Training Day – 5th ECB Simulation Conference

Discussion – Overview of the Training Day at the 5th ECB Simulation Conference

Kicking off the 5^th European Central Bank (ECB) Simulation Conference for students, the Training Day, held from December 10 to 13, 2021, featured a lineup of distinguished speakers who imparted their knowledge, insights, and experiences to the participants. The goal of the Training Day is to enrich the participants’ understanding of the topics under examination at the conference.

The topics examined at the 5^th ECB Simulation Conference revolved around the challenges of monetary policy during the SARS-CoV-2 pandemic, its interaction with fiscal policy, the impact of Environmental, Social, and Governance (ESG) factors on the financial system and the European economy, and the challenges of the digital economy, specifically the Digital Euro.

This year, the Training Day featured 15 distinguished speakers representing various organizations, including academic institutions, regulatory bodies, and corporations. Notable speakers included Mr. Ioannis Stournaras (Governor of the Bank of Greece) and Mr. Demosthenes Ioannou (Senior Lead Economist, Directorate General International at the European Central Bank). Subsequent presentations were delivered by Ms. Charoula Apalagaki (General Secretary of the Hellenic Bank Association), Mr. Marios Psaltis (CEO of PwC Greece), Ms. Athena Chatzipetrou (Chairwoman and CEO of the Hellenic Development Bank), Mr. Nikolaos Peppas (Deputy Regional Governor of Attica for Economic Affairs), Mr. Gikas Hardouvelis (Chairman of the Board of Directors of the National Bank of Greece), Mr. Dimitris Maliaropoulos (Director of Economic Analysis and Studies at the Bank of Greece), Mr. Sotirios Symarkezis (Advisor at Interbank Systems (DIAS)), Mr. Spyridon Blavoukos (Associate Professor at the Athens University of Economics and Business in the Department of International, European, and Economic Studies), Ms. Emilia Varfi (Managing Director of Velos Advisory), Mr. Philippos Vernardis (Vice President at Asset Stewardship, State Street Global Advisors), Ms. Thaleia Emiri (Of Counsel, Sardelas Petsa Law Firm), Mr. Konstantinos Drakos (Professor, Department of Accounting and Finance, Athens University of Economics and Business), and Mr. Christos Gortsos (Professor of Public Economic Law at the Faculty of Law, National and Kapodistrian University of Athens).

Below, the Get Involved team has summarized the key points from all the speeches delivered during the Training Day.

Opening Speeches and Greetings

The Training Day commenced with a speech by Mr. Ioannis Stournaras, who extensively discussed the review of the ECB’s strategy, which was completed in July 2021. The new inflation target is set at 2% in the medium term. Commitment to this target is symmetric, meaning both negative and positive deviations from it are equally undesirable. Mr. Stournaras emphasized the importance of the Pandemic Emergency Purchase Program (PEPP) as an extraordinary asset purchase program due to the pandemic, aimed at mitigating the shock caused by the SARS-CoV-2 pandemic crisis. He also stressed the need for supplementary fiscal policy measures to achieve macroeconomic stability. Additionally, Mr. Stournaras recognized the imperative of addressing climate change and highlighted that the Bank of Greece was among the world’s first central banks to engage with climate change and sustainability, establishing the Climate Change Impact Assessment Committee in 2009.

Following this, Mr. Demosthenes Ioannou explained how the ECB’s strategy review was conducted, the parameters taken into account, and the results of the review. He presented the tools of Monetary Policy exercised by the ECB, with a focus on Forward Guidance, underlining the careful selection of wording, as ECB announcements can significantly influence the economy. Mr. Ioannou also stressed the need for the ECB to be understood by the general public. To achieve this, communication channels have been modernized to help the broader audience comprehend the ECB’s goals and actions.

In turn, Ms. Charoula Apalagaki emphasized in her speech the necessity of understanding how the banking sector and businesses should adapt to climate change. She discussed the need for incorporating ESG criteria into business models, which will create numerous new challenges and opportunities for Greek banking institutions, contributing to the green transition of the Greek economy. Ms. Apalagaki also expressed the need for improving the relationship between the banking system and payment providers. She highlighted the importance of protecting the banking system from cyberattacks and threats arising from digital transformation.

Mr. Marios Psaltis discussed all the themes of this year’s conference in his speech. He began by referencing the Monetary Policy followed by the ECB in recent years, the impact of the pandemic crisis, and the ECB’s response to it. He also addressed the elevated levels of inflation currently experienced by all Eurozone countries. Subsequently, he analyzed the challenges faced by the banking sector, including the level of key interest rates, the volume of non-performing loans, and the new challenges related to digital transformation, climate change, and the green transition. In closing, Mr. Psaltis emphasized that ESG criteria undoubtedly can pose various challenges for banking institutions. However, by integrating ESG criteria into their investment and lending decisions, these institutions have the opportunity to play a crucial role in combating climate change and promoting responsible finance.

Following, Ms. Athena Chatzipetrou, in her speech, emphasized the need to promote policies to support the Greek economy, as well as small businesses, using every available tool to reduce the borrowing costs of businesses. Additionally, she referred to the adoption of frameworks to promote and integrate ESG criteria into business models by rewarding companies that incorporate them into their business activities. Finally, she highlighted the need for digitalization in the banking sector.

The opening speeches concluded with Mr. Nikolaos Peppas, who, in his speech, discussed the challenges faced by the region regarding the management of transition, the implementation of projects, and the 16 municipalities of Attica. He also talked about the management of natural disasters due to climate change. He mentioned that the region allocated 250 million euros to businesses affected by the SARS-Cov-2 pandemic to stimulate economic activity.

