Back in 2001 the Governing Council of the ECB, on the basis of a proposal coming from Tommaso Padoa-Schioppa, issued a short paper lining up the arguments for having supervision in a central bank. And if you read that paper, you will see that the set of arguments is heavily tilted towards favouring giving supervision to central banks. So it’s a long-standing position.1 There are many advantages, including one that is not mentioned in the paper: supervision is not just about micro-supervision these days; it now has a macro-financial perspective, for which central banks are much better prepared than any other institution to handle. Central banks monitor developments in all segments of the financial system. From reading your most recent speech, I had the impression that you thought austerity went much too far and the effects have been too drastic. Is that right? 3/8  BIS central bankers' speeches  Yes. And the main example of that is of course the case of Greece. No institution, not the Commission, not the ECB, not the IMF, ever thought possible – let alone planned for – a 25% drop in GDP in Greece. The first and second programmes for Greece were designed with a much more optimistic view on the cost of the adjustment. So the adjustment programme was indeed too harsh. And also perhaps too mechanical, because what the programme didn’t foresee was the total collapse of hope and expectations. Then, at the same time, all countries in the euro area were reducing deficits, consolidating.
The growing complexity of market-based finance and the change in the financial system will make it difficult for central banks to go back completely to the old, comfortable, traditional approach of having very lean balance sheets and just targeting the overnight money market rate. The set of instruments will have to be broadened. Several have been used during the crisis, some of them just for very stressful periods of course, but they are now part of the toolkit. Do you think what you’re saying is shared by other people on the Governing Council? I wouldn’t speculate on that. This view is developing in academia everywhere and has been discussed extensively in [the Kansas City Federal Reserve’s flagship conference in] Jackson Hole in 2016, for instance. So it’s part of the ongoing discussion at the interface between academia and central banking. Do you think the ECB has done enough to justify the impact of its policies on inequality? If we were to do quantitative easing (QE) again, would helicopter money be a better option? Helicopter money has never been a policy option. We are attentive to the question of inequality. I spoke in August last year to the European Economic Association about inequality and monetary policy, and since then further work has been done in the ECB to expand on what I said.