Economic outlook and policy stance
At a seminar hosted by Menéndez Pelayo International University, the vice president of the European Central Bank, Luis de Guindos, stated that the contraction phase of rate hikes is reaching its final stage. He warned about runoff effects and the risk of inflation expectations becoming ingrained, suggesting that a key rate decision is expected around mid-September, though the path remains open to new developments. (Attribution: ECB remarks)
De Guindos noted that higher interest rates have already tightened financing conditions and reduced demand for loans. He recalled that monetary policy announcements typically trail actual decisions by roughly 12 to 24 months, underscoring the lag between policy actions and their real-world impact. (Attribution: ECB remarks)
Inflation, he said, acts as a severe detriment to both economic and social life, hitting lower-income households especially hard because they tend to spend a larger share of their income on essential goods. He described inflation as an absolute evil and reaffirmed the need for tighter policy to restore price stability. He characterized the rate increases as bitter medicine but necessary for sustained economic growth. The central bank can contribute most to the future by reducing inflation outright. (Attribution: ECB remarks)
In line with this view, De Guindos defended the ECB’s pandemic-era expansionary measures, noting that liquidity support helped prevent a collapse of the financial system and that the response was far superior to alternatives. As the economy recovered and the war in Ukraine began, policymakers admitted that inflation was no longer likely to be temporary, prompting tighter monetary policy to curb it. (Attribution: ECB remarks)
Economic situation
The former minister stressed potential downside risks to growth, pointing to July, August, and forward indicators that signal a deceleration in the third and fourth quarters. He argued that the observable slowdown in the economy appears more pronounced than the slowdown in inflation, at least for the time being. (Attribution: ECB remarks)
He urged prudent, common-sense steps as plans to resume fiscal discipline and reduce debt are considered. The previous target of 60% public debt was deemed unrealistic given divergent debt levels across EU member states, so he advocated a revision of targets toward a middle ground that all members could accept. (Attribution: ECB remarks)
Turning to China, De Guindos argued that the impact on Europe stems not from direct exposure of European banks to the Chinese real estate sector, but mainly from slow global growth as a whole. (Attribution: ECB remarks)
Looking ahead, De Guindos predicted that Spanish banks would gradually increase deposits and online savings in the weeks or months ahead, aligning with European peers. He attributed this trend to the retreat of excess liquidity rather than a lack of competition. (Attribution: ECB remarks)
Public support and the digital euro
De Guindos urged stronger, healthier economies to invest in their own firms, fostering competitive advantages that less robust economies cannot easily replicate. He called for a return to the original spirit of public policy and a more level playing field across Europe where opportunities are accessible to all. (Attribution: ECB remarks)
Regarding the European Union’s Next Generation funds, he noted they act as transfers rather than loans, helping to break taboos and support recovery. He also discussed the digital euro, emphasizing it as a payment tool rather than an investment and highlighting its potential role in countering crypto assets and stablecoins. He reminded that cash remains present in several countries, such as Germany and Austria, and noted that any constitutional changes would protect cash circulation. (Attribution: ECB remarks)
The peculiarity of the ECB
De Guindos explained that while the ECB is responsible for monetary policy and supervision across the euro area, its functioning differs from other central banks due to the financial fragmentation created by multiple member states. He noted that managing a union of 20 countries with diverse national interests is not always easy. (Attribution: ECB remarks)
Conversely, he described the ECB’s governance as highly democratic, with each member having one vote in the Governing Council, ensuring decisions serve the general interest. He cited that a Spanish governor’s vote carries the same weight as a Maltese governor’s vote. The European Council, he added, should reflect that any weighted voting approach can distort outcomes. (Attribution: ECB remarks)