Euro

• The "United Kingdom: Spectacles and Googles 2014-2024" report has been added to ResearchAndMarkets.com's offering.
• This report forecasts the market evolution at an average annual rate of -6.5% to the level of 205,010 thousand euro in 2024.
• The first part of this chapter contains the detailed historical analysis, segmented on the two destination markets of the products, the domestic market and the non-domestic market (exports).
• Also, the results are divided into destination markets of the products, the domestic market and non-domestic market (exports).

SPEECH

The importance of trust for the ECB’s monetary policy

Speech by Isabel Schnabel, Member of the Executive Board of the ECB, as part of the seminar series “Havarie Europa. Zur Pathogenese europäischer Gegenwarten” at the Hamburg Institute for Social Research (Hamburger Institut für Sozialforschung)

• Frankfurt am Main, 16 December 2020 Ladies and gentlemen, Thank you for inviting me to join this seminar series.
• The seminar series Havarie Europa, literally translated as shipwreck Europe, touches on a topic that all proponents of European integration are forced to deal with time and again: euro-scepticism.
• At present, the coronavirus (COVID-19) pandemic is posing huge challenges for the European Economic and Monetary Union (EMU).
• European institutions and national governments have responded rapidly and comprehensively to mitigate the economic impact of the pandemic.
• In the long run, a high degree of public trust will ensure European institutions capacity to act.

The relevance of trust for central banks

• The trust of citizens in the ECB and public support for the euro are essential for the effectiveness of our monetary policy and the independence of the central bank.
• Why is public trust so critically important for central banks?
• Furthermore, stable money and public trust in central banks are essential to generate broad acceptance of their independence in the population at large.
• Independence protects central banks against political interference and thus underpins the credibility of monetary policy.
• By contrast, a lack of public trust can render the central bank more vulnerable to political pressure.
• The tasks carried out by many central banks have become more diverse, for instance in the areas of banking supervision and financial stability.
• Many central banks today perform important functions in the field of macroprudential supervision, which deals with questions of systemic financial stability.
• Since the financial crisis, central banks therefore face new challenges relating to their communication and accountability.

Trust in the ECB and the euro: empirical results

Public trust in European institutions and the ECB can be analysed using public surveys and empirical research.[3] The Eurobarometer survey offers a good basis for such an analysis, given that it provides data on trust in the currency union covering the entire period since its inception.

Descriptive analysis: trust in the ECB and the euro over time

• Trust in the ECB similar to trust in European institutions overall has declined in the years following the financial crisis.
• [4] Net trust, the difference between the share of respondents who trust the ECB and those who do not, has been almost continuously negative for nearly ten years (Figure 1).
• Figure 1 Net trust in the ECB and net support for the euro.
• At first glance, this divergence between a comparatively low level of trust in the ECB on the one hand and growing support for the euro on the other hand appears contradictory, since the ECB, as a European institution, is responsible for the single currency.
• It is therefore important to analyse this divergence more precisely by considering different euro area countries and groups in the population.
• [5] In terms of attitudes towards the ECB and the euro, four groups can be distinguished: monetary union sceptics (red), who neither support the euro nor trust the ECB; ECB-sceptics (yellow), who support the euro, but do not trust the ECB; euro-sceptics (blue), who do not support the euro, but trust the ECB; and monetary union supporters (green), who support the euro and trust the ECB (Figure 2).
• For the euro area as a whole, monetary union supporters represent the largest share of the population in most years.
• The share of this group reached its lowest point in 2014 in the wake of the European sovereign debt crisis, but has grown to around 40% since 2016 (Figure 3).
• Empirical data do, however, also show an increase in the share of respondents who support the euro but have no trust in the ECB.
• However, this overall picture for the euro area conceals heterogeneous developments in individual Member States.
• An analysis of empirical data at the country level suggests that attitudes towards the monetary union depend on economic developments.
• Countries that were severely affected by the financial crisis, such as Greece and Spain, experienced a relatively sharp decline in public support (Figure 4).
• By contrast, the number of monetary union supporters in countries less affected by the financial crisis remained at a relatively high level.

