For the first ten years of its existence, the euro area was characterised by broadly comparable sovereign yields between Member States. However, the global financial crisis and the European sovereign debt crisis led to differences in these yields, particularly for peripheral countries, which to some extent can still be seen today.
Against the backdrop of the most significant series of rate hikes in the history of the monetary union, this article takes a closer look at various indicators used to detect and measure the resurgence of transmission and fragmentation issues. It analyses transmission and fragmentation in both the upstream (money and sovereign bond markets) and downstream (corporate bond and retail banking markets) segments of the monetary policy transmission chain.
These indicators show that the recent tightening of monetary policy has not, for the time being, revived transmission or fragmentation concerns on a large scale. Only sight deposit rates have shown some resistance to the ECB’s policy rate hikes, as commercial banks have been rebuilding their interest margins.
While the resilience of monetary policy transmission probably reflects efforts made in recent years at various political levels, now is no time for complacency. For one thing, the ECB’s tightening phase might not be over yet. On the other hand, while a return to the virtually non-existent fragmentation seen in the early years of the monetary union may not be desirable, sovereign spreads between Member States are sometimes considerable. A more uniform and sustainable fiscal policy in the euro area could, along with other measures, help to limit fragmentation issues.
In 2022, inflation reached 8.4 % in the euro area, a level not seen since the creation of the currency union in 1999. Against this backdrop, one may well wonder whether economic agents still expect an inflation rate close to the 2 % target set by the European Central Bank (ECB). Such expectations would contribute to a stable economic environment by precluding a vicious circle of higher inflation expectations feeding inflation through an anticipatory effect.
This article reviews several measures of inflation expectations and delivers a rather reassuring message: despite the increase in short-term inflation expectations (one year ahead, for example), medium- and long-term inflation expectations (five or ten years ahead) have thus far remained close to the ECB’s 2 % target. There are, however, a number of signals that should not be ignored. For instance, inflation expectations from surveys of professional forecasters indicate that a relatively high proportion of respondents expect inflation to be above 2.5 % in the medium term.
In brief, the anchoring of inflation expectations requires ongoing attention. The longer inflation strays from the ECB’s target, the greater the risk of inflation expectations going off target as well. Such a loss of credibility would oblige the central bank to dispense tough medicine and drastically tighten credit conditions, at the risk of dragging the economy into a recession.
The labour market is closely tied to the business cycle, and recessions generally lead to a decrease in labour demand. However, even though recessions have common markers, they have their own characteristics, and the impact on employment varies depending on factors such as the amplitude or the duration of the business cycle, or the cause and the origin of a recession. Temporality is also a specific aspect: there is a time lag between some labour market indicators and the business cycle, and some negative shocks can affect the labour market even after the recovery period. The COVID-19 pandemic has temporarily caused a significant drop in Belgian GDP, but employment has been resilient in the initial phase of the recession and has grown strongly afterward. It is important to note, however, that labour market reactions are often delayed, the economic context remains uncertain, and qualitative changes have emerged during this period.
Greenhouse gas emissions continue to rise and are the main cause of global warming. The article looks at which policies the world’s largest emitters (including China, India, the US and the EU) are taking to reduce their emissions and whether these policies are sufficiently ambitious to keep global warming well below 2 °C, and even preferably 1.5 °C, by the end of this century (as per the Paris Agreement's goals). We explain that, despite the progress made thus far, the world as a whole is not on track to meet the temperature objectives of the Paris Agreement. Climate mitigation ambitions, the used policy mixes and the strength of policy implementation vary widely from country to country. Stronger international cooperation is key to moving forward on this policy goal, particularly as the window to avoid the worst effects of climate change is rapidly closing.
This article uses selected results of the Digital Payment Barometer – an annual, nationally representative survey among more than 1,100 Belgians – to document that there is a ‘payments divide’. We use this term to refer to a situation where the majority of Belgian consumers are comfortable with – and increasingly use – electronic payment instruments at the Point of Sale but where, at the same time, there is a non-negligible minority who still prefer cash. These consumers also exhibit a strong resistance against the advent of a cashless society. Worryingly, over the period 2020-2023 this divide has only become bigger. We also show that there is a regional dimension to the divide.
