COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS The European economic and financial system: fostering openness, strength and resilience
Date: 2021-01-19
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU restrictive measure, Economic and Monetary Union, European Monetary System, application of the law, euro, financial market, single market, sustainable development, the EU's international role, third country

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 19.1.2021  COM(2021) 32 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS  The European economic and financial system: fostering openness, strength and resilience       
 
 
1. 

INTRODUCTION 

President  von  der  Leyen’s  ‘geopolitical  Commission’  aims  to  boost  the  role  of  the 
European Union (EU) on the world stage. The  geopolitical context has shifted over the 
past decades, and there have been major technological and societal changes. The global 
economy  is  increasingly  multipolar  and  the  short-term  pursuit  of  unilateral  interests  by 
specific actors can undermine effective multilateral cooperation. 

The  Commission’s  May  2020  Communication  “Europe’s  moment:  Repair  and  Prepare 
for the Next Generation”1 highlighted the need for the EU, in this context, to build and 
maintain its “open strategic autonomy”. The EU has a vital role in shaping the system 
of  global  governance  and  developing  mutually  beneficial  bilateral  relations,  while 
protecting itself from unfair and abusive practices. This goes hand in hand with the EU’s 
commitment to a more resilient and open global economy, well-functioning international 
financial markets, and the rules-based multilateral system. 

This  Communication sets  out  how the EU can reinforce its open strategic autonomy in 
the  macro-economic  and  financial  fields  by  promoting  the  international  role  of  the 
euro,  strengthening  the  EU’s  financial  market  infrastructures,  improving  the 
implementation and enforcement of EU’s sanctions’ regimes, and increasing the EU’s 
resilience to the effects of the unlawful extra-territorial application of unilateral sanctions 
and  other  measures  by  third  countries2.  The  Communication  is  part  of  a  broader  set  of 
actions to strengthen the EU’s open strategic autonomy and resilience3.  

First,  a  stronger  international  role  of  the  euro  would  shield  the  economy  from  foreign 
exchange shocks and reduce reliance on other currencies, as well as ensure lower costs of 
transaction, financing and for managing risk. It would also help achieve globally shared 
goals  such  as  the  resilience  of  the  international  monetary  system,  a  more  stable  and 
diversified global currency system, and a broader choice for market operators, all making 
the global economy less vulnerable.  

The  euro’s  success  as  a  stable  and  credible  currency  means  that  it  already  plays  an 
important  role beyond the borders of the EU and  the euro area. The euro is  the second 
most widely used currency in terms of its share of global payments. The share of the euro 

1   COM(2020)  456,  ‘Europe's  moment:  Repair  and  Prepare  for  the  Next  Generation’,  Communication 
from the Commission to the European Parliament,  the European Council, the  Council, the European 
Economic and social Committee and the Committee of the Regions.  

2   Legislative or regulatory measures that seek to apply beyond the territory of a sovereign, and without a 

sufficient nexus with that country, are commonly considered ‘extra-territorial’ measures. 

3   These include a trade policy review, a joint Communication on strengthening the EU contribution to 
rules-based  multilateralism,  an  updated  industry  strategy  and  digital  strategies,  and  a  new  EU-U.S. 
agenda for global change. A long-term and cross-cutting perspective on strengthening Europe’s open 
strategic autonomy will be provided by the Commission’s 2021 Strategic Foresight Report. 

1 

 
 
                                                 
in global payments amounted to around 38% in November 20204. The share of the euro 
in global holdings of foreign exchange reserves currently stands at around 20%5. 

Second,  a  well-functioning  financial  sector  is  not  only  key  for  providing  financing  and 
investments  for  the  European  economy;  it  is  an  important  stepping  stone  for  EU 
businesses and citizens to thrive globally. Crucially, it is also instrumental in providing 
strong  incentives  for  innovation  in  the  digital  economy,  and  for  driving  the  green 
transition,  as  outlined  in  the  European  Green  Deal6.  Moreover,  the  withdrawal  of  the 
United  Kingdom  (UK)  as  a  major  financial  hub  from  the  EU  strengthens  the  need  to 
further  deepen  the  Union’s  capital  markets.  Third,  more  rapid,  robust  and  effective 
implementation and enforcement of EU sanctions7, as well as a stronger policy to tackle 
the  unlawful  extra-territorial  application  of  unilateral  sanctions  and  other  measures  by 
third  countries  will  benefit  the  EU’s  goal  of  open  strategic  autonomy  and  resilience. 
Strengthening the EU’s foreign policy toolbox goes hand in hand with the international 
role of the euro and a resilient financial sector, as it allows the EU to defend its interests 
internationally and stand up for its values, using all tools at its disposal. 

The  COVID-19  crisis  has  had  a  number  of  consequences.  First,  it  has  highlighted  the 
potential  benefits  of  a  multicurrency  international  financial  system  which  would  better 
cushion financial tensions and stability risks. Second, falling valuations of EU companies 
during the crisis increased the risk of predatory takeover of some strategic EU firms, with 
the risk of loss of technological know-how and disruption in a number of value chains. 

The pandemic has, however, also revealed the EU’s strengths. The EU has put in place a 
coordinated  response  to  the  crisis  and  its  economic  fallout.  With  the  long-term  budget 
and the Next Generation EU initiative, the EU has provided its largest stimulus package 
ever to boost the recovery and to lay the foundations for a modern and more sustainable 
EU.  The  crisis  response  reinforces  the  EU’s  resilience,  provides  strong  reassurance  to 
markets and economic actors, and drives investor confidence in the EU and the euro. 

The response to the crisis is also making the EU a significant player in financial markets. 
By November 2020, out of the total foreseen EUR 100 billion, the Commission already 
issued EUR 39.5 billion social bonds in three rounds under the EU SURE instrument to 
help protect jobs and keep people in work. Investor interest in these instruments was very 
strong,  reflecting  also  the  strong  credit  rating  of  the  Union  bonds.  To  finance  Next 
Generation EU, the Commission  will borrow up to  EUR 750 billion on capital  markets 
on behalf of the Union over the period 2021-2026. This issuance provides an opportunity 
to  establish  a  global  reference  point  (yield  curve)  for  international  investors  seeking  to 
invest in euro-denominated assets.  

4   Swift  RMB  Tracker,  December  2020:  Live  and  delivered,  MT 103  and  MT  202 (Customer  initiated 

and institutional payments), Excluding payments within Eurozone 

5   European  Central  Bank,  ‘19th  Annual  review  of  the  international  role  of  the  euro’  (June  2020), 

available at https://www.ecb.europa.eu/pub/ire/html/ecb.ire202006~81495c263a.en.html  

6   COM(2019) 640, ‘The European Green Deal’, Communication from the Commission to the European 
Parliament, the European Council, the Council, the European Economic and social Committee and the 
Committee of the Regions.  

7   Referred to as ‘restrictive measures’ in  Article 215 of the Treaty on the Functioning of the European 

Union. 

2 

 
 
                                                 
2.  THE FOUNDATION FOR A STRONGER EU 

A  large  integrated  internal  market,  based  on  sound  economic  principles,  a  reliable  and 
predictable legal system and the rule of law are the foundations of a resilient EU. At the 
same  time,  the  EU  needs  to  become  more  effective  in  leveraging  its  comparative 
advantages in these areas and projecting them to the outside world. 

A  key  objective  of  the  EU’s  open  strategic  autonomy  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. Any policy that improves the functioning of the Single Market, 
enhances  the  depth  and  liquidity  of  financial  markets,  promotes  economic  growth  and 
ensures financial and fiscal stability also strengthens the EU’s geostrategic and economic 
influence. This includes policies to prepare the EU for future challenges, and in particular 
to  foster  the  digital  economy  and  the  green  transition,  to  provide  businesses  and 
individuals with sustainable growth opportunities and efficiency gains, within the EU and 
beyond.  

To strengthen the Single Market, the European economy needs more performing internet 
connectivity as well as a stronger industrial and technological presence in strategic areas 
like artificial intelligence, supercomputing and cloud. The European Union also needs to 
seize the opportunities for the economy by building common European data spaces, and 
cloud  infrastructure  and  services.  The  digital  transformation  of  finance  is  a  key 
component of its resilience and depends on the EU regulatory framework that facilitates 
innovation,  promotes  a  data-driven  finance  and  enhances  cyber  resilience.  At  the  same 
time,  the  EU’s  work  on  greening  the  financial  markets  and  ensuring  more  sustainable 
finance,  including  by  increased  transparency  by  the  EU  taxonomy  for  sustainable 
investments will be instrumental in providing strong incentives for the financial sector. 

