Resetting the Course

We are living in times of great global changes, and every change generates uncertainties. Navigating through them is always complex and often requires implementing unorthodox measures, but this should not lead us to take our eyes off our objectives and reset the course as soon as possible.

Never before have we seen an interest rate environment like the current one. Never before has there been such a prolonged period of low, even negative, rates on both sides of the Atlantic. The top officials of the most influential central banks in the world have injected enormous amounts of money into the economies to save them from a new recession. The era of unorthodox monetary measures has been extraordinarily long and forceful. The United States appears to have initiated this year the path towards increasing the cost of money. Even in the Old Continent, we are beginning to see that turning point.

It is possible that economies needed this assistance from central banks at a certain point, but it is important not to forget that excess liquidity in the market can also cause imbalances. Although the President of the ECB tirelessly reminds us in each of his appearances that his top priority is controlling inflation, we should not overlook the collateral effects of his expansive measures. Excess liquidity in the market may be behind the sharp decline in margins in retail financial businesses or episodes of volatility in equity markets. However, this is not the only reason to initiate reflection on the process of rate hikes by the European central bank. Other groups may benefit, such as savers and pensioners who largely depend on the returns of accumulated savings. Therefore, the recovery signs in the economy (in 2016 Spain grew at a rate higher than 3%) and the inflationary resurgence make it necessary for the European Central Bank to resume the path of monetary orthodoxy as soon as possible.

On the other hand, today it is more necessary than ever to complete the process of Banking Union in Europe. The project emerged in 2012 with the ambition of creating a single European banking legislation and supervision. However, the crisis has not allowed sufficient progress, and the advantages that would arise from its strengthening have not been achieved. The main one: breaking the correlation between banking risk and sovereign risk.

The uncertainty unleashed by Brexit or the apparent rise of Euroskeptic forces should not hinder the completion of this great historical process of European construction. All Member States should demonstrate their commitment in 2017 to finish what has been started. Following the success achieved with the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM), the focus must now be on the European Deposit Insurance Scheme, ensuring common protection for all European depositors. Completing this third pillar and thus achieving Banking Union must be one of the priorities of the European Commission. The support of all (regulators, supervisors, and industry) is necessary to restore this project.