Luis de Guindos: Interview with ERT TV (Hellenic Broadcasting
Corporation)
Interview by Mr Luis de Guindos, Vice-President of the European Central Bank, with ERT TV
(Hellenic Broadcasting Corporation), conducted by Ms Rallou Alexopoulou on 3 February 2020
and broadcast (in part) on 3 February 2020.
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The asset purchase programme (APP) was restarted in November 2019, with no specific
expiry date. Greece is currently not eligible to participate in the programme. However,
Fitch upgraded Greece's credit rating to BB on 24 January and the outlook is positive.
Do you think Greece could catch up and benefit from the APP if it becomes eligible in the
course of this year or the next?
I think the situation is quite clear. The evolution of the Greek economy is positive and I think this is
what has been reflected in the upgrades by the rating agencies. So, once Greek bonds reach
investment grade, which I hope will be sooner rather than later, they will certainly be part of the
APP.
Greece still has the highest level of non-performing loans (NPLs) in the EU. The Greek
government has already launched the "Hercules" plan in an effort to reduce the stock of
NPLs, and more actions are planned. Taking into account the ongoing normalisation of
the Greek financial sector, what are the prospects for the banks to provide the
necessary efficient allocation of credit in Greece, with the aim of supporting economic
activity and growth?
When you look at the progress of the Greek economy, you realise that it is performing quite well.
Greece is outperforming the majority of its peers. I think this is because it has a more competitive
economy and its fiscal situation is much better than it was two or three years ago. I think the only
problematic aspect of the Greek economy is the NPL ratio, which is very high - as you know it is
above 40%. This makes it difficult for banks to provide credit to the economy, to lend to
households and non-financial corporations. So, we at the ECB are convinced that it is crucial that
Greece further reduces its NPL ratio. And I think that every possible instrument has to be used in
order to do that. The Hercules plan is an important instrument. We will do our best to support
NPL resolution. There are currently some legal impediments, but it is crucial that these
restrictions are taken into consideration and lifted in order to continue reducing the number of
NPLs. I hope that Greek banks will find the means and the instruments necessary in order to
continue disposing of the NPLs.
From your long experience as Finance Minister of Spain and your participation in the
Eurogroup from 2011 to 2018, in a particularly difficult period for Greece, what does the
Greek government need to do in order to persuade its European partners to achieve a
reduction of the primary surplus targets for 2021-22?
First of all, I don't want to lecture anybody. Each country is different. I think that the Greek
government knows perfectly well what it has to do. But I think there are two recommendations
that are valid for every European country. The first is to be competitive, and the Greek economy
is now competitive. The second is that it is very important to have a banking industry that works.
So it is very important to focus on the situation of the banks. Fiscal policy is beyond the remit of
the ECB. However, a general observation is that once you start making your public finances
sounder and better, you start reaping the various benefits. I think that this is something which is
happening now in Greece. Interest rates have fallen significantly, spreads are narrowing and
even rating agencies have started to improve their rating of Greek bonds and their outlook.
Although there appears to be a détente in the US-China trade war, do you think that it
still poses a threat to the European economy? What other risks are of concern to the
ECB?
The signing of phase 1 of the trade agreement between China and the United States was a
positive step and provides some relief from trade policy uncertainty. Markets reacted very
positively. We will see what happens next. Regardless of this trade agreement's various potential
implications for Europe, it is very important that we defend our rules-based multilateral trade
system. We believe it is the key to creating prosperity and wealth all over the world. It's the
approach that's supported by the European institutions, and the ECB fully agrees with it.
Is the ECB concerned about the impact of the coronavirus on the European economy?
The outbreak of the coronavirus is an important element that has had a huge impact on equity
markets and commodity prices. I think we have to be very prudent. We are in the first stage of
this outbreak and know very little about the characteristics of the virus so far. We have quite a lot
to learn so it would be a little imprudent for me to speculate on developments. There are many
uncertainties, many unknowns. Markets don't like uncertainties. I have full confidence that the
Chinese authorities will be able to address the problem and that the outbreak of the coronavirus
will be resolved in a similar way to previous outbreaks.
Are you concerned about the potential negative impact on household savings and
income from negative interest rates?
The negative interest rates have been a useful policy so far. They are behind the good
performance and recovery of the European economy. But what is quite obvious, and has been
acknowledged by the ECB, is that there are also side effects. And these side effects are
becoming more visible and more tangible. Perhaps the message here is that monetary policy
cannot be the only instrument in place. Other policies have a very important role to play:
structural reforms and fiscal policies. That's the main recommendation. This is a question of
time. In the beginning, for sure, the side effects of negative interest rates were very limited but
they are now becoming more visible. Other policies have to be applied and have to be pursued
because monetary policy is not almighty.
Are you concerned about bubbles in the European real estate market? If you fear
something like this, what kind of interventions would be suitable?
I don't think there is a pervasive overvaluation of real estate at all. I think we have some pockets
of overvaluation, which we can call "bubbles". The right instrument with which to address this
situation is macroprudential policy. That's the approach. I don't have full confidence in the policy
of leaning against the wind - of using monetary policy to deal with this kind of bubbles. You
cannot address, concrete and very specific or particular bubbles with monetary policy. So
macroprudential instruments are the correct ones.
How important is the European deposit insurance scheme (EDIS) for the completion of
the banking union? Is the regulatory treatment of sovereign exposures a necessary
condition for a fully-fledged EDIS? How could this impact the banks of some countries,
including Italy and Greece?
EDIS is key. It is the third pillar of the banking union. Our position is very clear. We have always
defended EDIS as a very important instrument in order to complete the banking union. I think that
we have to analyse the question of the regulatory treatment of sovereign exposures in order to
sever the link between the banks and the sovereigns. The finance minister of Germany proposed
a sort of "quid pro quo" between EDIS and the sovereign exposure of the banks. These are
elements that we have to explore, but the important issue is to take steps in the right direction in
order to complete the banking union and to try to bridge the stalemate of sorts that we now have
in Europe on how to complete banking union. I would also like to stress the importance of the
capital markets union. The capital markets union is going to be key, mainly because of the Brexit
disturbance. We need to have much more profound, deeper and more liquid capital markets in
Europe.