Interview with Luis de Guindos, Vice-President of the ECB, performed by Pablo Allendesalazar
1 December 2025
Shocks have been build up for the reason that pandemic, however essentially the most dreaded financial situations find yourself not materialising. In consequence, the markets maintain rising and rising. However the financial system is cyclical. Aren’t you fearful that certainly one of these situations may really materialise while you least anticipate it?
There was a really important build-up of shocks, however this has not had an impression on European banks, thanks in no small half to the structural reforms that have been applied, together with the creation of the Single Supervisory Mechanism and the Single Decision Board. This improved banks’ solvency, as did the brand new Basel-based rules. Along with this, international locations like Portugal, Greece, Italy and Spain improved their scores and are extra aggressive. In consequence, though it’s rising beneath its potential of 1-1.5%, the euro space financial system is now rather more resilient to those sorts of shocks. However there are at all times doubts and uncertainties; our Monetary Stability Overview analyses essentially the most related ones.
The Overview states that there is no such thing as a synthetic intelligence bubble however that there might be a pointy adjustment in inventory market valuations if the sensible rollout of AI is slower than anticipated. How doubtless do you suppose that is?
The Overview identifies potential dangers. And the valuations carry a excessive stage of danger. Inventory market danger premia are extremely compressed, there was little or no volatility and a lot of the will increase in worth are concentrated in “Magnificent 7” shares. What’s extra, the markets are pricing in a really benign narrative: geopolitical dangers are usually not crystallising, US financial coverage continues to be chopping rates of interest, and there gained’t be a recession. Synthetic intelligence appears to be unstoppable worldwide, however we’re warning that there could also be an issue of extreme valuations. On the similar time, the scenario doesn’t seem like just like the dotcom bubble 25 years in the past. Corporations have clear, established enterprise plans, already sturdy and rising revenues, and income. So it’s unlikely that it is a bubble. However valuations could endure a correction if this benign narrative doesn’t really materialise.
The Overview additionally highlights the danger posed by the non-financial sector, previously often known as the shadow banking sector. There was discuss of the necessity to regulate and supervise it for years, however no substantial progress has been made. May the following monetary disaster begin there?
What we name “non-banks” could be very broad time period. It ranges from insurance coverage corporations, pension funds and funding funds, to hedge funds or danger funds. And there’s a new phenomenon within the type of non-public fairness, non-public credit score, i.e. non-public markets. Insurance coverage corporations and pension funds are regulated and topic to strict supervision. However leverage has elevated considerably in hedge funds, and a tough scenario may come up within the occasion of huge redemptions, due to liquidity buffers that stay low. Non-public markets, which aren’t supervised, are rising in measurement and there’s some opacity of their portfolio valuations. This opacity is mirrored in, for instance, difficulties in promoting their shares. The basic warning is in relation to the sturdy interconnection that exists between non-public fairness, non-public credit score and hedge funds, and the normal banking sector that has now vital exposures to all three non-bank segments on each the asset and legal responsibility aspect of its balance-sheet. Given the dearth of strict supervision, excessive leverage, and issues regarding the opacity and illiquidity of portfolios, an incident may have an effect on the European banking sector, which is nonetheless in a strong place.
There appears to be a pendulum impact at play. After the 2008 [financial] disaster, some have been saying shadow banking was an issue. There then adopted a part of arguing that the European financial system wanted extra non-bank funding. Now any such funding once more appears to be a danger that, between one factor and one other, has ended up not being correctly monitored.
There are a whole lot of these sorts of funds working outdoors Europe. What is required is world regulation. And, given the interconnectedness with the banking sector, the method of supervising the markets and these kind of establishments in Europe needs to be extra built-in. Presently it’s within the fingers of nationwide securities commissions. We’re calling for a single, built-in imaginative and prescient, which can be important if we need to develop the capital markets union, or, because it’s now known as, the financial savings and investments union.
