Luis de Guindos, Vice-President of the European Central Bank (ECB), was invited by the European Parliament’s Committee on Economic and Monetary Affairs (ECON) on Thursday 18 April for an exchange of views on the ECB’s annual report for 2023. On the same day, the ECB published its response to the European Parliament’s contribution. The Vice-President had the opportunity to answer MEPs’ questions on issues such as the quality of the Eurosystem teams’ macroeconomic projections, the revised economic governance framework, the greening of ECB policy and the remuneration of bank reserves in the euro area.
Quality of projections and monetary policy
Pedro Silva Pereira (S&D, Portuguese) drew attention to the successive and sustained corrections made by the ECB to its inflation projections and asked the Vice-President about the quality of the projections on which monetary policy is based.
Luis de Guindos replied that the last four years had been marked by shocks such as the Covid-19 pandemic, followed by an economic recovery and then Russian aggression against Ukraine. In his view, these shocks are difficult to model for the purposes of central bank projections.
Mr de Guindos also referred to the Bank of England’s report on improving projection models. He said that the Eurosystem had begun to react and that projections would become more accurate.
The Vice-President emphasised, as ECB President Christine Lagarde had done at the time of the last monetary policy decisions (see EUROPE 13389/4), that inflation would hover around current levels in the short term, then reach the 2% target in the medium term.
However, he added, there are risks surrounding these projections, linked to wage trends, productivity, labour costs and geopolitical risks.
Regarding the ECB’s monetary policy, Luis de Guindos said: “For our monetary policy, I think we have been crystal clear: if things continue as they have been evolving lately, in June we will be ready to reduce the restriction of our monetary policy stance”.
“With respect to the future, taking into consideration the level of uncertainty that we have now in the economic scenario, we are crystal clear that we should follow a sort of data-dependent, meeting-by-meeting approach. With this level of uncertainty, it is very difficult to deliver a sort of forward guidance for the future. But for June, I think we have a very clear idea about what we should be doing in our next Governing Council meeting”, he added.
Greening monetary policy
Asked by Henrike Hahn (Greens/EFA, German) about a ‘green’ rate from the ECB or a lending facility for green investments, Mr de Guindos said that governments were the primary actors in climate policy, notably through a fiscal policy that favoured or supported such investments and discouraged investments in polluting sectors.
Nevertheless, he affirmed that the ECB had integrated climate change into its strategy and at the heart of its action, and that it was making a dual contribution to the environmental effort, notably through its investment policy, by favouring ‘green’ companies in its portfolio, as a replacement for ‘brown’ investments.
Mr de Guindos also announced that a collateral pool limit would be introduced before the end of the year, which would give preference, among the guarantees provided by banks when they acquire liquidity, to ‘green collateral’.
He indicated that the question of a ‘green’ rate had not yet been discussed, but that in operational terms, this ‘green’ rate would be difficult to implement, as it would have discriminatory aspects.
Economic governance framework
Mr de Guindos also called for rapid implementation of the new European economic governance rules. He called for credible rules in terms of budgetary policies and argued for a reduction in public debt and deficits, which increased after the pandemic.
However, the Vice-President would like to see a cautious budgetary consolidation to avoid potential impacts and allow the Member States to create budgetary space so that they can make the necessary investments. He also pointed out that the markets were beginning to look at public debt levels.
Mr de Guindos reiterated his view that it would be very important to have a single budgetary authority in the euro area. This could lead to easier cooperation between fiscal policy and monetary policy, he said.
Link to the ECB report: https://aeur.eu/f/bup
Link to the ECB’s response to the annual parliamentary report: https://aeur.eu/f/buc (Original version in French by Émilie Vanderhulst)