erves on banks balance sheet. Banks balance sheet only because as Yeming mentioned at the very end, these reserves, no matter who is the final counterpart in the asset purchases by the central bank, have to stay and have to be held on banks balance sheet. And under some circumstances, this means that QE translates to an expansion of the balance sheet of banks. So the question that Yeming and Ercohto are asking this paper is whether this increase in the supply of reserve is actually having an effect on other banks' decision, in particular about the decision of banks of providing loans, mortgages and raising deposit. And they have a very top provoking funding that actually increase in the reserve supply during the 2008, 2007 period crowded out bank lending. So what they show is that for every dollar of reserve that was injected, there was a 19 cent reduction in bank loans. And they call this the reserve supply channel as Yeming mentioned several times, this is not capturing the overall effect of QE, likely for us, but it's rather showing a counter effect or a force that is counterweighting the stimuli impact of QE. And if you think about the overall amount of reserves that were injected, this is not a small number, so it's a very sizable effect. So what's the idea, what's the mechanism behind the emergence of this reserve supply channel? So the idea is that the injection of reserves and the expansion of balance sheet that comes with it is actually changing the cost of providing other banking services, loans, mortgages and also deposit. And in principle, this effect will go either way. Reserves are a very safe and liquid asset, so banks with more reserves are banks that are better prepared to face, for example, liquidity shock, and so this should give them the ability to lend more, the ability and willingness to lend more. But the effect that Yeming and Erco to show is that it goes the other way around. So you have more reserves and somehow this increased the cost of providing other services, so in particularly loans, and so the overall effect is the one that I mentioned at the beginning, so that there's a crowding out of bank loans due to the increase in reserves. So I know that this doesn't really do justice to the paper and the authors and the great work that they put into their estimation, and I think Yeming did a great job summarizing the estimation strategy of what they do. So they build a structural model of the amount and supply of loans and other banking service, and they estimate this model through instrumental variables. And it's really a challenging task and I think they tackle very, very well with a very sophisticated estimation strategy which she went through in her presentation. So and as I said already at the beginning, this is a very interesting and policy relevant paper. So and potentially present a controversial result because as I said, this is something that I think no one in the central bank was expecting or paid too much attention to and there's some Fed colleague who actually in a very different setting prove a sort of a opposite result so that actually this accumulation of reserve led to an increase in bank loans. So what I will try to do in my discussion is not to go through the estimation strategy but rather try to focus on the mechanism behind the result and try to understand better why an increase in reserve and banks balance sheet is leading to a reduction in bank loans. So try to understand under which circumstances we should be worried about these reserve supply channel of QE and one instead we can dream and sleep better. So let me sort of do like a sort of list of basic ingredient that you need to get these reserve supply channel to emerge. So first of all you need that the banks are not the ultimate seller in the of asset that are purchased by the central bank. So this is for example was it's very different across the US and Europe where for example for treasury sovereign bonds, those in Europe were mostly held on banks balance sheet that were the ultimate seller. And because if banks are the ultimate seller essentially there's only a swap between treasuries and reserves which are very similar asset with very similar properties so there's not an expansion in banks balance sheet and this is an ingredient that is absolutely needed to have this reserve channel at play. And the second ingredient that you need is that there's some sort of constraint as Heeming pointed out that the bank are facing and this constraint must be a constraint that really binds for a bank and also you need the reserves and loan centers into this constraint as a substitute. So if you increase the amount of reserves you make the banks to be closer to the point in which the constraint binds or is no longer satisfied and then you have to reduce something else on the balance sheet or changing something else on the balance sheet for the constraint to be satisfied again. So this is what captured this substitution between reserves and loans and the existence of this constraint is what actually is the driving force behind the fact that holding more reserves makes actually lending more costly. So what this constraint could be? So Heeming mentioned at the very beginning of our presentation a leverage constraint and in the paper they also mentioned they have a policy implications section at the very end of the paper in which they discuss what could be the source of this cost. And so let's think together about what the constraint that banks might be facing. So hardly this is a risk weighted or a liquidity constraint because reserves and loans do not enter as a substitute in this constraint. Reserves carry no risk weight and reserves are actually there to improve your liquidity position so they are not treated the same way as loans in those constraints. So as Heeming mentioned what potential candidate or a suspect could be the leverage requirement or the supplementary leverage requirement which as she mentioned was reserved for the different treatment during COVID both in the US and in Europe. And the Bank of England already in 2016 excluded reserves from the computation of the supplementary leverage requirement. But so my point about this constraint is that it's there but entering to force in the US only in 2018 as a requirement. Of course banks knew already about this constraint it was a rule already in 2014 and they're probably or most likely front loaded. So this constraint might be a candidate. And what I think is that the sample period that they have that goes from 2001 to 2017 is really an exciting time for someone that is interested in bank regulation because this is the time in which we had the crisis then we had basal three regulation and then the proposal and then implementation and entering to force of the values requirement. So they have a very long samples sample time. So and then I was wondering whether it will be possible to sort of zoom in or separate or zoom in on some shorter time period where I don't know regulation entered to force or also to try to understand which one of these but regulatory constraint might be the one that is actually driving the result. Also because if you think of banks before the crisis and right after the crisis and nowadays or so closer to the end of your sample period the ability of banks to satisfy constraint were very different. So if I was checking for with European data so now the average European bank has an SLR of 5.2% the requirement is only three. So they are way above the constraint which means that this is no longer binding and I wonder when this happened. So I think zooming in in the shorter time period could have give a better idea of which one of this constraint if it's really a regulatory constraint that is binding or is something else. I think this is the other point that I wanted to make is that I is about a balance sheet expansion. So and the asset purchases is described in the US. Banks were not the ultimate counter party in the purchase of assets. They were acting as intermediaries with non banks and I think you have very convincing data on this and you mentioned this at the very beginning of the paper and also in the policy discussion. So what happens essentially if we look at the banks balance sheet was on the asset side we saw an increase of reserves and we saw something else also moving on the liability side of the banks balance sheet which was an increase in deposit. And I didn't put the wonderful asset metrics that you have but deposit and reserves actually have not changed the marginal cost of lending in an opposite direction. So if you have one euro more of deposit you actually reduce the marginal cost of lending. If you have one euro more of reserves you actually increase the marginal cost of lending. Of course the magnitude of the two effect is not the same but it's quite close. So I was wondering whether the exercise in the counter factual which simulated injection of reserves only but without thinking much about how this injection or expansion of reserve on the asset side is funded on the liability side whether it is saying anything to us in terms of the