A 3rd danger recognized within the Overview is that “fiscal fundamentals in some euro space international locations have been persistently weak”, with the danger that “fiscal slippage may check investor confidence, particularly in international locations the place political majorities are fragile”. France clearly springs to thoughts. However may the reference to fragile political majorities even be utilized to Spain?
We’re not speaking about one nation particularly. In France, nevertheless, the danger premium stays average, the French bond market is liquid and there was no contagion to companies or banks. Our Overview talks concerning the future. In Europe, the fiscal deficit stands at 3% and the debt-to-GDP ratio at 90%. On the similar time, a big effort is required to extend defence spending, which is an absolute precedence for Europe. Then again, the dearth of political stability to approve budgets could have an effect on the credibility of medium-term funds plans. There are fiscal challenges and it’s essential to ship a message of fiscal stability consistent with political stability. It’s tough to give you a medium-term funds plan if the annual funds can’t be accepted. It is a normal warning, though it could be extra pressing for some international locations than for others.
You mentioned not too long ago in Portugal that the “major cause” Spain’s progress is best than the euro space common is as a result of its inhabitants is rising due to immigration flows. Is any such progress sustainable?
Over the previous decade, excluding the pandemic interval, Spain’s financial system has had two clear benefits. The primary is a sound monetary system. Even within the case of Banco Widespread, it was resolved below the decision framework with no impression on the remainder of the sector and for free of charge to the taxpayer. The second is that it has turn into rather more aggressive, as mirrored in developments in items and providers exports – not solely tourism-related – as mirrored within the surplus of the steadiness of funds. A number of components intersect with these two structural pillars. One is the very sturdy inhabitants progress owing to immigration, significantly for the reason that pandemic. Spain’s inhabitants is rising by 500,000 folks per 12 months in internet phrases, and this clearly pushes up GDP. I’m in favour of immigration. It’s essential, if not important, given the demographic developments in Europe and in Spain. A second vital issue has been the Subsequent Era EU funds. Spain has obtained €70 billion that doesn’t must be paid again. How these assets have been invested will must be analysed sooner or later. The third issue is tourism.
However is that progress mannequin sustainable?
Owing to the sturdy inhabitants progress, the primary bottleneck dealing with the mannequin is housing. The rental market ought to take in the rise in demand. Rental housing provide has not grown on the similar charge. This has pushed costs up, which is affecting labour mobility in Spain and younger folks particularly. One other extra structural medium-term downside is that productiveness progress is relatively low as a result of immigration primarily flows into lower-skilled sectors. The conclusion is that, formally talking, GDP progress is superb – greater than double that of Europe. However for different indicators, like GDP per capita, the expansion hole is rather more modest. There are doubts about its medium-term sustainability owing to housing. Furthermore, when the inhabitants grows, there’s want to take a position extra in social providers, like training and well being, as a result of there’s higher demand for these providers.
How can we resolve the housing downside – by means of value interventions and extra development?
Regulating rental costs doesn’t increase provide – it reduces it. That’s what is occurring in sure areas in Spain. Given the sturdy inhabitants progress within the nation, guaranteeing appropriate regulation that promotes renting is essential. It’s not only a matter for the central authorities; it’s one for the autonomous communities and the municipalities too. A State Pact on renting is important.
The ECB considers housing to be overvalued by 16.8% in Spain, the best stage since March 2009. The Banco de España is exploring the potential for activating limits on mortgage lending, like in the remainder of the euro space, besides Italy and Germany. Would that be useful for monetary stability?
You’ll be able to’t evaluate the scenario now to the one 15 years in the past, when the housing bubble was accompanied by a credit score bubble. We don’t have that at this time. Macroprudential measures are vital as they make it attainable to intervene when there are unsustainable value rises over the medium time period with the intention to keep away from an abrupt correction when the cycle turns. A few of these measures concern banks’ capital necessities, with banks being topic to capital add-ons. Others concentrate on debtors, on mortgage lending to people, establishing limits on the loan-to-value ratio. These are affordable measures and the Banco de España is learning them. However let me stress, we’re not in the identical scenario as we have been 15 years in the past.
