25. 02. 2020 economic and financial policy geared to climate goals club espanol de la energia pablo hernandez de cos governor ladies and gentlemen, good morning. i should like to thank the organisers and, in particular, the president of the club espanol de la energia, miguel antonanzas, for the invitation to participate in this seminar on such an important subject as sustainable financing for climate goals. climate change and the transition to a more sustainable economy are undoubtedly becoming one of society ’ s main concerns. one of the reasons for this is that the impact of this transition will affect virtually every social and economic agent. the financial sector is no exception to this. nor obviously is the energy sector. in my address today i wish to focus on three specific questions related to this issue. first, i will propose some basic principles which, in my opinion, should inform the economic policy deployed to guide the process of structural change entailed by the transition to a more sustainable economy. second, i will describe the challenges that climate change and this transition pose for supervision and financial regulation. finally, i will discuss what central banks can do to encourage the transition to a more sustainable economy. in particular, i should like to dedicate a few words to the role that monetary policy can play in achieving this objective. general principles that should inform economic policy in the face of climate change the optimal economic policy strategy to guide the transition to a more sustainable economy requires striking a balance between, on one hand, encouraging decisive action before it is too late and, on the other, mitigating the social costs associated with the transition process. and this requires an appropriate sequence of measures to be adopted. “ early ” intervention would mitigate mark carney ’ s “ tragedy of the horizon ”. 1 but, there is no way of hiding that this strategy also comes at a cost, since the economy would have to go through the process of becoming more sustainable with current technology. this would make it impossible to exploit all the potential cost savings and effectiveness improvements of future innovations that are currently not available, but would be if the timing of measures was more orderly and less hasty. with regard to this balance between speed of action and the costs associated with the transition process, the european union as a whole appears to have decided to take the lead on early action. 2 in the case of spain, some sociological studies3 suggest that most of society is aware of the risks of failing to act and seems to

task is an arduous one but not impossible if we believe that, though it is very difficult, we are capable of changing and reforming. this is why i shall begin my speech with an optimistic message, offering you some examples showing how spain has already progressed with some adjustments and has undertaken major reforms during the difficult times we have faced during these years of crisis. i ’ m aware of the risk being run in showing optimism amid the crisis, in the same way that during the bubble whoever dared denounce the imbalances being built up was called a killjoy. but i hope my optimism is qualified by my reminder that complacency, that is to say believing that we have already done everything that has to be done and that nobody can teach us any lessons, is the arch - enemy in the battle to exit the crisis. to earn the confidence provided by the knowledge that spain has been capable of adjusting and reforming during these years of crisis, i have chosen two examples. first, the rapid improvement in our current - account balance ; and second, the headway during these years in restructuring our banking system. bis central bankers ’ speeches as is well known, under normal conditions the current - account balance is very easy to finance in a monetary union, but its size is a good indicator of two of the deepest imbalances that came about in spain during the expansionary phase : the explosion in debt and the loss of competitiveness. indeed, from 1996 credit began to outpace gross domestic product, doing so systematically until 2006, when its annual growth peaked : at a rate of over 25 % for total credit, and more than 40 % for credit extended to real estate development activities. over the same period, spanish cpi growth was systematically higher than that of the euro area. although the growth rate of credit began to fall as from 2006, growing debt and the loss of competitiveness over the 12 years to 2008 led the external imbalance to an unsustainable position, with a current - account deficit of 10 % of gdp and a strong increase in spain ’ s external debt. but what counts is that spain has since adjusted its current - account deficit at a spectacular pace. from almost 10 % in 2008, the deficit fell at the end of last year to 3. 7 % – an adjustment of more than 6 pp of gdp in three years – and at the end of 2012 we might already be in balance. the climate of pessimism accompanying the crises leads some to under