european commission role

The estimates for imports not shown in the table are similar, consistent with the prediction that the stability of marginal costs in their currencies encourage US and euro area exporters to choose producer currency pricing in US dollars and euro respectively. [58] When designing their country plans, Member States need to allocate at least 37% of the funds to support the green transition and at least 20% to support the digital transformation. Several elements of the policy reaction, such as the launch of new EU borrowing programmes by the European Commission and the ECBs policy response, may have implications for the global status of the euro. Moreover, compared with the least affected individual, the latter is 9 percentage points more likely to prefer cash rather than deposits as a savings vehicle. This is apparent from Chart 23, which shows the increasing concentration of invoicing in US dollars and euro over time. Country ISO codes are used for country names for the sake of readability. They have helped to stabilise the euro area economy in the face of an exceptionally large shock. [98], Whether a CBDC would be designed as a bearer instrument or as an account-based instrument might also have an impact on the international attractiveness of the currency in which it is denominated. Fostering the international role of the euro is not a prime motivation for issuing a digital euro. It is convened and chaired by itsPresident, who is elected by the European Council itself for a once-renewabletwo-and-a-half-year term. To a large extent, safe assets are mainly in the form of US dollar-denominated securities. The share of the euro in outstanding international deposits declined by 3 percentage points in 2020. The volatility of the economic shocks in each country is used to measure the stability of economic fundamentals. [120], Regression estimates of the determinants of US dollar and euro invoicing. This box examines these data, with a focus on the share of the euro in foreign official reserves. The share of the euro as an invoicing or settlement currency for extra-euro area trade decreased in 2020 for most transactions in goods and services. (forthcoming) compare these predictions with the data. The euro remained the second most important currency in the international monetary system, Snapshot of the international monetary system. Monitoring implementation of EU directives. This site is managed by the Directorate-General for Communication, Aid, Development cooperation, Fundamental rights, Follow the European Commission on social media. Sources: CLS Bank International and ECB calculations.Note: The latest observation is for February 2021. This is visible from Chart A, which shows estimates of the marginal effect of global value chain integration on export invoicing conditional on imports from the euro area. These findings suggest that preserving the euro area's openness to trade and the European value chain between the euro area and the rest of the EU, as well as regions neighbouring the EU, are important for the prospective role of the euro as a global invoicing currency. These features may combine to create positive feedback loops in the use of a currency as a means of payment and as a store of value and have effects on its global appeal. By contrast, the share of sovereign issuers increased by more than 6 percentage points over the review period. [33] In addition, the ECBs accommodative monetary policy stance may have helped to support euro-denominated funding in international loan markets, by allowing euro area banks to channel funds to their foreign branches and subsidiaries. The onset of the COVID-19 pandemic led to a large sell-off of US Treasury securities by foreign investors, including official investors, in March 2020, which reversed in the course of the year as liquidity conditions improved. [81] In total, the Commission is expected to issue up to 100 billion in SURE bonds between 2020 and 2021. Sources: IMF and ECB calculations.Note: The latest observation is for the fourth quarter of 2020. security-by-security) issuance data, as US dollar-denominated debt issuance by emerging market borrowers increased by almost 13% in 2020 (see the green line in the left panel of Chart11). The left panel of Chart B contrasts two model simulations one without CBDC and the other simulation with a CBDC issued in country 1. This period was characterised by the outbreak of the coronavirus (COVID-19) pandemic, a contraction in global . Economic scale therefore bolsters the use of an international currency in global trade. [46], Top US-based fixed-income funds have a negative bias towards the euro, Evolution of the portfolio allocation of the sample of funds by currency and country (left panel); currency bias estimates (right panel), (Left panel: percentages; right panel: percentage points). Treaties are the starting point for EU law. How did banks fund C&I drawdowns at the onset of the COVID-19 crisis? At the same time, NGEU is linked to investment and structural reforms which are expected to increase the growth potential of the euro area and its internal cohesion, thereby increasing the resilience of the euro area economy to global shocks and boosting the attractiveness of the euro as a global investment currency. A large share of the demand for the 10-year SURE bond came from investors based in the United Kingdom, who accounted for 20% of take-up, although ultimately some investors may be located in the euro area. Taking the euro as an example, a large share of euro banknotes which are an anonymous means of payment circulate outside the euro area. The small decline in the issuance of euro-denominated debt securities was primarily due to a reduction in issuance by US borrowers, which was volatile over the review period. The European Union's executive arm says it will ask Hungary to provide explanations and details about the country's role in the transfer to Hungary of 11 Ukrainian prisoners of war freed by Russia In particular, they prevent euro liquidity shortages from morphing into financial stability risks, avoiding forced asset sales and negative spillback effects stemming from the use of the euro by non-euro-area residents as a funding or investment currency. With commercial companies playing an increasingly important role in creating a dynamic and innovative space industry, nine New Space satellite data suppliers have joined the Copernicus programme as 'Contributing Missions'. The report covers developments in 2020. US dollar) bias, as they hold most of their assets in US dollar-denominated securities although not