23.05.2018  “Strengthening the economic governance of the euro: short-term priorities and the long-term view” High Level Seminar. Banco de España Luis M. Linde Governor  Ladies and Gentlemen, Let me first extend a warm welcome to you all to the Banco de España. Thank you for joining us today in this seminar that addresses the pressing and very important topic of the Economic Governance of the Euro: Short-term Priorities and the Long-term View. I would like to thank the panelists who have been so kind to accept our invitation; we are very pleased to have among us a long list of distinguished participants that would certainly throw much welcomed light on the discussion. The timing of this conference is particularly relevant. After years of low growth, Europe is now experiencing a robust recovery which opens up a window of opportunity to make progress in the governance reform agenda before the next economic downturn unfolds. Supported by expansionary monetary policy, real GDP in the Euro Area has expanded for 19 quarters in a row. Stronger price dynamics are yet to materialize, but we are confident that if we are prudent, patient and persistent, our monetary policy measures will be effective in achieving the medium-term goals. Price stability is a necessary but not a sufficient condition for achieving sustained and balanced growth. In fact, one important lesson we can draw from the first twenty years of the EMU is the need to improve the area’s resilience to large macroeconomic shocks and to increase its stabilization capacity.
As most of the empirical evidence points out, risk sharing channels are substantially weaker in the euro are than in other monetary unions, but also when compared with large countries inside the euro area, so that a larger share of idiosyncratic or national shocks to income cannot be smoothed out. Upgrading the efficiency of risk-sharing channels, both private and public, and better exploiting the synergies among them would provide the euro area with the shockabsorption capacity and the improved access to cross-border equity finance that is currently lacking. On the fiscal front, the euro area needs to achieve eventually a more complete fiscal union. Some form of semi-automatic cyclical insurance mechanism against asymmetric shocks could be designed to make it possible more risk-sharing without entailing permanent transfers between countries. Depending on modalities, such an instrument could also contribute to smooth aggregate shocks, achieve a more balanced policy mix and increasing sharing responsibilities with monetary policy. In addition, the EU rule-based fiscal framework needs to gain in simplicity and transparency. Recent proposals, which seek to give greater weight to public debt as a medium-term anchor and to the expenditure rule as an operational tool, deserve consideration. At the same time, increased national ownership should be fostered by enhancing the oversight role of independent fiscal authorities. The aim being to generate enough room for maneuver during good times, so that the stabilising capacity of fiscal policy may be larger at crisis times.