magnitude of the effect. I don't think it will change the direction but you might say something about the magnitude. And also I mean the other point that I wanted to make is that looking at the liability side I know this is my bias, personal bias of always looking at the liability side but there are very different type of deposit and the one that banks were they were backing up the increase in reserves were mostly wholesale funding. So something that is extremely roundable unstable which is not really something that goes in the direction of pushing up your incentive to lend. So this might also be a force that is at play that is a consequence of the increase in reserves and of all the points that you are making about banks not being intermediary in these QE asset purchases and that could be an interesting angle to explore. Let me skip the smaller comments because I think we can discuss separately among the two of us. So let me just summarize. I really enjoyed reading this paper. So I think I was in the office reading it in the last few days and I think all my comments were, oh my God, really? Oh really, I really want to know more. So and you start really from the abstract where you want to, you think that is super, something that is super interesting and I don't think it's just because I'm in a policy institution who did QE but it's really because it's a very well-written paper, very interesting, very careful analysis. And I think there are some avenues in which maybe not even for this paper but for some future work in which one can deepen the discussion about the underlying mechanism behind the result. And for example, explore this interaction in more details between QE, so monetary policy, and regulation. I think that will be really interesting to do and will also give the possibility to derive more, to strengthen the policy implication of the paper all together. So with this, I stop here. Thank you. Thank you, Agnes. So for those of you who are listening online, you can submit your questions via Slido and before I return back to Ye-Ming, those of you are on site here, just raise your hand if you want to ask a question. So Ye-Ming, do you want to first reply to Agnes? Yes, thank you so much. I think that's the most important thing for such a thoughtful and kind discussion. I just want to quickly touch base on two things. I think we need to discuss much more on some of the deeper comments. Maybe let me start from the end and just let's think a bit about the accounting. So I think as you correctly point out, at least at the very beginning, when there is an injection in reserves through the perch of securities and if these securities are originally held in the non-bank sector, the expansion on the bank's asset side in terms of reserves, the commercial bank's asset side in terms of reserves is automatically matched by an expansion in its liabilities, most likely deposits. It has to be just for things to be balanced, that some things got balanced on the liability side. And that should be one-to-one in its immediate mechanical effect. However, that does not mean that that amount of expanded deposits is there to stay, right? After the fact has occurred, the bank should equilibrate. It's gonna look at, okay, this is how large my balance sheet now is, this is how much I want it to be or how much I can afford it to be. How do I adjust? It goes on my asset and liability side to let's say a new equilibrium, right? In which I no longer am obliged to hold on to all the deposits that initially expanded. And I think what we want to understand is the world that has equilibrated rather than the very initial world, right after the injection where I fully agree that it's like a one-to-one expansion in deposits. Now, as that said, it should still be that in the equilibrium adjusted world that could be a simultaneous expansion in deposits. And that's something we definitely could think about running, right, where we basically run a counterfactual with a simultaneous increase in reserves and an increase in deposits. And I fully agree that the liability side matters. And actually, I think you pointed it out that Viral and Raghu, actually, they agreed with your point. So they wrote a very recent paper. You should all take a look at it if you haven't. But they basically look at the liability side, potential side effects on the liability side, where they argue that larger reserves could actually increase, let's say, instability through exacerbating the possibility front. So definitely in the liability side, side effects may also be very important. And so far, we focused mostly on the asset side. Yes, also in terms of regulation, I agree, I think we're a little bound by how many parameters we can estimate. We can definitely try to have, let's say, time-specific coefficients that then can better understand over what time period, what regulations were at play and how large were these constraints at affecting lending. But we will need to try a bit to see how much flexibility the data gives us and how much power we have is the estimation. But once again, thank you so much. There's one question here in the back, Morten. Yeah, I was wondering about them. So the result, you find that the elasticity is much higher for the loans. One interpretation of that would be that this is very costly, because then the corporate sector, they can invest less. But I guess the other one is that large firms, they have very close substitutes, issue equity or corporate bonds and so on. So therefore the cost actually may be very small. So it seems to be important to figure out what happens on the corporate side. That's very much true. So I think what we can say is that there is less, fewer loans that the banks are able to finance. But it would also be important to understand is that really a drop in the total amount of borrowing or is it substituting a way to cap to markets? Perhaps one way to understand the current results is to say that there could be some substitution and especially for the largest firms, I think probably the substitution will be very good.  If you're more credit constrained, that means you're gonna be especially affected if banks are constrained from injection reserves. But I fully agree. Ideally we have a bigger model that also has a capital market involved. Next question, here in the middle, on your left. Great paper, so I don't know if you can look at this in the data, but you can possibly argue that reserve requirements force banks to drop the riskier loans, which are actually bad. They shouldn't have been made in the first place, but banks were doing restricting behavior, at least I guess during the financial crisis you can maybe argue for that. And that was the loans that dropped and that was actually the purpose of QE. So of course I'm playing the devil here. But so is there any way for you to look at something about the quality or risk of the loans that were dropped? That's a very good point as well. I guess there's the deeper philosophical point as in do we want a very safe banking sector which would be probably like a narrow bank or do we care about like liquidity transformation and lending that the banking sector performs? I guess there's a sweet spot in between that banks should take, let's say positive MPV projects and rather than finance a lot of zombies. The counterfactual currently cannot do this because we would have to model quality in inside the supply side. But we should be able to look at the, let's say the data around that time and just to see corresponding to the same time period because we do have granular loan level data, what types of firms are likely to lose their financing and probably that can get to that. Thank you. Next question, Peter here in the middle. I liked a lot. So the paper, one question is have you clarified what kind of assumptions you need to go from kind of analysis coming from local shocks to kind of general equilibrium effects that you kind of get to. So these elasticity's potentially are different. Yes, absolutely. So the assumption would be that the regions of the demand curves we have estimated and the regions of the cost functions we have estimated in response to local disaster shocks and in response to deposit growth from a bar tick shock are representative of the ones with a large injection in reserves. And of course that is not exactly true. Like we have a much larger magnitude, let's say of response that we have in the counterfactual than we have for an average deposit or loan market with the average shock that we experience. But with these shocks, we do have quite some variation. There are some very small shocks. Like you have a lot of rainfall locally and you do have a very small loss. But it is true that this data said it also has things like Hurricane Katrina, like very large scale events that led to very large losses in the local economy. And there for those types of shocks, we do see a much larger region of the, let's say of the parameter space being used to estimate the coefficients. But it is the assumption that yes, the response of the shocks that we use are able to predict, are able to