necessarily in the United States, confirming the findings of recent empirical studies. The appreciation of the euro against the US dollar primarily reflected the loosening of monetary policy in the United States following the onset of the COVID-19 pandemic and, subsequently, the rebound in global risk sentiment. [74] Recent research has found that access to the liquidity arrangements of the Federal Reserve during the pandemic were driven by the close trade ties of the recipient economies with the United States. In particular, the composite index of the euros international role declined in 2011 by 0.9 percentage points at constant exchange rates, compared with 0.5 percentage points at current exchange rates. In contrast to US investors, investors from other countries invest both in assets denominated in domestic currency and in the US dollar (see Maggiori, M., Neiman, B. and Schreger, J., International currencies and capital allocation. See Mundell, R., Capital mobility and stabilization policy under fixed and flexible exchange rates. The European Commission ( EC) is part of the executive of the European Union (EU), together with the European Council. All the bonds issued in 2020 were highly oversubscribed (between 11.5 and 13 times), resulting in very favourable financing conditions. [30] The share of the Japanese yen declined marginally. Table A shows that the share of non-euro area investors in the bonds issued under the SURE programme progressively declines from 60% for the 5-year maturity to around 30-35% for bonds with a maturity longer than 20 years (see the last column of the table). Similarly, pursuing sound economic policies in the euro area is important for the euros global attractiveness. [110] They include intra-euro area transactions, in line with Gopinath (2015). They find that the pass-through to import prices and trade volumes from fluctuations in US dollar exchange rates is higher than from fluctuations in the bilateral exchange rate between the importer's and the exporter's currencies. On a conceptual and methodological level, through searching for evidence of the causal mechanism of . For specific terminology please refer to the ECB glossary (available in English only). The new EU bond issuances will constitute the largest ever euro-denominated issuance at supranational level, raising the attractiveness of the euro as an investment currency for international investors, in particular official ones. Arguably, oil exporters needed to raise cash to balance their budgets as oil prices slumped, so they intervened together with central banks in other emerging market economies to shore up their currencies. Countries from around the world are represented in the EU through diplomatic missions accredited to the European Union. Overall, the countries in the dataset account for about 75% of global trade. The corresponding ratio also rose for the euro. First, in March 2020 the ECB expanded the asset purchase programme and launched the pandemic emergency purchase programme (PEPP) in order to stabilise financial markets, contribute to easing the overall monetary policy stance and counter severe risks to the outlook for the euro area. Building on this foundation, the Communication proposes an approach to strengthening the EUs open strategic autonomy based on three mutually reinforcing pillars: (i) promoting a stronger international role of the euro, (ii) further developing EU financial market infrastructures and improving their resilience, including towards the extraterritorial application of sanctions by third countries, and (iii) further promoting the uniform implementation and enforcement of the EU's own sanctions. They have grown at a faster pace than banks in recent years and accounted for almost half of total assets under management in the global financial system in 2019. This will be followed by the issuance of up to 750 billion in NGEU bonds over the years 2021-26. The volume of international loans denominated in euro continued to increase despite the onset of the COVID-19 pandemic, reflecting both the ECBs accommodative monetary policy stance and the resilience of euro area banks in comparison to previous crises. Canada, the euro area, Japan, Sweden, Switzerland, the United Kingdom and the United States) since 1999. This was a threefold increase compared with 2016 (right panel of Chart 13). See Aizenman,J. The reference period is the fourth quarter of 2020. These developments aside, recent ECB staff analysis provides new estimates for foreign demand for euro banknotes which aim to capture banknote migration via non-registered channels, such as tourism and remittances. SAMUEL PETREQUIN, Associated Press. [43] This finding is in line with recent empirical evidence showing that funds invest disproportionately in bonds denominated in the currency of their own country. A recent study on foreign demand for euro banknotes suggests that between 30% and 50% of the value of euro banknotes were held outside the euro area in 2019. explain to their Ukrainian counterparts what happened, how it happened, what was the role of . [7] At the same time, official investors have also taken part in these developments intervening in the foreign exchange markets to counter capital outflows. The share of the euro in global foreign exchange reserves decreased by 0.7 percentage points over the review period (Table1). [121] The blue solid line shows the marginal effects evaluated at different values of the share of countries' imports from the euro area. The European Commission calls for 'thorough and transparent investigation' into the deadly sinking of a boat off Greece. The European Council plays an important role in certain appointment procedures for high profile EU level roles. [35], Volumes of international loans denominated in euro continued to increase in 2020, Amounts outstanding of international loans denominated in euro, (USD billions; at current exchange rates). Tune in now. Setting strategic priorities Along with the other main EU institutions, the European Commission develops the overall strategy and political direction of . Still, it is interesting that the euro is used as a vehicle currency in certain regions. Non-bank financial intermediaries (NBFI) play an increasingly important role as a source of finance globally. the Danish krone, the Swedish krona or the Norwegian krone) fail to meet the relevant conditions required for this approach. Sources: BIS and ECB calculations.Notes: Narrow measure. Relevant factors are the degree of trust in the stability of the local currency and expectations regarding the exchange rate. By Charlotte Grynberg and Maurizio Michael Habib. To this end, the EU must pursue policies that enhance growth and efficiency, and that support the green and digital transitions. 