Luis M Linde: Reflections on the planned Banking Union in Europe Address by Mr Luis M Linde, Governor of the Bank of Spain, at the First Bank of SpainOMFIF Economists Club Meeting, Madrid, 21 October 2013. *  *  *  Dear colleagues and friends, ladies and gentlemen: It is a pleasure to host this first Banco de España-OMFIF Economists Meeting. I am fully confident that it has provided an excellent opportunity to review and assess the latest developments in the Spanish and European economy and the present situation of the Spanish Financial System. I would like to share with you some reflections on the Banking Union in Europe which is, as we all know, a very important matter for the present European financial scenario. The thrust for the design of such a fundamental reform as the Banking Union in the economic governance of the European Union has come from the crisis, both international and European. The euro zone financial and sovereign-debt crisis has shown the shortcomings of the European institutional framework, triggering a wave of reforms that would, otherwise, most probably, not have taken place. Last year, the Presidents of the Council, ECB, European Commission and Eurogroup agreed on the milestones for building a new Economic and Monetary Union, based, in principle, on four blocks: the banking union is the first of those blocks, to be complemented, according to the political design, a later stage, with a fiscal union, an economic union and, finally, a political union.
If that is not enough, a final safeguard is built into our new forward guidance framework. The Bank’s independent Financial Policy Committee has the task of warning publicly if persistently low interest rates are leading to vulnerabilities that cannot be contained by other means. In short, we are providing the stimulus the economy needs, but in a disciplined way to secure price and financial stability. Conclusion Let me finish by drawing the pieces of the jigsaw together. Developments at home and abroad suggest that conditions are in place for growth to be sustained into the medium-term – though at a pace that is likely to be measured rather than rapid. Households have reduced their debt levels and are now spending out of income. The outlook for the world economy and our major export markets is a bit better. The extreme risks in the euro area have been substantially reduced. The global financial system is being repaired. There will still be bumps in the road ahead. A few can be foreseen, others will surprise. Emerging market economies – the engine of global growth in recent years – are under strain as capital flows back to recovering advanced economies. A few less well-managed financial institutions still have a long journey ahead to rebuild their balance sheets and are vulnerable to shocks until they do so. Progress in Europe will remain uneven. We cannot control all these events.