1 00:00:10,800 --> 00:00:14,680 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:14,760 --> 00:00:19,640 Speaker 1: I'm Joe wasn't All and I'm Tracy Halloway. So, Tracy, 3 00:00:20,239 --> 00:00:23,720 Speaker 1: we talk a lot about monetary policy on the podcast. 4 00:00:23,760 --> 00:00:26,920 Speaker 1: We talk a lot about central banking, what the future 5 00:00:26,920 --> 00:00:30,360 Speaker 1: of central banking looks like on the post crisis era. 6 00:00:30,840 --> 00:00:32,600 Speaker 1: But for all we talk about it, it's like we 7 00:00:32,680 --> 00:00:35,400 Speaker 1: probably we never talked about it enough. There's always more 8 00:00:35,440 --> 00:00:38,120 Speaker 1: to this, guys. Well, I feel like this is one 9 00:00:38,159 --> 00:00:41,199 Speaker 1: of the big themes of right. So, we've had this 10 00:00:41,240 --> 00:00:45,320 Speaker 1: economic crisis, and we've seen various responses to it from 11 00:00:45,400 --> 00:00:48,320 Speaker 1: central banks, and we've seen various government responses to it 12 00:00:48,560 --> 00:00:51,240 Speaker 1: as well, and now we're sort of waiting to see 13 00:00:51,320 --> 00:00:54,440 Speaker 1: what the combination of those two things actually looks like 14 00:00:54,480 --> 00:00:58,880 Speaker 1: and how monetary policy interacts with fiscal policy. I feel 15 00:00:58,880 --> 00:01:02,760 Speaker 1: like that's that's the thing we're all watching, right, Yeah, 16 00:01:02,840 --> 00:01:05,000 Speaker 1: I think that's that's fair to say. And I think 17 00:01:05,040 --> 00:01:07,360 Speaker 1: you know, and again, this is sort of for people 18 00:01:07,360 --> 00:01:10,520 Speaker 1: who have listened to several episodes, um it's at this 19 00:01:10,640 --> 00:01:13,000 Speaker 1: point is a retread. But I always think it's important 20 00:01:13,000 --> 00:01:16,160 Speaker 1: that a lot of these debates were happening already going 21 00:01:16,200 --> 00:01:19,559 Speaker 1: into this crisis, about the sort of limit to monetary 22 00:01:19,640 --> 00:01:24,679 Speaker 1: policy even in recent years, whether central bankers needed new tools, 23 00:01:24,920 --> 00:01:27,360 Speaker 1: whether there needs to be a greater emphasis on fiscal 24 00:01:27,400 --> 00:01:31,000 Speaker 1: policy and so forth to accelerate growth. These were already 25 00:01:31,040 --> 00:01:34,280 Speaker 1: big debates that were happening pre crisis, and like many 26 00:01:34,319 --> 00:01:39,560 Speaker 1: other things, this crisis has really accelerated them. Yeah. Absolutely, 27 00:01:39,600 --> 00:01:42,840 Speaker 1: It's funny how the crisis is doing that, really accelerating 28 00:01:42,880 --> 00:01:45,280 Speaker 1: trends that were already in play. But I feel like 29 00:01:45,319 --> 00:01:48,400 Speaker 1: the other big question around central banking has to be 30 00:01:48,600 --> 00:01:53,400 Speaker 1: the continued misses on inflation targets as well. So we've 31 00:01:53,440 --> 00:01:56,600 Speaker 1: now have had many, many years of central banks around 32 00:01:56,600 --> 00:01:59,960 Speaker 1: the world missing their inflation target. No one quite knows 33 00:02:00,080 --> 00:02:03,440 Speaker 1: is why. And that's why even before we were starting 34 00:02:03,480 --> 00:02:06,560 Speaker 1: to see that discussion about whether or not something else 35 00:02:06,640 --> 00:02:12,160 Speaker 1: was needed besides pure monetary policy. Yeah, exactly right. And 36 00:02:12,240 --> 00:02:16,200 Speaker 1: you know, this is a pretty profound issue for central 37 00:02:16,240 --> 00:02:19,480 Speaker 1: banks because I think, um, you know, everyone agrees as 38 00:02:19,400 --> 00:02:23,280 Speaker 1: a little more complicated, but on some level, the premise 39 00:02:23,360 --> 00:02:26,120 Speaker 1: of a lot of monetary policy, at least traditionally, or 40 00:02:26,120 --> 00:02:28,880 Speaker 1: sort of interest rate policy, is that there is this 41 00:02:29,000 --> 00:02:33,360 Speaker 1: sort of given take or balance between inflation and full 42 00:02:33,360 --> 00:02:38,239 Speaker 1: employment or inflation and robust growth. And so I think 43 00:02:38,280 --> 00:02:40,679 Speaker 1: if there is some question about what it takes to 44 00:02:40,800 --> 00:02:44,680 Speaker 1: hit the inflation target, or why inflation doesn't pick up 45 00:02:44,760 --> 00:02:48,240 Speaker 1: even when the unemployment rate drops to historically low levels, 46 00:02:48,680 --> 00:02:50,679 Speaker 1: I do think to some extent that really calls into 47 00:02:50,760 --> 00:02:54,640 Speaker 1: question a