599646, complemented with ECB staff judgement. [67] By providing ample liquidity during the COVID-19 crisis, the ECB countered the negative effects of the pandemic shock to the euro area economy, enhancing the stability of the euro, which, in turn, can support its international status. Control variables are based on Stix (2013) and include socioeconomic characteristics, indicators of network effects, trust, past crisis experience and country fixed effects. Third, institutional and geographical proximity to the euro area and the EU seem to have triggered notable changes in invoicing currency patterns for several countries. The latter target the illicit accumulation and trafficking of small arms and light weapons and aim to implement effective controls on international arms transfers, thereby contributing to peace, security and stability worldwide and to the safety of European citizens. Most countries in the sample decreased the share of euro-denominated assets in their official foreign exchange reserves holdings, with the exception of Bulgaria, Croatia, North Macedonia, Denmark and the Czech Republic. Special Feature C provides further insights on the role of the euro as an invoicing currency for global trade. Empirical estimates shed light on the country-specific determinants of the share of the euro and other major reserve currencies in official foreign exchange reserve holdings. [91] A CBDC could be designed to interoperate and facilitate cross-border and cross-currency payments. strategic complementarities in price-setting and integration in cross-border value chains underpin the use of the euro for international trade invoicing. It remained close to a two-decade low, in line with previous trends towards gradual diversification of global reserve portfolios. Global exports tend to be invoiced in the currency of the economy with the most stable economic fundamentals, as shown in the simulations shown in the left panel of Chart A. This facility will disburse loans and grants to support reforms and investments by EU Member States to mitigate the economic and social impact of the coronavirus pandemic and improve the sustainability and resilience of European economies. Finally, there is a positive currency bias towards the Japanese yen and the Chinese renminbi. For example, it has the responsibility of implementing decisions, legislation, and manage or uphold EU treaties. See Caballero, R.J., Farhi, E. and Gourinchas, P.-O., The Safe Assets Shortage Conundrum. Every action taken by the EU is founded on the treaties that have been approved democratically by its members. Recent research finds that, after accounting for the nationality rather than the residence of bond issuers, US bond investments into China were ten times larger than official estimates in 2017 (i.e. A double line in the swap lines overview indicates that the agreement is reciprocal. As noted already, fundamental forces, such as the stability of economic fundamentals and size, remain the most important factors for international currency status. The estimates are obtained on daily data over the period 2010-2020. First Online: 03 June 2021 5417 Accesses 7 Citations Abstract Based on a review of the relations between the European Commission (EC) and Turkey across a selection of policy areas, this chapter illustrates two aspects of EC influence in EU-Turkey relations. Box 5 describes initiatives by the European Commission to support the use of the euro in international trade, including through the development of euro-denominated instruments and benchmarks, and to foster its status as an international reference currency in the energy and commodities sectors. The European Union is represented by EU delegations and offices around the world. The European Commission is the executive body of the EU and runs its day-to-day business. [9] The data shows official foreign exchange reserve holdings denominated in four major currencies (euro, US dollar, pound sterling and Japanese yen) for 14 advanced economies and 37 emerging market and developing countries over the period 1999-2018. For instance, international deposits in euro correspond to all euro-denominated deposits with banks outside the euro area from creditors outside the euro area. native rendition (617.213), Download [92] In the latter case, the foreign exchange rate leg of the payment transaction is particularly challenging to arrange. Boz et al. Even though these liquidity lines have only been drawn sporadically and for relatively small amounts, there is evidence that their sheer availability has been successful in mitigating stress in euro funding markets, preventing a tightening of lending and financing conditions in economies with strong economic and trade ties to the euro area (Box 6). By contrast, the share of the euro decreased by about 2percentage points over the review period, to less than 22%. [113] The increase in these countries export shares invoiced in euro is noticeable, especially when one considers that the shares of exports destined to the euro area have either been fairly stable or exhibited only modest increases. The role of US spillovers and global risk, Patterns in invoicing currency in global trade, Statement by the Members of the Euro Summit, UBS 26th Annual Reserve Management Seminar Survey, Leverage and margin spirals in fixed income markets during the Covid-19 crisis, Reserve Currencies in an Evolving International Monetary System, The macroeconomic impact of the pandemic and the policy response, Shifts in the portfolio holdings of euro area investors in the midst of COVID-19: looking-through investment funds, The international dimension of an incomplete EMU, US dollar funding: an international perspective. [109] Finally, data quality is significantly improved for European Union (EU) countries compared with existing datasets by using information obtained within the Eurosystem to ensure that definitions of invoicing currency data are harmonised with regard to trading-partner composition. The Report on the digital euro set out several scenarios in which the need to issue a digital euro may become important. For individuals, de facto euroisation is largely demand-driven. In that year, Denmark was in ERM II, Bulgaria and Bosnia and Herzegovina had a euro-based currency board, Croatia a tightly managed floating regime, and North Macedonia a stabilised arrangement with the euro as a reference.

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