IESE Prof. González-Páramo Calls for Banking Union

Alumni session: "Before a decisive year: goals for the Spanish economy and the euro zone"

19/10/2012

José Manuel González-Páramo

José Manuel González-Páramo, IESE professor and former executive board member of the ECB, led the Continuous Education session,"Before a Decisive Year: Goals for the Spanish Economy and the Euro Zone," today on the school's campus in Barcelona. The event, which was moderated by IESE Dean Prof. Jordi Canals, focused on the need to strengthen European monetary policy and the current state of the Spanish economy.

González-Páramo first provided an analysis of the current finances of Spain: "Spain has had four quarters of negative growth rates and this tendency will likely continue over the coming months," he said. "The debt of banks and companies is at very high levels; there is macroeconomic uncertainty and the confidence levels of industry and consumers is weak."

However, González-Páramo noted that exports are on the rise, "although greater efforts and investments are needed, since this is an area that will help the Spanish economy start to grow again." The reforms implemented by the Spanish government are on the right track, he said, but he urged politicians to improve communications and confidence on external as well as internal levels.

"The Spanish public is willing to make sacrifices, but measures should be explained in a clearer and more didactic way," he said. On an international level, leaders should be more prudent and "positively surprise" the markets, announcing and implementing policies that can be fulfilled. This will improve Spain's image and facilitate the entry of new financing.

A more united Europe

Next, he provided an overview of the current state of the euro zone, which remains one of the most important economic centers in the world. He discussed how, after various months of intense uncertainty about the future of the euro, agreeements were reached by the European Commission in June.The group issued statements later warning about the extreme risk faced by the common currency.

"Economic recovery on a European level will be gradual and extreme risks will remain on the continent. But it is obvious that the euro has brought enormouns benefits to people, created stability and jobs; even in the midst of a crisis, it is supported by the majority of Europeans," he said. Yet the initial conditions set out for the euro are unsustainable in today's context and creating a banking union is the only path forward.

"A 50€ note in Berlin and in Athens are worth the same; but one euro of a Greek bond and one of a German bond have completely different values and this situation does not make any sense within the framework of a single currency," he said. It is essential that Europe moves toward an economic system with integrated regulation; a single system of supervision, with a federal system of treasury that guarantees deposits and has a central financial authority. Although the process will be slow and involve negotiations among member states, a common currency rwith a banking union is the only way to survive.

In the final part of the session, he discussed the role of the European Central Bank as a mechanism for generating financial stability. In recent years, the ECB has carried out "an excellent job" and in the future will have even more presence as a macro and micro-level supervisor. Its role should be exclusively technical and less political than in recent months, given that it has been identified as one of the most credible and stable institutions on the continent, he said.