Luis de Guindos: Interview with Europa Press
Interview with Luis de Guindos, Vice-President of the ECB, conducted
by Sergio Rivas23 July 2024
Last Thursday’s meeting seems to
have left everything open with regard to September.
We based
our decision on the data we received since the last monetary policy
meeting in June. For inflation, those data are practically in line
with our projections. However, there was some worsening in the data
for economic growth, owing mainly to the political uncertainty
following the European and French elections. That said, we decided to
keep interest rates unchanged because we will have more information in
September, and especially new macroeconomic projections, so we will be
able to better reassess the monetary policy stance. Data-wise,
September is a much more convenient month for taking decisions than
July was.
When you talk about increasing confidence, aren’t
you at the same time saying that you are not yet confident?
The
current level of uncertainty is huge, so we have to be prudent when
taking decisions. When we say that we want to have more confidence, we
mean more confidence that at the end of 2025 inflation will be at our
definition of price stability, which is an inflation rate of 2% over
the medium term. That’s the key question.
In the meantime, we
will continue to receive new data, such as wage developments, which we
look at particularly closely owing to their potential impact on
services inflation. Services inflation is at 4. 1%, and it is
currently the component of inflation that is proving more difficult to
bring down. But most of all, we will have new macroeconomic
projections in September, and it will be crucial to see in those
projections that inflation is steadily converging towards 2% over the
medium term.
Do you need all the data, and especially wage
data, to be moving in the right direction to gain that
confidence?
Wage data are important, but we receive them with a
time lag. In September we will have another two months of data on
inflation and underlying inflation, but the new macroeconomic
projections will be the most important. They are produced on the basis
of the previous projections and include data such as the price of oil,
exchange rate developments and changes in financing conditions. All of
these data are added to the pot every three months to update our
projections, which are obviously a crucial part of our future
decisions.
Although the inflation rate in June was 0. 1
percentage points lower than in May, services inflation and the
underlying rate have stayed at more or less the same levels for
months.
As we have already said, inflation will be around
current levels until the end of the year. At the same time, all
measures of underlying inflation are coming down, therefore the
disinflation process will continue from the start of next year. We are
already seeing that wages are starting to slow down. Our surveys show
that firms expect wage increases to moderate, especially as of 2025,
because the current rise in wages is closely related to regaining
purchasing power as a result of past inflation. And if wage increases
moderate, services inflation – which is most sensitive to wage
developments – will moderate too, and that will enable us to reach our
2% inflation target at the end of next year.
The latest bank
lending survey showed that demand for mortgages increased for the
first time since 2022. What does that mean?
Financing
conditions in the second quarter were broadly unchanged compared with
the first quarter, although there are some specific changes. For
example, we are starting to see an increase in demand for consumer
credit and an improvement in demand for mortgages. But they are still
very small changes.
What’s most important is that we have had
several quarters during which financing conditions and loan demand
have not deteriorated further. Our previous reports showed continued
tightening throughout 2022 and much of 2023, coinciding with the rise
in interest rates, then we saw some stabilisation at the end of 2023
which has continued this year. The tightening of financing conditions
peaked almost three quarters ago, and banks are now expecting
financing conditions to ease.
How might the complex
geopolitical environment affect your decisions?
Political
uncertainty in Europe has risen in the aftermath of the European
elections. The European Parliament has now re-elected Ursula von der
Leyen, which in my view is a confidence indicator as regards
stability. But we will have to see what the composition of the new
European Commission is.
In France, the outcome of the
elections was a parliament with no majority, which may make it
difficult to form a government. This has created additional
uncertainty and has affected the French economy, which is the second
largest in the euro area.
Overall, the uncertainty leads to
much more cautious and prudent decision-making, because everything is
much less clear. And when you’re in a dark room and can’t see, you try
to move more slowly so that you don’t break anything.
In the
case of France, with its fiscal situation, is there concern about the
stance of the new Government?
Without getting into the specific
situation of any one country, what is important is that the new fiscal
rules are applied. In September countries have to present their
medium-term multi-annual plans, and in October they will have to
present their budget plans for 2025. It’s very important that all
countries respect and implement the fiscal framework we have given
ourselves in Europe. It would be very bad if the fiscal rules were not
respected, which were only approved six months ago. I hope it will be
the case that all countries respect the new fiscal framework.
