joachim nagel : el economista speech by dr joachim nagel, president of the deutsche bundesbank, in honour of mr pablo hernandez de cos, governor of the bank of spain and recipient of the echegaray prize, madrid, 2 november 2022. * * * 1 introduction ladies and gentlemen, today we are celebrating the award of the echegaray prize to an outstanding economist and central banker. pablo, it is a great pleasure for me to speak at this wonderful event in your honour here in madrid. i could certainly talk for a long time about all your achievements and merits, but my time is limited, so i will have to remain brief. 2 life path and achievements allow me first to say a few words about you, your life path and your major achievements. pablo hernandez de cos was born on january 20, 1971. his family originates from santander, a beautiful region in the north of spain. this region is, i guess, more green but less sunny than average for the country. he graduated in economics and business administration at the university college of financial studies in madrid in 1993 and in law at the national university of distance education the following year. his career as a central banker started in 1997, when he joined the research division of the department of monetary and financial studies at the banco de espana as a senior economist. a year later, he moved to the economic policy analysis division at the department of economic analysis and forecasting, where he stayed until 2004. as you can see, pablo is familiar with the groundwork carried out by economists at central banks. he was one of the economic experts that central banks are famous for. perhaps i am stressing this point because i believe that getting to know a central bank from its heart is a highly valuable experience. in this period, pablo not only worked as a senior economist at a central bank, he also got his phd at the same time. a great achievement! meanwhile, he also opened a chapter in his life that someone from frankfurt like me is especially pleased to talk about : in 2000 he came to this city for the first time as a country expert at the ecb, staying for a few months. after receiving his doctoral degree, he deepened his frankfurt connection further and became an advisor to the executive board of the ecb in 2004. his second frankfurt experience lasted much longer, spanning three years until 2007. his first child was even born in frankfurt. this gives me reason to hope that he can

heighten this confidence. however, as with any insurance policy, one would have to make sure in this case, too, that the insurance does not cover losses which have already occurred, like bad loans already on banks ’ books, and that the insurance does not encourage careless behaviour in the future. unlike banks in the united states, banks in the euro area have a sizable share of sovereign bonds on their books. to insure euro - area bank risks in such a situation would be tantamount to insuring fiscal risks. given that the member states themselves still decide freely and independently on the level of government expenditure and taxes, this ultimately sets the wrong incentives : finance ministers would see less of a need to pay adequate attention to the sustainability of public finances. one precondition for a european deposit insurance scheme, then, is that the size of government bond portfolios that banks hold on their books is limited. doing away with concentration risks of sovereign bonds in banks would be a boon to monetary policy as well. during the crisis, monetary policy transmission was hampered by these large and undiversified sovereign bond portfolios. potential losses on these portfolios were draining banks ’ equity buffers. the banks in question were therefore unwilling to lend and to pass on the low policy rates to companies and households. 56 in order to shield an economy from a sovereign in trouble, banks must be restrained in taking on government debt. 5 conclusion ladies and gentlemen alfred nobel never envisioned a nobel prize for economics. on the contrary, he once wrote in a letter that he did not have an economic education, and that he hated it with all his heart. no wonder economics is dubbed the “ dismal science ”. obviously, i do not share nobel ’ s sentiment. on the contrary, i am firmly convinced that a social science that is based on transparent assumptions and is thoroughly steeped in data is of immense benefit to all of us. but i am equally convinced that a conference like today ’ s, that sets out to discern similarities and differences, would have met with approval, even in the eyes of alfred nobel. thank you for your attention. 1 auer r, c borio and a filardo ( 2017 ), “ the globalisation of inflation : the growing importance of global value chains ”, bis working papers 602, bank for international settlements. 2 allard, c, p k brooks, j c bluedorn, f bornhorst, k christopherson, f ohnsor