Prague, 8 September 2022
January feels like so far in the past. Because we were full of optimism.
We had managed a crisis, the pandemic, of enormous proportions. It hasn’t gone completely but we managed it and we were coming out of that with a real sense of strong economic growth and vibrancy.
But if you look back six months ago, everything changed.
Russia invaded Ukraine and started war on the European continent.
So against that very sobering backdrop, it is more important than ever that we have a very strong European financial system to underpin the European economy.
And all of you here today in this room and in the margins of these meetings have a role to play to make that happen.
So I want to talk to you today about what we are doing, in the Commission and at EU level, to help us build that strong system together, from those big structural projects like Banking Union and the Capital Markets Union, to the very specific policies we’re developing in areas like digital finance.
But maybe I’ll start with a reflection on the economic outlook and the impact of Russia’s war on Ukraine and in Ukraine.
This brutal invasion has obviously been horrific for the citizens of Ukraine.
It’s also delivered a very heavy blow to the world economy, just as things were beginning to return, to get back on track.
In response to the invasion, the European Union imposed a set of severe economic and financial sanctions on Russia, alongside our international partners.
Overall the aim of our sanctions is to show Russia that its actions will not go unanswered – and to make it harder for Putin to finance his war machine.
These sanctions have inflicted very real harm on the Russian economy and its financial sector, with more effects which we will see over the medium term.
And I’ll give a few examples.
The Russian Central Bank cannot easily manage its foreign reserves, and some of Russia’s biggest banks have been removed from the Swift system.
Russian civilian aircraft are being deprived of spare parts from the European Union and the US, which could lead to planes being grounded.
The lack of access to foreign components from the EU and our partners is undermining Russian industry and manufacturing.
The financial sector is playing a vital role in implementing this sanctions regime.
And I know, we know this is very challenging work, because of the scale of the sanctions we have unveiled.
We very much welcome your feedback – as the people who are putting sanctions into practice – and in fact letting us know how they are working, and indeed when problems are arising.
We are working tirelessly to provide clarifications and ensure that implementation is consistent.
Because perseverance and determination are key to undermining the Russian war machine.
Now at the same time, we know that the financial stability impact of the war on the European Union should be manageable.
But this war is happening just across the EU’s border, and we know that there are consequences for us.
The war is putting severe pressure on energy and food prices.
And that is setting the EU economy on a path of higher inflation and more moderate growth.
We’re looking at over 8 percent average inflation in the European Union this year, and it varies between Member States.
And the Commission has revised its economic growth forecast downwards, to under 3 percent.
As we look to the winter, we need to prepare for what might happen in the energy sector in particular, and the consequences as we try to keep our homes warm and our businesses running.
The supply of Russian gas could be cut further – maybe even completely.
So I think to be very frank, we live in very difficult times. Extraordinary events have taken place and we are seeing the consequences every single day.
But we should also, in my view, maintain our determination and hope, even in these difficult times.
I’ll remind us that the European Union does some of its best work during times of crisis.
In March, EU leaders adopted the Versailles declaration in response to Russia’s invasion of Ukraine.
It builds on the idea of “open strategic autonomy”, to ensure that Europe is more self-reliant and stronger on the world stage.
It’s about reducing our dependencies as a continent and building a new growth and investment model for 2030.
That plan relies on having a robust economic base.
And a resilient financial sector is crucial to navigate these new, more uncertain waters.
Finance has a major role to play make Europe’s economic base more resilient, competitive and fit for the future.
And for that to happen, we need to make progress on our big projects for the financial system: Banking Union and Capital Markets Union.
Europe’s banking system has stayed resilient in a very challenging market environment.
We need European banks to keep supporting Europe’s economy, especially small businesses.
We need our banks to mobilise investment for the big changes confronting us: digitalisation and the climate transition.
And to help us address the new challenges arising from war on European soil.
The stability of the sector owes a lot to the reforms implemented after the global financial crisis.
But we know those reforms are not yet complete.
Moving towards a complete Banking Union will bring more stability to the sector and foster its investment capacity.
