mitigating disruptions in the chips ecosystem. This includes immediate actions that could be taken if they would be appropriate to help overcome the current shortage, before the Regulation enters into force.
How will the European Chips Act address current problems?
The Chips Act is a unique opportunity for Europe to act jointly across all Member States, to the benefit of the whole of Europe. However, the current chips shortage is a systematic issue with no quick fix.

In the short term, the toolbox set out in the Recommendation will immediately enable the coordination between the Member States and the Commission. This will allow to discuss and decide on timely and proportionate crisis response measures, if considered necessary.
In the medium term, the Chips Act will strengthen manufacturing activities in the Union and support the scale-up and innovation of the whole value chain, addressing security of supply and a more resilient ecosystem.
And, in the long-term, it will maintain Europe’s technological leadership while preparing the required technological capabilities that would support transfer of knowledge from the lab to the fab and position Europe as a technology leader in innovative downstream markets.

What is the Chips for Europe Initiative?
This initiative, a major part of the overall Chips Act funding package, will pool together €11 billion of public investments up to 2030 from the Union and the Member States, and will leverage considerable private investments. (Other financing activities through a new EU Chips Fund, will support equity for start-ups and scale-ups in the sector, for a projected overall value of €2 billion.)
The Chips for Europe Initiative aims to reinforce the EU’s semiconductor technology and innovation capabilities and ensure Europe’s chips technology leadership in the mid- to long-term. It will ensure the deployment across Europe of advanced semiconductor design tools, pilot lines for prototyping the next generation of chips and testing facilities for innovative applications of latest chips technology. It will also build advanced technology and engineering capabilities in quantum chips.
The Chips for Europe initiative will be implemented by the Digital Europe and the Horizon Europe programmes, using for most of its actions the new EU Chips Joint Undertaking. Digital Europe supports digital capacity building in key digital domains: this is the case where semiconductor technology underpins performance gains, notably High Performance Computing, Artificial Intelligence, and Cybersecurity, together with skills development and the deployment of digital innovation hubs. The Horizon Europe programme supports intensive pre-competitive research, technology development, and innovation in the area of materials and semiconductors.
The initiative will build on Europe’s leadership in research, including on the capabilities of its leading research centres and of key production equipment providers and strong users’ sectors.
How is the Commission proposing to attract investments to strengthen EU security of supply?
Investment in new advanced production facilities is imperative to safeguard the Union’s security of supply, supply chain resilience and ecosystem spillovers and interactions, while generating significant positive impacts to the wider economy.
To attract such investments the proposed Regulation provides the definition of two types of facilities to be considered as contributing to Europe’s security of supply. Such facilities are the so-called ‘Open EU foundries’, which are facilities that design and produce components mainly for other industrial players, and the so called ‘Integrated Production Facilities’, which are factories that design and produce components that serve their own market. Such facilities must be “first of a kind” in Europe and their operator should commit to continued investments in innovation in the Union’s semiconductor sector.
The recognition as either type of facility triggers a number of benefits. It allows to have access to fast-track permit granting in the Member States for the construction and operation of the facilities.
The recognition as Open EU foundries or Integrated Production Facilities allows prioritised access to pilot lines set up under the proposed Chips for Europe initiative, under certain conditions.
In order to reach security of supply in the Union, Member States may offer public support to such facilities, without prejudice of State aid rules. The Commission will take the positive effects of such facilities for the European ecosystem into account for its State aid assessments, where relevant.
How will the Commission assess Member States’ public support to chips manufacturing facilities under State aid rules?
Private investment in chips manufacturing facilities may likely require public support. In light of the extremely high barriers to entry and the capital intensity of the sector, as already announced in the Communication on a competition policy fit for new challenges, the Commission may consider to approve aid to such facilities directly under Article 107(3)(c) TFEU. This provision allows the Commission to approve State aid to facilitate the development of certain economic activities, if the positive effects of such State aid outweigh its potential negative impact on trade and competition.
In its assessment, the Commission has to ensure in particular that the aid must:

Have a so called “incentive effect” and be necessary. This means that State aid can be granted only to support a project that would not take place in the Union without public support.
Be appropriate – meaning that there is no other possible tool that would be less distortive for competition.
Be proportionate, and limited to the minimum necessary.