Since the global financial crisis of 2008 and the subsequent sovereign debt crisis, the EU 
has made substantial progress in improving its institutional set up, making the euro area 
more attractive to international investors. It has continued to strengthen and deepen the 
Economic and Monetary Union (EMU) based on a well working framework of economic 
policy  coordination,  and  an  efficient  and  stable  financial  system.  The  latter  involves:  a 
Banking  Union  (BU),  strengthening  and  unifying  banks’  supervision  and  crisis 
management in the euro area; a Capital Markets Union (CMU), widening access to and 
mobility  of  capital  across  the  EU;  and  setting  up  and  subsequently  strengthening  the 
European  Stability  Mechanism,  providing  financial  assistance  to  euro-area  Member 
States with a view to preventing euro-area crises. Significant progress has been made on 
all  those  fronts.  However,  the  full  potential  of  further  integration  in  these  crucial  areas 
has not been developed yet. Important missing pieces are, for example, the creation of a 
European Deposit  Insurance Scheme, the simplification of the access  to  equity markets 
for  Small  and  Medium  Enterprises,  the  facilitation  of  long-term  investments  and  the 
convergence  of  insolvency  frameworks  across  the  Union.  In  addition,  the  rapid 
implementation of the common backstop to the Single Resolution Fund and developing 
instruments for the provision of liquidity in resolution would enhance the credibility of 
the resolution framework. 

3 

 
 
 
Key action 1: Completing the Banking Union and making further significant progress 
on the Capital Markets Union as a means of supporting the resilience of the EU and 
deepening the Economic and Monetary Union. 

New  challenges  have  arisen.  The  COVID-19  pandemic  is  first  and  foremost  a  human 
tragedy, with a lasting impact on people and society. It also may leave persistent scars on 
European  and  global  economies.  Therefore,  the  EU  supports  a  new,  stronger  and  more 
sustainable  economic  model.  With  the  withdrawal  of  the  UK  from  the  EU,  there  is  a 
strong  need  and  opportunity  to  develop  domestic  market  infrastructures.  The  tools  to 
address these issues must be based on policies to enhance growth and efficiency and the 
frameworks in support of them. 

In response to the COVID-19 pandemic, the EU has launched an unprecedented recovery 
plan  ‘Next  Generation  EU’.  The  Recovery  and  Resilience  Facility  is  the  biggest 
programme  of  the  recovery  plan  with  a  maximum  of  EUR  672.5  billion  of  loans  and 
grants  for  Member  States  to  finance  reforms  and  investments.  The  investments  and 
reforms embedded in the national recovery and resilience plans will help Member States 
seize the opportunities of the green and digital transitions, and address the key economic 
and  social  challenges  that  have  been  identified  through  the  EU’s  framework  for 
economic  policy  governance  and  coordination.  The 
issuance  of  high-quality 
euro-denominated  bonds  under  Next  Generation  EU  will  add  significant  depth  and 
liquidity  to  the  EU's  capital  markets  and  make  them  and  the  euro  more  attractive  for 
investors. Issuance by the EU could also support a larger international investor exposure 
to  the  EU  by  providing  the  low-risk  component  of  balanced  portfolios  and  as  reserve 
currency.8 

In  addition,  the  Commission  has  also  published  an  update  of  the  CMU  action  plan9,  a 
retail  payments  strategy  for  the  EU10  and  a  digital  finance  strategy11.  It  will  adopt  a 
renewed  Sustainable  Finance  Strategy  early  in  2021.  The  Capital  Markets  Recovery 
Package12 has amended the EU’s capital market rules to help EU companies raise capital 
on  public  markets,  support  the  lending  capacity  of  banks,  and  boost  investment  during 

8   See also: SWD(2020) 276, ‘Analysis of the euro are economy’, Chapter 5, Commission Staff Working 
Document accompanying COM(2020) 746 (Recommendation for a Council Recommendation on the 
economic policy of the euro area).  

9   COM(2020)  590:  ‘A  Capital  Markets  Union  for  people  and  businesses-new  action  plan’, 
Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the  European 
Economic and social Committee and the Committee of the Regions.  

10   COM(2020) 592: ‘a Retail Payments Strategy for the  EU’,  Communication from the Commission to 
the  European  Parliament,  the  Council,  the  European  Economic  and  social  Committee  and  the 
Committee of the Regions.  

11   COM(2020) 591: ‘a Digital Finance Strategy for the EU’, Communication from the Commission to the 
European Parliament, the Council, the European Economic and social Committee and the Committee 
of the Regions.  

12   This package makes it easier for capital markets to support European businesses to recover from the 
crisis.  The  package  includes  the  following  regulations  conveying  targeted  changes  to  capital  market 
rules,  in  particular  to  Regulation  (EU)  2017/2401,  Regulation  (EU)  2017/2402,  Regulation  (EU) 
2017/1129, Directive 2014/65/EU.  

4 

 
                                                 
the  COVID-19  crisis.  The  Banking  package13  also  aims  to  facilitate  lending  to  the 
economy.  

Financial  markets  also  play  a  crucial  role  in  the  EU’s  climate  and  environmental 
ambitions.  The  European  Green  Deal  and  the  EU’s  energy  and  climate  targets14  will 
bring major changes to the EU’s trade in energy products, resulting in the development of 
nascent markets, such as hydrogen, and raising the need for robust strategic supply chains 
for renewable energy and other technologies that are critical for the green transition and 
the  EU’s  energy  security.  This  economic  transformation  will  require  significant  public 
and private investments and the redirection of investment flows to sustainable projects.  

Building on these policies, the EU needs to pursue additional targeted actions, under the 
following three pillars: 
–  strengthening  the  international  role  of  the  euro,  by  reaching  out  to  third-country 
partners  to  promote  the  use  of  the  euro,  euro-denominated  instruments  and 
benchmarks,  to  overcome  barriers  to  its  global  use,  and  to  foster  its  status  as  an 
international reference currency in the energy and commodities sectors; 

–  further developing EU financial market infrastructures and increasing their resilience, 
including to any extra-territorial application of sanctions and other measures of third 
countries; 

–  further  promoting  the  uniform  implementation  and  enforcement  of  the  EU’s  own 

sanctions. 

3.  STRENGTHENING THE INTERNATIONAL ROLE OF THE EURO  

The euro is a key symbol and instrument of EU integration and autonomy. It underpins 
payments  for  goods  and  services,  currency  exchange,  loans  and  capital-market 
transactions. It also serves as an invoicing currency, as a store of value outside the euro 
area,  and  as  a  reserve  currency.  The  Communication  of  December  2018  ‘Towards  a 
stronger  international  role  of  the  euro’15  laid  out  key  actions  to  foster  the  international 
role  of  the  single  currency.  It  was  accompanied  by  a  Recommendation  on  the 
international role of the euro in energy16 and followed by five sectoral consultations on 

13   The aim of this package is to ensure that banks can continue to lend money to support the economy 
and help mitigate the significant economic impact of the Coronavirus. It includes COM(2020) 169, an 
Interpretative Communication on the EU's accounting and prudential frameworks, as well as targeted 
“quick fix” amendments to EU banking rules, notably to Regulation (EU) No 575/2013 and Regulation 
(EU) No 648/2012.  

14   In  September  2020,  the  Commission  set  out  a  proposal  to  cut  greenhouse  gas  emissions  by  at  least 
55% by 2030, changing the current emissions reduction pathway to reach climate neutrality by 2050. 
The proposal is contained in COM(2020) 562: ‘Stepping up Europe’s 2030 climate ambition. Investing 
information,  see 
in  a  climate-neutral  future  for 
https://ec.europa.eu/clima/policies/eu-climate-action_en  

the  benefit  of  our  people’.  For  more 

15   COM(2018)  796  ‘Towards  a  stronger  international  role  of  the  euro’,  Communication  from  the 
Commission  to  the  European  Parliament,  the  European  Council  (Euro  Summit),  the  Council,  the 
European Economic and social Committee and the Committee of the Regions, , available at 
 https://ec.europa.eu/commission/sites/beta-political/files/communication_-
_towards_a_stronger_international_role_of_the_euro.pdf  

16   C(2018)  8111,  Commission  Recommendation  on  the  international  role  of  the  euro  in  the  field  of 
energy,  accompanied  by  SWD(2018)  483,  Commission  Staff  Working  Document  ‘Promoting  the 
international role of the euro in the field of energy’.  