represent what we would observe following a system wide reserve injection. Next question on the way in the back. You mean, thanks for the great presentation. I was wondering about how you interpret the securities market in the context of your model. The reason is that it seems to me there is a marginal cost for banks of intermediating basically between the non-banks and the central bank in terms of balance sheet cost. But the bank seems to pass through this balance sheet cost to borrow us instead of the non-banks. So you could think of a market where because the banks have the power basically to do QE, they pass through the balance sheet cost to the non-banks instead of the borrowers as in your setting. That's a very interesting way to think about it. I think perhaps by reviewed preference, the fact that we observe what we observe meant that they were unable to pass through everything to the non-banks. From some other work, my personal take is that they do have quite considerable amounts of market power over non-banks, but perhaps it's present but incomplete. Next question. Okay, then let me look at the slide. So there's one question on the way you separate out demand and supply. So you use natural disasters to capture local demand. So also for sort of a European audience, could you elaborate a little bit more to what extent banking in the US is truly local? Because here we think often you have these large banks that are basically active in different markets. That's a great question. I think it's not purely local for sure. I think what probably is more local is if a disaster hits a region, it's the housing, it's the infrastructure in that place. It's the residential homes, all those things that need to be rebuilt. So I think that definitely is very local. Now, the assumption would have to be that it's those borrowers and those depositors that they go primarily to local banks in that county for which we would have the disproportionate effect. So if they do also go to other banks in other counties, that is something we would have to net out. So I think what we use here, you can think of, this is the relative increase in exposure of the local bank branch due to local disasters. And this is going to be a larger effect. The more locally oriented the banking sector is. So I guess if you're taking another economy for banks that are even more local, probably this kind of shock is going to be even a better instrument at generating the variation. It would not be useful in a world in which there are no local markets at all and that everyone, no matter where they are, can go to any bank branch and has a similar propensity to go to any bank branch equally. Thank you. Next question is, so you abstract from loan maturity in your setup. So a very loan contract is the same maturity. And so one question would be if one were to model some sort of term premium, at least in this house we've been saying one of the effects through which QE reaches different parts of the economy is also by extracting duration and it should in principle compress this term spread. So if we think of your model, you would have two different loans with different maturity. Would that be another channel that would be worth looking at? Would it probably go in the opposite direction? Right, I think it's an interesting heterogeneity, I think because I guess there should be two differences, I think depending on the maturity of the loan. One is exactly as the one you said, if QE's goal is to flatten the yield curve, then longer maturity loans may be benefiting more on the asset side, let's say. But it should also be the case, I guess longer maturity loans, they have a different duration risk, they have different considerations from the bank supply side. That also could affect how the cost function differs, the cost function parameters differs for these two types of loans. So there will likely be very interesting interactions there. We can try to separate those out. We do observe the maturities at issuance at least that were extended for these loans. Thank you for the suggestion. Okay, my last question is stealing from Agnes' discussion. If I sort of push the rational that you provided in terms of comparing the US and Europe, so to the extent that these banks are also sellers of securities, Agnes was stipulating if I could be smaller, so is that something you would agree with that if you were to run this type of estimates for Europe, would you expect because of this to find smaller effects? I think literally, or let's say, first, the mechanical effect, yes, right? So if you think x anti or else equal, there are some banks who hold more of the securities that the central bank is buying relative to a banking sector that holds less, yes. There's definitely, the second one would respond by more given the channel I'm proposing. But I think, I guess it's important also to ask why a certain banking system is holding more of a certain security in the first place. And if there's any anticipation effect that perhaps these are the things that the central bank going forward is more likely to buy that contribute it to a larger holding of certain type of securities, then I would just argue maybe that's just the intermediate step of the channel you're proposing, because remember, the intermediate step has to be that the banks, I guess, are first buying it from their clients, asset managers, and then they're offloading it to the central bank, right, so there's exist a very short period in time, at least in the US most often, the banks are holding these things on balance sheets. And then perhaps that is a different timeframe, a different type of equilibrium that we see in Europe, but I think yes and no depending on what the ex ante expectations and incentives were for holding securities in the first place. Good, well, when I hear yes and no, I think more research is needed, so. Well, thank you so much, Erving, and of course, so many years for making this an interesting session. Thank you so much. Welcome back to the ECB's annual research conference. It's a tremendous pleasure to introduce Professor Jean-Tirol to you. He's Professor of Economics at Toulouse School of Economics and the 2014 Nobel Prize winner in economic sciences. He's by far the most cited European economist alive, and an entire generation of economists has grown up with his papers and textbooks on industrial organization. When I asked the students and colleagues how best to describe Jean, the first words that came to mind are intellectual, inquisitive, hardworking, and above all, down to earth. It is indeed quite telling that Jean was the first to send in his presentation for today's event. Professor Tirol will be delivering the Jean-Monet lecture. The goal of this lecture series here at the ECB is to debate topics of relevance to strengthening European Monetary Union. This lecture is named in honor of another Jean, Jean-Monet, one of the founding fathers of the European Union, and he was a French businessman, a diplomat, and he drafted the declaration which led to the creation of the European Coal and Steel Community, which was the precursor to the European Economic Community. And then he went on to be its first president. At the ECB, we admire Professor Tirol for his tireless efforts to put his prolific research at the service of the European common good. His applied work on the prudential regulation of banks, competition policy, or financial crisis has been highly influential in these circles. Today, Professor Tirol will talk about regulation and competition policy, or not, in the technology sector. Professor Tirol will speak for about 40 minutes followed by Q&A. You can, as before, supply your questions via Slido, or if you're here in the audience with us simply raise your hands. Professor Tirol, please join me. The floor is yours. Thank you so much, Luke, for those very, very kind words, and it's a great honor to be here, be back here and give this Jean-Marie lecture. You may be a little bit surprised. I mean, look at the surprise for you with the title of this lecture, which is not the usual Central Bank lecture, I would say. And don't worry, the European Central Bank is not engaging in mission creep, market risk-taker still has a job. But this digital economy is everywhere. So even so, that kind of stuff may not be what a number of you work about every day. It has an interface, as you will see, with some of the central banking stuff. So the outline will be not all the challenges which are raised by digital revolution in AI, the impact on labor, health, privacy, politics, and the like. This will be too much.  