Olli Rehn’s interview with Il Sole 24 Ore


6' di lettura

Q. Are you in favour of a review of the strategy, of the tools and of the communication of the ECB? The Federal Reserve has decided to carry it out. Do you think the ECB should do the same, a review like the Fed?
A. I HAVE PROPOSED THAT THE ECB, LIKE MANY OTHER CENTRAL BANKS, WOULD REGULARLY REVIEW ITS MONETARY POLICY strategy. I HAVE received mixed reactions FROM MY COLLEAGUES so far, some supportive, some MORE skeptical. There is TIME and space to do it, ANY DECISION TO DO A REVIEW WOULD BE a collegial decision. The US and the European CONTEXTS have similarities and differences. The independency of the ECB is anchored to a strong constitutional guarantee in the EU Treaty. I feel the Federal Reserve is conducting this review also with the aim to reinforce its independency, which has lately been questioned.

Q. The Federal Reserve is organizing and hosting “events” to meets with the widest audience possible, way beyondacademics and bankers, to have feed backs on its policies. Do you think the ECB should do it too?
A. Monetary policy has an impact on citizens' lives and it must be anchored to the society and to economy at large. This is the Finnish method: we regularly meet with very different people, not only at a national level but also at a Regional level. The dialogue with the citizens is important for the ECB as well, AND it is within the REMIT of OUR mandate.


Q. Talking about reviews, do you think that the ECB forward guidance should be reviewed, that is, reinforced? And if yes, how?
A. The ECB takes collegial decisions so we will reflect on this at the next meetings of the Governing Council on the overall package: forward guidance; how and when to resume net APP if needed; lower and longer interest rates that could be accompanied by mitigating measures for the banks. It WILL BE an overall package.

Q. Are you in favour of accompanying the next interest rates cut into deeper negative territory with mitigating measures for the banks on the top of the third series of TLTRO? Has the European banking system not come out of the woods yets?
A. As far as negative rates are concerned, we have to look at the overall effect they had: they have been supportive for theeconomy and growth and this has helped the banks so the overall balance is positive. We now will analyze the mitigating measuresand we will see. TLTRO are a monetary policy tool, they have a monetary motivation: they are aimed at maintaining enough liquidity in the banking system so they support investments, growth and ultimately help inflation to converge towards our target to below but close to 2%.

Q. Yet Us banks are in a much better shape than European banks…
A. I fully agree with Mario Draghi's analysis, when he compared the US and the European banking crises: the US repaired its banking system immediately, in 2008, it took much longer to Europe to do it: the Banking Union was decided in 2012 and this made a big difference, the US growth started much earlier than Europe's.

Q. But would you agree that the real game changer for the Eurozone to come out of the Big euro and sovereign crisis was the whatever-it takes and OMT?
A. OMT IS AN IMPORTANT instrument for the Eurozone. IT IS in the ECB tool box, to be used if needed. I was AROUND when the decisions on OMT were taken: I was vice-president of the European Commission in 2011–2014, AND ESPECIALLY IN 2011-12 there was an intensive dialogue between the Commission and the ECB on CRISIS MANAGEMENT AND SOLUTIONS TO IT. In spite of the European Council decision in June 2012 to create the Banking Union, in July the spreads of Italian and Spanish government bonds wererising very fast, interest rates went back to the fatal 7%. Mario Draghi's speech in London was crucial, and gradually the spreads were reduced. However the details of the OMT were not there, they were decided later and they were announced in September. The OMT were crucial to avoid the break-up of the euro, the redenomination risk. So OMT are still important and if needed the ECB must be able to use them in an effective way, the rules that apply to OMT must be clear, their activation must be rapid. OMT are an important tool and I repeat, they must be made as effective AND as quick as possible. The ECB must be able to use them effectively and quickly.

Q. Would you agree that OMT make the ECB the lender of last resort, with conditionality?
A. There are two types of lenders of last resort. The ESM is A STABILITY FUND, OR, IF YOU LIKE, the CONDITIONAL lender of last resort for sovereigns. And the ESM has proved its effectiveness, it can be effective and it can be used, if needed, to calm down markets turbulence. The ECB is the lender of last resort for the financial system, according to the central banking principles adopted in advanced and emerging economies: central banks provide liquidity to the banking system against good collateral. Then there is a third case, and this is the genius of the OMT: UNDER very specific conditions, in special circumstances, the ECB can act as a lender of last resort for THE EUROZONE MEMBERS in case of the eruption of a redenomination risk, a widening of spreads that could break up the euro. So this is why the OMT are linked to an ESM programme which is signed with a Memorandum of Understanding. Moreover, with Spain we learnt the lesson that it is better to overshoot than to undershoot, the ESM made €100 bn available for Spain but Spain only used 42-43 bn to restructure its banking sector and now Spanish banks are in good shape.

Q. The Eurozone now needs another crucial instrument that it still does not have, that is, safe assets: do you agree? What is your opinion on this new fiscal policy tool?
A. In my view, safe assets must represent a very important building block of the next reforms in the euro area. Safe assets must be part of how to reform the Eurozone to deal with excessive sovereign exposure in the balance sheets of banks and to enhance the role of the euro in the world. Some economists like Nicolas Véron suggest concentration charges, others risk weights to solve problem of excessive sovereign exposure by banks. My opinion is that safe assets are the tool to stabilize the debt market and reinforce the role of the euro in the world. I do hope that the next European Commission and European Parliament will make safe assets a concrete measure to come.

Q. Do you think that the ECB should actively be part of the process that leads to the creation of safe assets?
A. Safe assets will be a political decision to be taken bydemocratically elected bodies and I think they should be kept strongly part of the European policy agenda. But the ECB has a legitimate interest in the resilience of the Eurozone so also in safe assets: it is within its mandate, and within the monetary policy to support safe assets. We do it every day in our central bank: theCentral bank of Finland supports policies that sustain growth, employment, competitiveness.

Q. So what is your view on Italy, a country whose economy has been below the European average growth rate for the past twenty years?
When I was minister for Economic Affairs, I PARTICIPATED IN negotiatIONS OUTCOME OF WHICH WAS competitiveness measures THAT were crucial and needed in Finland. WE negotiated with the Trade unions and with employers associations, in Finland. AS A RESULT, UNIT LABOUR COSTS WERE REDUCED WHICH, at the time, INCREASED competitiveness. So I know what it means, AND HOW DIFFICULT THE REFORMS CAN BE. But there is an important distinction, there is a division to be made between fiscal policy and monetary policy. The fiscal policy is evaluated by the European Commission. The monetary policy is the job of the central bank. But I also agree with the Tommaso Padoa Schioppaaxiom, he said that the independence of the central bank does not mean loneliness. So there must be an optimal policy mix between fiscal policy and monetary policy. I have been a regular visitor in Italy, as a minister, as commissioner and as central banker. Italy is a country with a strong entrepreneurial potential, Italian people are innovative and with the appropriate structural reforms, and with reforms that include investments in innovation, Italy can have a new economic boom like the Miracolo italiano in the 50s, pro-active policies to support growth are essential in Italy. But I also underline that the Eurozone member States that have fiscal space should use it, those that have less fiscal space or no fiscal space should STILL build buffers.

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