5 

 
                                                 
the role of the euro in  foreign exchange markets, in the energy sector, in raw materials 
markets, in the trade of agriculture and food commodities and in the transport sector17. 

From the viewpoint of conducting monetary policy a greater use of the euro may bring 
benefits,  such  as  seigniorage  revenues  from  issuing  currency,  greater  monetary 
autonomy, stronger global transmission of monetary policy. Increased usage would also 
lower  transaction,  risk  management  and  financing  costs,  and  decrease  the  impact  of 
foreign  exchange  price  shocks18.  These  benefits  seem  to  outweigh  the  costs,  such  as 
pressure  on  currency  appreciation  in  times  of  stress.  A  stronger  role  of  the  euro  would 
also  contribute  to  greater  systemic  stability  as  it  diversifies  the  global  currency  regime 
and  alleviates  the  effects  of  asymmetric  shocks,  in  particular  those  linked  to  monetary 
policies  by  third  countries.  The  smooth  functioning  of  liquidity  arrangements,  such  as 
swap and repo facilities with third countries, helps the European Central Bank (ECB) to 
fulfil  its  price  stability  objective,  prevent  euro  liquidity  shortages  from  morphing  into 
financial-stability  risks  and  can  contribute  to  boosting  the  euro’s  global  standing.  In 
times  of  liquidity  stress,  these  arrangements  reduce  the  risk  of  spill  over  effects  on  the 
euro  area  financial  markets  and  constitute  an  important  liquidity  backstop  to  third 
countries that use the euro extensively for financial and commercial transactions. A more 
diverse  global  monetary  landscape  would  also  enhance  the  overall  responsiveness  of 
international trade to exchange rate adjustments, especially for emerging economies19.  

A stronger  international  role  of  the  euro  could  then  be  part  of  a  broader  trend  where 
currency  diversification  in  pricing  and  financing  contributes  to  the  stabilisation  role  of 
external rebalancing mechanisms and exchange rate adjustments. 

Building on the proposals mentioned in the previous section, the Commission is working 
on additional measures to promote the use of the euro globally.  

Increasing euro-denominated trade in debt securities, commodities and related financial 
instruments 

The  EU  is  the  world’s  largest  trader  that  accounts  for  more  than  a  quarter  of  world 
trade.20  In  2018,  the  euro  was  the  most  used  currency  for  EU  exports,  while  the  U.S. 
dollar was most used for EU imports. While traders are free to choose the currency for 
trade on the basis of market considerations, there is scope to promote the use of the euro 
in the context of EU trade agreements. The completion of the post-Cotonou agreement21 

17   The results of the five targeted consultations were summarised in SWD(2019) 600 ‘Strengthening the 

International Role of the Euro. Results of the Consultations’, Commission Staff Document.  

18   European Central Bank ‘8th Annual review of the international role of the euro’ (June 2019), available 

at https://www.ecb.europa.eu/pub/ire/html/ecb.ire201906~f0da2b823e.en.html#toc1  

19   Boz, E., Gopinath, G. and Plagborg-Møller, M. (2017) "Global Trade and the Dollar," IMF Working 

Papers, vol 17(239). 

20   Excluding  intra-EU  trade,  in  2019,  the  EU-27’s  share  of  world  exports  was  15.6%  for  goods  and 
22.5% for services, while its share of world imports stood at 13.9% for goods and 21.0% for services. 
https://ec.europa.eu/eurostat/documents/3217494/10934584/KS-EX-20-001-EN-N.pdf/8ac3b640-
0c7e-65e2-9f79-d03f00169e17  

21   On 3 December 2020, the EU and the Organisation of African, Caribbean and Pacific States (OACPS) 
reached  a  political  deal  on  the  text  for  a  new  Partnership  Agreement  that  will  succeed  the  Cotonou 
Agreement.  Once  approved,  signed  and  ratified  by  the  parties,  the  Agreement  will  cover  a  large 
number  of  areas,  ranging  from  sustainable  development  and  growth,  to  human  rights  and  peace  and 
security and will be geared to empower each region.  Once in effect, the Agreement will serve as the 
new legal framework and guide political, economic and cooperation relations between the EU and 79 

6 

 
                                                 
 
will enable the EU and its African, Caribbean and Pacific partners to encourage a wider 
use of their respective currencies, and the Commission will explore further opportunities 
to  promote  the  use  of  the  euro  in  this  region.  The  Commission  will  also  consider 
addressing any identified information gaps concerning payments in euro by traders. EU 
delegations can be mobilised to that end and additional information can be provided via 
the market access database ‘Access2Markets’22. 

Commodity  markets  constitute  one  of  the  key  aspects  of  global  trading.  Since  the 
adoption of the Commission Recommendation on the international role of the euro, in the 
field of energy there has been significant progress in the use of the euro in the EU gas 
markets. The share of natural gas contracts signed in euros increased from 38% in 2018 
to  64%  in  202023.  Euro-denominated  benchmarks  are  also  increasingly  recognised  and 
used  worldwide.  To  further  increase  the  use  of  the  euro  in  commodity  trades,  the 
Commission  will  continue  to  discuss  with  the  main  players  in  key  strategic  sectors, 
including  commodity,  aircraft,  healthcare,  and  critical  raw  materials  for  renewable 
energy.  

EU  financial  markets  also  need  to  remain  competitive  and  attractive  for  international 
market participants.  In the context of the wider Capital Markets Recovery Package, the 
Commission proposed a number of measures under the Markets in Financial Instrument 
Directive  (MiFID II)24  to  encourage  greater  investments  and  trading.  These  included 
reducing  some  of  the  requirements  that  are  overly  burdensome  or  hindering  the 
development of EU capital markets. In addition, the Commission proposed to amend the 
MiFID  II  rules  that  apply  to  energy  derivatives  markets.  This  is  intended  to  help  the 
development  of  euro-denominated  energy  markets  and  allow  EU  companies  to  manage 
their risks, while safeguarding the integrity of commodity markets25. 

Building  on  the  successful  reform  of  commodity  derivatives  markets  for  energy,  in 
particular  electricity  and  gas,  achieved  in  the  context  of  the  Capital  Markets  Recovery 
Package, the Commission will review the Benchmarks Regulation26 in 2022. This review 
will aim to facilitate the emergence of euro-denominated indices covering core sectors of 

for 

the  OACPS 

members  of 
information  available  at 
https://trade.ec.europa.eu/access-to-markets/en/content/welcome-access2markets-trade-helpdesk-users. 
22   Acces2Markets is a database providing EU exporters and importers with information on tariffs, taxes 
duties,  rules  of  origin  as  well  as  procedures  and  formalities.  More  information  available  at 
https://trade.ec.europa.eu/access-to-markets/en/content/about-access2markets.  

twenty  years.  More 

the  next 

23   The figures are based on calculation by Commission staff using available data sources. 
24   Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on Markets in 

Financial Instruments and amending Directive 2002/92/EC and Directive 2011/61/EU.  

25   COM(2020) 280, Commission Proposal for a Directive of the European Parliament and of the Council 
amending  Directive  2014/65/EU  as  regards  information  requirements,  product  governance  and 
position  limits  to  help  the  recovery  from  the  COVID-19  pandemic.  The  proposed  amendments, 
carefully  recalibrate  the  position  limit  regime  and  the  scope  of  the  hedging  exemption  in  order  to 
ensure  that  nascent  euro  denominated  markets  are  able  to  foster  and  allow  producers  and 
manufacturers  are  able  to  hedge  their  risks  whilst  safeguarding  the  integrity  of  commodity  markets, 
except  for  agricultural  commodities,  in  particular  those  with  food  for  human  consumption  as  an 
underlying. 

26   Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices 
used as benchmarks in financial instruments and financial contracts or to measure the performance of 
investment  funds  and  amending  Directives  2008/48/EC  and  2014/17/EU  and  Regulation  (EU) 
No 596/2014.  

