Benoît Coeuré: Interview in El Financiero
Interview with Mr Benoît Coeuré, Member of the Executive Board of the European Central
Bank, in El Financiero, conducted by Ms Leticia Hernández Morón, and published on
4 November 2015.
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How can the financial system be kept stable amid divergent monetary policies?
Monetary policies in advanced economies are indeed set on different courses as a result of
different positions in the business cycles. The United States is at a more advanced stage in
the cycle compared with the euro area, where the policy is and will remain more
accommodative. In view of the current volatility on the global financial markets, it is vital that
these different paths are not in themselves a source of instability. I think the key word here is
transparency. As central banks, we need to be as clear as possible about what we are
thinking and heedful of the financial reaction. In the case of the ECB we introduced forward
guidance in 2013, we have been very clear about the path of accommodative policy due to
the economic situation, and we have been specific about the downside risks in the scenario,
particularly at the ECB's most recent meeting in Malta. The Governing Council saw an
increased risk that inflation would stay too low for too long, and concluded that additional
monetary policy reactions could be warranted, should this risk materialise. Thus
transparency is the key word.
What are the side effects of the ECB's monetary policy outside the euro area?
We are mindful of the impact of our decisions on the rest of the world, and in particular on
neighbouring economies. But our mandate is limited to the euro area and in the end, the best
contribution that we can make to the global economy, also to neighbouring economies, is to
make Europe as robust and stable as possible.
How have you handled the effects of the monetary policy of the US?
The decisions taken by the ECB are based on the region's economic and financial situation
and do not specifically follow any adjustment made in the United States by the Federal
Reserve System or in any other part of the world. We ensure that the financial conditions in
Europe are appropriate for the economy.
What measures have to be taken to manage the risks of greater global financial
integration without losing the benefits that it brings?
Volatility is currently high in global capital markets, due to macroeconomic uncertainty and
changing business models. In such an environment, policy-makers could be tempted to take
a protective stance and ring-fence their financial systems. But that would hamper the efficient
allocation of resources in the global economy, or in other words, that would be bad for growth
and jobs. The Financial Stability Board and the other financial standard-setting bodies, such
as the Committee on Payments and Market Infrastructures which I chaired last week in
Mexico, play an important role in keeping everyone together and ensuring that the new
financial regulations are implemented consistently. Financial protectionism is a temptation
that we all have to resist.
Do you think that developments in the financial sector have made the world a riskier
place?
The financial sector is much more secure than in 2008 because the regulatory and
supervisory environments have been much strengthened. The banks are smaller, their
conduct has improved and they are better capitalised. The financial system's resilience to
shocks is much better now than in 2008. But there is no room for complacency. Digital
banking and digital finance have the potential to change market structures very rapidly.
There is also room for better oversight of non-bank players ("shadow banking") and better
incentives for bank senior managers. The regulatory community has to address these
changes. But in general I think that we are at a more secure juncture than before the crisis,
especially because the banking industry is more regulated and better supervised. And in the
euro area, by taking responsibility for banking supervision exactly one year ago, the ECB has
certainly contributed to this.
The surplus liquidity is not getting to the market and is reflected in the prevailing
deflationary conditions. Where is this liquidity staying?
The most important question for me is: how can the economy create better long-term
investment opportunities, so that liquidity goes to the right place? This is the question on
which policy-makers should focus their attention. Central banks can provide liquidity and
improve financing conditions, but at the end it is the responsibility of elected governments to
make their economies more business-friendly so that profitable projects can materialise.
What did the ECB learn from the Greek episode?
Greece is unique and but the Greek experience offers useful lessons on the functioning of
our monetary union: until 2010 in Greece, wrong decisions were taken in the public sector
and macroeconomic imbalances were allowed to build up. The lessons for the future are that
euro area countries should understand that their decisions will also impact on their
neighbours, and that they have to enforce policies that are fiscally prudent and prevent
imbalances from emerging. Prevention is key. Coming back to Greece, Member States
agreed in August to provide further financial assistance in exchange for a comprehensive
reform programme. The conditions are now met for confidence and financial stability to return
as soon as possible, provided that the programme is implemented swiftly. The health check
by the ECB of the large Greek banks is another step forward, and bank recapitalisation
should be completed by the end of the year.
Do other countries worry you?
The situation in the euro area is considerably more robust than it was a couple of years ago.
Financial conditions have improved thanks to ECB measures; governance has been
strengthened and we have instruments to maintain stability that we didn't have a couple of
years ago. Banking union delivers strong banking supervision. Finally, reforms in various
countries such as Spain and Italy have already started strengthening those economies. That
is why our recovery is now solid, and the main risks to it come from outside of Europe.
Is there a before and after for the euro area following the Greek crisis?
Policy-makers are learning that being part of the single currency comes with benefits but also
with responsibilities. Monetary union is not a technical enterprise: it is a political project. A
stable monetary union requires convergence in economic performance, sound national
policies and a sense of shared responsibility, with common instruments. A lot has been
achieved already but we're not yet at the end of this process, as the "Five Presidents'
Report" (signed by the European Council, European Commission, Eurogroup, ECB and
European Parliament Presidents) demonstrated earlier this year.
What's the outlook for the year ahead?
The first thing we want to achieve is price stability and that means maintaining trust in our
capacity to raise inflation to close to 2% over the medium term. That's our priority. A second
one is to continue the construction of banking union by delivering strong and harmonised
supervision across the 19 participating countries.