Relevant aspects to ensure that the positive effects of State aid outweigh the negative are, among others, that:

The facilities will be “first-of a kind” in Europe, meaning that an equivalent facility does not already exist in Europe. In assessing whether a facility is “first of a kind”, the Commission will take into account the definition contained in the proposed Chips Act.
The supported facility will not crowd out existing or committed private initiatives.
The public support covers a maximum of 100% of a proven funding gap, i.e. the minimum amount necessary to make sure such investments take place in Europe.

Depending on the merits of each individual case, additional positive effects to offset risks of competition distortion will be considered, such as:

A strengthening of the semiconductor value chain, to ensure security of supply for European businesses using chips in their products. The acceptance to satisfy EU priority-rated orders, as also set out in the proposed Chips Act, will play a role in this respect.
A positive contribution in terms of attracting qualified workforce to Europe.
A positive impact on innovation in Europe, bringing benefits to SMEs and end users. The commitment to invest in innovation, set out in the proposed Chips Act for the recognition of Open EU Foundries and Integrated Production Facilities, will play a role in this respect.

How to address the skills shortage?
Demand for talent in electronics has been increasing in the last 20 years, with the microelectronics industry in Europe being directly responsible for 455,000 high-skilled jobs in 2018. One of the main challenges for the sector is to attract and retain highly skilled talent.
The Chips for Europe Initiative will support education, training, skilling and reskilling initiatives. Action will support access to postgraduate programmes in microelectronics, short-term training courses, job placements/traineeships and apprenticeships and training in advanced laboratories. Additionally, the Initiative will support a network of competence centres, located across Europe. The aim is to increase the availability of internships and apprenticeships, raise students’ awareness of the opportunities in the field and support dedicated scholarships for masters and PhDs, also aiming at increasing female participation.
What investments are needed?
There are various ways into achieve the objectives of the strategy. Huge investments are required to achieve this ambition. This will require the pooling of investment from the Union, Member States and significant contributions from private investors.
The strategy underlying the EU Chips Act will mobilise more than €43 billion euros of public and private investments. This public investment includes € 11 billion to be directly provided under the Chips for Europe Initiative to finance technology leadership in research, design and manufacturing capacities up to 2030.
These investments will complement existing actions in research & innovation in semiconductors such as those from Horizon Europe and the Digital Europe programme as well as additional support already envisaged by Member States (e.g. specific measures in recovery and resilience plans, national or regional funds etc.).
The new Joint Undertaking “Key Digital Technologies” just started in December 2021. Why a new one now?
The new generation of Horizon Europe partnerships are flexible to adapt to changing technology, market and policy environment. By changing the mandate of the Key Digital Technologies Joint Undertaking set up under the Single Basic Act, the Commission is responding to urgent needs.
The Chips Act is a promising opportunity for a wide range of stakeholders, not only for chip manufacturers but also for user industries, in transport, healthcare, communication, manufacturing, etc. The new Chips Joint Undertaking should be open to the participation of new stakeholders in this respect.
What is the aim of the Recommendation addressed to EU countries?
The Commission encourages the European Council and Parliament to discuss the European Chips Act as soon as possible. In the meantime, Member States are encouraged to work together with the Commission to monitor the semiconductor supply chain and anticipate potential disturbances. Member States gather and provide information on the current state of the semiconductor crisis in their national markets, discuss and adopt appropriate, effective and proportionate measures to address the current shortage on national and Union level. This immediate coordination mechanism can take steps to overcoming the current shortage until the proposal for a Regulation is adopted.
What is being done at international level?
By improving its supply chain security and through its capacity to design and produce powerful and resource-efficient semiconductors, the EU is contributing to the rebalancing of the semiconductors global supply chain. Additionally, the EU has as an overall objective to serve the global demand, which will increase substantially, and to win its share of the growing market.
Europe will aim at building balanced semiconductor partnerships with like-minded countries. The aim of these partnerships would be to cooperate on initiatives of mutual interest and ensure continuity of supply in times of crisis.
At the same time, the EU should be prepared for possible sudden changes in the political situation or unforeseen crises, which could threaten the EU’s security of supply. The crisis response toolbox within the EU Chips Act would give the EU the necessary means to address such situations and, in the last resort, to ensure Europe’s overall resilience.
When will the Chips Act enter into force?
The proposed Regulation will be discussed by the European Parliament and the Council. The Commission will assist the co-legislators to reach an agreement as soon as possible.
Compliments of the European Commission.
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Today, the Commission proposes a comprehensive set of measures to ensure the EU’s security of supply, resilience and technological leadership in semiconductor technologies and applications. The European Chips Act will bolster Europe’s competitiveness, resilience and help achieve both the digital and green transition.
Recent global semiconductors shortages forced factory closures in a wide range of sectors from cars to healthcare devices. In the car sector, for example, production in some Member States decreased by one third in 2021. This made more evident the extreme global dependency of the semiconductor value chain on a very limited number of actors in a complex geopolitical context. But it also illustrated the importance of semiconductors for the entire European industry and society.
The EU Chips Act will build on Europe’s strengths – world-leading research and technology organisations and networks as well as host of pioneering equipment manufacturers – and address outstanding weaknesses. It will bring about a thriving semiconductor sector from research to production and a resilient supply chain. It will mobilise more than €43 billion euros of public and private investments and set measures to prevent, prepare, anticipate and swiftly respond to any future supply chains disruption, together with Member States and our international partners. It will enable the EU to reach its ambition to double its current market share to 20% in 2030.
The European Chips Act will ensure that the EU has the necessary tools, skills and technological capabilities to become a leader in this field beyond research and technology in design, manufacturing and packaging of advanced chips, to secure its supply of semiconductors and to reduce its dependencies. The main components are:

The Chips for Europe Initiative will pool resources from the Union, Member States and third countries associated with the existing Union programmes, as well as the private sector, through the enhanced “Chips Joint Undertaking” resulting from the strategic reorientation of the existing Key Digital Technologies Joint Undertaking. €11 billion will be made available to strengthen existing research, development and innovation, to ensure the deployment of advanced semi-conductor tools, pilot lines for prototyping, testing and experimentation of new devices for innovative real-life applications, to train staff and to develop an in-depth understanding of the semi-conductor ecosystem and value chain.

A new framework to ensure security of supply by attracting investments and enhanced production capacities, much needed in order for innovation in advanced nodes, innovative and energy efficient chips to flourish. In addition, a Chips Fund will facilitate access to finance for start-ups to help them mature their innovations and attract investors. It will also include a dedicated semiconductor equity investment facility under InvestEU to support scale-ups and SMEs to ease their market expansion.

A coordination mechanism between the Member States and the Commission for monitoring the supply of semiconductors, estimating demand and anticipating the shortages. It will monitor the semiconductor value chain by gathering key intelligence from companies to map primary weaknesses and bottlenecks. It will draw together common crisis assessment and coordinate actions to be taken from a new emergency toolbox. It will also react swiftly and decisively together by making full use of national and EU instruments.

