De Guindos rejects “forward competition” in wages to avoid further monetary tightening

2023-04-21 21:50:07

Luis de Guindos, Vice President of the European Central Bank (ECB), has warned against trying to pursue a “forward competition” in salaries, prices or margins because more restrictive monetary policies would have to be applied than initially planned, he stated in the presentation this Friday of the special issue of the Economists magazine “Spain 2022. A Balance”.

“We have to accept that there has been an impoverishment as a consequence of what happened with the evolution of energy prices”, he stated.

De Guindos has ensured that the fiscal policy and aid for the crisis within the EU contained inflation to one point. In addition, he also took the opportunity to recall that the European banking system is sound, and that monetary policy will continue to be aimed at reducing inflation in order to maintain the confidence and credibility of the ECB.

“The markets are also wrong”

“For us, the worst that can happen to us is that […] so much headline inflation as the underlying be more sticky“, he said to highlight that “the concern about inflation will move from energy prices, bottlenecks and supply restrictions, to how governments are withdrawing the fiscal support measures that occurred at the beginning of the energetic ‘shock’ and the evolution of wages and possible second-round effects”.

In line with what was already stated this morning about those who speculate on interest rates, he has warned that should not “believe anyone that says what the terminal type will be”. “The markets are also wrong, what happens is that they react quickly”, has exemplified.

The vice president of the ECB has claimed “complete” the banking union, implement the capital markets union and a single deposit guarantee fund for the EU.

X-ray of 2022

De Guindos has argued that 2022 was “a good year” from an economic point of view for the euro zone, but that “it was of more lesswith the second part of the year being practically zero”. However, he has affirmed that it has had a similar evolution to that of the rest of the world economy, and has pointed to the war in Ukraine as a paradigm shift.

“There are many economists who have not been educated in a context of high inflation”, in reference to the rise in prices experienced after the ‘post-covid’ economic recovery and exacerbated by the Russian invasion. Yes ok, employment was “well-behaved.”

Regarding the interest rate hikes, De Guindos highlighted that they represented “a very clear hardening” of the financing conditions and that these crystallized in a “very intense” fall in the demand for credit by companies and families.

“The concatenation of ‘shocks’ that we have suffered in the last three years, since the pandemic, practically has no precedent”has summarized De Guindos.