The Challenges of Monetary Policy After the SARS-Cov-2 Pandemic and Its Interaction with Fiscal Policy

Mr. Gikas Hardouvelis began the speeches in the first panel, where he focused on the 10-year Greek crisis that followed the 2008 global financial crisis. He emphasized how it significantly impacted both the Greek state and the Greek financial system due to extensive damage to the country’s GDP and the balances of Greek banking institutions. He also discussed the issue of limited profitability of Greek banking institutions and the factors contributing to it. Specifically, he mentioned the expansive Monetary Policy followed by the ECB, low-interest rates, strong competition faced by banking institutions from Big Tech and FinTech, and strict supervision exercised by regulatory authorities as the main factors restricting the profitability of Greek banks. Lastly, Mr. Hardouvelis discussed the measures that need to be taken to address this situation, emphasizing that Greece is expected to enter a growth trajectory for the next decade through the Recovery and Resilience Facility (RRF) and other fiscal measures taken at the European level.

Next, Mr. Dimitrios Malliaropoulos discussed the importance of inflation, highlighting the ECB’s statutory goal of price stability and the specification of this goal by maintaining inflation at 2% on average. He also pointed out the rising trend of inflation and its current levels, analyzing the factors contributing to its increase. He then used the Phillips curve to explain the relationship between inflation and unemployment and analyzed the impact of the SARS-CoV-2 pandemic on these two components. Finally, Mr. Malliaropoulos elaborated on expectations regarding inflation’s development and concerns about potential future risks.

Next, Mr. Sotiris Syrmakezis addressed the issue of payment systems in Europe and how various problems can be solved through Account to Account (A2A) payment technology. Specifically, he emphasized that in the European economy, payment systems involve a series of intermediaries, with each one increasing the cost of card payments. As a result, the annual total cost amounts to 25 billion euros. Furthermore, over the next five years, due to the increasing use of cashless payments and the outsourcing of payment systems by banks, the cost of accepting card payments is expected to exceed 150 billion euros. He also mentioned that an alternative way for merchants to accept payments is through various technologies known as Alternative Payment Methods (APM), significantly reducing the cost of accepting card payments. This method eliminates the need for multiple intermediaries, enhances user data security, and improves the overall experience. Additionally, Mr. Syrmakezis noted that these technologies provide more business opportunities, such as personalized marketing, and have attracted significant investments from various investors in recent years.

The first panel was concluded by Mr. Spyros Blavoukos, who provided a historical overview and analysis of the most significant negotiations between European states that led to the current European treaties and balances. He presented details of the sequence of negotiations, historical facts, and highlighted the correlations that shaped the ECB with its current structure. Finally, he discussed the issues surrounding the creation of the Economic and Monetary Union (EMU) and the positions held by states during these historical negotiations.

The Impact of ESG Parameters on the Financial System and the European Economy

In the second panel of the Training Day, which focused on the impact of Environmental, Social, and Governance (ESG) parameters on the financial system and the European economy, Ms. Aimilia Varfi, Mr. Philip Vernardis, and Ms. Thalia Emiri participated. The panel began with a brief explanation of ESG parameters and how they influence corporate culture, well-being, and the profitability of businesses. Subsequently, the results of a global research study involving 41 institutional investors with a total portfolio value of 26 trillion dollars were presented. These results demonstrated the significant role that ESG risks and opportunities play in their investment decisions. Moving on to the presentation, the speakers provided clear examples and suggestions regarding the incorporation of ESG into the three pillars of the prudential banking framework (Disclosures, Risk Management, Prudential Treatment). Concerning the performance of businesses on ESG issues, Mr. Vernardis introduced an internal assessment index (R-Factor) used by SSGA to measure corporate performance based on ESG risk factors. The speakers also highlighted other organizations that evaluate and rate companies based on their ESG performance, including ISS ESG, which Ms. Varfi used to present the performance of Greek banking institutions. Finally, the speakers compared the percentage of ESG-related investments in the EU and Greece, noting that the European average ranges from 1% to 2%, while in the 25 largest Greek-listed companies, it fluctuates from 0.08% to 0.14%. They simultaneously analyzed the reasons for this discrepancy.

Overview of issues addressed – 5th European Central Bank Simulation Conference

The fourth and final panel was initiated by Mr. Konstantinos Drakos, who focused on the issue of digital currencies and, more specifically, the opportunities and challenges they present. He emphasized the role of cryptocurrencies as alternative means of exchange and later delved into the digital euro as a cornerstone of the digitalization of the European economy. He also highlighted the benefits of using a digital euro and the characteristics required for such a form of currency. Finally, he cautioned about potential risks that could arise from the introduction of digital currencies and emphasized the need for careful and systematic planning, considering the risks associated with their use.

Closing the Training Day was Mr. Christos Gkortsos, who provided an overview of the issues examined on this year’s conference. He mentioned the European Central Bank’s policy, which is currently under review, as indicated by the recent strategic report published. Mr. Gkortsos pointed out that this review is largely due to the impact of the SARS-CoV-2 pandemic and the measures the ECB was forced to take to support the European economy. He continued by highlighting the digital currency as an immediate goal of the ECB’s new policy strategy, giving special emphasis to the legal foundation for its establishment. Simultaneously, he discussed the tools for conducting monetary policy by the ECB and its fundamental objective, which is the maintenance of price stability as specified in the Treaty on the Functioning of the European Union (TFEU), particularly in Article 127. Finally, Mr. Gkortsos addressed the topic of ESG, underscoring the importance of all three factors (Environmental, Social, Governance) for the smooth operation of the financial system. He warned of operational risks associated with the failure to exercise due diligence in ESG matters.