Most of the lecture will be about competition policy, which is at the crossroad. I think, I guess, most of us that we don't have a choice between laissez-faire and just some populist intervention. There are more interesting things to do. But we have to address this new winner-takes-all world. So I will be talking about that. I won't be talking about industrial policy because I won't have time, but if you want to raise it during question, it's fine. And I will have a shorter time, which is, of course, maybe a little bit closer to interest on FinTech, CBDC, Sprite Money, and give some personal views. So, of course, competition policy is not new. There has been a, it was around in the late 19th century, but there is more and more concern because we have seen an increase in the markups. And as a whole, we are not fans of monopolies. They charge high prices. They don't innovate that much, on average, because they are afraid of cannibalizing their own products. They engage in lobbying to keep their monopoly position and the like. Now, when I grew up as an economist, things were simple because you had a regulation on one side. So telecoms, electricity, railroads, gas, and the like. And you had a regulator of those network industries. And then competition policy was for the rest. You know, basically, industrial policy was kind of a source of shame for the rest of the family. Technologies has changed a little bit with the rise of multi-sided platforms. The challenger institution, and they have blurred the lines between industrial regulation and antitrust. And those platforms, in a sense, resemble public utilities. They are different, we'll discuss that. But they have very large investment costs. They have network externalities, and they have very low, actually, often zero marginal cost. They have very high prices. I mean, often the Gaffas, you know, the Amazon and Google and Facebook and so on of this world, they say, oh, look, the prices are very low. Actually, they are zero. Most prices for the consumers are equal to zero. We have all those great services for free. This is a wrong argument because there are two sides. And of course, Google and Facebook and the others will charge a lot of money to advertisers for targeted advertising. They will charge a lot of money to the merchants. You may be paying 15% to Amazon or 20% to booking, 25% on the app stores and the like. So it's actually a lot of money. And of course, this raises the cost of doing business. That means that the consumers, in some way, are going to pay for it. So look at this slide. It's both extremely naive, but also it looks complex. So basically, what you have in the middle is a platform. And it has different names. I'm going to use different names, but in Europe, it's called a core service. Or in Antitrust, it's called an essential facility or bottleneck. And there are lots of different names. And this platform is basically interacting with two sides of the market. On one side, there are the consumers, you and me. On the other side, there are apps or merchants who want to sell on those platforms. The merchants or the apps may be in-house, so they may belong to a platform or they may be third-party apps or merchants. So there is this balancing act that we have studied in the last 20 years on where the platform is trying to bring both consumer and merchants on board. Now, you have three different kinds of questions in this economy. One we are not going to discuss our very little discussion of is whether there are behavioral manipulations and wrong information given to the consumers. The other two we are going to discuss. One is whether this monopoly platform, which is at the center of the system, think about Google search engine or Facebook social network or the Amazon or Apple marketplace. Can it be contested in some way? Cooler, more efficient Google or more efficient Facebook come in and take over the market. That's called contestability. And if you look at merchants or apps, there is a question about whether third-party apps or merchants are actually fairly compensated and they get a fair access to the platform. It's not quite the same. The fair access to the platform is you compare the terms and conditions for a third-party app or merchant with an in-house one. And the European Union has been very active and also have lots of disagreements. I think it's great and I think I applaud it. I put in green here the kind of laws and regulations which have been put forward. The one we are going to focus is the DMA, the Digital Market Act, which has to do with market power and the issues of contestability and fair access.  I mean, after all, I told you that those platforms, they look very much like old-style public utilities, telecoms, railroads and so on, large fixed costs, network externalities and low marginal costs. And that's why you have a winner-take-all situation. Now, you cannot, you just cannot regulate the Google and Facebook or Apple or Amazon the way you regulated telecoms and railroads and electricity companies for two reasons, at least two reasons. The first reason is that those firms are global firms. Now, all the other ones I gave you were always national firms, so that means that you had one regulator and this regulator had very good information about what was going on within the firm. Now, Google and Facebook are all over the world, okay? And that raises the issue about having the good data about the firm, but also who is going to be in charge of providing those firms with a fair rate of return, okay? So, we don't know how to do that. The other issue is that those firms are not followed along their life cycle. So, sure you see that Google is making a lot of money right now, but we were not monitoring Google when Google started up. And if you wanted to set a fair rate of return on Google, you'd have to factor in how much Google spent, but also what was the probability that Google will become Google, right? Because there are a lot of wannabe Googles, even now actually. And finally, it's a cat and mouse game, regulation.  It's always difficult to catch the ones you are monitoring, and if things change very fast, and that's the case of tech, just like it's the case in banking, it's very hard actually to regulate. Okay, let me maybe skip, there's a very interesting piece of legislation in Europe about curating content. That's more on the consumer side, and try to make sure that those platforms actually don't have too much illegal content, fake news, defective products. They don't try to exploit our weaknesses, our cognitive weaknesses, for example, and that they have recommender systems like Google and Amazon, which hopefully will serve the consumer. Now, this is not to be taken for granted because since 1996, basically, there's been no liability of those firms for illegal content, defective product, fake news, and the like. So this is changing, but we have to invent a new regulation for that. So let me start with fairness. And one of the things with fairness, I mean, as I mentioned, there are two dimensions for fairness. One is whether the platform charges too much to the business units for access to the platform. The other one is whether there is a level playing field between in-house merchants and third-party merchants. And that brings to the notion of hybrid platform or competition. So if you look at the digital world, on the one hand, you have pure broker. So if you think about RBNB, for example, RBNB doesn't own the apartment, okay? It's just a marketplace putting together apartment owners and people who want to rent them. At the other end of the spectrum, you can have vertical integration where basically the platform does everything itself. They are to find pure examples, but Apple, traditionally, has been mostly vertically integrated into hardware and the like. But mostly now you have competition or hybrid platform in which you have a platform which operates the market but also compete in the market. So you have competition between in-house and third-party merchants or apps. And there are good reasons for why this is a case. I mean, even so you have a platform sometimes introduce your own applications or merchants. I mean, think about Amazon with old foods, with Amazon basics and the like. Because you want to control experience because you innovate yourself and also because you want to behave in an anti-competitive manner. So let's look at this. I'm going back to the same diagram and let's look at what's called the Chicago School. Chicago School Argument. So Chicago School Argument was actually enunciated in a different framework because Chicago School didn't have too solid market in mind, but let me rephrase what they were saying. Why would a monopoly platform actually exclude or handicap third-party apps or merchants? You will call in and pass, you will call that foreclosure. Today it's called self-referencing in Europe. The Chicago School will say, no, no, don't worry. In fact, they're not going to do that except if there are efficiency reasons. Why? Simply because if you let third-party apps develop and trade on your platform, then you will have a very rich ecosystem that consumers will like. And therefore those consumers, you can charge them more. If you have a better product, overall product, supplied to offer to consumers, you can charge them more and therefore you don't have any anti-competitive incentive to actually foreclose access to third-party merchants or apps. This Chicago School argument is a little bit like Modiglien and Miller, which is that we know it's wrong, but at the same time it's kind of a guiding principle. We have to ask, why