samchain/econo-pairs-v1 huggingface dataset:
25.04.2017  Testimony of the Governor of the Banco de España before the Spanish Parliamentary Budget Committee in relation to the draft State Budget for 2017 Luis M. Linde Governor  Ladies and gentlemen, I appear before this Committee at the start of the discussion and approval of the State Budget for 2017, the draft legislation for which, was approved by the Government on 31 March. Let me begin by referring to the international setting and the outlook for the Spanish economy, after which I will move on to the core aspects of the draft Budget and conclude with some reflections on the relationship between fiscal policy and our economic recovery. The external setting of the Spanish economy In recent quarters, the international economic setting has been marked by a high level of uncertainty, both in the United States, where there are doubts about the timing and scope of the new Administration's measures, and in Europe, as a result of Brexit and the elections scheduled for this year. For the moment, this uncertainty has hardly been reflected in financial indicators. The markets have continued to perform favourably and longer-term interest rates, which rose in late 2016, have stabilised at still moderate levels. Oil prices remained stable in the early months of the year, after the rise observed in the wake of the agreements reached by oil producing countries at the end of November 2016, although recent data show a higher degree of volatility.

This document should enable a complete analysis of budgetary projections to be performed and is, in fact, that used by the European Commission as a basis for its assessment of Spanish fiscal policy. 7/9  The importance of budgetary consolidation Before concluding my address, I should like to offer some reflections on the importance of completing the budgetary consolidation process. Spain’s public debt-to-GDP ratio remains very high. Despite its recent stabilisation, it is close to 100% and more than 60 percentage points above its pre-crisis level. Moreover, the budget deficit (both the total deficit and the structural deficit) is also very high and exceeds that of most of our European partners. The outstanding adjustment is still significant, despite the current context of a high pace of growth and low interest rates, that is relatively conducive to reducing the structural budget deficit and the public debt-to-GDP ratio. Reducing fiscal imbalances is important in order to moderate the future financial costs associated with public debt, and also to reduce the vulnerability of the economy to a possible tightening of financial conditions, without forgetting the need to restore scope for a fiscal policy response in the event of possible adverse growth scenarios. For all these reasons, it is crucial to adopt a time perspective that goes beyond the annual budgetary exercise, with a detailed and credible deficit correction plan geared towards gradually reducing public debt.
Percent and in billions of NOK 20  1400 1200  15  1000  Risk in percentage terms (l.h.s.) Risk in NOK terms (r.h.s.) 800  10  600 400  5  200 0 2013  2015  2017  2019  2021  0  Source: Norges Bank  We cannot shield ourselves from such an outcome. Volatility is the normal state of equity and other securities markets. Nor are there any guarantees that markets will recover quickly and capital be built up again in the years following a fall. The GPFG is invested in a wide range of assets, countries and companies. We can therefore benefit from broad-based market upturns, but we must then also ride out the downturns. The certain knowledge that the GPFG’s value will fluctuate has important consequences for the fiscal stance. The fiscal rule provides for spending on average the expected real return over time. As long as the GPFG is growing, it is tempting to increase spending in tandem. It is not as easy to reduce spending in years with negative returns. In the event of steep declines, nor would that be sensible. The fiscal rule still has a role to play as a long-term guideline for fiscal policy. The rule supports the idea of the GPFG as an intergenerational fund. But rather than aiming for the 3 percent path, we would be wise to set petroleum revenue spending below the expected real return. Otherwise, we run the risk of regularly eating away at the GPFG’s capital.

Come what may. 13
Here he is, in his first fireside chat, explaining banking to the American people: AUDIO INSERT: “My friends I want to talk for a few minutes with the people of the United States about banking… We have had a bad banking situation. Some of our bankers have shown themselves either incompetent or dishonest in their handling of the people’s funds. They had used some money entrusted to them in speculation and unwise loans. This was of course not true in the vast majority of our banks but it was true in enough of them to shock the people of the United States for a time into a sense of insecurity and to put them in a frame of mind where they did not differentiate but seemed to assume that an act of a comparative few had tainted them all. And so it became the government’s job to straighten out this situation and to do it as quickly as possible and that job is being performed.”  BIS central bankers’ speeches  3  We too have had a “bad banking situation”. Roosevelt showed bold and decisive political leadership in explaining to his listeners the reasons why they should not fear banks but trust their Government to ensure that the economy could be saved from the bank failures that had led to the Great Depression. For the sake of future generations, we too must be bold and decisive and, while the memory is fresh, learn the lessons from this crisis. Reform is essential.