The Spanish Government has revised its forecasts upwards. How
does the situation look to you?
The Spanish economy is
experiencing above-average growth. It is expected to grow by around 2.
5% [of GDP] this year, well above the projection for the euro area as
a whole. This growth is driven by a boost in public consumption and a
significant population increase. The population has grown by more than
one million people in the last two years. And these people have
entered the labour market, driving this economic growth.
However, with regard to future growth, it’s very important
that competitiveness remains the foundation of growth in the economy.
For this to happen, it’s crucial that productivity improves and that
wage growth remains consistent with productivity so Spanish firms can
continue to compete internationally. And this is what has been
happening since Spain first achieved a surplus in the current account
of the balance of payments more than ten years ago. Likewise, to
ensure the economy remains on a competitive path it’s crucial that
companies are not burdened with additional costs or uncertainty.
And the situation of Spanish banks. . .
Spain has a
sound financial system that is able to provide credit in a resilient
way. This is another pillar of the Spanish economy.
Are they
prepared for a change in monetary policy and ready to compete for
deposits when the ECB is withdrawing liquidity?
The improvement
in the profitability of European and Spanish banks has reached a
ceiling. We will see how it begins to decrease because the favourable
factors, like rate increases, will fall away.
The lack of
remuneration on deposits in Spain has mainly been caused by excess
liquidity in the banking system, liquidity which the ECB is now
gradually withdrawing. Previously the banks didn’t need to compete for
liquidity, but this withdrawal means they will increasingly have to
compete to attract deposits. At the same time, on the assets side we
have indeed seen greater competition between banks in the area of
mortgage and consumer loan offerings.
When will the ECB take a
decision on BBVA’s takeover of Sabadell?
We have around two
months since the takeover bid is communicated to the ECB, so it won’t
take much longer. The decision will be based on solvency and
prudential criteria and will be communicated to the entity.
Why are there no cross-border transactions?
We would
like to see more cross-border transactions because we want to have a
single banking market, and for that we need banks that operate across
the entire euro area. The lack of cross-border transactions is
fundamentally linked to the fact that the banking union is incomplete,
even if there is a single supervisor. We don’t have a common deposit
insurance scheme, for example. And it is also linked to differences in
regulation and in national legislation, which make cross-border
transactions much more complex than national transactions.
Are
you confident that the new European Commission will make progress
towards the banking union? What can you do? Are you
optimistic?
For the ECB, completing the banking union is a top
priority. The ECB is not the EU legislator, so what we can do is give
our clear opinion about completing the banking union and the capital
markets union, and also about the need for an agreement to create a
single fiscal capacity in Europe. These three elements are necessary
to complete the governance of Economic and Monetary Union.
Is
the situation at Banco de España being discussed within the ECB?
The Deputy Governor of the Banco de España, Margarita Delgado,
attended last Thursday’s meeting and actively contributed to the
discussions as any other member of the Governing Council. But not
having an officially appointed Governor is unusual, so we hope an
appointment will be made by 10 September. Our general recommendation
is that appointees should have experience in monetary or banking
matters.
Is it an issue if someone moves from being a minister
to being Governor of the central bank?
In Spain, appointing the
central bank Governor is the prerogative of the Government. There is
an implicit agreement that the party in power appoints the Governor
and the main opposition party nominates the Deputy Governor.
Personally, I think it’s important to respect such agreements as they
are part of a country’s institutional architecture.
I was a
minister and then became Vice-President of the ECB as part of the
Executive Board. But the situation wasn’t the same, because the
process for appointing members of the Executive Board and its
functions are different. The Spanish Government nominated me as a
candidate, but the decision was taken by the European Council, acting
by a qualified majority, after consulting the European Parliament and
the Governing Council of the ECB. So there were different bodies that
took the decision. And by definition, the functions of the Executive
Board concern the entire euro area. However, many central banks fulfil
tasks at the national level. For example, the Banco de España has to
advise the Government and produce appropriate reports and research on
the economic situation and the economic policy of the Government with
independence of judgement.