The Commission also proposes an accompanying Recommendation to Member States. It is a tool with immediate effect to enable the coordination mechanism between the Member States and the Commission to commence straight away. This will allow as from now to discuss and decide on timely and proportionate crisis response measures.
Members of the College said:
Commission President Ursula von der Leyen said: “The European Chips Act will be a game changer for the global competitiveness of Europe’s single market. In the short term, it will increase our resilience to future crises, by enabling us to anticipate and avoid supply chain disruptions. And in the mid-term, it will help make Europe an industrial leader in this strategic branch. With the European Chips Act, we are putting out the investments and the strategy. But the key to our success lies in Europe’s innovators, our world-class researchers, in the people who have made our continent prosper through the decades.”
Margrethe Vestager, Executive Vice-President for a Europe Fit for the Digital Age, added: “Chips are necessary for the green and digital transition – and for the competitiveness of European industry. We should not rely on one country or one company to ensure safety of supply. We must do more together – in research, innovation, design, production facilities – to ensure that Europe will be stronger as a key actor in the global value chain. It will also benefit our international partners. We will work with them to avoid future supply issues.”
Thierry Breton, Commissioner for Internal Market, elaborated: “Without chips, no digital transition, no green transition, no technological leadership. Securing the supply in the most advanced chips has become an economic and geopolitical priority. Our objectives are high: doubling our global market share by 2030 to 20%, and producing the most sophisticated and energy-efficient semiconductors in Europe. With the EU Chips Act we will strengthen our research excellence and help it move from lab to fab – from the laboratory to manufacturing. We are mobilising considerable public funding which is already attracting substantial private investment. And we are putting everything in place to secure the entire supply chain and avoid future shocks to our economy like we are seeing with the current supply shortage in chips. By investing in lead markets of the future and rebalancing global supply chains, we will allow European industry to remain competitive, generate quality jobs, and cater for growing global demand.”
Mariya Gabriel, Commissioner for Innovation, Research, Culture and Youth, complemented: “The Chips for Europe Initiative is closely linked to Horizon Europe and will rely on continuous research and innovation to develop the next generation of smaller and more energy-efficient chips. The future initiative will offer a great opportunity for our researchers, innovators, and startups to lead on the new wave of innovation that will develop deep tech solutions based on hardware. Chips development and production in Europe will benefit our economic actors in key value chains and will help us attain our ambitious objectives in construction, transport, energy and digital.”  
Next Steps
Member States are encouraged to immediately start coordination efforts in line with the Recommendation to understand the current status state of the semiconductor value chain across the EU, to anticipate potential disturbances and take corrective measures to overcome the current shortage until the Regulation is adopted. The European Parliament and the Member States will need to discuss the Commission’s proposals on a European Chips Act in the ordinary legislative procedure. If adopted, the Regulation will be directly applicable across the EU.
Background
Chips are strategic assets for key industrial value chains. With the digital transformation, new markets for the chip industry are emerging such as highly automated cars, cloud, IoT, connectivity (5G/6G), space/defence, computing capacities and supercomputers. Semiconductors are also at the centre of strong geopolitical interests, conditioning countries capacity to act (militarily, economically, industrially) and drive digital.
In her 2021 State of the Union speech, Commission President Ursula von der Leyen set the vision for Europe’s chip strategy, to jointly create a state-of-the-art European chip ecosystem, including production, as well as link together the EU’s world-class research, design and testing capacities. The President also visited ASML, one of Europe’s major player in the global value chain for semiconductors, based in Eindhoven.
In July 2021, the European Commission launched the Industrial Alliance on Processors and Semiconductors with the objective to identify current gaps in the production of microchips and the technology developments needed for companies and organisations to thrive, no matter their size. The Alliance will help foster collaboration across existing and future EU initiatives as well as playing an important advisory role and providing a strategic roadmap for the Chips for Europe Initiative, along with other stakeholders.
To date, 22 Member State committed in a joint declaration signed in December 2020 to working together towards bolstering Europe’s electronics and embedded systems value chain and strengthen leading-edge manufacturing capacity.
The new measures will help Europe achieve its 2030 Digital Decade targets of having 20% of global chips market share by 2030.
Together with the Chips Act, the Commission today also published a targeted stakeholder survey in order to gather detailed information on current as well as future chip and wafer demand. Results of this survey will help to better understand how the shortage of chips is affecting European industry.
Compliments of the European Commission.
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Introductory statement by Christine Lagarde, President of the ECB, at the Hearing of the Committee on Economic and Monetary Affairs of the European Parliament (by videoconference) | Frankfurt am Main, 7 February 2022 |
On this day in 1992, the leaders of twelve European countries decided to transform the European Community into the European Union by signing the Maastricht Treaty. Thirty years on, Europe continues to benefit from many of the accomplishments of that Treaty.
The Treaty established European citizenship, including the right to move and settle freely in the EU. It granted this Parliament extended powers through its right of co-decision and strengthened Europe’s voice in the world through a common defence and security policy. And, perhaps most importantly, the Treaty laid the foundation for our economic and monetary union, leading to the introduction of the euro and the establishment of the ECB.
As we are celebrating 20 years of euro banknotes and coins this year, there is no doubt that the single currency has been a success. It has brought stability and made us more resilient in the face of the multiple adverse shocks we have experienced.
Over the past 20 years, the ECB has ensured price stability, with an average inflation rate of 1.7 per cent since early 1999. We are determined to continue doing so.
In my remarks today, I will therefore first update you on the latest assessment of the economic situation in the euro area and present our monetary policy stance. I will do so with a firm determination that clear communication – the topic you have chosen for today’s hearing − is crucial for our policy, for our credibility and for the trust people have in us.
Already during my first hearing back in December 2019,[1] I outlined my aspiration to improve our communication practices so that markets, elected representatives like yourselves and the wider public better understand how we reach our decisions, what motivates them, and how they affect people’s daily lives.