For the banks, it was a case of heads I win, tails you – the taxpayer – lose. This cheap funding fuelled lending. Banks got bigger. In the UK, their balance sheets rose from around one-half to more than five times our national income in a generation. As the banks got bigger, so did the implicit subsidy – by the time of the crisis it reached many billions of pounds a year. The bigger banks became, the more they were seen as too important to fail, and the surer markets became that the taxpayer would bail them out. But there are only so many good loans and investments to be made. In order to expand, banks made increasingly risky investments. To make matters worse, they started making huge bets with each other on whether loans that had already been made would be repaid. The seeds of the eventual downfall of the financial system had been sown. As loans and investments went bad, those seeds started to sprout. In August 2007 came the moment when financial markets began to realise that the emperor had no clothes. The announcement by the French bank BNP Paribas that it would suspend repayments from two of its investment funds triggered a loss of confidence and a freezing of some capital markets. A month later, the crisis claimed its first victim when Northern Rock failed. In the months that followed, there was a steady procession of banking failures culminating in the collapse of the American bank Lehman Brothers in September 2008.
We are prepared, and we have the capacity to meet the shock sweeping the country head-on – and then, before too long, we will turn defence into offence once again. Since the onset of the Great Recession in 2008, we have rebuilt a new financial and monetary system designed precisely to withstand headwinds like those we are facing today. We have built a banking system that is funded almost entirely with domestic savings, with a capital adequacy ratio of 25%, and with abundant liquidity. We have also built up a new export-driven economy where both businesses and households have a strong equity position, and where strong national saving is reflected in a large and sustained current account surplus. For the first time in Iceland’s modern history, its international investment position is positive; i.e., our foreign assets exceed our foreign liabilities. 1/4  BIS central bankers' speeches  We have also enjoyed stability and robust GDP growth for the past seven years, with GDP increasing by a third and real wages up 35%. Iceland is now among the wealthiest countries in the world in terms of GDP per capita. We are prepared – and now we must face the challenge firmly, calmly, and stoically. Honoured guests: One of the things that were not done during the prelude to Iceland’s sovereignty was the establishment of an independent central bank. It wasn’t until 1961 that the Central Bank of Iceland formally began operation, and at that time it was not nearly as independent as it is today.

Many of the economic policy problems Icelanders dealt with in the first 100 years of its monetary independence stemmed precisely from the lack of an independent central bank with full scope for policy action. In essence, Iceland lacked the institutional architecture required to maintain economic stability. And even in 2001, when the Central Bank of Iceland was formally granted independence in order to maintain price stability through inflation-targeting, only half the battle was won. The Bank had neither the authority nor adequate tools to ensure financial stability. But fortunately, this has changed. I stand here as the head of a new Central Bank created by the merger with the Financial Supervisory Authority, which took effect on 1 January 2020 – a Central Bank with explicit authorisations and a vast range of tools at its disposal to ensure both price stability and financial stability through measures focusing on monetary policy, macroprudential policy, and financial supervision. Although barely three months have passed since the merger took effect, it has already demonstrated its value. We, the employees of the new Bank, have been able to respond, swiftly and in a coordinated manner, to the threat posed by the COVID-19 pandemic. The application of the Bank’s policy instruments is in the hands of three committees comprising both internal and external members, which take decisions jointly by majority vote. These committees – the Monetary Policy Committee, the Financial Stability Committee, and the Financial Supervision Committee – have clearly defined objectives, as well as policy instruments to achieve them.
The PRA has authorised ten banks in the last two years, and currently we have a substantial pipeline of interested parties. We are thinking about competition in our domestic work, but also about how we approach international policy issues. For instance, this week our response to the European Commission’s consultation on the impact of the new capital regime has been published. It is quite often said that aspects of the capital regime discriminate against smaller banks and building societies that use the so-called standardised capital approach versus larger banks that use their own models. The consequence of this is that smaller banks and building societies cannot compete effectively in lower risk asset markets such as prime mortgages because the capital requirements are too far apart and in favour of large banks. This forces them into riskier assets and undermines their position. This is an area where the leverage ratio acts to counterbalance the difference, a point that is not well enough understood. But in our response to the European Commission we said that while the financial stability benefits from regulation of large, internationally-active banks mean these firms should meet global standards, a differentiated approach for smaller firms would recognise the high costs and smaller benefits of applying global standards to them, and should enable us to find ways to create a regime which is more simple and which reduces their reporting burden. This would help to foster competition and would be good for the European Single Market.

