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Central banks 08 Oct 2018

“Europe needs to keep pushing ahead when there is no crisis”

José Manuel González-Páramo called for Europe to move forward now, not “just when there’s a crisis”, and to conclude the banking union, the capital markets union and the fiscal union to have a “much more robust and genuine euro.” Speaking at the Círculo de Economía in Barcelona, he stressed the role that the ECB played in Europe’s recovery. However, the bank must now go back to its original purpose of “contributing to financial stability and separating supervision from monetary policy.”

The executive member of the board, head of global economics, regulation and public affairs at BBVA, took part in a debate on ‘The euro and its weaknesses’ which forms part of a series of conferences ‘10 years after the fall of Lehman Brothers’ organized by the Círculo de Economía.

Looking back, the BBVA official, who was a member of the Executive Committee and Governing Council of the European Central Bank between 2004 and 2012, reviewed the “central role” played by the European institutions, and in particular the ECB, during the financial crisis. In his opinion, “Europe was not prepared for a crisis of this magnitude,” but successfully weathering “this perfect storm” was possible due to the action of the central bank and the European authorities in the construction of a real banking union.

González-Páramo pointed out that in addition to its traditional functions as a guarantor of price stability, the ECB took on new responsibilities on three fronts.  In the first place, it pushed through an extraordinary package of non-conventional measures (liquidity tenders, interest rate cuts coordinated with other central banks, asset purchases etc.).  Secondly, in keeping with its primary role as a guarantor of the euro, for example, it launched financial assistance programs for Ireland, Portugal and Greece.  Thirdly, the ECB assumed responsibility for the supervisory body (SSM) with the creation of banking union in 2014.

However, from now on, the ECB must not be the main permanent line of defense against crises in Europe.

José Manuel González-Páramo, executive member of the board, head of global economics, regulation and public affairs at BBVA. - BBVA

The banking union, pivotal to the EU’s future

The creation of a single deposit guarantee fund for the European Union is the remaining big task pending to complete the banking union and push ahead with the European project.  This is essential, explained José Manuel González-Páramo, “to decouple sovereign risk from banking risk.”

And for this, “we don’t only need single rules and a well-functioning common supervisor,” he said. For the time being, the ECB has managed to successfully roll out two pillars: A new regulatory framework, and a Single Supervisory Mechanism. However, he explained that the institution still needs to complete the third pillar – the Single Resolution Mechanism – and that requires additional funding; and the fourth pillar, with the creation of an EU-wide deposit guarantee fund.

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