7 

 
                                                                                                                                                 
the economy, including nascent energy markets, such as hydrogen. The Commission will 
also use this review to assess whether further reform is needed to enhance the robustness 
of euro-denominated interest rate benchmarks. In line with international reform efforts of 
critical  interbank  borrowing  (IBOR)  rates,  the  Commission  will  regularly  review  the 
reliability of all critical or systemic benchmarks, especially when they are denominated 
in euros. 

transparency 

The Commission will also carry out a further review of MiFID/MiFIR in 2021. As part of 
this review, the Commission will propose to improve, simplify and further harmonise the 
in 
securities  markets 
euro-denominated debt instruments. This will include the design and implementation of a 
consolidated trading tape, in particular for corporate bond issuances - a central database, 
which aggregates the various post-trade data sources into a single view. A consolidated 
tape will ensure that more trading takes place on transparent regulated platforms, thereby 
increasing  market  depth  and  attractiveness  of  euro-denominated  securities  both  for 
issuers and investors. 

increase  secondary 

framework 

trading 

to 

Key  action  2:  The  Commission  will  further  support  the  development  of  euro-
denominated commodity derivatives for energy and raw materials and will facilitate the 
emergence of euro-denominated benchmark indices and trading venues covering core 
sectors, including nascent energy markets, such as hydrogen.  

EU issuance and outreach to third-country investors and issuers  

With  the  implementation  of  ‘Next  Generation  EU’  and  the  temporary  ‘Support  to 
mitigate Unemployment Risks in an Emergency (SURE)’, the EU will become one of the 
major debt issuers worldwide. The success of the first issuances for SURE demonstrated 
the demand of international investors for the bonds issued by the EU, not least due to its 
high credit quality27. The EU will issue close to  EUR 1 trillion28  of new debt  by 2026. 
Through these programmes, the Commission  will issue bonds with  different  maturities, 
including short-term securities. 

27   At  the  end  of  2020  the  EU  was  rated  by  the  major  CRAs  as  follows:  Fitch  Ratings:  AAA  (Outlook 
stable); Moody’s: Aaa (Outlook stable); S&P: AA (Outlook positive); DBRS: AAA (Outlook stable); 
Scope: AAA (Outlook stable). See European Union: Investor Presentation (December 2020) available 
at https://ec.europa.eu/info/strategy/eu-budget/eu-borrower/investor-relations_en. 

28   The  European  instrument  for  temporary  Support  to  mitigate  Unemployment  Risks  in  an  Emergency 
(SURE)  has  been  established  by  the  Union  to  help  Member  States  fight  the  negative  economic  and 
social consequences of the coronavirus outbreak on their territory. It can provide financial assistance 
up to EUR 100 billion in the form of loans from the EU to affected Member States to address sudden 
increases  in  public  expenditure  for  the  preservation  of  employment.  For  more  details,  see  Council 
Regulation  (EU)  2020/672  of  19  May  2020  on  the  establishment  of  a  European  instrument  for 
temporary support to mitigate unemployment risks in an emergency (SURE) following the COVID-19 
outbreak. 

The  European  Union  Recovery  Instrument  (‘Next  Generation  EU’)  is  a  EUR  750  billion  temporary 
recovery instrument to help repair the  immediate  economic and social damage brought  about by the 
coronavirus pandemic. It will provide funding for measures and actions to be carried out as outlined in 
the  European Union  Recovery Plan,  COM(2020) 456 ‘Europe's  moment:  Repair and Prepare for the 
Next Generation’.  The Council Regulation 2020/2094 envisages the allocation of: 

support  of  up  to  EUR  390  billion  in  2018  prices  in  the  form  of  non-repayable  support  and 

- 
repayable support through financial instruments and for provisioning for budgetary guarantees;  

up  to  EUR  360  billion  in  2018  prices  in  loans  to  Member  States  for  a  programme  financing 

- 
recovery and economic and social resilience via support to reforms and investments. 

8 

 
                                                 
Building  on  this,  high-level  contacts  will  be  organised  with  market  participants, 
especially  outside  the  EU,  to  promote  investments  in  euro-denominated  bonds.  Finally, 
the Commission will encourage EU institutions, public authorities, national promotional 
banks  and  multilateral  banks  to  maximise  the  use  of  the  euro  in  their  activities  and 
respective bond issuances.  

The  currency  of  denomination  of  investment  and  international  trade  invoicing  is 
primarily  a  market  choice,  driven  by  factors  including  the  stability  and  trust  in  the 
institutions, the size and depth of capital markets and integration in global value chains in 
international  trade.29  The  Commission  will  engage  in  dialogue  with  public  and  private 
partners in third countries to get a better understanding of the obstacles for a wider use of 
the euro in trade and financial relations and how to address them. Initiatives to foster the 
ability of Europe to speak with one voice on the international stage will help expand the 
euro’s global outreach. 

The  Commission  will  organise  targeted  macroeconomic  dialogues  and  workshops  with 
neighbourhood  countries,  with  a  special  focus  on  Eastern  Partnership  and  Southern 
Neighbourhood countries, given their geographical proximity and the importance of the 
EU to many of them as a trade partner, investor, and source of remittances and of macro-
financial  assistance.  Special  attention  will  also  be  given  to  contacts  with  the  private 
sector, since the barriers and opportunities to the use of the euro may be different in this 
case. The network of EU Delegations and cooperation with the European External Action 
Service (EEAS) will be important to that end. 

Key  action  3:  The  Commission  will  launch  outreach  to  promote  euro-denominated 
investments, facilitate the use of the euro as an invoicing and denomination currency 
and foster a better understanding of the obstacles for its wider use. This outreach will 
take the form of dialogues, workshops and surveys with the public and private sector, 
financial regulatory agencies, and institutional investors in regional and some global 
partner countries of the EU.  

The role of the euro in the ‘green’ transition  
The  European  Green  Deal30  charts  the  way  to  climate  neutrality  and  environmental 
sustainability in the EU. It includes a global dimension to promote the implementation of 
the  international  community's  commitments  under  the  Paris  Agreement.  The  EU  will 
need  to  mobilise  massive  investments  to  achieve  the  EU's  2030  energy  and  climate 
targets, and to become climate-neutral by 2050, as well as to achieve other Green Deal 
objectives,  such as protecting biodiversity and moving to  a circular economy. Together 
with  the  recovery  plan,  promoting  sustainable  finance  is  an  opportunity  to  develop  EU 
financial  markets  into  a  global  ‘green  finance’  hub,  bolstering  the  euro  as  the  default 
currency for the denomination of sustainable financial products. In 2019, almost half of 
all global green bond issuances, including those originating from outside the euro area, 
was denominated in euro31. This share is expected to grow, not least given the objective 
of having 30% of Next Generation EU investments funded by green bonds, which will be 

29   European Central Bank (June 2020), see above.  
30   COM(2019) 640, see above.  
31   See  ‘Unleashing the euro’s  untapped potential at global level’, speech by F. Panetta, Member of the 
Executive  Board  of  the  ECB,  Meeting  with  Members  of  the  European  Parliament.  Available  at 
https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp200707~3eebd4e721.en.html  

9 

 
                                                 
issued  against  eligible  expenditure  mainly  under  the  national  recovery  and  resilience 
plans  by  Member  States.  The  upcoming  EU  Green  Bond  Standard,  the  EU  sustainable 
finance  taxonomy  and  the  sustainable  finance  disclosure  and  reporting  obligations  will 
further support EU green investments.  

Moreover,  targeted  trading  platforms  for  euro-denominated  sustainable  financial 
instruments,  such  as  for  nascent  energy  markets  like  hydrogen,  should  be  further 
developed in the EU and beyond.  

With  the  EU  Emissions  Trading  System  (ETS),  the  EU  operates  the  world’s  largest 
carbon market, and its turnover and liquidity are steadily rising. The EU ETS has proven 
to  be  an  effective  market-based  tool  incentivising  cost-effective  emissions  reductions. 
Emissions from  entities covered by the  ETS  declined by  about  35% between 2005 and 
2019.  The  Commission  continues  to  strengthen  the  efficiency  and  resilience  of  the  EU 
ETS,  taking  into  account  developments  such  as  the  creation  of  the  Market  Stability 
Reserve.  The  Commission  continuously  monitors  developments  in  the  trading  of 
emission allowances, including the impact of the relevant ancillary activity exemption, in 
particular as part of the MiFID review by the end of 2021, to  ensure that ETS  markets 
meet the highest standards. The Commission expects that market participants will trade 
EU emission allowances under the EU’s regulatory and supervisory regime. The newly 
procured Common Auction Platform for emission allowances will, like the previous one, 
be located in the EU.  

