Luis M Linde: United Kingdom and Spain - assessing current issues
Intervention by Mr Luis M Linde, Governor of the Bank of Spain, at the dinner opening the
25th Tertulias Hispano-Británicas, Madrid, 26 October 2012.
* * *
Almost a quarter of a century back, following the visit by her Majesty Queen Elizabeth II to
Madrid in 1988, a group of Spanish and British diplomats, politicians, academics and civil
servants had an excellent idea. They took advantage of the Gibraltar dispute not to further
cool relations between Spain and the United Kingdom, or to squabble some more, but
rather to seek to be closer friends and try and understand one another better.
Today marks the 25th edition of the Tertulias. Let me welcome all those taking part, firstly
and especially our British friends, who honour us with their presence.
A few days ago, perusing James Boswell's legendary book on the life of Samuel Johnson,
one of European
culture's literary giants, I came across several paragraphs in which
Boswell relates Dr Johnson's interest in Spain. He was convinced that Spain was a greatly
unknown country in England and in Europe, and he suspected it could teach much to
those taking the trouble to travel there. Samuel Johnson made this statement around the
mid-1760s.
Today, Spain is no doubt much better known in the United Kingdom than in Johnson's
time, as it is also the case for the United Kingdom being better known in Spain. But
everything is relative and I believe it's not difficult to spot black holes, mistaken notions
and errors of understanding on both sides. While these Tertulias are usually an opportunity
to overcome some of these problems, they most importantly allow us to understand our
respective stances on current, important or pressing issues. And we also enjoy ourselves.
Because, unlike other meetings, the Tertulias are, from my experience, a rather entertaining
event. I still have fond memories of the meetings I attended and the discussions we had in
the now distant 1990s in Santiago de Compostela, in Seville, in Santander and also in
Oxford and in Edinburgh.
The Tertulias were instituted at what was a key time in recent European history: the
disappearance of the Berlin Wall, German reunification, the collapse of the Soviet Union
and the start of the European Monetary Union project. Next came the great economic
expansion at the onset of the 21st century, the international financial crisis and the serious
economic problems that have affected all of us, Spain and the United Kingdom included.
The European Union and the Monetary Union are today at a difficult crossroads. They face a
problem which, when the Maastricht Treaty was negotiated, we knew might arise: that the
Monetary Union without fiscal integration would be an edifice with weak foundations. And
although attempts were made to head off the risk with public deficit and debt rules, it was
known that these were merely shoring up the building and that they could not resolve its
fundamental weakness.
But the difficulties we are encountering in the European Union and in the Monetary Union
have not only to do with the weak fiscal foundations of this edifice. They are also related to
problems of what we call "governance".
Clearly, we have extremely complex negotiating and decision-making procedures in the
European Union and the Monetary Union. And, irrespective of or in addition to
macroeconomic imbalances, these problems affect the stability of the markets and the
perception of risk regarding the area's future.
Most Britons are sceptical about Monetary Union and its future. Although it is not very
politically correct to say so, the truth is that this scepticism is really not too bad for us
since it helps those of us who are members of the Monetary Union to see ourselves from
outside and to take, perhaps, a more realistic view. Sceptics or not, we can agree that the
fallout from a failure of the Monetary Union would certainly affect the future of the European
Union as a whole.
The United Kingdom chose not to participate in the Monetary Union and holds firm to this
position. Indeed, it would be strange if it were to change its mind in the current
circumstances. But it's clear to me that the United Kingdom has no interest in European
Monetary Union failing. That is why I am convinced that our British friends are true allies
when it comes to overcoming the current euro area problems, and that we can count on
their help and cooperation - albeit from a different position than ours - for our initial steps
regarding the Banking Union, including the steps towards single supervisory arrangements
and the functions of the European Banking Authority. The United Kingdom has one of the
world's most sophisticated financial industries, and a wealth of regulatory and supervisory
intelligence and experience. Quite frankly, we wish to avail ourselves of their help and
advice.
The current economic situation is not an easy one in either the United Kingdom or Spain.
There are serious imbalances in our public finances and problems in our banking systems,
but unemployment is much more severe in Spain than in the United Kingdom and, moreover,
we are suffering from a bout of distrust regarding the future of the euro area, which
affects our external financing, but naturally not the United Kingdom's. What is more, the
restrictions on the European Central Bank differ from those to which the Bank of
England is subject. Finally, we should note that the latest news on economic activity in the
United Kingdom appears to be positive, and that in Spain we are implementing a very
harsh adjustment that is already yielding appreciable results in terms of fiscal consolidation,
competitiveness and correction of the current account deficit.
As you will have so many other matters to discuss, apart from the economy and the euro,
you must forgive me for dedicating so much time to my own specific subjects.
To conclude, I am sure these present Tertulias will, as in all the previous meetings, be
successful, that the participants will enjoy themselves, and that our British friends will have
very good memories of this visit to Madrid.
Thank you.