luis de guindos : interview in expansion interview with mr luis de guindos, vice - president of the european central bank, and expansion, conducted by mr andres stumpf on 6 february 2020 and published on 10 february 2020. * * * for years the ecb has been asking for help from member states in the form of expansionary fiscal policy. do you think it ’ s possible? the fiscal framework in europe right now has its shortcomings. fiscal policy is decentralised and there is a stability and growth pact that limits the deficit to 3 % of gdp and debt levels to 60 % of gdp. in my opinion, it isn ’ t an effective framework for developing a countercyclical fiscal policy in the euro area. the ecb stresses that countries with fiscal space should use it to their advantage and take action. however, it ’ s often the case that countries with fiscal space don ’ t have the political will and countries with political will don ’ t have the fiscal space. what ’ s still missing? i share mario draghi ’ s view that the euro area needs a fiscal instrument that is institutionally independent and has the capacity and size to act countercyclically. without such an instrument, it will be very difficult for the euro area to have a fiscal policy like that of other countries such as the united states. and what about spain? what ’ s your view on the economic situation? generally speaking, the spanish economy is performing well. it grew by 2 % last year, although it ’ s obviously subject to the global slowdown. nevertheless, it is performing better than the european average. there are two reasons for this. the first is that the spanish economy is competitive, and the second is that the financial system is not raising the concerns it did in the past. problems in the spanish economy have typically arisen as a result of excessive credit growth, a real estate bubble or an uncompetitive external sector. none of these are happening at the moment. spain has had a current account surplus for years. credit growth is lower than nominal gdp growth and there are no signs of a real estate bubble, although there has been an adjustment and prices have risen again since the crisis. the growth differential of the spanish economy is sustainable. maintaining competitiveness and the clean - up of the financial sector are key. better than average economic performance is what ’ s needed during a global slowdown, and that ’ s what we are seeing. it ’ s

perceived bargain priced, but rapidly growing, enterprises and economies of asia. the tendency to downplay the risks of lending in emerging markets, reinforced by the propensity of governments explicitly or implicitly to guarantee such investments in a number of cases, doubtless led to an excess of lending that would not have been supported in an earlier age. as i also pointed out in previous testimony, standards of due diligence on the part of both lenders and borrowers turned somewhat lax in the face of all the largess generated by abundant capital gains and all the optimism about the prospects for growth in the asian region. the consequent emergence of heavy losses and near insolvency of a number of borrowing banks and nonfinancial businesses engendered a rush by foreign capital to the exits and induced severe contractions in economies with which borrowers and policymakers were unprepared and unable to cope. at that point the damage to confidence and the host economies had already been done. endeavors now to block repatriation of foreign funds, while offering temporary cash flow relief, have significant long - term costs and clearly should be avoided, if at all possible. i recognize that if problems are allowed to fester beyond the point of retrieval, no market - oriented solution appears possible. short - term patchwork solutions to achieve stability are presumed the only feasible alternatives. when that point is reached, an economy is seen as no longer having the capability of interacting normally with the international financial system, and is inclined to withdraw behind a wall of insulation. it must be remembered, however, that the financial disequilibria that caused the initial problems would not have been addressed. unless they are, those problems will reemerge. as i implied earlier with respect to the nineteenth century american experience, there are certain conditions precedent to establishing a viable environment for international capital investment, one not subject to periodic systemic crises. some mechanism must be in place to enhance due diligence on the part of lenders, but especially of borrowers individually and collectively. losses of lenders do on occasion evoke systemic risks, but it is the failure of borrowers to maintain viable balance sheets and an ability to service their debts that creates the major risks to international stability. the banking systems in many emerging east asian economies effectively collapsed in the aftermath of inappropriate borrowing, and large unhedged exposures, in foreign currencies. much will be required to bolster the fragile market mechanisms of many, but