lot of the traditional models. Yeah. Absolutely, and 48 00:02:54,680 --> 00:02:56,679 Speaker 1: I feel like this has been a long running theme 49 00:02:56,800 --> 00:03:00,440 Speaker 1: on all thoughts. Now absolutely so I'm very excited today 50 00:03:00,480 --> 00:03:04,480 Speaker 1: we're going to be uh speaking to a huge important 51 00:03:04,520 --> 00:03:09,320 Speaker 1: guest in the world of central banking, monetary policy, economics, 52 00:03:09,400 --> 00:03:13,000 Speaker 1: someone who's uh really uh, just a big name, someone 53 00:03:13,400 --> 00:03:15,520 Speaker 1: very excited to talk to. We're gonna be speaking with 54 00:03:15,680 --> 00:03:19,320 Speaker 1: Peter Pratt. He is the former chief economist of the 55 00:03:19,400 --> 00:03:23,560 Speaker 1: European Central Bank. He was on the the Executive Committee 56 00:03:23,600 --> 00:03:27,320 Speaker 1: of the Bank, crucial decision maker for eight years from 57 00:03:27,840 --> 00:03:32,720 Speaker 1: eleven through June twenty nineteen, so has been right in 58 00:03:32,760 --> 00:03:36,080 Speaker 1: the middle of things up until very recently, sort of 59 00:03:36,120 --> 00:03:39,680 Speaker 1: almost right up against the current era and U Currently 60 00:03:39,720 --> 00:03:42,760 Speaker 1: he's a senior fellow at the University of Brussels, and 61 00:03:42,800 --> 00:03:45,760 Speaker 1: we're going to be digging into these topics the ECB, 62 00:03:46,080 --> 00:03:50,160 Speaker 1: the future of central banking, macro policy overall, very excited 63 00:03:50,160 --> 00:03:55,600 Speaker 1: about this conversation. Peter, thank you very much for joining us. So, Peter, 64 00:03:55,760 --> 00:03:58,360 Speaker 1: thank you so much for coming on. I mean, you know, 65 00:03:58,480 --> 00:04:02,280 Speaker 1: Tracy and I introd we've really picking apart these topics 66 00:04:02,320 --> 00:04:06,400 Speaker 1: for a long time before we dive into the sort 67 00:04:06,440 --> 00:04:10,400 Speaker 1: of bigger theoretical questions facing central banks. I'm just curious 68 00:04:10,480 --> 00:04:15,360 Speaker 1: your perspective right now on the recovery in Europe. Do 69 00:04:15,840 --> 00:04:19,480 Speaker 1: are the existing set of policies enough to make the 70 00:04:19,520 --> 00:04:22,880 Speaker 1: recovery from the crisis self sustaining? Can you get back, 71 00:04:22,960 --> 00:04:27,120 Speaker 1: can you get back to pre crisis levels, or does 72 00:04:27,160 --> 00:04:30,240 Speaker 1: there need to be something further yet, either from fiscal 73 00:04:30,279 --> 00:04:34,920 Speaker 1: authorities or the European Central Bank to return to trend. 74 00:04:36,320 --> 00:04:38,320 Speaker 1: I think you have to distinguish a little bit the 75 00:04:38,839 --> 00:04:41,520 Speaker 1: short term and the medium term here. I think it's 76 00:04:41,600 --> 00:04:43,800 Speaker 1: always the case, but I mean it's particular that's is 77 00:04:44,240 --> 00:04:47,360 Speaker 1: in the situation because you have the second wave, which 78 00:04:47,400 --> 00:04:51,480 Speaker 1: has been very strong actually and has led to lockdowns, 79 00:04:51,520 --> 00:04:55,200 Speaker 1: you know, in different countries and different degrees, and for 80 00:04:55,440 --> 00:04:58,599 Speaker 1: that sort of situation here, I think it's absolutely clear 81 00:04:59,000 --> 00:05:02,800 Speaker 1: that you need more this stimulus, uh and basically from 82 00:05:02,839 --> 00:05:06,000 Speaker 1: the fiscal authorities so I think that's that's accepted by 83 00:05:06,040 --> 00:05:09,200 Speaker 1: most economists. I think that's to me very clear. The 84 00:05:09,320 --> 00:05:12,560 Speaker 1: role of the central bank here, as has been communicated recently, 85 00:05:12,560 --> 00:05:16,280 Speaker 1: which is vlatively knew, actually is basically that the central 86 00:05:16,320 --> 00:05:20,000 Speaker 1: bank wants to preserve the easy financial conditions that you 87 00:05:20,080 --> 00:05:24,159 Speaker 1: have and not to try to end accommodation. Basically, the 88 00:05:24,240 --> 00:05:26,400 Speaker 1: message you get from the central bank is to say, 89 00:05:26,440 --> 00:05:31,000 Speaker 1: financial conditions are okay. You know that easy across countries, 90 00:05:31,040 --> 00:05:33,920 Speaker 1: also not only on average, but across countries, and so 91 00:05:33,960 --> 00:05:37,479 Speaker 1: it's important to preserve these conditions in a situation where 92 00:05:37,600 --> 00:05:41,120 Speaker 1: the expectation is that governments are going to come with 93 00:05:41,160 --> 00:05:44,719 Speaker 1: new stimulus measures. I think that's that's fair enough. I 94 00:05:44,760 --> 00:05:47,440 Speaker 1: think that's that's fine. I don't see why, you know, 95 00:05:47,520 --> 00:05:51,440 Speaker 1: by adding accommodation, trying to bring the curve, you know, 96 00:05:51,480 --> 00:05:54,280 Speaker 1: the yield curved lower than what it is today, would 97 00:05:54,279 --> 00:05:56,839 Speaker 1: stimulate you know, the domestic demands. I don't think it will. 98 00:05:56,960 --> 00:05:59,800 Speaker 1: So Basically, some economies that have even alluded to the 99 00:06:00,000 --> 00:06:03,520 Speaker 1: said that to some extent it resembles a yield curve control. 100 00:06:03,560 --> 00:06:05,800 Speaker 1: You know, you want to keep the curve, the interest 101 00:06:05,880 --> 00:06:09,119 Speaker 1: rate curve, you know, more or less as it is today. 102 00:06:09,200 --> 00:06:11,560 Speaker 1: But to do that, to do that, you may need 103 00:06:11,600 --> 00:06:14,360 Speaker 1: of course to buy more bonds, given a huge issuance 104 00:06:14,440 --> 00:06:17,680 Speaker 1: of government bonds. So just to stabilize the conditions, you 105 00:06:17,720 --> 00:06:20,480 Speaker 1: may need to add you know, another round of QE 106 00:06:20,720 --> 00:06:23,560 Speaker 1: basically on the what is called the Tell show, you know, 107 00:06:23,600 --> 00:06:26,360 Speaker 1: the pandemic emergency purchase program of the e c B. 108 00:06:26,720 --> 00:06:29,520 Speaker 1: That's the short term and you want to bridge bridge 109 00:06:29,560 --> 00:06:33,120 Speaker 1: what well, I mean, it's a vaccine story. The vaccine 110 00:06:33,720 --> 00:06:36,760 Speaker 1: is for the time being not taking you know, as 111 00:06:36,800 --> 00:06:39,520 Speaker 1: a as an upside, a very big upside in the 112 00:06:39,560 --> 00:06:43,640 Speaker 1: projections of central bankers in general. They just say when 113 00:06:43,680 --> 00:06:45,760 Speaker 1: it was more or less more or less already in 114 00:06:45,760 --> 00:06:49,160 Speaker 1: our scenario before the announcement, you know, the two announcement 115 00:06:49,240 --> 00:06:52,800 Speaker 1: we handed in recent weeks. But I personally, I think 116 00:06:52,839 --> 00:06:57,400 Speaker 1: the vaccine now has the much higher probability. So the 117 00:06:57,720 --> 00:07:01,000 Speaker 1: variance actually the uncertainty around the seeing the spreading of 118 00:07:01,040 --> 00:07:04,359 Speaker 1: the vaccine, you know, I think this is you have 119 00:07:04,440 --> 00:07:07,240 Speaker 1: reduced the uncertainty. Is that would be a positive factor. 120 00:07:07,680 --> 00:07:10,040 Speaker 1: So for the time being, the simepral Bank and d CB, 121 00:07:10,160 --> 00:07:12,360 Speaker 1: I think in particular, they just want to bridge it 122 00:07:12,480 --> 00:07:15,600 Speaker 1: to that situation. In the second half of next year, 123 00:07:15,720 --> 00:07:18,440 Speaker 1: so you don't need to do much necessarily, but you 124 00:07:18,480 --> 00:07:22,160 Speaker 1: want to ensure that the financial conditions, the easy conditions 125 00:07:22,200 --> 00:07:25,280 Speaker 1: that you have today, are maintained in a situation where 126 00:07:25,320 --> 00:07:29,559 Speaker 1: governments are going to spend you know more. What comes after, well, 127 00:07:29,600 --> 00:07:33,520 Speaker 1: we can discuss that picture, because that will not be easy. Yeah, 128 00:07:33,640 --> 00:07:35,960 Speaker 1: we're definitely going to get into that, but before we do, 129 00:07:36,240 --> 00:07:38,640 Speaker 1: I mean, just looking forward to next year, there are 130 00:07:39,400 --> 00:07:43,280 Speaker 1: a few people who, despite everything that's happened, are pretty 131 00:07:43,320 --> 00:07:48,000 Speaker 1: optimistic about the future of Europe. So, you know, we 132 00:07:48,080 --> 00:07:52,120 Speaker 1: now have the common debt issuance, we have the fiscal 133 00:07:52,160 --> 00:07:55,480 Speaker 1: transfer that we've been talking about for many, many years. 134 00:07:56,280 --> 00:08:01,520 Speaker 1: Brexit might finally be over. Do you buy into the 135 00:08:01,600 --> 00:08:05,080 Speaker 1: idea of things looking up for Europe as a whole. 