Following on from our strategy review, we are now using clearer, more narrative-driven language, together with relatable visuals. As at the last hearing, I will thus explain the key macroeconomics developments discussed in this statement with the help of the charts in the accompanying two-page document.
The euro area economy and monetary policy
When we last met in November, I stated that growth momentum was moderating. Indeed, recent data confirm that quarterly growth slowed to 0.3 per cent in the final quarter of 2021, which still allowed gross domestic product (GDP) to recover to its pre-pandemic level. The moderation in growth momentum has resulted mainly from the rapid spread of the Omicron variant. The associated containment measures have dampened activity, particularly in consumer services such as travel, tourism, hospitality and entertainment.
The current pandemic wave and associated restrictions are likely to continue to have a negative impact on growth at the start of this year. Two other factors which we discussed at the previous hearing − namely supply bottlenecks and high energy costs − are also expected to dampen economic activity in the near term.
However, the economic impact of the current pandemic wave appears to be less damaging to activity than previous ones. Moreover, the aforementioned bottlenecks will still persist for some time, but there are signs that they may be starting to ease. This will allow the economy to pick up strongly again later this year.
Inflation has risen sharply in recent months and it further surprised on the upside in January, with the rate increasing to 5.1 per cent from 5.0 per cent in December. Inflation is likely to remain high in the near term. Energy prices continue to be the main reason for the elevated rate of inflation. Their direct impact accounted for over half of headline inflation in January and energy costs are also pushing up prices across many sectors. Food prices have also increased, owing to seasonal factors, elevated transportation costs and the higher price of fertilisers. In addition, price rises have become more widespread, with the prices of a large number of goods and services having increased markedly.
Financing conditions for the economy have remained favourable. While market interest rates have increased since December, bank funding costs have so far remained contained. Bank lending rates to firms and households continue to stand at historically low levels.
Turning to the risk assessment, we continue to see the risks to the economic outlook as broadly balanced over the medium term. Uncertainties related to the pandemic have abated somewhat. At the same time, geopolitical tensions have increased and persistently high costs of energy could exert a stronger than expected drag on consumption and investment. The pace at which supply bottlenecks are resolved is also a further risk to the outlook for growth and inflation. Compared with our expectations in December, risks to the inflation outlook are tilted to the upside, particularly in the near term. If price pressures feed through into higher than anticipated wage rises or the economy returns more quickly to full capacity, inflation could turn out to be higher.
In a few weeks, the March ECB staff projections will provide an updated assessment, taking the most recent data into account. This will help the Governing Council better appraise the implications of the surprisingly high December and January inflation figures for the medium-term outlook.
In particular, we will carefully examine how higher energy prices will transmit through the economy and affect the outlook overall. Two channels could be at play, pulling inflation dynamics in different directions. On the one hand, rising energy costs can drive up prices directly, by increasing the cost of production, as well as indirectly, by having second-round effects on wages. On the other hand, they can have a negative impact on the incomes of households and the earnings of companies, thereby reducing economic activity and dampening the inflation outlook. In the past, the euro area has been particularly vulnerable to the second channel, as surges in energy prices weakened the spending power of households, and reduced inflation over the medium term.
Obviously, in our assessment of the inflation outlook, we have to bear in mind that demand conditions in the euro area do not show the same signs of overheating that can be observed in other major economies. This increases the likelihood that the current price pressures will subside before becoming entrenched, enabling us to deliver on our two per cent target over the medium term.
Indeed, while moving up over recent months, indicators of longer-term inflation expectations are consistent with this expectation. Survey-based measures point to inflation returning to two per cent by 2023 and remaining close to this level thereafter; and market-based indicators stabilise around levels somewhat below two per cent. The solid anchoring of long-term inflation expectations in the euro area is a reassuring development, coming after a long period when they were subdued.
To sum up, the euro area economy has continued to recover, although growth is expected to remain subdued in the first quarter. While the outlook for inflation is uncertain, it is likely to remain elevated for longer than previously expected, but to decline in the course of this year.
In our meeting last week, we confirmed the decisions we took in December. Accordingly, we will continue reducing the pace of our asset purchases step by step over the coming quarters, and will end net purchases under the pandemic emergency purchase programme at the end of March.
In view of the current uncertainty, we need more than ever to maintain flexibility and optionality in the conduct of monetary policy. Our monetary policy is always data-dependent, and this is all the more important in the situation that we are facing at the moment. We will remain attentive to the incoming data and carefully assess the implications for the medium-term inflation outlook.
Those implications are key parameters in our forward guidance. Our forward guidance has several dimensions. There is a defined sequencing between the end of our net asset purchases and the lift-off date. A rate hike will not occur before our net asset purchases finish. Moreover, there are three conditions that will have to be met before the Governing Council feels sufficiently confident that a tilt in our policy rate is appropriate. All the three conditions are meant as safeguards against a premature increase in interest rates. Finally, any adjustment to our policy will be gradual.
Conclusion
Let me conclude.
Former Commission President Jacques Delors described the process leading up to the Maastricht Treaty as one requiring “great determination, rockhard solidarity and a little daring from time to time”.[2]
The leaders of Europe have once again demonstrated these qualities with their policy response to the pandemic crisis. And as we emerge from the pandemic, we need to continue down this path.
The ECB will play its part and show the determination needed to ensure price stability. You may rest assured that our commitment to deliver on this remains absolutely unwavering, as does our resolution to explain, to convince, but also to listen and better understand people’s concerns. Our regular exchanges with you, their elected representatives, are crucial in that regard.
With this in mind, I very much look forward to today’s discussion with you.
Compliments of the European Central Bank.
The post ECB | Hearing of the Committee on Economic and Monetary Affairs of the European Parliament first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

