Luis de Guindos (ECB) at Esade Alumni: “Economic policy must focus on saving the fabric of business”
“The Spanish economy was competitive before the Covid-19 crisis and our financial system was far healthier than others thanks to the restructuring carried out ten years ago. The crucial thing now is for economic policy to focus on saving the fabric of business as much as possible – with public guarantee schemes enabling liquidity to circulate – and trying to make the cost structure more flexible”, explained the vice president of the European Central Bank (ECB), Luis de Guindos, during an online conference held by Esade Alumni accompanied by Maite Barrera, president of Esade Alumni and founding partner of Bluecap; and Mario Lara, head of the Centre for Corporate Governance and Esade Madrid.
As regards Spain’s recovery, Luis de Guindos said that “the level of uncertainty at the moment is tremendous and we only know two things for sure: the economy fell considerably in March (by almost 4% in Europe) and may fall two or three times as much in the second quarter”. “The European economy was not prepared for a lockdown because a situation like this had never happened before”. As a result, the ECB VP anticipates that “GDP will plummet”.
Recovery and growth
“Recovery will depend on possible new outbreaks of Covid-19 and how lockdowns are lifted”, said the ECB vice president, adding that “in the third and fourth quarters, the economy will rebound”. “The economy in the Eurozone may fall by 6% to 12%, with a drop in the first quarter and upturn in the second quarter”, said De Guindos. In this respect he then said that “in 2021, the Eurozone may grow by 6%”. “We will take two years to return to where we were before lockdown,” he explained, although he considers that “the decline has already bottomed out”. The vice president of the ECB appealed to people’s sense of unity and commented that “we will see national taxation policies gradually converge in different countries”. In this respect, he was receptive to minimum wages and believed that the ones being prepared by the government “should last two or three months.”
The euro, a positive factor
The ECB vice president emphasised heavily that being in the Eurozone “is a safety net” for Spain and that “70% of the European population regard the euro as a positive factor” and recalled that the euro is the second currency in the world after the dollar. “In these complicated times, the ECB is helping the euro survive and reducing the impact of today’s economic crisis”.
As regards the banking sector, De Guindos pointed out that “at the moment, the ECB is the entity providing banks with liquidity in the best possible conditions so they can pass it on to families”. “Banks are now more robust than 10 or 12 years ago. The European banking industry will pull through this economic crisis but its balance sheet will be affected”. Even so the economist said that there would be no banking crisis because very important measures have been taken such as, for example, injecting liquidity to prevent a credit squeeze.