136 00:08:05,680 --> 00:08:07,840 Speaker 1: You know, there was this this famous quote, you know, 137 00:08:08,040 --> 00:08:10,640 Speaker 1: from Jean Monette by saying your Europe will be forged 138 00:08:10,680 --> 00:08:13,800 Speaker 1: in crisis. Always said, you know, prevention is better than 139 00:08:13,880 --> 00:08:16,040 Speaker 1: you know, reacting to christs. Of course, you have to 140 00:08:16,080 --> 00:08:19,040 Speaker 1: react to crisis better than the opposite. But I think 141 00:08:19,080 --> 00:08:21,920 Speaker 1: that's a little bit risky strategy. I mean, because Europe 142 00:08:21,960 --> 00:08:24,280 Speaker 1: in the past, you know, events that we had with 143 00:08:24,320 --> 00:08:27,080 Speaker 1: the global financial crisis, the sovereign debt crisis, and not 144 00:08:27,200 --> 00:08:30,720 Speaker 1: the pandemic. Well, the Europe was not really prepared for 145 00:08:30,840 --> 00:08:33,520 Speaker 1: that sort of situation. And so the good news, of 146 00:08:33,559 --> 00:08:38,079 Speaker 1: course is that in crisis Europe reacts very strongly. Uh, 147 00:08:38,080 --> 00:08:41,000 Speaker 1: And that's a positive news. But on the other hand, 148 00:08:41,760 --> 00:08:44,040 Speaker 1: very often they account you know, by the events, and 149 00:08:44,080 --> 00:08:46,840 Speaker 1: the events go faster than the capacity you know, to 150 00:08:47,200 --> 00:08:50,840 Speaker 1: reform the institutions. Now, they came, as you rightly mentioned, 151 00:08:50,880 --> 00:08:54,600 Speaker 1: with extremely important decisions in the middle of the crisis, 152 00:08:54,640 --> 00:08:58,960 Speaker 1: the pandemic crisis, coming with transference insurance of common debt. 153 00:08:59,440 --> 00:09:01,840 Speaker 1: But they're all always saying, you know, the communication is 154 00:09:01,840 --> 00:09:03,839 Speaker 1: that this is a one off, you know, it should 155 00:09:03,880 --> 00:09:06,000 Speaker 1: should not project that you're going to do that for 156 00:09:06,080 --> 00:09:10,360 Speaker 1: the future. These will be discussing discussions for after and 157 00:09:10,760 --> 00:09:13,040 Speaker 1: we will see it's it's you. We cannot prejudge, you 158 00:09:13,040 --> 00:09:15,720 Speaker 1: know that that there will be no sort of more 159 00:09:15,760 --> 00:09:19,120 Speaker 1: permanent transfers. But I think it's important what happened. I 160 00:09:19,120 --> 00:09:22,960 Speaker 1: wouldn't call it, as many people say, you know, Hamiltonian moment, moment, 161 00:09:23,040 --> 00:09:26,280 Speaker 1: you know, referring to the US history. I would call 162 00:09:26,320 --> 00:09:29,000 Speaker 1: it that way, but I would certainly recognize that this 163 00:09:29,040 --> 00:09:33,920 Speaker 1: is very important thing. Had don't this happened, the Union 164 00:09:33,960 --> 00:09:36,480 Speaker 1: would have collapsed. I think this is you know, the 165 00:09:36,520 --> 00:09:39,000 Speaker 1: head of states where so, you know, worried about the 166 00:09:39,000 --> 00:09:42,480 Speaker 1: potential consequences on the Union of the COVID crisis and 167 00:09:42,520 --> 00:09:45,640 Speaker 1: the economic effects of the crisis, that they as as 168 00:09:45,679 --> 00:09:48,199 Speaker 1: they did in previous events, you know, came with with 169 00:09:48,320 --> 00:09:51,520 Speaker 1: this huge you know, stimulus program at the European level. 170 00:09:51,559 --> 00:09:54,480 Speaker 1: So I think it's positive, but it doesn't guarantee you 171 00:09:54,720 --> 00:09:58,720 Speaker 1: that you have the right institutions. Now you're puts in place, 172 00:09:58,720 --> 00:10:04,160 Speaker 1: institutions like banking suggusion for example, at the global talentcial crisis. 173 00:10:04,640 --> 00:10:07,080 Speaker 1: But you know, then they tend to to to to 174 00:10:07,160 --> 00:10:09,920 Speaker 1: go backwards, you know, to not to to find the 175 00:10:10,000 --> 00:10:12,840 Speaker 1: lines what they've started with, you know, income with new problems. 176 00:10:12,880 --> 00:10:15,800 Speaker 1: So I think it's there is always an element of 177 00:10:15,880 --> 00:10:20,079 Speaker 1: ambiguity in the institutional reforms in Europe that puts risk 178 00:10:20,160 --> 00:10:22,440 Speaker 1: you know, to the to the to the Union. Can 179 00:10:22,480 --> 00:10:24,280 Speaker 1: you explain that further? I mean, you had a front 180 00:10:24,360 --> 00:10:28,200 Speaker 1: row seat to all of this for several years, and 181 00:10:28,240 --> 00:10:32,240 Speaker 1: from the outside looking in, that's certainly the appearance that 182 00:10:32,280 --> 00:10:35,800 Speaker 1: there will be some big shockun awe announcement, We're going 183 00:10:35,840 --> 00:10:37,800 Speaker 1: to spend all this money, We're going to launch some 184 00:10:37,880 --> 00:10:41,200 Speaker 1: new vehicle. And then it feels like there's like there's 