Market reference charges, just like the EURIBOR, have began to edge up barely and to be handed by means of to the financing situations of euro space companies. Are you involved about this financial tightening in a context the place inflation and inflation expectations are nonetheless anchored across the 2% goal and the financial system is enhancing, albeit not brilliantly?
Our financial coverage selections are based mostly on inflation developments, that are good, inflation projections, that are additionally good, and the transmission of the financial coverage. For mortgages, the transmission follows our rate of interest selections very intently. For companies, it’s true that banks are extra restrictive as regards who they lend to as a result of the present geopolitical danger panorama may have an effect on the solvency of companies. However of their precise lending, banks replicate our financial coverage selections. The 12-month EURIBOR, which most mortgages are tied to, takes under consideration each the present rate of interest stage and the extent within the coming quarters. The markets are pricing in stability, with no charge will increase or decreases within the coming months. What we’re saying is that the present stage of rates of interest is acceptable based mostly on the three variables I simply talked about. Though, clearly, given the extent of uncertainty and unknowns within the worldwide geopolitical surroundings, we’re open to adjusting it.
You see dangers to progress to be balanced, financial progress has improved barely, and also you decide the present stage of charges to be acceptable. With this in thoughts, it appears affordable to say the baseline situation is that they are going to be stored unchanged over the medium time period.
Effectively, that’s what the markets are saying, and what you might be saying. My feeling is rather more open, and it’ll depend upon the information we obtain. However let me say it once more: offered the circumstances don’t change, the present stage of rates of interest is acceptable.
After the final Governing Council assembly, the President of the ECB mentioned that the choice to maintain charges unchanged was unanimous, however there have been variations of opinion between “hawkish and dovish” governors. Is there a danger of a cut up inside the Governing Council, like there was on the finish of 2019, for instance?
The Governing Council has 27 members, together with the Bulgarian Governor. In fact there are totally different factors of view. That’s human. However now there’s a consensus that the present stage of rates of interest is acceptable, and if circumstances change within the surroundings, we are going to regulate the rates of interest.
You chair the ECB Excessive-Degree Process Drive on Simplification, which is growing regulatory simplification proposals to undergo the European Fee. Is it attainable to simplify with out affecting the resilience of the monetary sector or decreasing capital ranges?
In fact it’s. By the tip of the 12 months, the duty power will submit its report back to the ECB’s Governing Council for approval and, if it will get the inexperienced mild, we are going to ship it to the Fee. There might be a big variety of suggestions in three areas: capital construction, reporting and supervision. It will make procedures much less burdensome and fewer advanced, whereas not compromising the solvency of European banks.
Does that imply combination capital necessities might be comparable, however the make-up of that capital might be totally different?
The capital construction of European banks contains greater than ten totally different capital buffers. We’ll ask for that quantity to be diminished, and for proportionality within the supervision and regulation of smaller banks, or adjustments within the stress check. However none of this means a discount in capital necessities. In keeping with our evaluation, capital ranges are usually not proscribing lending in the intervening time.
After 11 years with none important progress, is it life like to suppose that the European deposit insurance coverage scheme might be accomplished earlier than one other disaster happens?
I consider it’s important and I hope that the EU authorities – the EU Council, the Fee and the European Parliament – are conscious of simply how vital it’s.
In current months, there was political opposition to financial institution mergers in international locations like Spain. The Authorities has to transpose the revised Capital Necessities Directive (CRD VI) and determine whether or not the ability to approve mergers needs to be shared with or ceded to the ECB and the Banco de España. That energy is enshrined in a 2014 regulation which you accepted while you have been a authorities minister. What do you suppose can be the most effective plan of action?