And as you know, a work plan to complete the Banking Union did not emerge from the Eurogroup.
But the Eurogroup did reach agreement to proceed with fixing the second pillar of the Banking Union, reviewing the crisis management and deposit insurance framework.
In the Commission, we have already started to work on the legislative proposals to reform this framework.
It’s vital that any failing bank can exit the market smoothly, while protecting financial stability and taxpayer money.
Beyond these legislative proposals, I’m convinced of the need for a European deposit insurance scheme.
The other big structural project for the European financial system is the Capital Markets Union.
The financing needs for the future, both public and private, are huge, and you’ve discussed that in the earlier conversation.
And those needs are only going to get bigger.
If we take the transition to climate neutrality, which will need huge investment in things like battery technology, renewable energy and housing insulation.
That task is now more urgent because we seek to end our dependence on Russian fossil fuels.
And that’s why we’ve rolled out the REPowerEU plan – so RePowerEU will require extra investment of €210 billion between now and 2027.
We must build more efficient and integrated financial markets that can channel the investment that we need.
So when it comes to the Capital Markets Union, we have a lot on the agenda this year and next.
Including streamlining the rules for listing on public markets, and harmonising the rules on insolvency proceedings.
Next year, we will present new initiatives to help retail investors participate in capital markets.
And we will introduce a common, standardised, EU-wide system for withholding tax relief at source.
Since Brexit, we’re seeing a new ecosystem of financial centres growing in the European Union, focusing on various aspects of financial services and playing to their own strengths.
This is positive, and we need to support this progress.
So we need to build the capacity of the European Union’s financial sector, while also reducing the over-reliance we have on certain financial services outside the EU where that creates a financial stability risk.
And that’s the case, for example, in the area of central clearing.
Before the end of this year, we will propose measures to make the EU clearing landscape stronger and to decrease our over-reliance on UK CCPs.
The Capital Markets Union is important to provide financing for the rapid changes in our economy.
We need the financial sector to power the digital transition.
But the financial sector itself is going through an unprecedented wave of digitalisation, accelerated by the COVID crisis.
We want to embrace digital finance and the new possibilities it offers.
But we need to make sure that this happens in the right way.
We need infrastructure to be resilient and secure.
We need to keep consumers safe and build trust.
And we need to safeguard financial stability.
And this is at the heart of our proposals – recently agreed by the European Parliament and Member States – to regulate crypto-assets and strengthen the digital operational resilience of financial companies.
We also need money to be resilient through this change.
Central banks around the world are preparing for the possibility of central bank digital currencies – to keep central bank money useable in a digital world.
The ECB is looking into the possibility of a digital euro, working closely with the Commission.
A digital euro would provide a public money alternative to private digital means of payment.
And represent a safe, instant and efficient digital means of payment for all to use.
But there are many things that we need to consider.
Including how we maintain the privacy of users, how to safeguard financial stability, and how the digital euro might impact the private sector. Might it crowd out the private sector?
We would want the digital euro to co-exist with private solutions, and for payment service providers to have incentives to distribute the digital euro to users.
The Commission will propose legislation next year to establish the digital euro and regulate its essential aspects.
This would then allow the Council and Parliament to make their amendments.
And then the ECB would be able to issue a digital euro, if it takes the decision to do so.
So in conclusion, I think the cliché of living in unprecedented times is more than a cliché – it’s an absolute truth.
But as I speak to many of you today, and listen in the margins, I think we are aware that we are resilient enough, even in very difficult times, to manage this process if we work together.
And for me that was the message and the lesson from Covid. In the beginning, we didn’t particularly start well.
But immediately there was a recognition that this crisis was too big for any Member State alone, and we gathered together and did our work, and did it effectively.
And again I would say that it is always in unprecedented times that the European Union shows what it is capable of.
And I believe that that will be the case now.
Unity is really important – it is our strength.
And it is exactly this strength and unity that will equip us for the future, that makes us more resilient and more capable than ever.
Thank you for your attention.
Source – EU Commission