Remarks - First panel: "Central banks, macroeconomic stability and
economic growth"
Banco de España and European Institute of the Mediterranean with the
support of the Central Bank of Tunisia
Pablo Hernández de Cos
Governor

In this first session of the conference we will focus on the role of central banks on both
shores of the Mediterranean in contributing to the achievement of sustainable growth in the
long term.
Before giving the floor to our distinguished speakers, let me say a few words about the
current global outlook and their implications for economic policymaking.
At present, the global economy seems to be approaching its cyclical peak while the process
of monetary policy normalization in the advanced economies continues, particularly in the
United States. This process should normally precede the tightening of global financial
conditions.
At the same time, tensions in international trade remain, with the risk that disputes in this
area will be solved with a greater use of protectionism to the detriment of a multilateral
approach to the resolution of these conflicts; and, elsewhere, the markets of some emerging
economies that had significant macroeconomic imbalances have undergone episodes of
severe turbulence.
We are therefore facing a phase of growth moderation with limited scope for economic
policies. It would seem necessary to harness the current moment in which growth records
are still satisfactory in order to generate margins that allow a certain countercyclical gearing
of economic policies in the future.
In the fiscal area, the post-crisis recovery has not been accompanied in a significant number
of countries, advanced and emerging alike, by a sufficient reduction of structural deficits in
public accounts and the halting of the process of rising public debt. More generally, in many
cases it may be necessary to move forward with fiscal reforms that seek to reduce the
distortions to growth while allowing the most vulnerable sectors of society to be supported
more decisively.
The limited fiscal space available is exacerbated in the longer run in many economies,
principally but not exclusively the advanced countries, owing to the adverse demographic
prospects. Ageing populations pose significant challenges for public finances, as they bear
on both the revenue and the expenditure sides. On the expenditure side, ageing will
considerably affect pension and healthcare spending which, in many cases, will require
rethinking pension systems to guarantee their sustainability. On the revenue side ageing leads
to changes in the composition of tax bases as it does to lower labour income shares, to
capital deepening and to changes in the composition of consumption.
In the area of monetary policy, many advanced economies are still in a situation of zero
lower bound. More generally, in most countries the room currently available to face a
hypothetical recession is less than that existing at previous similar cyclical junctures.
Monetary policy also needs re-thinking, on the basis of more long-term challenges for the
economy. The natural interest rate has been falling since at least the 1980s. Population
ageing, by increasing the relative supply of savings, explains most of the fall across several
advanced economies. A low or even negative natural interest rate poses new challenges for
stabilisation policies. The lower bound on the nominal policy interest rate may more
frequently be binding, and not just in episodes of acute crisis. This leads to the conclusion
that non-conventional monetary measures may ultimately be used more frequently than
originally expected.
In addition, many emerging economies face the gradual tightening of global financial
conditions in a context of slowdown in their economic activity. In particular, this context is
especially challenging for the economies that receive capital flows. In these cases,
economic authorities must foster a stable macroeconomic environment and sound
institutions that attract permanent capital flows.
The widespread scant room for manoeuvre for the traditional stabilisation tools we have
witnessed calls for the development of other policies to relieve monetary policy of the
excessive role it has played post-crisis in maintaining financial stability.
One of the lessons of the crisis is the importance of including new instruments in the policy
toolkit, namely macroprudential policy. Therefore, it is essential to identify risks and
vulnerabilities to the economy that may stem from the financial system affecting the real
economy or vice versa. In any event, it is of paramount importance to develop the
appropriate macroprudential instruments covering both bank and non-bank financial
intermediation to tackle these risks in order to have a stable financial system with
countercyclical buffers that support sustained economic growth.
The favorable cyclical juncture at which a number of economies still find themselves is a
propitious time for tackling structural reforms aimed at fomenting increase in potential
growth. This is especially relevant in the case of advanced economies that have seen a
significant decrease in productivity growth in recent years. We should not forget that in the
downturn phase of the cycle the introduction of structural reforms is much more costly.
The global financial crisis led to a regulatory wave aimed at achieving a more stable
international financial system. Much progress has been made in this area, but challenges
still remain. At the European level, it is necessary to complete the institutional architecture
of the euro area, bringing the Banking Union to fruition and strengthening the fiscal
framework. On a global scale, there are multiple challenges: the reinforcement of the
regulation of non-banking intermediaries, the emergence of new risks (cybersecurity) and
the creation or expansion of global and regional backstops.
Finally, the recent tensions in international trade and the recent proliferation of protectionist
measures should serve as a reminder for us to defend the benefits of trade liberalisation as
a means of strengthening growth in the economy and the reduction of poverty. This defence
must be accompanied, on the one hand, by a reform of the rules of world trade so as to
include more effective mechanisms to guarantee a more balanced playing field; and, on the
other, by domestic policies (flexibility of the labour market, a sound social security network,
and the creation of educational and training opportunities) that adequately address the
distributive problems that may stem from trade exchanges. It is also worth mentioning the
promotion of trade openness in new sectors, mainly services, where the potential profit
margin is significantly higher.
Without further ado, let me introduce the panelists. We are honoured to have with us today
three very experienced representatives of the central bank community of the Mediterranean
region.
Mr. Abdellatif Jouahri, Governor of the Bank Al Maghrib.
Mr. Sadiq al-Kabir, Governor of the Central Bank of Libya.
Mr. Marc-Olivier Strauss-Kahn, Managing Director and Special Adviser of the Governor.
They are very well suited to address the topics of this panel as they have a far-reaching
knowledge of the economies of the region and long-dated experience as policymakers.
Governor Jouahri, the floor is yours.