The European economic and financial system: fostering openness, strength and resilience

We are living in a changed geopolitical context and a multipolar world.

The rules-based, multilateral global governance system is being challenged by certain countries pursuing unilateral short-term interests.

And 2020 was a challenging year that exposed vulnerabilities in sectors across the world, including in our economic and financial systems. Additionally, the pace of technological and societal change accelerated.

The challenges arising from the Covid-19 pandemic have emphasised the importance of cooperation and multilateralism.

Now, 2021 provides us with an opportunity to reflect on how we want the European economic and financial system to evolve, and how to strengthen our role on the global stage.

The Communication on ‘The European economic and financial system: fostering openness, strength and resilience’ that I presented this week with my colleagues Executive Vice President Valdis Dombrovskis and Commissioner Paolo Gentiloni lays out a blueprint to address the challenges that the EU faces in this area.

A key objective of this Communication is to safeguard and deepen the Single Market, which underpins the euro and the EU’s openness to trade and investment with the rest of the world.

This strategy is based on three overarching pillars.

The first pillar focusses on a stronger international role of the euro. This will help reduce reliance on other currencies, contribute to a more diverse global currency system, and reinforce the overall resilience of the international monetary system. It has tangible benefits for EU businesses, with reduced transaction and foreign exchange risk management costs.

Many EU initiatives, such as the recovery plan Next Generation EU, completing the Banking Union and developing the Capital Markets Union will contribute to this pillar.

And the Commission, with the ECB, will assess issues related to the possible introduction of a digital euro, as a complement to cash.

The second pillar is to strengthen EU financial market infrastructures and critical service providers, and increase their resilience, including against extra-territorial sanctions by third countries.

These infrastructures are at the heart of our financial system and they carry out critical functions.

They are the gateways to foreign financial markets, benefiting EU companies and investors. But this also means that they can be vulnerable.

So the Commission will engage with relevant market players, in cooperation with the ECB and European Supervisory Authorities, to analyse the vulnerabilities of financial market infrastructures.

We will also investigate how to ensure the uninterrupted flow of financial services, including payments, from the EU to entities or third countries targeted by unlawful extraterritorial sanctions.

Finally, we need to assess how to reduce excessive reliance on foreign investment banks and funding in foreign currencies, and avoid over-reliance on foreign financial market infrastructure providers.

For example, on Central Counterparties, the fact that a large proportion of euro-denominated contracts are cleared outside the EU is a point of vulnerability.

And the message to the industry is clear - financial entities in the EU are expected to reduce their exposures to UK CCPs, and CCPs within the EU must build up capacity.

The third pillar is the effective implementation of EU sanctions and countering the unlawful extra-territorial application of sanctions by third countries.

EU restrictive measures are a vital foreign policy tool in upholding our values globally. They must be implemented effectively.

The Commission will develop a ‘Sanctions Information Exchange Repository’, a dedicated database for effective reporting and exchange of information between Member States and the Commission on the implementation and enforcement of sanctions.

We will work with Member States to establish a single contact point for enforcement and implementation issues with cross-border dimensions.

And we will set up an anonymous system to report sanctions evasion.

The Commission will also consider how to update the Blocking Statute, the EU’s response to unlawful extra-territorial sanctions. Such sanctions can hinder legitimate trade and investment.

And the EU will work with our partners to align sanctions and their implementation to the greatest possible extent.

These actions will not only enhance our financial system but will also give much needed support to our economy: to our businesses, innovative start-ups and sustainable investments.

We will continue to be ambitious in our efforts to strengthen our financial system and economy, and in promoting our values on the world stage.