In  June  2021,  the  Commission  will  present  legislative  proposals  to  meet  the  EU’s 
greenhouse  gas  emissions  reduction  target  of  at  least  55%  by  2030,  compared  to  1990 
(Fit for 55 package)32. Among these actions, the Commission will propose to expand the 
EU  ETS  so  as  to  include  emissions  from  maritime  transport.  Moreover,  it  considers 
expanding the use of emissions trading to emissions from buildings, road transport or all 
other  emissions  from  fossil  fuels  combustion  in  that  legal  proposal.  This  could 
significantly  increase  the  coverage  of  the  system  in  terms  of  sectors  and  greenhouse 
emissions. 

Key  action  4:  The  Commission  will  promote  the  use  of  green  bonds  as  tools  for  the 
financing  of  investments  and  projects  necessary  to  achieve  the  objectives  of  the 
European  Green  Deal.  The  Commission  aims  to  issue  30%  of  the  total  bonds  under 
Next Generation EU in the form of green bonds. 
Key action 5: The Commission will look for possibilities to expand the role of the EU 
ETS  to  maximize  its  environmental  outcome  and  will  support  further  ETS  trading 
activity in the EU. 

The euro in the digital era 

Boosting digital finance, while addressing related risks, will support the EU’s economic 
recovery and the broader economic transformation. Further development of the European 

32   COM(2020) 562, ‘Stepping up Europe’s 2030 climate ambition. Investing in a climate-neutral future 
for the benefit of our people’, Communication from the Commission to the European Parliament, the 
Council,  the  European  Economic  and  social  Committee  and  the  Committee  of  the  Regions; 
COM(2020) 690, ‘Commission Work Programme 2021. A Union of  vitality in a  world of  fragility’, 
Communication from the Commission to the European Parliament, the European Council, the Council, 
the European Economic and social Committee and the Committee of the Regions.  

10 

 
                                                 
digital  finance  sector  will  reinforce  the  EU’s  open  strategic  autonomy  in  financial 
services and the capacity to protect the EU’s financial stability and values. 

An  increasing  number  of  central  banks  in  the  world  are  examining  the  possibility  of 
introducing central bank digital currencies (CBDC). While banks already have access to 
central  bank  money  in  digital  form  through  their  reserves,  new  technology  opens  the 
possibility  of  a  retail  CBDC  that  would  be  directly  accessible  to  households  and 
businesses. The Commission and the ECB are pursuing their efforts towards ensuring a 
strong and vibrant European digital finance sector and a well-integrated payments sector 
to  respond  to  new  payment  needs  in  the  EU.  Taking  account  of  digitalisation,  rapid 
changes  in  the  payments  landscape  and  the  emergence  of  crypto-assets,  the  ECB  is 
exploring the possibility of issuing a digital euro, as a complement to cash and payment 
solutions supplied by the private sector. 

transactions 

In  October  2020,  the  ECB  published  the  report  of  the  Eurosystem’s  High-Level  Task 
Force  on  a  digital  euro33  and  launched  a  public  consultation.  The  latter  closed  on  12 
January  2021  and  registered  high  interest.  Among  its  potential  benefits,  a  digital  euro 
could  support  the  digitalisation  of  the  EU’s  economy  and  its  strategic  autonomy. 
Combined with private digital currency solutions, a digital euro could also partly mitigate 
the challenges from the observed decline in correspondent banking relationships in cross-
regulatory 
border 
expectations34, and changes in the way this service is provided. To reap the benefits of a 
public digital euro, it is also key to address any potential challenges for EU policies, such 
as those related to  financial intermediation  and stability, to  the  crowding out  of private 
sector  payment  solutions,  to  financial  inclusion,  to  Anti  Money  Laundering  and  to 
Counter Terrorism Financing, to data privacy, and to the conduct of monetary policy. On 
3 November 2020, the Eurogroup held  a first  strategic discussion on a digital  euro  and 
the potential economic, social and political consequences that such an innovation could 
entail. 

rationalisation  by  banks, 

from  cost 

resulting 

The Commission and ECB services will jointly review at technical level a broad range of 
policy, legal  and technical  questions emerging  from  a possible introduction of a digital 
euro, taking into account their respective mandates provided for in the EU Treaties. 

In parallel,  in  the context  of its Digital  Finance  Strategy35, the Commission proposed a 
new  regulation  on  markets  in  crypto-assets  (MiCA)36.  This  aims  to  ensure  that 
crypto-assets with a payment function, in particular ‘stablecoins’, do not raise issues for 
financial  stability,  monetary  policy,  monetary  policy  transmission  and  monetary 
sovereignty.  This  is  in  line  with  the  Communiqué  of  October  202037  of  G20  Finance 
Ministers  and  Central  Bank  Governors.  The  development  of  direct  payment  linkages 
between  the  EU  and  third  countries,  as  set  out  in  the  Commission’s  retail  payments 
strategy38,  will  also  mitigate  the  observed  decline  in  correspondent  banking.  As  agreed 

33   European Central Bank ‘Report on a digital euro‘, (October 2020).  
34   In particular in the area of anti-money laundering/combating the financing of terrorism (AML/CFT). 
35   COM(2020) 591, see above.  
36   Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-assets, 

and amending Directive (EU) 2019/1937 (COM(2020)593) 

37   For more information see: http://www.g20.utoronto.ca/2020/2020-g20-finance-1014.html  
38   COM(2020) 592, see above. 

11 

 
                                                 
by  the  G20,  no  'global  stablecoins'  should  start  operating  until  all  relevant  legal, 
regulatory and oversight requirements are addressed both through appropriate design and 
by adhering to applicable standards. 

Key action 6: The Commission and the ECB will jointly review a broad range of policy, 
legal and technical questions emerging from a possible introduction of a digital euro.  

4. 

INCREASING THE RESILIENCE OF EU FINANCIAL MARKET INFRASTRUCTURES AND 
RELATED CRITICAL SERVICE PROVIDERS 

The EU is open to global financial markets but it is ready to protect its interests. In this 
context,  equivalence  decisions  in  financial  services  are  mutually  beneficial  for  the  EU 
and  for  third  countries,  and  serve  the  EU’s  objective  to  promote  the  international 
integration of financial markets while preserving financial stability. The Commission has 
taken over 280 equivalence decisions for more than 30 countries. 

This  is  particularly  important  for  financial-market  infrastructures,  which  are  strategic 
nodes in  the financial  system. They serve as  gateways to  foreign  financial  markets  and 
their  openness  benefits  EU  businesses  and  investors,  and  must  be  managed  and 
supervised  in  accordance  with  high  standards,  building  on  works  by  international 
standard-setters.  Furthermore,  it  is  essential  that  the  provision  of  critical  functions  is 
preserved  during  crises.  It  is  a  key  interest  of  the  EU  to  develop  its  financial  market 
infrastructures  and  increase  their  resilience  so  as  to  avoid  reliance  on  the  provision  of 
such critical services from third-country jurisdictions. 

increasingly  pervasive, 

Strengthening market infrastructures’ operational resilience includes shielding the sector 
threats  and 
from 
vulnerabilities39.  The  Commission  has  recently  published  specific  proposals  40  that 
pursue a sustainable digitisation of EU economic and societal activities via high-level of 
digital operational resilience and security of the network and information systems that the 
EU depends upon. 

impactful  cybersecurity 

targeted  and 

Strengthening the resilience of financial-market infrastructures 

A  number  of  EU-based  financial  market  infrastructures  provide  global  depository  and 
messaging services. Their international operations make them subject to foreign laws and 
policies.  This  also  makes  them  vulnerable  to  disruptive  actions  by  third  countries, 
including  through  the  unlawful  extra-territorial  application  of  unilateral  sanctions.  It  is 
important  for  the  EU  to  preserve  the  global  reach  of  these  infrastructures,  while 
safeguarding the open strategic autonomy of the EU. 

39   ENISA  Threat  Landscape  -  2020,  available  at:  https://www.enisa.europa.eu/topics/threat-risk-

management/threats-and-trends.  