is it wrong? And there are actually four reasons why it's wrong. So look at this diagram again. Start with a consumer and start with a statement of the Chicago School. If you have a richer ecosystem of merchants and apps, you can raise a consumer price. Now, what is if your price is zero? In the digital economy, your price is mostly zero, which means that your optimal price is negative. And the only reason why you would like to subsidize consumer to be on your platform is because you make a lot of money on the other side. And that's where the two-sided market part comes in. You would like to subsidize consumers to come onto your platform and then you'll make money on data, advertisers, merchants. So the optimal price is negative, but of course you cannot charge negative prices because otherwise you will have bots pretending to be consumers and making money out of you. So what's happening then is that there is a zero lower bound. By the way, macroeconomists, you don't have a monopoly on zero lower bound. The ZLB is also in IO, right? So you see a lot of ZLBs in IO as well with the two-sided platforms. So you don't want to raise a price above zero because in the first place you would like to charge a negative price. So first reason why the Chicago School argument doesn't apply to this context. Second reason, let's move to contestability. You may want to actually exclude third-party apps or merchants for two reasons. The first reason is that if you have only in-house apps or majority of in-house apps, apps it will be very difficult for an entrant in the core market actually to come in because there will be what's called an application bias to entry. You cannot be a platform if you don't have apps to offer. And if you control the apps yourself, nobody can enter. The other reason is a bit different. Again, link with contestability, which means that which comes from the fact that a third-party app which initially is a complement to the platform might become a substitute. And that was exactly the Microsoft browser case in the 90s. Netscape, which was a rival of its internet explorer, was a complement to Windows. However, by enlarging the lines of code, it could have become a substitute for Windows. And at least the case was built exactly on that, that Netscape was a complement. Everybody agreed on that, but could have become a substitute. And therefore Microsoft had incentive to foreclose Netscape. Third reason, the fourth reason is more complicated and a bit more subtle. Let's go now to the apps. It turns out that you have a second zero bound there. There are lots of apps which are free as well. And whenever, because you may, if those apps make money in other ways like getting the data and so on, then competition between apps developers will bring the price to zero, at least for some of them. And the winner of that competition actually will get supranormal profits, which won't be driven away, competed away because you have the zero bound. So you have a zero bound on the consumer side and you may have a zero bound on the app side. Okay, so four reasons. I went very fast, but there are four reasons why the Chicago school argument doesn't hold. And two of them have to do with zero bound, which are very typical of two-sided markets and digital economy where you end up having negative opportunity cost because you make money elsewhere from having consumers. Okay, so that raises the issue about what is the right compensation and it's a broader issue actually. What is the right compensation for Google and Facebook and Amazon and Apple and so on, Samsung. And that raises an issue having to do with what's called the access charge. 200 names, it's called a merchant fee, it's called whatever, but basically how much the rival app store, for example, have to pay or the merchants have to pay for access to the core service. And I will come back to that. You really have to find the right balance somehow between an access charge which is too low, meaning that platform cannot make money on access and will have strong incentive to foreclose arrivals or an access charge which is too high which will penalize the efficient competitors. We'll come back briefly to that. It's a very crucial issue because if you look at the DMA in Europe, it's talking a lot about those access charges without having a guiding principle for doing that and it's actually a very difficult issue. The second aspect of the DMA in Europe is to protect contestability. So it's not about fairness toward merchant apps, it's about whether a core segment, the monopoly segment is contestable or not. So can a more efficient entrant enter that market? And DMA has a number of things which most of them seems all right. DMA is insisting on multi-homing. Now what is multi-homing for those of you who have never seen the word is simply that one side or maybe the two side of market connect to multiple platforms, okay? If you have a master card and PayPal in your pocket or Visa in your pocket, you do multi-homing. Maybe the merchant does that as well, okay? But multi-homing is very, very important to have competition in the core market. So let me give you an example, but I could give you another example if you look at the apps written onto iOS which is Apple and Android, the biggest ones multi-homing, that's very important. That's why you still have two systems, iOS and Android. Let me give you another example. So in the US, you have Uber and Lyft. Uber is bigger, Lyft is smaller. And people multi-homing, at least some people multi-homing on Uber and Lyft. And many drivers multi-homing on Uber and Lyft. Now, imagine that Uber says, if you want to be a driver on Uber, you have to not deal with Lyft. You cannot be a boss on Uber and Lyft, you have to choose. Well, what will a driver do? Uber has more customers, so the drivers will go to Uber. So there will be a few drivers on Lyft. The consumer will basically stop multi-homing, at least those who are doing that. And soon enough, you will just have only Uber and it will be monopolized. So it's very important, and there are many examples of that, that you have multi-homing if you want to sustain competition or otherwise you will end up with a monopoly. In the few cases in which there is no monopoly for so far. And there are lots of variants, some of them are considered in the DMA. The thing which the DMA requires is interoperability. So the reason why we don't have a telecom monopoly is simply because there is a regulation so that the telecom operators actually have to interpret. So if you are not on my network, I can still call you. Well, it's the same for Facebook and with different issues. So for Facebook, it's very hard for a customer actually to move to another social network if the customer has to port the same material, the content, the posts, and so on, and the contacts onto every time. So if you have to do it twice, you are not going to do it very long, okay? So DMA is requiring actually static and dynamic portability. So if you can post your content, for example, on several platforms at the same time. And there is a more controversial thing which is that DMA will require that the big platforms do not combine data from different services obtained from third parties. Moving to data silos within the company. And that's more controversial because, of course, it's going to make Google, of course, maybe more contestable, but also less efficient because Google is very good at combining data from different services. Okay, what is the issue with contestability? The issue with the contestability is that the entrant may not be able to enter because of the application bias to entry. And also, as I mentioned, the fact that the app may later on become a substitute and then that gives an incentive for the platform to foreclose. But it may also be able to enter, but not enter. So what we have seen lately is what's called defensive merger. So defensive merger simply means that those big tech companies buy their future rivals, okay? And you might think from, you know, we have had laws for over a century saying it's not allowed. But it's very hard to challenge for the competition authority. It's very hard to challenge because, first, there are thresholds for notification. And if you think about Facebook buying Instagram and WhatsApp, which are two other social networks, WhatsApp and Instagram add no sales and no profit, no revenue, basically, when they are purchased more or less. And that's true for most of those mergers. So basically, you have things which have no revenues and they fall below the radar. Now the DMA is going to require notification by the designated platforms, which are the big platforms. But even if there is a notification, that's not the end because the burden of proof is very hard. You don't have any data. So imagine that you are European commission of the DOJ in the US. And you try to prove that the purchase by Facebook or WhatsApp and Instagram, which are social networks, which could become competitor with Facebook, is actually illegal because it reduces competition. The competition hasn't taken place yet. Nothing has happened yet. You