185 00:10:41,240 --> 00:10:44,600 Speaker 1: a inert shaw or the trifical force, and things start 186 00:10:44,679 --> 00:10:47,440 Speaker 1: to slow down and things start a look less oppressive 187 00:10:47,480 --> 00:10:50,880 Speaker 1: than they appeared. What are the forces that cause what 188 00:10:51,040 --> 00:10:54,720 Speaker 1: you just described where things the sort of the ambition 189 00:10:54,760 --> 00:10:57,640 Speaker 1: seems to slow over time? Well, here you know, the 190 00:10:58,400 --> 00:11:03,040 Speaker 1: final approval for the recovery plan you know is not done. 191 00:11:03,080 --> 00:11:05,679 Speaker 1: Because you know that that basically two countries Hungary and 192 00:11:05,760 --> 00:11:09,720 Speaker 1: Poland threatening to vito the whole project. And so that 193 00:11:09,760 --> 00:11:13,720 Speaker 1: means there is today today uncertainty is about that on 194 00:11:13,720 --> 00:11:16,840 Speaker 1: on that point just too because this is news today. 195 00:11:16,920 --> 00:11:20,200 Speaker 1: I mean, I would not be too worried because in Europe, 196 00:11:20,200 --> 00:11:23,840 Speaker 1: you know, when you cannot agree with forty seven countries, 197 00:11:24,520 --> 00:11:27,680 Speaker 1: you can have if there were a coalition of willing. 198 00:11:27,720 --> 00:11:30,520 Speaker 1: You know, at least with nine countries, you can still 199 00:11:30,559 --> 00:11:33,160 Speaker 1: within the European treaties, you can still do the things 200 00:11:33,160 --> 00:11:35,720 Speaker 1: they want to do now, so I think they will, 201 00:11:35,880 --> 00:11:40,360 Speaker 1: They will finalize at least for most countries what they 202 00:11:40,360 --> 00:11:43,360 Speaker 1: decided to do. That means big you know, expansion plan. 203 00:11:43,679 --> 00:11:46,640 Speaker 1: They will do that. The question now, which is which 204 00:11:46,679 --> 00:11:48,560 Speaker 1: is new. I mean, this is really real money for 205 00:11:48,559 --> 00:11:51,600 Speaker 1: a big part of that. The main concern actually that 206 00:11:51,800 --> 00:11:55,040 Speaker 1: most analysts would have is how do you spend that money? 207 00:11:55,120 --> 00:11:57,160 Speaker 1: I think money would be spent, but how do you 208 00:11:57,200 --> 00:11:59,880 Speaker 1: spend that money? Because I mean, at some point you 209 00:12:00,040 --> 00:12:03,040 Speaker 1: to reimburss that money. And the impact of the COVID 210 00:12:03,080 --> 00:12:07,400 Speaker 1: crisis usually is to lower your GDP potential growth, you know, 211 00:12:07,679 --> 00:12:10,320 Speaker 1: and it we can see economy you know, for for 212 00:12:10,360 --> 00:12:12,760 Speaker 1: a while. So the whole plan, that's why it's called 213 00:12:12,800 --> 00:12:17,920 Speaker 1: recovery plan. It's basically directed for investment, and the investment 214 00:12:17,960 --> 00:12:20,679 Speaker 1: as supposed to increase potential growth and that would mean 215 00:12:20,720 --> 00:12:25,120 Speaker 1: the reimbarrassment of debt common that also easier in the future. 216 00:12:25,720 --> 00:12:28,280 Speaker 1: But that's the biggest challenge now in Europe. If it's 217 00:12:28,320 --> 00:12:30,839 Speaker 1: a success, that means that the real money there will 218 00:12:30,880 --> 00:12:33,719 Speaker 1: be real money when the real money it's spent, if 219 00:12:33,720 --> 00:12:37,360 Speaker 1: it's spent correctly across the re addictions in the different countries. 220 00:12:38,080 --> 00:12:40,680 Speaker 1: I think that could serve you know, very positively the 221 00:12:40,800 --> 00:12:44,560 Speaker 1: Union in the future. Now, if it's the other case, 222 00:12:45,360 --> 00:12:48,560 Speaker 1: there will be you know, the political reaction in many 223 00:12:48,600 --> 00:12:51,880 Speaker 1: countries will be totally the opposite. I mean you can imagine, 224 00:12:52,160 --> 00:12:54,720 Speaker 1: you know, you give grants to one country that has 225 00:12:54,760 --> 00:12:57,760 Speaker 1: been hit more part of that money is paid by 226 00:12:58,000 --> 00:13:02,080 Speaker 1: richer countries, and then that money is unwisely spent you know, 227 00:13:02,240 --> 00:13:07,280 Speaker 1: in consumptions. Well maybe income support. That's not the objective now, 228 00:13:07,559 --> 00:13:09,800 Speaker 1: and there will be a surveillance process how the money 229 00:13:09,880 --> 00:13:13,360 Speaker 1: is being spent. If that process is well done, I 230 00:13:13,400 --> 00:13:16,240 Speaker 1: think then we can start talking about the game change 231 00:13:17,080 --> 00:13:20,440 Speaker 1: about all this. I would say for today, this is 232 00:13:20,480 --> 00:13:23,000 Speaker 1: the one shot is extremely important, I think, and certainly 233 00:13:23,040 --> 00:13:25,960 Speaker 1: for the business cycle. But for the longer run, I 234 00:13:26,000 --> 00:13:27,760 Speaker 1: think we have to see how this money is being 235 00:13:27,880 --> 00:13:31,640 Speaker 1: used and and and you cannot tell today because you know, 236 00:13:31,679 --> 00:13:35,760 Speaker 1: it's it's complex. Also, so that last point actually relates 237 00:13:35,760 --> 00:13:37,720 Speaker 1: to a question that I wanted to ask you, which 238 00:13:37,800 --> 00:13:41,480 Speaker 1: is there does seem to be a consensus developing that 239 00:13:41,840 --> 00:13:46,040 Speaker 1: monetary policy is going to be used to augment fiscal 240 00:13:46,120 --> 00:13:49,800 Speaker 1: policy or whatever the government does. But for the e 241 00:13:49,920 --> 00:13:52,760 Speaker 1: c B and for the European Union, I mean clearly 242 00:13:52,840 --> 00:13:56,120 Speaker 1: they have a different set up than say the Bank 243 00:13:56,160 --> 00:14:00,400 Speaker 1: of Japan or the FED. Is the easy going to 244 00:14:00,400 --> 00:14:03,640 Speaker 1: be able to be as effective when it comes to 245 00:14:03,760 --> 00:14:08,280 Speaker 1: using monetary policy to augment piscal policy as other central banks, 246 00:14:08,360 --> 00:14:11,080 Speaker 1: or what are the unique challenges they're going to face 247 00:14:11,160 --> 00:14:13,920 Speaker 1: in doing that. No, they're you're right. I mean they're 248 00:14:14,000 --> 00:14:18,000 Speaker 1: unique challenges because you have one central bank and then 249 00:14:18,040 --> 00:14:21,280 Speaker 1: you have different ministers of finds different countries, so you 250 00:14:21,320 --> 00:14:24,600 Speaker 1: don't have a single fiscal policy. But many of the 251 00:14:24,640 --> 00:14:28,000 Speaker 1: problems we have in Europe are the same as as 252 00:14:28,080 --> 00:14:30,880 Speaker 1: in Japan or the US, in the UK, so they're 253 00:14:30,920 --> 00:14:33,840 Speaker 1: not they're common to all central banks. Let me just 254 00:14:34,320 --> 00:14:37,920 Speaker 1: remind you that, you know, in the eighties the world 255 00:14:37,920 --> 00:14:42,000 Speaker 1: of central bank can change very fundamentally. There was sort 256 00:14:42,040 --> 00:14:45,760 Speaker 1: of general consensus that you know, business cycle policy, you know, 257 00:14:45,840 --> 00:14:49,800 Speaker 1: smoothening the business cycle would be delegated to the central 258 00:14:49,800 --> 00:14:54,600 Speaker 1: bank governments. Basically, the Ministry of Finance would basically, of course, 259 00:14:54,720 --> 00:14:59,320 Speaker 1: let their fiscal policy you know, react automatically, you know, 260 00:14:59,400 --> 00:15:03,120 Speaker 1: to to as the cycles. But discraction policies would not 261 00:15:03,240 --> 00:15:06,840 Speaker 1: really be trusted, you know, from Ministry of Finance. Basically 262 00:15:07,240 --> 00:15:10,080 Speaker 1: because Ministry of Finance they look at the political business 263 00:15:10,080 --> 00:15:13,000 Speaker 1: cycle and so when they spend the money, it's linked 264 00:15:13,040 --> 00:15:15,880 Speaker 1: to a political cycle, which is not necessarily the business cycle. 265 00:15:16,120 --> 00:15:21,080 Speaker 1: So basically the consensus was, you know, business cycle policy. Basically, 266 00:15:21,120 --> 00:15:23,080 Speaker 1: you know, when the economy goes down, you lower the 267 00:15:23,160 --> 00:15:26,040 Speaker 1: rates and then it goes up. If you have inflation, 268 00:15:26,080 --> 00:15:28,840 Speaker 1: you're tightened. I mean that model a La Taylor rule, 269 00:15:29,320 --> 00:15:33,040 Speaker 1: if you see, the same simple rule was the consensus. 270 00:15:33,320 --> 00:15:37,120 Speaker 1: And government basically would look at three things. Basically, they 271 00:15:37,120 --> 00:15:39,840 Speaker 1: would look at the allocation of resources, you know, hot 272 00:15:39,880 --> 00:15:43,920 Speaker 1: taxation influences their location of research, for example, they would 273 00:15:43,920 --> 00:15:47,640 Speaker 1: look at redistribution of income and wealth the television. And 274 00:15:47,680 --> 00:15:51,280 Speaker 1: then they would ensure the sustainability of public debt. And 275 00:15:51,320 --> 00:15:55,280 Speaker 1: so the central banks were kind of independent agencies with 276 00:15:55,400 --> 00:15:58,040 Speaker 1: a