40   JOIN(2020) 18, ‘The EU's Cybersecurity Strategy for the Digital Decade’, Joint Communication from 
the European Commission and the High Representative of the Union for Foreign Affairs and Security 
Policy to the European Parliament and the Council. December 2020; COM(2020) 823, Proposal for a 
Directive  of  the  European  Parliament  and  of  the  Council  on  measures  for  a  high  common  level  of 
cybersecurity across the Union, repealing Directive (EU) 2016/1148 (‘NIS Directive’); Proposal for a 
Regulation  of  the  European  Parliament  and  of  the  Council  on  digital  operational  resilience  for  the 
financial sector (DORA) and amending Regulations (EC) No 1060/2009, (EU) No 648/2012, (EU) No 
600/2014 and (EU) No 909/2014. 

12 

 
                                                 
The  EU  should  develop  measures  to  shield  EU  operators  in  the  event  a  third  country 
compels  EU-based  financial-market  infrastructures  to  comply  with  its  unilaterally 
adopted sanctions,  or through other means that interfere with  legitimate EU operations. 
A first  step  would  be,  within  a  broader  EU  response  to  the  unlawful  extra-territorial 
application of unilateral sanctions by a third country affecting legitimate EU activities, to 
assess the vulnerabilities in a structured way through testing and developing the business 
models of the financial market infrastructures. A second step would be to develop tools 
to counteract the effects on EU operators of the unlawful extra-territorial application of 
unilateral measures by a third country. For example, where such third-country measures 
lead to unjustified exclusion from financial-market infrastructures or to a fine against an 
EU-based operator, the EU could counter this undue interference with the actions hereby 
proposed. Actions mentioned in Section 5 will also contribute to achieving this purpose. 

The  vast  amounts  of  euro-denominated  contracts  cleared  and  settled  by  central 
counterparties  outside  the  EU  also  raises  financial-stability  concerns  in  the  case  of  a 
future crisis requiring liquidity in euro or other Union currencies. Against this backdrop, 
the  recent  temporary  equivalence  decision  on  the  UK’s  framework  for  central 
counterparties  makes  clear  that  the  volume  of  current  exposures  of  Union  clearing 
members  towards  UK  Central  Counterparties  (CCPs)  entails  risks  for  the  financial 
stability  of  the  Union  and  for  the  transmission  and  conduct  of  the  Union’s  monetary 
policy. Therefore, there is a clear expectation that Union clearing members reduce their 
exposures  to  UK  CCPs  that  are  systemically  important  for  the  Union,  in  particular 
Over-the-Counter  (OTC)  derivative  exposures  that  are  denominated  in  euro  and  other 
Union  currencies.  In  addition,  the  recently  established  CCP  Supervisory  Committee  in 
the European Securities and Markets Authority (ESMA) will undertake a comprehensive 
review of the systemic importance of third-country CCPs and their clearing services and 
activities  in  the  Union41,  and  ESMA  will  take  any  appropriate  measures  to  address 
financial  stability  risks  in  accordance  with  the  European  Market  Infrastructure 
Regulation (EMIR42). 

EU  market  participants  need  to  reduce  their  excessive  exposures  to  systemic  CCPs  in 
third countries, and EU CCPs need to build up their clearing capability. Exposures will 
be  more  balanced  as  a  result,  to  the  benefit  of  financial  stability.  The  Commission, 
together with the ECB, the European Banking Authority (EBA) and European Securities 
and  Markets  Authority  (ESMA),  therefore  plans  to  work  with  the  industry  to  assess 
possible technical issues relating to the transfer of contracts denominated in euro or other 
EU currencies to central counterparties located in the EU with a view to facilitating such 
transfers. The impact on the real economy will also be considered. Recommendations are 
expected to be issued by mid-2021. 

Key  action  7:  The  Commission  will  engage  with  financial-market  infrastructure 
companies  to  carry  out  a  thorough  analysis  of  their  vulnerabilities  as  regards  the 
unlawful  extra-territorial  application  of  unilateral  sanctions  by  third  countries.  The 
Commission  intends  to  involve  the  ECB  and  the  relevant  European  Supervisory 
Authorities in this respect in line with their respective competencies. On that basis, the 

41  Regulation  (EU)  2019/2099  of  The  European  Parliament  and  of  the  Council  of  23  October  2019 
amending  Regulation  (EU)  No  648/2012  as  regards  the  procedures  and  authorities  involved  for  the 
authorisation of CCPs and requirements for the recognition of third-country CCPs. 

42   Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC 

derivatives, central counterparties and trade repositories.  

13 

 
                                                 
Commission will  assess the need for issuing related recommendations and contribute 
to the EU range of tools to prevent and effectively counter the undue interference with 
EU-based financial market infrastructures. 
Key  action  8:  The  Commission  will  establish  a  working  group  to  assess  possible 
technical issues relating to the transfer of financial contracts denominated in euro or 
other  EU  currencies  cleared  outside  the  EU  to  central  counterparties  located  in  the 
EU. 

Reducing  excessive  reliance  on  foreign  financial  institutions  and  on  funding  in  foreign 
currencies  

Overreliance  on  non-EU  banking  could  create  problems  in  times  of  financial  market 
disruption.  The  market  share  of  EU  investment  banks  has  been  falling  over  the  last  15 
years, both globally and in the EU. In times of financial crisis, non-EU banks may choose 
to  reduce  their  presence  in  the  EU  and  to  focus  on  their  domestic  market.  This  could 
hamper the access of EU companies and Member States to capital-market funding, risk 
management solutions or other financial services, and could compromise the liquidity or 
even solvency of EU financial counterparties.  

A related source of risk is the excessive reliance of EU banks on foreign exchange swap 
markets. In 2011 the ESRB43 already recommended that national supervisory authorities 
monitor  U.S.  dollar  funding  and  liquidity  and  that  EU  credit  institutions  provide  for 
contingency  funding plans. Since then, new liquidity requirements  for banks  have been 
introduced that also cover significant foreign currencies, and swap lines were agreed by 
the ECB with other central banks to provide U.S. dollar liquidity to the banking system 
and  the  economy  during  market  stress.  These  measures  have  eased  financial  stability 
concerns to some extent. 

Both  the  2008  financial  crisis  and  the  market  disruption  of  March  2020  provided  an 
illustration  for  these  risks44.  In  general  cross-border  financing  facilitates  the  flow  of 
credit through the world economy. However, cross-border flows become more volatile in 
a  crisis,  as  financial  institutions  tend  to  rush  to  refinance  their  positions,  increase  their 
liquidity  holdings  and  reduce  counterparty  credit  risk.  At  the  onset  of  the  COVID-19 
pandemic, given the U.S. dollar’s role as a global currency, the run to the dollar and U.S. 
repo  market  dislocation  made  it  increasingly  difficult  and  costly  for  non-U.S.  financial 
institutions to refinance their dollar operations. 

A  greater  use  of  the  euro  in  international  transactions,  increased  attractiveness  and 
opportunities  of  euro-denominated  investments,  and  emergence  and  consolidation  of 
euro-benchmarks  may  further  reduce  the  financial  vulnerabilities  of  businesses.  A  first 
step to address these concerns would be to study in more detail the reliance on non-EU 
financial  operators  and  funding  in  foreign  currencies,  relevant  drivers  and  the 
vulnerabilities for the EU financial system. The Commission will mandate the European 
Banking Authority to do a study on EU dependence on non-EU financial operators and 
banks’ dependence on funding in foreign currencies in 2021. 

43   ESRB Recommendation on US dollar denominated funding of credit institutions (ESRB/2011/2) 
44   ‘US  dollar  funding  tensions  and  central  bank  swap  lines  during  the  COVID-19  crisis’,  published  as 

part of the ECB Economic Bulletin, Issue 5/2020.  

14 

 
                                                 
Securing the flow of capital and financial services with third countries 

The  extra-territorial  application  of  unilateral  sanctions  by  third  countries  has  seriously 
affected the EU’s and its Member States’ ability to advance foreign policy objectives, to 
honour  international  agreements  and  to  manage  bilateral  relations  with  sanctioned 
countries.  At  times,  unilateral  actions  by  third  countries  have  compromised  legitimate 
trade  and  investment  of  EU  businesses  with  other  countries.  In  this  context,  Germany, 
France  and  the  UK  established,  with  technical  and  financial  support  from  the 
Commission services and the European External Action Service (EEAS), the Instrument 
in  Support  of  Trade  Exchanges  (INSTEX),  a  special-purpose  vehicle  to  facilitate 
payments for legitimate trade between the EU and Iran. The instrument was launched in 
January  2019,  and  five  other  Member  States  (Belgium,  Denmark,  Finland,  the 
Netherlands, and Sweden) and Norway have since joined as shareholders. 