Belgium has reached a tipping point towards digitalisation. In payment habits, this evolution results in a decline in the use of cash and an increase in the use of electronic payment means. To guarantee the access to cash, the Belgian banking sector concluded an agreement with the federal government on 31 March 2023. However, the main challenge is (and should be) to close the digital gap. Too many citizens are ‘digitally vulnerable’ and risk to be excluded from the (digital) society. Therefore, the banking sector is striving for more digital inclusion and is taking various initiatives to bridge the digital divide.
The National Bank of Belgium (NBB) publishes yearly a Financial Market Infrastructures (FMIs) and Payment Services Report which provides for the preceding year a detailed overview of changes in the regulatory framework for FMIs, custodians, payment service providers and critical services providers, the evolution of their activities and the Bank's approaches to oversight and prudential supervision.
A number of significant FMIs (SWIFT, Euroclear, Bank of New York Mellon, Mastercard, Worldline) with international relevance are vested in Belgium and the report establishes transparency by clearly defining, and disclosing the regulatory, supervisory, and oversight policies with respect to these systems and institutions.
Also trends with regards to national payment systems and services are depicted and the annexes provide statistical time series on the FMI activities and the payments eco system. This year’s publication incorporates a few topics deserving specific attention which are summarized in this article: the impact of the Russian invasion of Ukraine, the digital euro project, climate risk and cyber & IT risks.
In today's digital landscape, cyber security is a pressing concern for executives and organizations. Understanding common vulnerabilities and misconfigurations is crucial for effective risk management. Weak passwords and phishing attacks pose significant threats that can be mitigated through strong passwords and user education programs. Misconfigurations, such as unchanged default settings, can be addressed through regular software updates and maintenance. Implementing secure protocols like HTTPS and VPNs safeguards against insecure network connections. The principle of least privilege and access permission reviews help prevent unauthorized access. Regular data backups, coupled with off-site or cloud storage, ensure resilience against ransomware attacks. Updating and retiring unsupported software reduces vulnerabilities. Executives must prioritize user awareness and training to foster a secure environment and protect valuable assets.
In this paper the vision of the “Young” and “Elder” Lamfalussy on the origins of instability in capitalist economies will be contrasted. The young Lamfalussy found the origins of instability in medium-term cumulative processes in the real sector of the economy, very much inspired by the vicious circles in the British and Belgian economies in the postwar period. The Elder Lamfalussy focused on financial innovations and the short-term myopic behaviour of financial markets, very much inspired by his experience of the Latin American debt build-up and ensuing crisis in the early 1980s. The Euro area crisis showed the importance of both processes, as it was the consequence of both short-term myopic behaviour in financial markets and medium-term cumulative processes in the real sector.
On 31 May 2023, the National Bank of Belgium published its Financial Stability Report and its Macroprudential Report. Recent macroprudential policy decisions have been taken in an uncertain environment characterised by a clear tightening of monetary policy. Rising interest rates have led to a turning point in the credit and real estate cycles. The first half of 2023 was also characterised by turmoil on the financial markets amidst concerns of vulnerabilities in certain segments of the US and Swiss banking sectors. In this regard, the Belgian banking and insurance sectors proved resilient. Belgian banks are indeed different in certain important respects from the US and Swiss institutions which had to be supported. There is however no room for complacency as risks that remained below the waterline when interest rates were low could materialise. Against this backdrop, macroprudential policy in Belgium has a number of objectives: to operate in a countercyclical manner while preserving the resilience of the Belgian financial sector and to encourage the maintenance of sound lending policies without unduly curbing credit cycle dynamics. The reports’ recommendations highlight, amongst other issues, the role to be played by the financial sector in supporting the economy and the need for banks and insurance companies to continue to prudently manage the interest rate and liquidity risk inherent in a period of rising interest rates.