2025 shouldn’t be 2014. In 2014 the nation had simply emerged from a really deep financial savings financial institution disaster. 11 years later, the solvency and profitability ranges of Spanish banks are very totally different. That’s why a change in strategy is feasible. It’s a political resolution that the Authorities must make, however I feel it’s helpful to at all times contemplate the ECB or the Banco de España in these kind of operations. It gives a complementary perspective to that of the competitors authorities.
Subsequent 12 months the ECB intends to publish its new Information on governance and danger tradition. Will banks’ government chairs be obliged to surrender their powers to CEOs or will it solely be a strengthened suggestion?
That’s the duty of ECB Banking Supervision and there’s a separation there. What I can say is {that a} separation of powers between a non-executive chair who coordinates and manages the board of administrators, and a CEO with government powers, is thought to be good apply by supervisors all around the world and is often properly obtained by institutional buyers.
The ECB is pushing for the digital euro however, echoing banks’ issues, has encountered some opposition within the European Parliament, led by Fernando Navarrete, who was beforehand on the Banco de España and the Spanish Treasury. Has the Parliament’s place stunned you?
I’ve a substantial amount of respect for the Parliament and its Committee on Financial and Financial Affairs. The ECB is clearly in favour of the digital euro, which is kind of merely the pure improvement for banknotes in mild of world digitalisation. Banknotes are cash issued by the central financial institution, in different phrases public cash, and can live on. There isn’t a doubt about that. Like banknotes, the digital euro won’t pay curiosity. Will probably be a method of cost, contributing to cut back our dependence on US-based technique of cost. We’ll contemplate the digital euro’s potential impression on monetary stability, however within the coming years it’s going to undoubtedly play an important position in boosting each folks’s high quality of life and European independence.
Are you fearful concerning the world financial penalties if the brand new Federal Reserve System Governor is perceived as much less unbiased from the Trump Administration?
Central financial institution independence ensures decrease ranges of inflation and thus decrease rates of interest. If the market believes {that a} central financial institution shouldn’t be unbiased, rates of interest will are usually larger and households and companies will borrow at larger price. There may be proof that unbiased central banks management inflation higher. When the central financial institution stories to the federal government, financial coverage shouldn’t be centered on decreasing inflation, however as a substitute is often used as a fiscal coverage instrument.
Your time period of workplace ends on 31 Might. Are you able to see your self returning to home politics if a hypothetical Partido Widespread authorities gives you the financial vice-presidency?
I used to be a authorities minister for six and a half years. And I’m very happy with that point, contemplating the circumstances wherein we took over and the state of the nation after we left. However that chapter is closed and I’m not planning to return to politics.
So what are your plans?
I don’t know but. I’ve been approached by just a few universities, which I’ll contemplate. As a member of the Governing Council, there’s a strict battle of curiosity coverage to observe, however instructing is permitted. And I consider from there you may as well play a public service position.
If you go away, Spain will lose its presence on the ECB’s Government Board, as a result of your substitute is unlikely to be Spanish. Three extra positions turn into accessible in 2027: these of Chief Economist Philip R. Lane, President Christine Lagarde and Board member Isabel Schnabel. Which do you suppose Spain ought to intention to fill?
That’s for the Spanish authorities to determine. For big economies like Spain is vital to have a presence on the prime of the ECB, the place selections are taken within the curiosity of the euro space. Personally, and at all times from that broader perspective, I’ve tried to keep away from a repeat of the adverse experiences of the previous which affected vital international locations akin to Spain and had repercussions for the euro space as an entire.
Do you suppose the previous Governor of the Banco de España, Pablo Hernández de Cos, would have an opportunity of changing into President of the ECB?
Pablo was a wonderful Governor. He restored Banco de España’s popularity. He understands exactly how central banks work and now holds an vital place as Normal Supervisor of the Financial institution for Worldwide Settlements in Basel, however many components come into play when these selections are made.