very clear mandate. It could be price stability in 277 00:15:58,080 --> 00:16:02,160 Speaker 1: Europe as as a primary endate. But basically all the 278 00:16:02,240 --> 00:16:04,920 Speaker 1: central banks following more or less the same model, you know, 279 00:16:05,080 --> 00:16:08,320 Speaker 1: business cycle responsibilities. You and you have the tools to 280 00:16:08,360 --> 00:16:11,000 Speaker 1: do that. And that was the environment in which I 281 00:16:11,080 --> 00:16:13,480 Speaker 1: was supposed to work. I work, and I was supposed 282 00:16:13,600 --> 00:16:17,480 Speaker 1: to work efficiently during these eight years. And what happened 283 00:16:17,720 --> 00:16:20,600 Speaker 1: is that you know, different things. I mean, one of 284 00:16:20,640 --> 00:16:23,520 Speaker 1: the things which is coming to many central banks is 285 00:16:23,560 --> 00:16:26,400 Speaker 1: that we reached the lower bounds so the interest rates 286 00:16:26,400 --> 00:16:29,000 Speaker 1: went to zero, and so you have a mandate. It's 287 00:16:29,040 --> 00:16:32,680 Speaker 1: just price ability. But in terms of toolbox, you know, 288 00:16:32,800 --> 00:16:35,480 Speaker 1: you you hit something, can you you enter new territories. 289 00:16:35,560 --> 00:16:40,400 Speaker 1: So we tried the number of innovative instruments, quantitative as 290 00:16:40,400 --> 00:16:42,960 Speaker 1: you know, negative rates. Also we went into all this 291 00:16:43,680 --> 00:16:47,040 Speaker 1: and as was said in your introduction, well, the results 292 00:16:47,120 --> 00:16:51,360 Speaker 1: I think can be debated at least, but for the 293 00:16:51,440 --> 00:16:54,720 Speaker 1: general public and analyst in general, well, the conclusion is 294 00:16:54,800 --> 00:16:57,280 Speaker 1: that you didn't reach the two percent that you were targeting. 295 00:16:57,960 --> 00:17:00,920 Speaker 1: And so one is the issue of instruments that is 296 00:17:01,040 --> 00:17:04,119 Speaker 1: you know, still debated today. I think the instruments have 297 00:17:04,240 --> 00:17:08,240 Speaker 1: been efficient, but the question is still open. The serdad. 298 00:17:08,440 --> 00:17:12,320 Speaker 1: The certain reason why central banks didn't succeed, and this 299 00:17:12,400 --> 00:17:15,560 Speaker 1: is one of the points I personally mentioned very often 300 00:17:15,560 --> 00:17:19,640 Speaker 1: in my communication, is that we had a succession of shocks. 301 00:17:19,760 --> 00:17:23,760 Speaker 1: You see, you can say, find your monetary policy, including 302 00:17:23,840 --> 00:17:26,600 Speaker 1: q we would be efficient, but then you get a 303 00:17:26,640 --> 00:17:29,639 Speaker 1: new shock and put putting the economy down again, and 304 00:17:29,680 --> 00:17:31,680 Speaker 1: then you try again with your monitory points and then 305 00:17:31,680 --> 00:17:34,560 Speaker 1: you get again a new shock. I can refer one 306 00:17:34,600 --> 00:17:37,399 Speaker 1: of the last shock we had before the COVID. It 307 00:17:37,520 --> 00:17:40,920 Speaker 1: was what we call the geopolitical shock which hit animal 308 00:17:41,000 --> 00:17:46,200 Speaker 1: spirits in the manufacturing industry. Basically, let's say that protection 309 00:17:46,200 --> 00:17:49,800 Speaker 1: list pressure is coming from the United States, and you know, 310 00:17:49,840 --> 00:17:55,240 Speaker 1: the the the eroding trust in multilateral institutions, the Brexit, etcetera. 311 00:17:55,640 --> 00:17:58,120 Speaker 1: So you can see the issue from not from an 312 00:17:58,160 --> 00:18:00,800 Speaker 1: instrument point of view, like what is the room of 313 00:18:00,840 --> 00:18:04,000 Speaker 1: maneuver when raised a zero, but you can also see 314 00:18:04,000 --> 00:18:08,200 Speaker 1: it as a succession of deflationary shock in the economy 315 00:18:08,280 --> 00:18:11,760 Speaker 1: that complicates very much the central bank action. I think 316 00:18:11,800 --> 00:18:14,439 Speaker 1: we does these two explanations, and then you have a 317 00:18:14,480 --> 00:18:18,239 Speaker 1: third explanation, which is the one you just mentioned. Is 318 00:18:18,440 --> 00:18:21,600 Speaker 1: some people refer that to the flatness of the Philips curve. 