have no data. So you have to be a very good econometrician to find something in the data. No, I'm just kidding. This is really an issue. And that's precisely why they do it so early. Because there's no data, so you cannot prove it's anti-competitive. Now you could say we do it exposed. Okay, now we decide that Facebook should not have purchased WhatsApp and Instagram. But the trajectory, of course, of WhatsApp and Instagram has changed by being purchased by Facebook. And on top of that the X have been scrambled. So it's very hard to unscramble the X. So that's really an issue. Let me skip that. And tell you a little bit about MFNs. MFNs are very important. And that's a very, very nice trick which has been used by many platforms. And here it's going to touch a little bit as an example as a particular illustration on payment systems. So an MFN is basically a pledge by the merchants that you won't find a better price anywhere else either on another platform or if you call the merchant directly. It's a best price guarantee. So for example, if I want to be on booking in the good old time, I want to lease my property on booking, then I have to promise booking that I'm not going to charge a lower price anywhere else. Okay, so that's the requirement. Now booking then can say look, you can come to me and you'll get the lowest price whatever you choose. That sounds great for the consumer, right? You get the lowest price regardless. On a single platform, that's great, no? No, there's a catch, okay? So just look at this diagram. You have, I don't know, well, you probably don't see, but you have a card payment system, for example, that might be American Express or it could be Visa, MasterCard or whatnot. It could be an online booking system like booking or it could be Amazon. And on the other side, there's a merchant. The platform will charge some fee, proportional fee usually. It's not quite proportional, but to simplify, so American Express might charge 3% of the transaction. Amazon Marketplace might charge 15%, booking 20%. Some of the apps, app stores charge 30%. Samsung and Apple and so on. So there's an access charge. But if the merchant want to be on the platform, it has to actually guarantee the best price to the consumers of the platform, okay? So it's a wonderful deal. Now, once you know you get the best price, there's no incentive for multi-homing.  So the platform user is never going to multi-home. It's a booking customer and is going to stay on booking, especially if all the hotels on the booking or most of the hotels on booking. Okay, now booking can go and see the merchant. Here are my conditions, 20% and I'm the only gateway gatekeeper for those consumers that I'm serving. You won't reach them anywhere else because they don't multi-home. So you have to accept my terms and conditions. So far so good, but here's the catch. If booking charges 20% of the transaction, who pays the 20%? Are those booking customers or are there other people? Well, the booking customers are going to be charged a bit more because the hotel will have to pass through the cost in some way. However, remember the best price guarantee, the MFN, the most favored nation close because it cannot charge less to other customers. The hotel has to pass through the 20% to every customer, not only the booking customer but every other customer, whether they call the hotel directly or they go through Expedia or whatever. So this is a wonderful trick because it basically says that you can tax your rivals. It's one of the rare cases in which an oligopoly can actually tax his rivals. Now that has been noted, I mean researchers have worked on that and that has been noted by authorities and a number of countries in Europe actually have forbidden those most favored nation closes. Our current president in France, for example, did that in 2015 when he was finance minister in France but many other countries have done the same. Now it turned out that the prohibition of most favored nation closes didn't work very well, simply because, for example, the hotels on booking and others keep an MFN even so they are not obliged to. Why? Because a search engine of booking off Google can downlist them. So if there are far lower prices elsewhere, you can downlist this hotel. So the fact that there was pressure actually to apply an MFN even so you're not required to. So what economists researcher, I mean this is a research conference, are doing now is to try to find guiding principle to regulate those MFNs given that the prohibition, the structural remedy do not work, okay? And I could say much more about this. Maybe I should, maybe the biggest challenges is actually the design of access price regulation. Lots of us, including myself and Michele Biciglia but others as well, are trying to design those access price regulation and we have to take to solid markets seriously. By the way, it's referring to the US, the Supreme Court, MX decision, like many of those decision talk a lot about to solid markets, my paper with Charles Horshey and so on. And then they conclude that total price is charged on both side of markets is the only thing that matters, which when we say exactly the reverse, it's kind of embarrassing, but we have to apply theory to try to think about what the right access price. And there are very few cases in which it has been done. So in Europe with the payment cards, the rule actually comes from a paper I've written with Jean-Charles on capping the merchant via the merchant's convenient benefit of using cards. I mean, there's an unpaid call issue there, of course. You know, it's not that easy to compute, but at least you have a theoretical principle that gets you on what it should be. The same thing is going on now, this rule is being applied in Brazil and so on. But, you know, it's fair to say that we still have very little theoretical guidance on what this should be. And that's very crucial. So let me talk a little bit about some topic which is closer to your interest, maybe. Even so, I hope you have enjoyed this introduction to tech regulation. It's a huge thing. I mean, there's digital economies everywhere. People complain about monopolies and the like, and we have to find solutions. Our community has to find solutions. And that's going on. I'm very proud of Europe because Europe is moving ahead. No, not perfectly, but it's moving ahead, and that's very important. So let me say a few things about another aspect of the digital economy which is fintech and CBDC. I'm not going to tell you anything new here. We have lots of public cryptocurrencies. We have occasional attempts at creating private currencies. And then of course we have digital money issued by the central bank. Now, if you want to have a discussion of those issues, you need to say, what does money mean? I guess like your first class in macro. Is that a store value of savings of speculation? Or is that a basis for transaction, a medium of exchange unit of account? I mean, so far, for example, cryptocurrencies have been the former, right? Certainly too risky to actually be a unit of account and a transaction mean. Just like any economic phenomenon, they come from a demand and supply side. On the demand side, users want to have low transaction costs, especially cross-border payments. Sometimes they want to escape from a dysfunctional monetary system. Of course that's not the case for Europe or the US.  And of course on the other side of the market, there's supply side. You have entrepreneurs who are going to try to make profit out of senior rich, of new coins, some other business models based on intermediation fees. For private money, it's a bit different. For a private sponsor, you may have a consumer look in data collection and the like. Okay, and cryptocurrency, as I mentioned so far, and even so there are thousands of them, then there's basically stores of value, speculative stores of value. It's still too expensive and slow. They don't have a two-sided platform model. They still haven't understood exactly the business model of payment system. And they have this issue that you all know about price stability because the risk, of course, is a bubble bursting but there's a risk of forking as we have seen lately. And it can be highly volatile and that's why people have tried to introduce stable coins, okay? Which sounds quite reasonable. But of course, if you have stable coins, it's just like prudential regulation.  