The introduction of macroprudential instruments to complement the stabilising capacity of monetary and fiscal policies is probably one of the most significant advances in the wake of the international financial crisis. For the countries belonging to a monetary union, the introduction of these tools is particularly important. This is because it is one of the few instruments available nationally to ensure the stability of the domestic financial system. In my opinion, macroprudential policy has a dual role to play in the current setting. First, continuing low or even negative interest rates over an extended period may have adverse effects on financial stability. Macroprudential policy should be primarily entrusted with reacting if some of these risks emerge, actively combating potential excessive debt growth and protecting financial institutions against the hypothetical materialisation of these  12  See Chapter 4, “Fiscal policy in the euro area”, in the Annual Report 2016, Banco de España. 13  See Arce et al. (2016), “Policy spillovers and synergies in a monetary union”, International Journal of Central Banking, 12(3), September, pp. 219-277. 14  See Chapter 4, “Fiscal policy in the euro area”, in the Annual Report 2016, Banco de España. 12/16  risks. This policy action should affect both the banking sector and the non-bank financial sector, depending on where the signs of exuberance are perceived. Second, some macroprudential instruments, such as the countercyclical capital buffer (CCyB), can be used to build up capital buffers at financial institutions in times of plenty that can be deployed when conditions worsen.

The recently created instrument for convergence and competitiveness, while a step in the right direction, lacks stabilisation capacity. It does not incorporate some of the potentially most effective elements, such as European unemployment insurance and the use of European funds to mitigate the impact of specific shocks on certain economies. The lack of effective macroeconomic policy coordination mechanisms in the euro area is exacerbated when monetary policy comes up against its effective interest rate limits. As I said earlier, this circumstance might become more frequent in the future if we move into a more persistent setting of low rates. Moreover, it is in this setting that the effectiveness of fiscal policy may prove greater.13 There is thus a pressing need to create some type of common cyclical insurance mechanism in the euro area. This instrument would help automatically absorb adverse shocks at the aggregate level (symmetric) or idiosyncratic shocks in certain countries (asymmetric). Its dual aim would be to smooth effects in individual countries and safeguard the stability of the euro area as a whole. Some recent analyses suggest that it would be possible to design a mechanism which, without committing major funds (fewer than the current European budget) and without it entailing permanent cross-State transfers, would provide for a similar stabilisation capacity to that achieved with the US transfer system.14 The role of macroprudential policy We should not forget the role that so-called “macroprudential policy” can and should play.