The Act goes on to say that the person would not be guilty of misconduct if they satisfy the Regulator that they have taken such steps a person in that position could reasonably be expected to take to prevent the breach. For the first two limbs the burden of proof would fall on the Regulator in the same way as the continuing provisions I mentioned earlier. But, crucially, it would be for the senior manager to satisfy the Regulator on the question of reasonableness – thus the presumption is created until it is rebutted. The change that the Government has announced to create “the duty of responsibility” will, if Parliament approves it, replace the presumption with a statutory duty on senior managers to take reasonable steps to prevent breaches of regulatory requirements by their firms from occurring. Thus it will be for the Regulator to show that the senior manager did not take such steps as it was reasonable for a person in that position to take to prevent the breach of regulatory requirements. In my view this does not represent a watering down of the requirement. Why? Well the “duty of responsibility” creates a positive duty on senior managers to take reasonable steps to prevent regulatory breaches occurring. This will be on a statutory footing, which hardwires the concept in the very fabric of the regulatory regime, rightly reflecting the importance which society places on this issue.
Jürgen Stark: Structural reforms in Europe Bullet points by Mr Jürgen Stark, Member of the Executive Board of the European Central Bank, for a speech delivered at the OECD-IMF Conference on Structural Reforms in Europe, Paris, 17 March 2008. * * * •  It is well established that the lack of structural reforms is the main factor behind the relatively disappointing economic performance of some euro area countries over the last few decades. Despite the acceleration in economic growth of the last three years, the gap in GDP per capita between the euro area and the United States remains substantial, reflecting lower levels of both productivity and labour utilisation. Overcoming these constraints to growth is essential in the current environment, where the European economy is facing a number of important challenges, including rapid technological change, accelerating globalisation and ageing populations. •  The EMU is a catalyst for structural reforms in Europe. Within the monetary union, regional monetary and exchange rate policies are no longer viable options. Flexible and integrated labour and product markets are therefore a prerequisite for the smooth functioning of the euro area, including countries’ ability to absorb shocks and fully benefit from EMU. This is why a price-stability orientated monetary environment in principle provides more, not fewer, incentives for national governments to implement structural reforms. •  The performance of the euro area policy framework, however, has been mixed.

•  More specifically: o  structural policies in the Member States are supposed to seek to create flexible and efficient structures in product and labour markets with a view to fostering the growth potential of euro area economies and improving the adjustment mechanisms in EMU;  o  fiscal policies are supposed to ensure the sustainability of public finances, effectively limiting government deficit and debt ratios, thereby also ensuring that automatic fiscal stabilisers work effectively as an adjustment mechanism in the currency union; and  BIS Review 31/2008  1  o  wage policies should be compatible with trend developments in productivity in order to foster full employment and should take into account the overriding importance of wage flexibility as an equilibrating adjustment mechanism in the EMU. •  Within the Lisbon strategy, as refocused and reaffirmed by the European Council in 2005, Member States aim to gear national policies towards micro-economic flexibility and macro-economic stability. This would strengthen the capability of the euro area economy to swiftly re-allocate economic resources in view of exogenous economic shocks and improve its long-term growth prospects. The Lisbon Strategy and the peer surveillance of its implementation at the national level have raised the awareness among governments in European countries that structural reforms are decisive for remaining competitive in an increasingly global economic environment and to fully realising the economic potential of the EMU.
The Bank’s model-based estimates suggest that US high-yield and investment grade corporate debt currently reflect historically low risk premia, and so may be vulnerable to a correction (Chart 14). Moreover although much of the recent issuance reflects refinancing of existing bonds or loans (with companies seeking to lock in low interest rates and extend maturities) and M&A activity, there have also been growing reports of US issuance to finance “dividend recapitalisations” (where debt is issued to pay special dividends). Issuance of covenant-lite leveraged loans (which include fewer of the usual protective covenants for the benefit of the lending party) was $ in the first five months of 2011, compared with $ in the whole of 2010. And US contacts have reported renewed issuance of bonds with Payment-in-Kind (PIK) toggles (where issuers have the option of deferring cash interest payments, choosing instead to roll interest payments into additional debt securities). Although the incidence of these sorts of deals remains significantly below that associated with the pre-crisis exuberance, these examples might be indicative of the reach for yield/assets encouraging investors to chase returns via higher risk assets. Despite the low-yield environment, market contacts have been telling us that some investors’ expectations of returns were little changed by the crisis, reflecting a combination of investor inertia and the need to earn sufficient returns to cover their liabilities. But we also hear that investment horizons are often shorter and tolerance of volatility and desire for leverage is lower.