Descriptive analysis: trust in the ECB and the euro by socio-economic characteristics

• The analysis at country level provides initial indications that citizens perceptions of the economic situation influence their attitudes towards the monetary union.
• The consideration of individual socio-economic characteristics confirms this conjecture: survey data support the conclusion that citizens who assess the current economic outlook in Europe positively are more supportive of the monetary union (Figure 5).
• Monetary union supporters constitute the clear majority among those respondents who assess the European economic situation at the time of the survey as rather good or very good.
• Conversely, monetary union sceptics form the largest group among those respondents who perceive the economy to be in a very bad state.


A similar picture emerges when considering respondents’ personal financial situation. Those respondents who consider their own financial situation to be rather good or very good tend to be more supportive of the monetary union. Conversely, respondents with financial difficulties are more sceptical of the monetary union (Figure 6). Figure 6 Attitudes towards EMU by perception of the current economic situation of own household. Percentages

• People with a higher level of education are more likely to support the monetary union (Figure 7).
• For instance, manual workers and unemployed individuals display much lower levels of trust than white-collar workers and self-employed individuals.
• [10] Figure 7 Attitudes towards EMU by educational level (age upon completion of full-time education).


However, no systematic differences in trust in the ECB and the single currency emerge when comparing differences in trust among various birth cohorts (Figure 8).[11] Figure 8 Attitudes towards EMU by birth cohort. Percentages

Multivariate analyses: trust in the ECB and the euro

• The descriptive analysis of Eurobarometer data can only provide limited insights into the key factors that influence trust in the ECB and the euro.
• Multivariate analyses confirm the influence of socio-economic variables on individuals trust in the ECB.
• (2016) argue that the perception of future economic developments plays an important role: trust in the ECB grows with a more positive assessment of the economic outlook.
• (2010) find that factual expertise regarding the ECB is accompanied by greater trust in the institution.
• (2013) observe that there is a link between general support for EU institutions and trust in the ECB.
• [19] Studies also allow for a distinction to be drawn between those factors that affect trust in the ECB and support for the euro.
• Trust in the ECB, on the other hand, hinges more on the citizens satisfaction with the concrete performance of the EU and in particular its economic achievements.

Trust in the ECB during the pandemic – initial findings

• These insights highlight the importance of successful economic policy to sustain and strengthen citizens trust in public institutions in the long term.
• The severe economic crisis resulting from the COVID-19 pandemic is therefore a major challenge to citizens trust in the ECB, the euro and the European Union in general.
• At the beginning of the pandemic period, the ECB was confronted with a dramatically deteriorating situation in financial markets.
• The Composite Indicator of Systemic Stress (CISS) used by the ECB indicates that this policy response has averted a severe financial market crisis in the spring of 2020 (Figure 9).
• The ECBs crisis measures consist mainly of a new temporary asset purchase programme, tailored specifically to the pandemic crisis the pandemic emergency purchase programme (PEPP).
• In addition, the ECB provides ample liquidity to banks at highly favourable conditions, thus ensuring that they continue to lend to businesses and households in the euro area.
• The ECBs crisis measures thus ensure the smooth transmission of our monetary policy measures to the entire euro area.
• The economic consequences of the pandemic have especially affected those countries that already had relatively high debt levels prior to the crisis and where confidence in the ECB was rather low.
• It is undisputed that the large-scale monetary and fiscal policy measures cushioned the financial impact of the crisis significantly.
• However, it is still impossible to fully predict the impact on citizens trust in the ECB and the euro.
• The latest survey data can nevertheless offer some tentative, though rather sobering insights into how public trust has evolved over the course of the pandemic crisis.
• [23] By contrast, net trust in the ECB has fallen somewhat.
• Meanwhile, the latest survey results indicate that trust in national institutions seems to have increased over the course of the pandemic crisis (see Figure11).
• Indeed, according to early surveys, a majority of respondents in the euro area (61%) indicates satisfaction with the measures introduced by national governments.
• At the same time, respondents have split views regarding the measures taken by European institutions during the pandemic period: only 45% of respondents view the crisis measures implemented to date favourably.
• 88% are in favour of the EU drawing up an economic recovery plan to support all Member States.
• [26] According to many experts, the pandemic has demonstrated that European institutions, including the ECB, already have the capacity to effectively counteract an economic crisis in the euro area.

