speech united we stand : european integration as a response to global fragmentation speech by fabio panetta, member of the executive board of the ecb, at an event on “ integration, multilateralism and sovereignty : building a europe fit for new global dynamics ” organised by bruegel brussels, 24 april 2023 recent developments have raised the question of how geopolitics will affect global economic relations in the 21st century. history suggests that the world is facing a trilemma, whereby peace, open trade and antagonistic political competition struggle to coexist. open trade and peace can only be sustained if a stable political, economic and legal international order supported by common institutions offers a non - conflictual and enforceable way of dealing with disagreements. this lesson was the basis for the creation of multilateral international institutions and european integration after the second world war. they supported trade integration and facilitated access to capital, labour, natural resources and technology. but in recent years severe geopolitical tensions have emerged, posing a threat to both peace and trade, and in turn to prosperity. these tensions increase the risks of multiple supply shocks destabilising prices and the economy, making it more difficult for central banks to deliver on their mandates. in this context, technology is taking on a crucial role. it remains a key driver of trade, notably in services. it offers an antidote to the effects of a possible reversal of globalisation by making it possible to use scarcer resources more effectively and reduce dependencies. and it supports growth by generating productivity gains. but it may exacerbate political competition as major powers strive for technological dominance. today, i will argue that closer european integration is the best response to global fragmentation. it provides us with the necessary foundation and scale to bolster our resilience to this fragmentation and our influence on international developments. i will start by discussing the link between globalisation and the eu ’ s economic model. i will then turn to economic fragmentation and the changing nature of globalisation, emphasising the implications for the economy and monetary policy in europe. and i will consider how the eu can pursue openness while preparing for fragmentation scenarios. globalisation and the eu ’ s economic model in the aftermath of the second world war, global trade integration underpinned by multilateral institutions aimed to reduce the risk of conflict. the general agreement on tariffs and trade ( gatt ) [ 3 ], signed in 1948, sought to liberalise trade and correct the protectionist measures that

months, which had nothing to do with the economic cycle. the second reason concerns final demand, namely, that both private and public consumption as well as exports were up on the half of the year. and third, a range of other indicators leads to a somewhat more positive assessment of the economy. nevertheless, capacity utilisation remains unsatisfactory, and demand for labour muted, with the seasonally adjusted unemployment rate having edged up from 3. 3 % to 3. 4 % since the last monetary policy assessment. as many companies have had to reduce prices considerably, margins remain a major source of concern. recent months have seen numerous measures aimed at cutting production costs and increasing efficiency. according to the latest survey conducted by the snb delegates for regional economic relations, these measures are now beginning to take effect. furthermore, rallying demand is likely to help ease pressure on margins in the coming months. we continue to expect a slow improvement of the economy. our forecast for real growth in 2015 is unchanged at just under 1 %. the global economy is likely to gather pace gradually over the course of 2016, and this should strengthen foreign demand for swiss goods and services. domestic demand is also likely to remain robust. for 2016 as a whole, we expect growth of approximately 1. 5 %. interest rates, exchange rates and inflation expectations i will now review changes in monetary conditions and inflation expectations since the beginning of the year. when we discontinued the minimum exchange rate in january, the monetary policies of the major currency areas were set to diverge, and we were aware that this would have significant consequences for international monetary relations. this is exactly what came to pass, and is bis central bankers ’ speeches clearly reflected in the exchange rate path of the swiss franc against various currencies. while the swiss franc / us dollar exchange rate is now virtually the same as it was at the end of 2014, the swiss franc has appreciated 10 % against the euro since the beginning of the year. the export - weighted swiss franc exchange rate is about 8 % higher than it was in january, having gained approximately 20 % at times in the interim. in january, concurrently with the discontinuation of the minimum exchange rate, we lowered the interest rate on sight deposits to – 0. 75 %. the interest rate differential with other currencies, which had narrowed considerably due to declining interest rates abroad, again expanded significantly following this decision. even after the ecb ’ s mild interest rate cut,