One source of vulnerability in the face of rising geopolitical tensions is Europe’s high external dependency with respect to some products which are key to the EU economy, but which are imported from a handful of non-EU countries. China accounts for a large share of goods imports into the EU. China is also the main exporter to the EU of several electronic products (such as computers and optical devices), for which domestic production capacity is also relatively low. This situation is not unique to the EU. As a consequence, China is becoming the “OPEC of industrial inputs”.2 This dependence on Chinese imports already had significant consequences for the European manufacturing sector during the pandemic. There is evidence3 that the Chinese supply chain disruptions that occurred in the early months of the pandemic had a considerable impact on manufacturing output in the euro area, temporarily reducing it by 7%. The EU is also dependent on third countries for semiconductor production. European companies involved in the manufacture of these products concentrate almost exclusively on the upstream stage of the production chain, providing manufacturing equipment and high-purity materials used in chip production. However, European companies account for a negligible share of other critical stages of the production chain, such as chip design or assembly. They are also heavily dependent on foreign suppliers: almost 80% of the suppliers of European semiconductor companies are based outside the EU. 4  1  Io annou, D. and J. J. Pérez (co -leads) (2023).
One is the move towards higher frequency of financial reporting, from annual, half-yearly to quarterly. While this move may have been driven by good intentions of promoting transparency and accountability, inevitably it compresses further the performance measurement period faced by bank management and increases the pressure on the senior managers in delivering short term performance. The second factor is the emergence of activist shareholders in the form of hedge funds and, to a lesser extent, certain pro-active fund managers. The net effect of 2/5  BIS central bankers' speeches  short-termism in banking is that firms would tend to opt for businesses or transactions that would boost short term performance in profits or share price, such as large scale acquisitions or mergers or rapid expansion. Investments that are necessary for the longer term viability or competitiveness of the bank, such as upgrading of IT systems and internal talent development, would tend to be given a lower priority. We have seen many high profile cases of massive expansion of business through indiscriminate acquisition or a sharp rise in proprietary trading by banks, which, as we now know, ended rather badly. Fast forays into areas with insufficient expertise or chasing bulge-bracket status by combining aggressive trading businesses with more traditional banking have left banks exposed and created culture clashes in the race for profit. Again, this short-termism in the modern corporate world is not at all conducive to regaining public trust in, and respect for, bankers. 9.