Following the launch of the Single Supervisory Mechanism and the Single Resolution Fund, efforts should focus on reaching agreement on the start-up of European Deposit Insurance. Currently, decisions on the supervision and resolution of banks are taken at the European level, while the responsibility for financing deposit guarantee schemes falls on national insurance arrangements. This divergence is not only fertile ground for potential political and institutional conflicts, but it also hinders the creation of a true European banking system. To progress in this area, it will be necessary to further reduce risks (bank and sovereign alike). But political momentum will also be required to allow a better alignment of responsibilities with effective decision-making capacity and, above all, to provide for the better harnessing of the opportunities afforded by the EU to bring about better riskdiversification and risk-sharing among its members. Finally, we should also explore creating a common safe asset for the euro area as a whole. The operations of financial markets and intermediaries require a broad set of sufficiently liquid assets with minimal counterparty risks. This need is greater at times of financial turmoil, given that investors tend to react by accumulating low-risk assets. Within the euro area, the volume of these low-risk assets is insufficient, since the debt of only a small number of countries is considered risk-free. That gives rise to a shortage of such assets and to financial fragmentation. Evidently, an improvement in countries’ fiscal positions might help increase the amount of risk-free assets available.

31.08.2019  The European economic policy response to a scenario of lower growth and inflation La Granda Summer Courses Pablo Hernández de Cos Governor  Distinguished rector, honourable mayor, academic authorities, dear students, ladies and gentlemen. Let me begin by extending my particular thanks to Professor Velarde for his kind invitation to participate in the closure of the 2019 La Granda summer courses. It is an honour for me to be here in this building, whose doors are open to all those interested in discussing and delving into the essential issues ever-present in these courses. Today I would like to share some thoughts with you on the complex economic outlook the European Union (EU) and, in particular, the countries comprising the euro area currently face. This is at a time when free trade, the bedrock of the European project and an essential source of the improvements in economic well-being in recent decades, is subject to continuous threats. I shall first describe the latest economic developments and the main challenges ahead. Then I shall analyse what, in my opinion, the economic policy responses to these challenges should be. The return of protectionism Only two years ago the global environment was a favourable one. It was marked by a synchronised expansion of the emerging and advanced economies, reflected in the highly robust world trade performance. But the international economic setting turned more unfavourable in 2018. This situation has run into 2019 to date, with a slowdown in growth (acutely so in manufacturing) and, in particular, in trade.