Pablo Hernández de Cos: A complete institutional architecture for a stronger policy mix

Speech by Mr Pablo Hernández de Cos, Governor of the Bank of Spain and Chair of the Basel Committee on Banking Supervision, at the European Commission webinar "A stronger policy mix for the euro area?", organised by DG ECFIN Directorate for Macroeconomic Policies, 3 December 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

The COVID crisis has tested the European project in unprecedented ways. The policy response, a successful monetary and fiscal policy reaction, informed by a euro area (and EU-wide) perspective, has been unprecedented too. Given the exogenous roots of the crisis, the need to respond with a balanced fiscal-monetary policy mix was clear. And its depth facilitated the adoption of far-reaching political agreements that allowed the incomplete institutional nature of the Economic and Monetary Union (EMU) to be temporarily overcome, in particular through the deployment of some significant pan-European fiscal instruments. To mention the most important, let me highlight the NGEU programme, and also the unemployment scheme SURE.

The need for a policy reaction from the aggregate angle was quite clear on this occasion. This is a novelty when comparing with the two previous crises, the GFC and the European sovereign debt crisis, when the endogenous roots of the shock showed a fundamental need for reform and action at the national level, that was only subsequently reinforced by some important steps aimed at pushing forward the overall euro area (and EU) architecture.

Let me start by reminding us how we got here.