Well, you must have collateral, it must be segregated, it must be prudentially supervised. The question is, who does that? Who is supplying this global public good of, of doing all the supervision that actually, because if you have reserves, those reserves they don't give a high yield exactly the same prime as for a bank. And who is going to be the lender of last resort? We're not there yet, okay? And personally, I'm not a big friend of neither of cryptocurrency and pride digital currencies. In the case of cryptocurrencies, you have a loss of senior age, which I think for me the senior age belongs to the central bank and to the treasury. There's an issue with cryptocurrencies about mining the environment, the waste in servers and the like. You have challenges for financial stability. I would like to see how cryptocurrency will take care of 2008, of the European crisis, of COVID and the like, that will be interesting. And there is a danger that if consumers, SMEs or financial intermediaries invest in Bitcoin, then that they might be bailed out and that would be terrible. So I don't see the point of actually. However, we also see that, and it's not a criticism, but central banks have been slow at introducing rival currencies. Despite some competitive advantages, basically the state can decide what is legal tender. The state can decide what currency taxis must be paid in. They can compel banks and fintech to join the platform and so on. So there are lots of advantages for the state institutions. So, and of course, most central banks are catching up now. There are still big issues about who is going to get access to CBDC. You just want retail depositors and to what extent? Do you want to have all cell depositors? Everyone, you know, that kind of stuff. And then we go back to the previous paper where you have an extension of reserves and the like. It seems like the tendency is towards saying it's only depositors and it's not going to compete with the bank's normal business. And that will say that actually the CBDC will be something like a deposit will be insured by the government and will pay deposit insurance, which will be the logical conclusion, and will be limited in amount, like 100,000 euros or something like that. And you're going to tell me what's the point of any CBDC then if it's just a retail deposit. Well, you could have direct transaction by the consumers so that the banks could not set fees. Now, there's a lot of regulation in Europe, fortunately, about that already. But that might be a point, I don't know. I just want to make a point, which is about narrow banking. Not all deposits are meant to be safe, protected from bilinability. Okay? There is no reason why every item in the liability of a bank should be protected from bilinability. That's inefficient. Retail deposits are protected. They are insured by the state because the state is a player who can actually insure people and banks against a risk. But in normal times, the deposits are covered by loans. Okay? Neither should all deposits be short-term, demandable, which I will assume CBDCs will be short-term and demandable. It's good actually to have some longer-term deposits. All right? So we have to think about all those things. There is some logic in the infrastructure of those things. And I don't have a definite conclusion, but it seems to me that we should not throw the baby with a bathwater. CBDCs will be very useful, if only to fight against those new things, which have the potential to be harmful. But they should not also compete too much with the banks. Okay? Thank you so much. And thank you. Thank you, Professor Théodore. So we have the pleasure of being joined by two of our board members. It's about Schnabel responsible for markets, first part of your talk, and Fabio Panetta responsible, among others, for the digital euro related to the second part of your talk. So I'm counting on questions from the two of you, just to push it on the spot. Can I have any questions as well? Please, Fabio. That's a mic, yeah, it's coming up. But first of all, thank you very much for your lecture. I found it very interesting and stimulating. I would ask you two questions, and then we concentrate on CBDC, because this is the topic that I'm working on here at the ACB. The first is the issue that you raised on who should have access to CBDC. You raised this as a question, and we have been reflecting on this. Of course, in terms of efficiency, it would be a idea that everybody would have access to CBDC, because if you introduced this digital means of payment, it would, at least to me, look natural to give access to consumers, merchants, firms, simply for efficiency reasons. But then, as you know very well, this could raise issues in terms of financial securities, because you might be inducing a cutting out of the bank sector. So what is your view on this? Because this is something on which we are reflecting from an operational viewpoint. Of course, the intermediate point of view would be, prudent point of view would be, let's start by having a limited access to CBDC, and then let's see how the system looks. Let's start by having access by consumers with a maximum value for each consumer, in which case the possibility of triggering, of inducing digital rounds would be limited. But there are many who criticize us on this view, because they claim that we are, in this case, limiting efficiency, making the demand for CBDC, by a broader potential group of users, lower, we are restricting access, and this would, of course, induce by itself lower demand, would make the CBDC less attractive. The second, it's not a comment, you mentioned the need for deposit insurance in relation to CBDC. I'm not sure I understand, because deposit insurance is necessary when you have a claim of a private entity. CBDC is like a bidder at the center bank. So why do you make any reference to deposit insurance? The problem why a CBDC could crowd out banks is because it's a risk-less asset. And of course, if you have a risk-less asset that has zero storage costs, that is totally liquid, then you might want to introduce some concern, otherwise it would naturally crowd out any other asset that has similar characteristics. So there's something that I did not get in your analysis. On stable coins, please don't call them money. They're not money. I don't want to pretend then objective here, but that's, again, a liability of a private issuer, that unless he's heavily regulated in the limit, like a bank, you cannot call it money, because the risk of the assets of the stable coin will not be zero. That's only for the center bank, the capacity to issue risk-less liabilities. So thank you very much in a way of career for your lecture. Well, thank you on the stable, let's start with the end on the stable coins. I agree if you have perfect prudential supervision, there is no risk, and there is not going to be money creation. But I'm concerned it's not going to work. I'm very concerned that at some point, those platforms will want to gamble because they will very low yield on this. And if you don't pay attention, then they will de facto issue money and take risk. So I don't know, maybe I'm too pessimistic, but I don't see the gain that is obtained from that, given that you already have a central bank currency if you had money, what is the point of having this, you're adding another layer by platform which are global, so that raises the issue, but who is going to supervise those platforms, who is going to be the lender of last resort. So I mean, you're creating primes without adding value as far as I can tell. You know, maybe I'm too French about it, I see centralization everywhere, but on CBDC is on the level of access. As I said, yeah, I mean, I agree that the position change term is not the right term, but the point is that safe assets, they sell at a premium, so they have an interest rate discount in a sense, and that should be the case. Now, I agree that nowadays with inflation, we may not be too concerned about that, but in a sense, that's really an issue. If you issue CBDCs and everybody can get them, that means that everybody has access to an asset which is completely safe and demandable, and that strikes me as strange, and there's a big risk of disintermediation. I don't see the government actually engaging in providing loans. I mean, the government cannot do that, and the central bank, by the way, of course, cannot do that, it's not equipped for that, and in the case of government, the political pressure will mean that there will be the wrong loans made and so on, so I don't think it's the right way to do it, so you cannot substitute, you have to keep the banks in operation, and something you would agree with, but the risk of disintermediation is very big, and the point I want to make is that you're offering a big service, demandable plus safe is really something that everybody wants, and you're offering this service, and whatever you want to call it, you have to charge for this service. So in my limited interpretation, where there will just be demand deposits, 100,000 euros maximum, then the banks, if the banks manage that, they will have to pay for deposit insurance for that service, which is offered by the central bank. So basically duplicating the current state of affairs, but with basically having people being able to do the transaction themselves with those CBDCs. Now, I don't know, I haven't studied in detail the thing, I mean, you probably know 10 times as much as I do on the topic, but it seems to me that we have to ask ourself, and that's something I'm sure of, is why do we have the financial system we have, right? It has taken centuries to get to some kind of financial system and to some kind of central banking. And my view is that there are good reasons for that. And we have a