High Representative/Vice President Josep Borrell and Commissioner for Energy, Kadri Simson, will travel to Washington, D.C., on 7-8 February. Both will co-chair the EU-U.S. Energy Council on the EU side and Secretary of State, Antony Blinken, and Secretary of Energy, Jennifer Granholm, on the U.S. side on 7 February. The meeting will take forward EU-US cooperation on energy security and on the joint commitment to accelerate a just and clean energy transition to climate neutrality for citizens of the EU, the United States, and around the globe. HR/VP Borrell will also hold a bilateral meeting with U.S. Secretary of State Blinken to discuss pressing issues on the international agenda. On that day, Commissioner Simson will meet bilaterally with U.S. Secretary of Energy Granholm and in the afternoon, she will also gather with members of the U.S. Chamber of Commerce and the Global Energy Institute.
On 8 February, HR/VP Borrell will speak at the inaugural event of the Jean Monnet Conversations series, co-organised by the EU Delegation, the French Embassy and The Atlantic. Later that day, the HR/VP is due to meet with Members of the U.S. Senate Committee on Foreign Relations. Commissioner Simson will meet that day with members of the U.S. Congress to discuss the transatlantic relationship in energy. Later, she will participate in a public event (link is external) at the Center for Strategic and International Studies on the future of European energy. Audiovisual coverage of the visit will be available on EbS. The visit and the Energy Council further reconfirm the strength of the transatlantic partnership at a crucial moment for global diplomacy.
Background
The EU and United States are jointly committed to Europe’s energy security and sustainability, and to accelerating the global transition to clean energy. We also share the objective of ensuring the energy security of Ukraine and the progressive integration of Ukraine with the EU gas and electricity markets.
The EU and the United States cooperate closely on energy policy, decarbonisation, and security of supply through collaboration within the EU-U.S. Energy Council. Our shared commitment to meet the goals of the Paris Agreement through clean energy, in particular renewables, energy efficiency, and technologies, provide a path to energy security and reduced dependence on fossil fuels. The current challenges to European security underscore our commitment to accelerating and carefully managing the transition from fossil fuels to clean energy.