UBS  Delta  and  Bank  50  TOPIX  200  40 2007  2008  2009  2010  2011  Sources: Bloomberg, Thomson Reuters Datastream and Bank calculations. (a) Denominated in units of local currency. (a) Monthly moving averages of daily bid-ask spreads. (b) iBoxx € Corporates for corporate bonds; S&P 500 for equities; iBoxx € Sovereigns for government bonds; sterling/dollar exchange rate for currencies; gold price for commodities; and euro five-year swaps for interest rate swaps. (c) Data to close of business on 10 June 2011. (d) End of day bid-ask spread until 1 May 2011, average intra-day bid-ask spread thereafter. This recovery in markets has been neither uniform nor smooth. For example, a number of markets were severely disrupted by concerns about the debt sustainability in Greece, Ireland and Portugal in mid 2010, and once again during 2011 (Charts 6 and 7 show these countries’ bond spreads to German Bunds and sovereign CDS premia). And a number of private sector markets, such as the “own label” US residential mortgage-backed securities (RMBS) market and the UK commercial mortgage-backed securities (CMBS) market have seen very little, if any, primary issuance since the crisis.5 In part that reflects continued weakness in commercial real estate and (to a lesser extent) residential housing markets. But it is also likely to reflect the combination of a large existing stock of ABS and a diminished investor base as many of the funding mechanisms have been swept away.
The size of the fluctuations is in turn affected by the functioning of the economy. I now intend to describe briefly what we know about how economic cycles manifest themselves and what consequences they have. 1.  International developments  International studies show that fluctuations in economic activity have become somewhat less dramatic over the past 20 years, a phenomenon usually known as ”the Great Moderation”. 8 In Sweden the situation is slightly different because of the unusually profound crisis we suffered in the early 1990s. However, since then the fluctuations appear to have also declined here, although the period of time has been too short to draw any definite conclusions. If one studies the volatility in world growth since 1970 and onwards, one can see that it has declined since the mid-1980s. There are many possible reasons as to why economies have become more stable. One reason that is usually put forward is that the world economy has quite simply suffered smaller shocks in recent decades. Often the significance of modern economies having larger service sectors is put forward as a reason, because these are not as affected by international developments as the industrial sector. Improved stocks management can also have had a positive effect. Deregulated financial markets have made it easier to obtain credit and thereby smooth consumption over time. Finally, it is often pointed out that the changeover in fiscal and monetary policy, with budget targets and greater focus on price stability, is a contributory factor.

There was thus no scope for stabilising monetary and fiscal policies. Since then the pendulum has swung back a little with the neo-Keynesianism, which has reintroduced some of the elements of the classical Keynesian analysis. Due to different reasons it can take time before the economy returns to its long run equilibrium after a shock. Monopolistic competition and sticky wages are a few examples. The participants’ expectations can play a major role according to these theories. Monetary and fiscal policy can therefore be used to stabilise the economy. Macroeconomic analysis is often carried out with the aid of general equilibrium models (DSGE models, Dynamic Stochastic General Equilibrium). 5 The Riksbank, like a number of other central banks, uses one of these models for forecasts and simulations. The Riksbank’s model is called Ramses (Riksbank’s aggregate macromodel for studies of the economy in Sweden). In Ramses, goods and labour markets are assumed to be in monopolistic competition and wages and prices are sticky. However, the Ramses model analysis is only part of the forecasting process, which is also based on other statistical analyses and of course assessments. In the short term, that is to say the current quarter and one quarter ahead – what is usually called “now-casting” – we use different statistical models and indicators to make an assessment of the current situation. This analysis strives for the best possible accuracy in the forecasts and is often only vaguely anchored in economic theory.