technological innovation and every new technology is good, but it's not because you have a new technology that the fundamentals of economics change, they don't change. The information asymmetries and all those things are still around. And therefore, we have to make sure that when we take advantage of this new technology, we don't throw the baby with a bath sweater. Good. Well, if you have questions, please raise your hand. So, Jean, you spoke a lot about at the beginning how regulation should be global in some form, at least this phenomenon of tech firms is global, contrary to the utilities. And then all the examples, if I'm not mistaken, that you used, all the firms that you named, they're all U.S. firms. So, sort of like three related questions on this one is, should EU regulation be tougher than the U.S. regulation on these tech firms since they operate globally? And if we're gonna be too tough, are these U.S. firms gonna leave Europe? Or the flip side of it is, how will we ever in Europe develop superstar firms like the ones that you mentioned? Okay, there are lots of questions in your question. So, yes, I mean, right now, if you look at the top 20 tech companies, 11 are from the U.S. and nine are from China, none from Europe. That's bad. We could discuss the causes for that, the reasons for that, but that's a very dangerous state of affairs. Now, the U.S. used to be the country of antitrust. Actually, we learn antitrust from the U.S. Now, it turned out that in the last 30 years, antitrust has been in the decline. It started with Reagan and not mentioning Trump. It's making a comeback, but not a comeback I like or any economist like, which is it's more populist comeback as opposed to some comeback grounded in economics. So, that's really an issue. Europe now is taking the lead, both in antitrust, as I mentioned. Also, there are similar rules now under the Biden administration and, of course, for privacy as well. By the way, if you ask me about GDPR, I will say lots of bad things about GDPR, but I'm very proud. I'm very proud that Europe did GDPR. You know, that's one of the areas. We may not be the best in business, but at least we are moving in terms of regulation and there's no question to me that we have to regulate. But we have to regulate in a smart way. So, the thing is that you're right, those firms are global and they operate in many different markets. The thing is that they still have to abide by the European rules if they want to be in Europe, which is a big market. And you see that with GDPR now, which is spreading in different countries. Now, in the old time, I remember there was more collaboration where the antitrust authorities in Europe would collaborate with the American antitrust authorities and they would not be the same rules, but they would try to work together on a given case, say the Microsoft case, on many of those cases. Now, it has become harder. Multilateral cooperation in general hasn't been very popular and so on. But I think Europe is still, it's not going to prevent the firms from coming to Europe, actually, you know, from being established in Europe. Actually, they are not already now. I mean, you see, there is none of them now in Europe, which I would say is a disaster. But they will want to sell to Europe. I think the reason for why there are no tech companies, no big tech companies in Europe are different and they have to do with their talents living for the US. Two more, they will live for China when China has a less authoritarian regime, I guess. It has to do with VC, it has to do with many other things. There are not one single cause of that. And also with our top scientists not always working with industry. At least that's true in France. Also, it's improving now. So that's really a big issue for Europe because there is a lot of the wealth which has been created, which is taking place elsewhere. But I don't think that if we just copy the US institutions, we'll have more of those big tech firms. So let's look if there are any questions from the floor at this point. Isabel here in the front. So thank you very much for your excellent lecture. It's extremely interesting. So one point I would like to raise is that at the moment we are talking a lot about like sovereignty, so European sovereignty and that brings me to a point that you did not discuss in your speech which is actually industrial policy. So let me give you an example. We are a lot discussing issues like whether to put data to clouds. And of course, putting data to cloud raises a severe sovereignty issues. But when we think about possible solutions that basically only exist US-based cloud providers, even though we have discussed these issues for many, many years in Europe. And I remember discussions a long time ago about GAIAX and so on. But for some reason, the European cloud is not there. So is this an issue for industrial policy, do you think? I haven't studied the cloud computing market but I agree, I mean, it's obvious that it's a dangerous state of affair for sovereignty and a privacy. I don't think we can mimic Amazon or Microsoft just like this, right? We try to mimic Google and that's a huge failure. And the point is that industrial policy in Europe is done the wrong way very often. Even so, we need it. It's two different statements. Very much against industrial policy the way it's done but at the same time we need it. Now the alternative was of course to obtain contracts with say American firms so that everything, the servers are in Europe and so on and try to make sure that the data don't go back to the US and that's not easy to do. Now in terms of industrial policy, my view is that it can be extremely useful and it has been done well. Surprisingly, it has been done well in the US. You will not expect the US to be a role model in Korea and in a couple of countries because they have thought about governance. In Europe, at least in France, we think about our friends as opposed to governance. So if you want to have DARPA for example, or the economy of DARPA in Europe and NSF or NIH and all those things which have given rise to all those innovations in the US which have benefited the entire world but mainly the US of course because of the tacit knowledge and the local network generated there. They have governance, very clean governance. It's not the European Commission, those are the scientists who are in charge and they have very broad mandate. They can finance a small number of highly promising projects. They can stop those projects which the government usually doesn't know to do in Europe once you start a project. You don't want to close it because you want to say that you are right in the first place. So you can stop the projects, you use scientists along the way, you evaluate, you finance stuff where the soil is fertile in a sense. So I see, I've conducted interviews in France saying why are you financing this? And the answer was, oh it would be nice in our city to have something on biology or environment or something like that. And then my next question is that, do you have the people who are going to make this happen? And then people look at me, why? And I said, no, it's not going to happen. Your cancer institute is not going to happen if you don't have the right scientist who are going to bring their own students and their good colleagues and the like. It's not going to work. You can have beautiful buildings and make big announcement about your cancer stuff, but it's not going to work. So that's the kind of thing that is important. Now in Europe we have failed miserably except for the ERC for research. There are a couple of examples like that. And also we think in a silo way. So each country thinks that it should be doing its own initial policy when Europe has the right scale. France is too small, I'm sorry. France is too small. And you need, but everybody wants to keep control and the European Commission wants to keep control with this new Europe and innovation council, whatever it's called. Instead of getting the scientists in charge, you get the people who may not have the knowledge to actually choose and supervise the stuff. Even so you have a scientific advisory council, but it's just an advisory council. So I've written at length, actually in the book that you see in the back in chapter 13, I've written at length and also in the report for Emmanuel Macron that I wrote with Olivier Blanchard, trying to explain how you do initial policy. So initial policy is important, but it has to be done right. Well, thank you on that note. I think that the glasses have full. And indeed, I highly recommend the book. This is, yeah, it has been too parochial, right? Industrial policy in Europe. So unfortunately, we have run out of time and now your time is very precious. We benefit from your presence here over dinner still. I want to thank all of you who have been joining us online and want to remind you that the event will continue tomorrow morning at 9.30 Frankfurt time. And all of you who are here, please join us for dinner later today if you can. Thank you very much. Thank you, Professor Thoreau. Thank you very much.