Joint Statement by President von der Leyen and President Biden on EU-U.S. Cooperation on Energy Security
HR/VP Borrell and Commissioner Simson participate in the EU-U.S. Energy Council in Washington DC
Blog post: Europe’s energy security and EU-U.S. cooperation
Graphic: EU-U.S. Liquified Natural Gas (LNG) Trade
EU-U.S. Energy Council Meeting – February 7, 2022

Joint Statement
Opening remarks by HR/VP Josep Borrell and Commissioner Simson
Photos and Video

Compliments of the Delegation of the European Union to the United States
The post EU-U.S. Energy Council Takes Place February 7 first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, on 1 January 2022 took on its new mandate as direct supervisor of the largest EU Data Reporting Service Providers (DRSPs). Its new role gives ESMA direct authorisation and supervisory powers over DRSPs, except for those entities that, due to more limited market impact, will continue to be supervised by their Member State authority.
ESMA, in exercising its new responsibilities, will build on its long-standing experience in supervising other types of entities like Credit Rating Agencies and Trade Repositories.
Verena Ross, Chair, said:
“With its new supervisory role for the largest EU Data Reporting Service Providers, ESMA will contribute to increasing financial markets transparency. Through its new mandate, ESMA has strengthened its data-related competencies and will, in close coordination with the NCAs, work to further enhance the quality of market data across the Union.
“In January 2022, ESMA hosted a first roundtable that brought together the EU’s largest DRSPs, outlined ESMA’s priorities as a supervisor and laid the groundwork for this new engagement between ESMA and the supervised entities.’’
Supervisory responsibility for DRSPs was transferred from national competent authorities (NCAs) to ESMA due to:

the cross-border dimension of data handling,
the aim of achieving economies of scale, and
facilitating data quality convergence for all market participants.

In December 2021, ESMA issued a statement outlining its approach for DRSP supervision pending the entry into force of all relevant legislative acts.
ESMA aims to ensure the effective and consistent application of a data-driven, risk-based and outcome focused supervisory framework for the DRSPs under its supervision and will continue actively engaging with the:

supervised entities;
national competent authorities; and
data users to ensure a smooth and orderly functioning of EU financial markets.

To support its new supervisory task, ESMA has developed an IT system based on big data technologies that will facilitate processing, storage and supervisory analysis of large volumes of MiFIR transaction data.
The 2022 Annual Work Programme outlines ESMA’s supervision priorities for 2022 under the DRSPs’ supervision mandate.
Contact:

Sarah Edwards, Communications Officer | press@esma.europa.eu

Compliments of the European Securities and Market Authority.
The post ESMA becomes supervisor of EU Data Reporting Service Providers first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.