Bank of Spain Governor calls for “strong consensus” to fix budget deficit and face new structural reforms

This was stated by the head of the controller of the Spanish financial system at the conference “Economic perspectives 2023-2025 for the Eurozone and Spain”, organized this Monday by the University of Alicante on the campus of San Vicente del Raspeig. And German Bernácer Economic Discussion Forum. This action was also aimed at verifying the identity of the Alicante economist who was the founder of the Bank of Spain’s research service.

After reviewing the progress of the last few months and remembering agency estimates – which makes a point Spanish economy growth 2.3% this year and 1.8% next yearIt was one and two tenths below what was forecast by the government, underlining the role fiscal policy has played over the past two years. maintaining living standards and fighting inflation during the epidemicn, through measures such as reducing VAT on electricity or food.

But Hernández de Cos made clear that it was time for fiscal policy to play a “completely different” role, despite the fact that the CPI “remains high” at the moment. So he defended himself “Phase out” anti-inflation measures and if these are still required or prices rise again, Focus “much more” on the “most vulnerable businesses and households”Thus, they can be compatible with reducing the public deficit.

In this sense, the president of the Bank of Spain was insistent on this issue. financial adjustment plan “We all want this to happen gradually,” and as he puts it, should be spread over several years. He also insisted that it had to be a “program”. “detailed and reliable” and that this should be accompanied by “structural reforms that increase the growth potential of the Spanish economy.”

In this context, Hernández de Cos argues that the fundamental problem of the national economy is “Lack of convergence to per capita income in Europe“Attributed to labor market dysfunctions and especially high employment rate structural unemployment, at the same time Low efficiency. As he insistently states, there are two problems that can only be solved as follows: “Structural reform package”made a claim for it”Strong consensus in the Spanish Parliament“, in an attempt to give it credibility and clearly establish its vocation for permanence.

Rate increases

Beyond financial regulation, Pablo Hernández de Cos considered the rate increases approved by the ECB; these increases, as he recalled, increased the official price of the currency by more than 450 basis points in less than two years. 4% available above 0.5. The good news is that, according to the supervisor’s estimates, ““If maintained long enough” the current rate level will be sufficient Achieving the goal of reducing inflation below 2 percent in the medium term, that is, by 2025. In other words, the increase in housing loans could end.

But the bad news is Many of the effects of this riseon the economy – a decline in consumption and a slowdown in activity leading to inflation being brought under control. we haven’t arrived yet He predicts difficult times in the coming months. In any case, Hernández de Cos said: “Soft landing” of Europe and the Spanish economy. Unless, of course, the risks that threaten this evolution worsen, such as the situation in the Middle East, the war in Ukraine or the effects of interest rate hikes. Among other things, the expert also pointed out that the “transmission” of interest rate increases to financing conditions was “faster” than expected.

Message to the bank

The governor also took advantage of his intervention at the University of Alicante to start a new university. Precautionary message to banksGiven the decision taken by many organizations to take advantage of the increase in profits to increase shareholders’ compensation. Therefore, Hernández de Cos reminded them that much of these benefits were temporary, as the interest they charged on loans rose much faster than the interest they paid on deposits. This is a situation that will tend to change in the coming months.

Added to this are the risks of economic slowdown and decline in demand for new loans. He therefore called on Spanish banks to take advantage of these benefits, not only to maintain but also to “increase” their solvency. In other words, that they capped the dividend and put the money into reserves.

He insisted that it had to be done last. full economic and monetary union. We start with a real banking union, where he firmly advocates the creation of a European-level deposit guarantee fund. He also called for a single capital market and the creation of a “truly European fiscal policy” that would allow us to jointly address key common challenges, such as climate change or digitalisation, in line with what has been achieved with Next. funds.Generation.

UA Rector also attended the event. Amparo Navarro; Director of the German Bernácer Chair, Maria Rosario Andreu; and Germán Bernácer, president of the Discussion Forum, José Martín de la Leona.