A further possibility is to temporarily ease the State aid framework for the business sector and establish certain temporary limits on retail electricity prices. More broadly, the war has underlined the need to accelerate European integration so that the EU is an important player on the global stage, capable of deciding its own future and defending its values. A cornerstone of this integration is the creation of a common and permanent fiscal capacity in the euro area, which would facilitate the economic policy response to severe shocks. The design of this common fiscal capacity must be based precisely on the lessons learned from NGEU and the instrument for temporary Support to mitigate Unemployment Risks in an Emergency (SURE), which were implemented to deal with the pandemic, and on any lessons we might draw now from our response to the war. The financial realm is a second area of economic integration. Pan-European bond issuances to fund NGEU, and any other potential issuances as part of the response to the invasion of Ukraine, are an important step towards creating a European safe asset. In addition, deeper capital market integration in the euro area would pave the way for greater risk-sharing in the face of asymmetric shocks. Lastly, a third necessary element to bolster the euro area’s institutional architecture is the completion of the banking union, establishing a European deposit insurance scheme and a common framework for resolving systemic crises.
Any agreements concerning wage increases should take their lead from the underlying inflation. These recommendations apply to both wage increases and, where applicable, to potential wage guarantee clauses. Arrangements such as these have already been used by the social partners in the past and have proven a useful tool for protecting jobs, making firms more competitive and spurring economic growth.10 Fifth, these guidelines on wage developments should be accompanied by explicit commitments to moderate profit margins. Only then will such wage restraint actually make firms more competitive, while, in turn, limiting the extent to which rising energy input costs are passed through to other goods and services in the economy. And some sort of mechanism would have to be set in place to ensure this restraint in profit margins can be verified. The simulations performed using the Quarterly Macroeconometric Model of the Banco de España (MTBE) underscore the benefits of a successful incomes policy. The MTBE  8  The weight of energy inputs in production and exposure to international competition vary considerably across sectors and firms. 9  To varying degrees, these types of clauses mean that, regardless of the type of underlying shock, any potential future price rises automatically pass through to wage increases, thereby triggering the second-round effects we hope to avoid.