The Commission, together with the High Representative of the Union for Foreign Affairs 
and Security Policy (‘High Representative’), will reflect on the most appropriate way to 
protect  the  EU’s  foreign  policy  and  strategic  interests,  as  well  as  EU  companies  and 
individuals,  from  the  effects  of  unlawful  extra-territorial  application  of  unilateral 
sanctions  adopted  by  third  countries.  As  part  of  this  discussion,  the  Commission  will 
explore,  in  close  coordination  with  the  EEAS,  options  to  ensure  the  uninterrupted  and 
secure flow of essential financial services between the EU and its trading partners and to 
shield  the  legitimate  operations  of  EU  operators,  in  full  compliance  with  multilateral 
international agreements and the EU’s own sanctions framework. In this context, ways to 
further improve effectiveness of instruments such as INSTEX will be explored. 

Key action 9: The Commission will explore ways to ensure the uninterrupted flow of 
essential financial services, including payments, with EU entities or persons targeted 
by the extra-territorial application of third-country unilateral sanctions. 

5.  STRENGTHENING THE IMPLEMENTATION AND ENFORCEMENT OF EU SANCTIONS  

EU  sanctions  are  a  key  instrument  used  to  promote  the  objectives  of  the  Common 
Foreign  and  Security  Policy  (CFSP),  through  which  the  EU  can  intervene,  notably 
to preserve peace and strengthen international  security. They thus  play  a critical  role in 
upholding the EU’s values and in projecting its influence internationally. A more robust 
and  rapid  implementation  and  enforcement  of  EU  sanctions,  as  well  as  a  protective 
policy against the unlawful extra-territorial  application to  EU operators of sanctions  by 
third countries, will benefit the EU’s openness, strength and resilience. 

The Council of the European Union, the High Representative and the Commission, have 
different,  complementary  prerogatives  regarding  the  design,  implementation,  and 
enforcement of EU sanctions45, in full respect of EU and international law. The Council 
decides  on  adopting,  renewing,  or  lifting  sanctions,  on  the  basis  of  proposals  from  the 
High  Representative.  The  Commission,  together  with  the  High  Representative,  gives 
effect to these decisions in EU law through joint proposals for Council regulations. In its 
role  as  guardian  of  the  Treaties,  the  Commission  oversees  the  implementation  of 
sanctions  by  Member  States  under  the  TFEU.  However,  implementation  is  not  as 

45   The Council of the European Union adopts EU sanctions by a decision taken at unanimity, pursuant to 
Article 29 of the Treaty on European Union, and a regulation adopted by qualified majority pursuant to 
Article 215 of the Treaty on the Functioning of the European Union. 

15 

 
                                                 
uniform across the EU as it ought to be. This creates distortions in the Single Market as 
EU  companies,  including  EU  subsidiaries  of  foreign  companies,  can  circumvent 
prohibitions.  This  also  creates  uncertainty  among  operators.  Inconsistent  enforcement 
undermines the efficacy of sanctions and the EU’s ability to speak with one voice.  

The full and uniform implementation of EU sanctions, together with additional efforts to 
counter the unlawful  extra-territorial application to EU operators of unilateral sanctions 
by third countries,  will further  enhance the EU’s strategic weight  by: (i)  increasing the 
EU’s  credibility  as  a  regulatory  power  and  (ii)  preserving  the  integrity  and  the  level 
playing field of the EU Single Market.  

Improving the design and implementation of EU sanctions 

EU  sanctions  must  be  targeted  to  achieve  the  EU’s  policy  goals,  while  avoiding  any 
unintended  consequences.  The  Commission,  as  the  institution  in  charge  of  monitoring 
and co-ordinating the implementation of EU sanctions under the TFEU, will from 2021 
contribute  to  the  assessment  of  the  effectiveness  of  EU  sanctions.  This  will  consist  of 
examining  the  economic  impact  of  sanctions  on  the  entities  subject  to  them,  on  trade 
patterns  between  the  EU  and  the  country  concerned,  on  EU  businesses  and  on  the 
provision of humanitarian aid. Based on this assessment, the Commission will coordinate 
with  the  High  Representative  to  propose  to  improve  the  effectiveness  of  EU  sanctions 
regulations. 

In  2021,  the  Commission  will  also  conduct  a  review  of  practices  that  circumvent  and 
undermine sanctions,  including the use of cryptocurrencies  and stablecoins.  The results 
of  this  will  inform  possible  legislative  proposals  or  implementation  guidelines  from 
2022.  

EU  sanctions  are  most  effective  when  information  about  their  impact  is  promptly 
available.  In  2021,  the  Commission  will  develop  a  database,  the  Sanctions  Information 
Exchange  Repository.  This  will  enable  prompt  reporting  and  exchange  of  information 
between Member States and the Commission on the implementation and enforcement of 
sanctions.  The  Commission  will  consider  obtaining  specialised  information,  including 
data  collected  by  EU  agencies  and  bodies.  The  Commission  will  work  in  coordination 
with the High Representative as appropriate. Moreover, the Commission will assess the 
need to review existing reporting obligations for Member States. 

In parallel to the adoption of this Communication, the Commission is setting up an expert 
group  of  representatives  of  Member  States  on  sanctions  and  extra-territoriality. 
Representatives of the European External Action Service shall be invited to assist to the 
meetings  of  the  Group.  The  group’s  mandate  will  cover  issues  related  to  the  technical 
implementation  of  EU  sanctions  and  of  Regulation  (EC)  No  2271/96  (Blocking 
Statute).46  In addition, the group will serve as  a forum to carry out further work on the 
EU’s  resilience  to  the  effects  of  the  unlawful  application  of  extra-territorial  unilateral 
sanctions adopted by third countries. Non-governmental organisations (NGOs) and civil 
society may be invited as appropriate to ensure that humanitarian aspects are to the fore. 

46   Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of the extra-
territorial application of legislation adopted by a third country, and actions based thereon or resulting 
therefrom. (OJ L 309, 29.11.1996, p. 1–6). 

16 

 
                                                 
Further  coordination  on  certain  cross-border  sanctions-related  matters  is  needed. 
Currently, Member States’ authorities that deal with requests for authorisation from EU 
businesses or humanitarian operators that are active in multiple Member States are often 
not  informed  of  parallel  requests  to,  or  decisions  issued  by,  other  national  authorities. 
This could result in the uncoordinated enforcement of EU sanctions and forum shopping. 
The  Commission  will  work  with  Member  States  to  set  up  a  system  to  centralise 
notifications  and  the  dissemination  of  information  across  Member  States,  and  to  help 
coordinate Member States’ replies, in full compliance with the division of competences 
in the treaties. 

The  Commission  will  also  discuss  the  implementation  of  EU  sanctions  with  Member 
States  to  ensure  a  harmonised  approach  in  this  regard.  Applicable  standards  and 
respective best practices could also be discussed in the expert group mentioned above. 

Finally,  the  EU  is  a  leading  provider  of  assistance  to  third  countries.  The  Commission 
will work with Member States and its international partners to further secure the highest 
levels  of  due  diligence  to  ensure  that  EU  funds  and  economic  resources,  including 
guarantees, are used in full compliance with EU sanctions The Commission stands ready 
to continue working with partners who need to increase capacity in this area.  

Key  action  10:  In  2021,  the  Commission  will  develop  a  database,  the  Sanctions 
Information  Exchange  Repository,  for  the  prompt  reporting  and  exchange  of 
information between Member States and the Commission on the implementation and 
enforcement of sanctions. 
Key action 11: In 2021, the Commission will work with Member States to establish a 
single  contact  point  for  enforcement  and  implementation  issues  which  have  cross-
border dimensions. 
Key  action  12:  The  Commission  will  continue  to  further  ensure  that  EU  funds  and 
economic  resources  provided  to  third  countries,  international  organisations  and 
international  financial  institutions  are  not  used  in  violation  of  EU  sanctions,  in 
particular,  by  continuing  to  agree  on  legally  binding  provisions  with  partners 
implementing  EU  funds  to  ensure  compliance,  and  by  following  up  on  their 
implementation. 