Measures to foster trust in the monetary union

What can European institutions take away from these findings?

Monetary and fiscal policy as a way out of the crisis

• Without a European policy response, Member States would have depended solely on their own fiscal space.
• The empirical findings suggest that such a divergence at country level would weaken trust in European institutions in some parts of the euro area.
• A common monetary policy is an integral part of the European crisis response as it underpins the economic recovery by ensuring favourable financing conditions and ample liquidity provision.
• This allows monetary and fiscal policy measures to complement and reinforce each other.

Long-term deepening of European integration

• The European fiscal and monetary policy response to the crisis can only be a starting point.
• Nevertheless, the crisis has been countered decisively by means of a policy response at European level in contrast to previous times.
• However, this does not alter the premise that a deepening of European integration would be important to support economic convergence in Europe, thus also increasing the effectiveness of our single monetary policy.
• On the one hand, there is a need for further European integration when it comes to the creation of common fiscal instruments at the European level and the reform of the fiscal framework.

Improving monetary policy communication

• A broad-based communication strategy is essential in our efforts to improve the publics understanding of the ECBs mandate and tasks.
• We must ask ourselves how we can ensure that our communication reaches all citizens across the entire euro area.
• Furthermore, our communication has so far largely focused on market participants and monetary policy experts this has done little to help the general public better understand monetary policy.
• The development of a more effective communication policy will therefore be a key topic in the context of our comprehensive monetary policy strategy review that we launched a few months ago.
• This dialogue will require us to engage with citizens expectations regarding the ECBs role and to evaluate what these expectations imply for the review of our monetary policy strategy.

Conclusions and outlook

SPEECH

Welcome address

Welcome address by Isabel Schnabel, Member of the Executive Board of the ECB, at the third roundtable on euro risk-free rates

• Frankfurt am Main, 14 December 2020 Good afternoon and welcome to the third roundtable of the industry working group on euro risk-free rates.
• Not least, it has forced us to transition to virtual modes of working.
• I very much hope that the public health situation will soon allow us to meet again in person.
• Todays roundtable will provide a platform to exchange views on the development of robust fallback provisions for EURIBOR, which remains a systemically relevant benchmark.

The motivation for robust EURIBOR fallback provisions

• As a result, EURIBOR is still used extensively in both new and legacy contracts for cash and derivatives products.
• Given that EURIBOR remains operational, why do we even need to discuss fallback arrangements?
• If the benchmark rate ceased to exist, the absence of a fallback rate would expose the counterparties to substantial risk.
• Fallback provisions therefore act as seatbelts for contractual arrangements in financial markets.
• In fact, there is already a legal requirement to use fallback provisions.
• In addition to these legal requirements, there is also a clear financial stability justification to ensure there are workable fallback provisions that reduce contractual uncertainties in the event of EURIBOR ceasing to exist.

Public consultations: the role of the €STR as a fallback rate

• However, this basic premise begs a more difficult question: what are feasible alternative rates that can be used if a fallback scenario is triggered?
• In an effort to address this question, the working group has recently launched two public consultations.
• The public consultations build on a common theme, namely the use of the ECBs STR in the proposed fallback measures.
• For the public consultation, the working group has used two alternative STR-based approaches to approximate a term rate that could serve as a fallback.
• Second, the working group has used realised values of the STR and compounded them over the interest period, thus deriving a backward-looking term rate.
• The STR is a suitable rate for use in EURIBOR fallback arrangements.

Discontinuation of EONIA: the urgent need for a rate transition

• As EONIA has been converted into a STR tracker rate, the benefits of switching to the STR may not be immediately obvious.
• There are two reasons why market participants should urgently work on their preparedness for an orderly transition from EONIA to the STR.
• First, the discontinuation of EONIA is imminent, with its last publication scheduled for 3 January 2022.
• If the proposed fallback provisions were ever activated, the market would have to rely extensively on the STR.
• The ECB will continue to facilitate the replacement of EONIA in euro area markets by maintaining a robust and representative STR.

