In a context requiring, first, that the funds be used nimbly to shore up the recovery and, second, a lasting impact to encourage the structural transformation, the ongoing assessment of the projects financed using those funds is the most effective answer to squaring these short and long-term objectives and to strengthening the necessary public fund control mechanisms. Ongoing assessment allows for experimentation with new ideas and transformative projects. It also minimises the danger of continuing to channel funds to projects which are attractive a priori, but which do not yield the expected results. Making mistakes can sometimes be a part of long-term success; however, persisting in the error never is. Spain and Europe need Next Generation EU to be a success, on account of it representing a chance to ready ourselves for the future and making the case for further European integration. Indeed, the need for the European funds to help foster our economy’s transformation is also determined by the requirement that the funds be used in conjunction with reforms addressing the structural defects that, according to the evidence, have weighed down growth and hampered our society’s well-being for decades (e.g. those related to low productivity and the poor functioning of our labour market).
Monetary policy and asset bubbles In my opinion, this crisis should lead to a critical reevaluation of the view that central banks cannot identify or prevent asset bubbles, they can only clean up after asset bubbles burst. As I wrote in 2006, this orthodoxy can be summarized by three propositions: 1. Asset bubbles are hard to identify. 2. Monetary policy is not well-suited to respond to bubbles. 3. Thus, the cost/benefit tradeoff of “leaning against the wind” against asset bubbles is unfavorable. From these propositions, the two important policy implications directly follow: 1. The central bank should only take asset bubbles into consideration in the conduct of monetary policy to the extent that these asset bubbles affect the growth/inflation outlook. 2. The monetary authorities should be there to “clean-up” after bubbles burst, both to prevent systemic problems and undesired downward pressure on economic activity and/or inflation. Relative to this, I would argue that:  BIS Review 83/2009  3  1. Asset bubbles may not be that hard to identify – especially large ones. For example, the housing bubble in the United States had been identified by many by 2005, and the compressed nature of risk spreads and the increased leverage in the financial system was very well known going into 2007. 2. If one means by monetary policy the instrument of short-term interest rates, then I agree that monetary policy is not well-suited to deal with asset bubbles.