Supervising the harmonised enforcement of EU sanctions  

In its role of guardian of the treaties, the Commission monitors and collects information 
on possible breaches of EU law by Member States. To address the confidential nature of 
information on violations of EU sanctions and potential implications for those who report 
illicit  activities,  the  Commission  will  create  a  dedicated  tool  to  facilitate  anonymous 
reporting. 

In the first half of 2022, the Commission will draw up a roadmap (including criteria and a 
timetable) for moving from detection of systematic non-compliance with EU sanctions to 
action before the Court of Justice of the European Union. 

Finally, the Commission will work with Member States, including within the framework 
of the expert group on sanctions and extra-territoriality, to ensure that national penalties 
for breaching EU sanctions are effective, proportionate and dissuasive.  

Key action 13: The Commission will set up a dedicated system to allow for anonymous 
reporting of sanctions’ evasion, including whistleblowing. The system will provide the 

17 

 
necessary confidentiality guarantees.  

Strengthening existing tools to counter extra-territoriality and considering new ones 

Over recent  years,  certain third countries have increased their use of sanctions or  other 
regulatory  measures  to  determine  the  conduct  of  EU  operators,  whether  individuals  or 
companies.  The  EU  considers  that  the  extra-territorial  application  by  third  countries  of 
measures against EU operators is contrary to international law. These measures threaten 
the  integrity  of  the  Single  Market  and  the  EU’s  financial  systems,  reduces  the 
effectiveness  of  the  EU’s  foreign  policy  and  puts  strain  on  legitimate  trade  and 
investment in violation of basic principles of international law. 

Sustained  close  coordination  with  allies  and  like-minded  partners,  to  align  sanctions 
regimes  to  the  largest  possible  extent,  partly  prevents  the  adoption  of  third  country 
sanctions that differ in scope or substance to those of the EU and that are applied extra-
territorially  also  to  EU  operators.  Regular  dialogue  and  cooperation  on  sanctions  with 
third partners, in particular with G-7 partners, will be pursued by the High Representative 
and  the  Commission,  in  line  with  their  respective  competencies,  to  ensure  better 
alignment  of  decisions  on  sanctions  and  implementation  issues,  and  to  raise  potential 
concerns regarding the extraterritorial application of third countries’ sanctions. 

Key action 14: Strengthen cooperation on sanctions, in particular with G-7 partners. 

The  Blocking Statute is  the EU’s unified  response to  the extra-territorial  application of 
third countries’ measures, in particular secondary sanctions, on EU operators.47 To fulfil 
its  potential,  the  Blocking  Statute  must  be  part  of  a  more  comprehensive  EU  policy 
against  extra-territoriality,  for  which  the  Commission  will  put  in  place  the  following 
measures  to  make  a  better  use  of  existing  tools  and  create  new  tools,  as  appropriate, 
through:  
(i)  clearer  procedures  and  rules  for  applying  Article  6  (in  particular,  to  facilitate  the 

recovery of defendants’ assets across the EU); 

(ii)  strengthened national measures to block the recognition and enforcement of foreign 
decisions and judgments based on the listed extra-territorial measures (Article 4); 
(iii)  streamlined  processing  for  authorisation  requests  pursuant  to  Article  5,  second 

paragraph, including a review of the information requested; 

(iv)  possible  involvement  in  foreign  proceedings  to  support  EU  companies  and 

individuals. 

When  assessing  the  impact  of  foreign  direct  investments  into  the  EU  on  security  and 
public  order48,  the  Commission  will  also  consider  the  likelihood  that  the  transaction 
results  in  the  unlawful  extra-territorial  application  of  sanctions  adopted  by  any  third 
country  to  the  EU  target.  For  example,  when  reviewing  the  acquisition  of  control  over 

47   Its most important provisions nullify any effects in the EU of any judgment of a court or tribunal and 
of any decision of an administrative authority based on those extra-territorial sanctions (Art. 4); forbid 
EU  persons  from  complying  with  a  number  of  extra-territorial  sanctions,  unless  authorised  to  do  so 
(Art. 5); and allow EU persons to recover in court damages caused by those extra-territorial sanctions 
(“clawback” provision) (Art. 6). 

48   Regulation  (EU)  2019/452  of  the  European  Parliament  and  of  the  Council  of  19  March  2019 
establishing  a  framework  for  the  screening  of  foreign  direct  investments  into  the  Union  (OJ  L  79I, 
21.3.2019, p. 1–14) (the “FDI Screening Regulation”). 

18 

 
 
                                                 
EU companies by a foreign investor, the Commission may need to assess, in cooperation 
with  the  Member  States’  national  authorities,  whether  this  would  render  the  EU  target 
company  more  prone  to  abide  by  such  extra-territorial  sanctions,  regardless  of  the 
country that imposed them. Such an outcome could thereby endanger the capacity of the 
EU target company to maintain critical infrastructure in the EU, or to ensure security and 
continuity of supply of critical inputs into the EU.  

Historically,  the  Blocking  Statute  has  provided  for  a  unified  EU  response  to  the  extra-
territorial application of sanctions. However, the proliferation of such sanctions requires 
a deeper debate on possible additional measures to increase deterrence and, if needed, to 
counteract  them. The Commission  will launch a general  reflection on policy options to 
modernise  the  EU’s  toolkit  to  counter  the  effects  of  the  unlawful  extra-territorial 
application  of  third-country  unilateral  sanctions  to  EU  individuals  and  entities.  In 
addition  to  reflecting  on  an  amendment  to  reinforce  the  Blocking  Statute  focusing  on 
non-trade  related  measures  of  retorsion,  the  Commission  will  consider  further  tools  to 
shield EU operators’ legitimate operations under EU law. Stakeholders will be involved 
as appropriate. 

In parallel, the Commission is carrying out a review of its trade policy49 and will bring 
forward  a  proposal  to  deter  and  counteract  coercive  actions  by  third  countries  no  later 
than the fourth quarter of 2021 (or earlier should the need arise)50. 

Key action 15: The Commission will consider additional policy options to further deter 
and  counteract  the  unlawful  extra-territorial  application  of  unilateral  sanctions  by 
third  countries to EU operators, including a possible amendment of Regulation (EC) 
No 2271/96. 

6.  CONCLUSION 

The  Commission  is  taking  a  consistent  set  of  actions  to  strengthen  the  EU’s  open 
strategic  autonomy  to  increase  its  capacity  to  promote  and  defend  rules-based 
multilateralism  and develop  mutually beneficial  bilateral  relationships,  while protecting 
itself from unfair and abusive practices. 

The  Commission  will  pursue  all  the  above-mentioned  actions  in  order  to  increase  the 
resilience of the EU economy and financial market infrastructures. The Commission will 
reach out to third-country partners to promote the use of the euro, foster the euro’s status 
as  an  international  reference  currency  in  the  trade,  energy  and  commodities  sectors, 
strengthen  the  implementation  and  enforcement  of  EU  sanctions  and  protect  EU 
operators against the unlawful extra-territorial application of third-country measures. 

These areas of  action are interrelated and complementary, and success  in strengthening 
the  EU’s  position  in  these  areas  will  depend  on  many  public  and  private  stakeholders, 

49   A renewed trade policy for a stronger Europe, Consultation Note of 16 June 2020.  
Available at https://trade.ec.europa.eu/doclib/docs/2020/june/tradoc_158779.pdf 

50   Letter  of  Intent  to  President  David  Maria  Sassoli  and  to  Chancellor  Angela  Merkel,  16 September 

2020, available at: 
https://ec.europa.eu/info/sites/info/files/state_of_the_union_2020_letter_of_intent_en.pdf. 
See also Commission Work Programme 2021, available at: 
https://ec.europa.eu/info/publications/2021-commission-work-programme-key-documents_en 

19 

 
                                                 
most  importantly  the  European  Parliament,  the  Council  of  the  EU,  and  the  ECB.  The 
Commission  calls  upon  all  these  actors  to  join  in  this  strategy  for  the  benefit  of  the 
Union’s effectiveness  on the world  stage and its economy  and financial sector at  large. 
The  Commission  will  monitor  these  actions  on  an  ongoing  basis,  and  in  2023,  it  will 
review the state of implementation results obtained. 

20