Conclusion

• The STR is an ideal candidate for this transition.
• It can support market participants in building robust fallback procedures for a potential discontinuation of EURIBOR.
• Users should therefore swiftly replace EONIA and make wider use of the STR in cash and derivatives markets.
• I would also like to thank the ECB team that has been supporting the working group by providing the secretariat.
• I now wish all of you an insightful and productive roundtable.

SPEECH

A commitment to the recovery

Speech by Fabio Panetta, Member of the Executive Board of the ECB, at the Rome Investment Forum 2020

• Rome, 14 December 2020 2020 has been a year like no other.
• But we have also seen a collective response that has no precedent in the history of our monetary union.
• And now, with positive news on vaccines, we are finally able to glimpse the light at the end of the tunnel.
• So what I would like to argue today is that policymakers must commit to continue providing certainty to the economy.
• The end of the pandemic is now in sight, and we need to extend policy support in order to underpin the recovery.

A common shock, a common response

• The coronavirus (COVID-19) is a common shock that has had asymmetric effects[1], hurting some sectors and economies much more than others.
• But what has defined this crisis and set it apart from previous ones is the policy response at the European level and the recognition that a common shock requires a common response.
• The ECB has taken forceful monetary policy measures to stabilise markets and prevent a tightening of financing conditions.
• And fiscal policy has empowered monetary policy by offsetting lost private sector income and enabling banks to support the real economy.
• European policies the ECBs monetary policy and the joint EU fiscal support have generated a European dividend.
• As a result, the euro area economy was able to stage a strong rebound over the summer, as containment measures were lifted.
• This inflation weakness reflects the significant demand gap that the economy will be facing in the next two years.
• So the question for policymakers is how to create certainty for businesses to invest once more.
• [5] We cannot provide clarity about when the vaccine will be widely available or even how people will respond when that day comes.
• But we can guarantee our commitment to support the recovery: the stabilisation effort should therefore continue until the economy is on a solid, durable recovery path.
• For monetary policy, this means providing certainty about financing conditions well into the future.

The ECB’s contribution: preserving favourable financing conditions

• Since the very beginning of this crisis, the ECB has taken forceful measures to ensure that all sectors can benefit from favourable financing conditions.
• Our measures are ensuring that households, firms and governments can benefit from very accommodative financing conditions throughout the euro area.
• And in order to provide the certainty that the economy needs, the ECB is committed to preserving favourable financing conditions well into the future.
• We have also extended the most favourable conditions on our TLTROs until June 2022 and broadened their size, in terms of maximum borrowing allowance.
• Our commitment to preserve favourable financing conditions will support the strengthening of inflation dynamics in two main ways.
• [9] Confidence in future financing conditions will remove obstacles to fiscal policy playing this role in full.
• Firms will be able to take full advantage of favourable financing conditions and carry out their investment plans.
• This is the second expansionary effect and, crucially, the ECBs commitment to preserve favourable financing conditions makes this effect more powerful over time.

Investing in Europe’s recovery

• They also need reassurance about future demand and growth.
• We will exit this crisis with higher public and private debt levels everywhere, so achieving growth rates that remain higher than interest rates will be crucial.
• For fiscal authorities, this means they should focus on high-quality, productive investment spending that lifts potential growth.
• [11] Chart 2 Labour productivity growth and decomposition (period averages of annual percentage changes and percentage point contributions)
• According to ECB estimates, NGEU funds could increase real output in the euro area by up to 1.5% by 2026 relative to the baseline scenario.
• High efficiency and institutional quality will be key to maximising the benefits of NGEU.
• For Italy, the possible gains are larger: up to 3.5% of GDP if funds are well invested.
• [12] The gains will be highest if investment spending is targeted at the technologies and sectors that will drive the economy after the pandemic.
• [13] More than half of EU firms expect to increase their use of digital technologies in response to COVID-19.
• [14] This requires enhancing digital skills and infrastructure, in order to be ready to face the digital challenge.
• [18] Investment to support the transition to a low-carbon economy will also be a key component of the recovery from the pandemic throughout the euro area.

Conclusion