The impact of inflationary pressures on the European Economy and the financial system: Transformation and growth in the new environment

Mr. Lekkos, Chief Economist of Piraeus Bank, in his speech discussed the challenges that the European economy is currently facing. As Mr. Lekkos mentioned, post-covid supply bottlenecks, the high demand for goods, and high levels of freight led to high inflation during 2022 which now gradually lessens. Mr. Lekkos also highlighted that in 2023 a recession of 0.5% and inflation of 5% is expected in the EU. Moreover, Mr. Lekkos stated that a huge part of this inflation is due to imported energy and may have harmful effects, such as an increase in unemployment rates, while the European economy will start to slow down. Closing his speech, Mr. Lekkos mentioned that according to forecasts, inflation is expected to start decreasing gradually and finally drop at a rate of 2,5% by 2024.

Mr. Magginas, Chief Economist and Head of the Economic Analysis Department of the National Bank of Greece, in his speech referred to the macroeconomic developments of the European economy. More specifically, Mr. Magginas mentioned that inflation reached its highest point in the last 40 years, underlining that despite the rise, economic activity remained relatively unchanged. He continued his speech by describing developments in the labor and equity markets, where he said that the unemployment rate recorded historic lows in most developed countries and equity markets managed to hold most of the gains of the previous decade despite the correction that took place in 2022. At the same time, he focused on the fiscal expansion that took place in order to counter the effects of Covid-19 which led to an increase in public debt around the world, and stressed that the extended period of “unconventional” monetary policy measures is coming to an end. Finally, Mr. Magginas underlined that the strong recovery that followed the Covid-19 crisis combined with geopolitical developments and the energy crisis led to a rapid increase in inflation, which is expected to slow down in 2023.

Mrs. Kourkouli, Head of Corporate Social Responsibility and Sustainability Department of Alpha Bank, gave a speech regarding ESG integration challenges in banking. As she noted the last few years are marked by important changes in the European and international levels. Those changes touch on a wide agenda such as Sustainability and Climate Change background, ESG Initiatives and Standards, Regulatory & Supervisory Reporting Requirements, and the drafting and implementation of a clear transition strategy. Mrs. Kourkouli also mentioned that while “Sustainability” and “Climate Change” are not new for the banks or the economy a series of international agreements (Paris Agreement, EU Green deal, etc) speeded up the need for transformation. In addition, she underlined that current ESG standards are also focused on banks because they are the main source of financing for the economy and regulators, governments, investors, and stakeholders increase the pressure on the financial system as most stakeholders consider pressure the principal tool to drive change. Moreover, Mrs. Kourkouli mentioned that supervisory expectations on climate-related and environmental risks as they are expressed by the ECB and EBA, together with non-financial reporting requirements create the need for increased ESG-related data. She stressed that Banks face the challenge of sourcing out those data as Large listed corporates, due to shareholder expectations, are the only companies that publish them in an organized manner, while SMEs and companies with more than 500 employees newly subject to CSRD are not currently providing data of the same quality. Closing her speech, Mrs. Kourkouli underlined that ESG data will eventually need to be integrated with multiple parts of the lending and investment chain.

Overall, the critical success factors for the ESG integration and transition are to:

  • Define overall ambition, set targets, and communicate Internally and Externally
  • Establish a clear Sustainability Framework to align processes and manage risks
  • Develop underpinning capabilities
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