319 00:18:21,720 --> 00:18:23,920 Speaker 1: That means that you need a hell a lot of 320 00:18:24,400 --> 00:18:29,199 Speaker 1: monetary stimulus to get inflation, because the reaction of market 321 00:18:29,280 --> 00:18:33,520 Speaker 1: participants in general, labor markets, capital markets, but especially for 322 00:18:33,680 --> 00:18:37,560 Speaker 1: product markets is very slow, you know, compared to you 323 00:18:37,800 --> 00:18:42,119 Speaker 1: to your monetary policy action. So basically saying the world 324 00:18:42,160 --> 00:18:44,680 Speaker 1: has changed, there's a lot of internet connections across the 325 00:18:44,760 --> 00:18:48,359 Speaker 1: economies and so there is competition of China, there is 326 00:18:48,400 --> 00:18:51,879 Speaker 1: a you know, digitalization of the economy. Unions are not 327 00:18:51,960 --> 00:18:55,280 Speaker 1: as strong as before, So the relationship have changed. Now 328 00:18:55,320 --> 00:18:58,119 Speaker 1: if you combine the three elements the lower bound, that 329 00:18:58,200 --> 00:19:00,080 Speaker 1: means your rates go to zero. And then what do 330 00:19:00,119 --> 00:19:02,600 Speaker 1: you do. You try other instruments. Suddenly you have a 331 00:19:02,640 --> 00:19:06,240 Speaker 1: succession of shocks and negative shocks in the economy. And 332 00:19:06,359 --> 00:19:10,199 Speaker 1: third you have changes in the relationships because you know, 333 00:19:10,280 --> 00:19:14,200 Speaker 1: the world has changed because of you know, digitalization, globalization, 334 00:19:15,160 --> 00:19:18,199 Speaker 1: lack of union power and all these things. Then you 335 00:19:18,240 --> 00:19:20,280 Speaker 1: get a little bit the story in which we had 336 00:19:20,600 --> 00:19:23,920 Speaker 1: in Europe. It was even worse because in the global 337 00:19:23,960 --> 00:19:27,560 Speaker 1: financial crisis, in which we were not very well prepared 338 00:19:27,640 --> 00:19:30,080 Speaker 1: as as the US and and many other countries in 339 00:19:30,119 --> 00:19:33,960 Speaker 1: the world. We had also a sovereign debt crisis, which 340 00:19:34,520 --> 00:19:36,919 Speaker 1: stressed you know the fact that the monetary union in 341 00:19:36,960 --> 00:19:40,679 Speaker 1: Europe was not very resilient because you have to prepare 342 00:19:40,720 --> 00:19:43,400 Speaker 1: for the worst if you if you're in a country, well, 343 00:19:43,440 --> 00:19:45,679 Speaker 1: in a country, you have a lot of institutions, you 344 00:19:45,680 --> 00:19:49,919 Speaker 1: know that can be activated very quickly in case of crisis. 345 00:19:49,920 --> 00:19:52,159 Speaker 1: We didn't have that in Europe, and there was i 346 00:19:52,160 --> 00:19:55,639 Speaker 1: would say, you know, with a sovereign debt crisis, and 347 00:19:55,920 --> 00:19:58,400 Speaker 1: we paid a very high price in Europe because of that. 348 00:19:58,760 --> 00:20:01,720 Speaker 1: We had a very big shop, you know, following the 349 00:20:01,800 --> 00:20:06,160 Speaker 1: global financial crisis because of institutional weaknesses what we call 350 00:20:06,480 --> 00:20:10,520 Speaker 1: the incompleteness of the monetary Union. Now, as I said before, 351 00:20:10,880 --> 00:20:15,159 Speaker 1: there have been very strong political reactions institutional improvements in Europe, 352 00:20:16,040 --> 00:20:18,320 Speaker 1: which is very positive. I think, you know, we have 353 00:20:18,600 --> 00:20:24,200 Speaker 1: banking supervision, we have I think a better capital market union, etcetera, etcetera. 354 00:20:24,359 --> 00:20:28,280 Speaker 1: But these institutions I stopped with that. But these institutions 355 00:20:28,320 --> 00:20:32,920 Speaker 1: today are not yet you know, very strong, sufficiently strong 356 00:20:33,000 --> 00:20:48,920 Speaker 1: to face the challenges that we have. M I want 357 00:20:48,920 --> 00:20:51,960 Speaker 1: to focus on something you just said, and this might 358 00:20:52,000 --> 00:20:57,159 Speaker 1: be getting into some controversial territory, but I think it's important, 359 00:20:57,160 --> 00:20:59,320 Speaker 1: interesting stuff. So you're talking about these sort of geopolitical 360 00:20:59,440 --> 00:21:03,800 Speaker 1: sharks or various setbacks, there's also internal politics and again 361 00:21:04,440 --> 00:21:08,200 Speaker 1: speaking as someone who just observes from the outside, and 362 00:21:08,280 --> 00:21:10,040 Speaker 1: uh again you at the front row seat to this. 363 00:21:10,119 --> 00:21:13,120 Speaker 1: But you know, we saw this sort of uh pretty 364 00:21:13,160 --> 00:21:18,080 Speaker 1: the extraordinary lengths that Draggy underwent, especially over the course 365 00:21:18,119 --> 00:21:21,520 Speaker 1: of the europe the sovereign debt crisis, to um you know, 366 00:21:21,600 --> 00:21:25,400 Speaker 1: expand the ECB toolkit, or at least fit the toolkit 367 00:21:25,560 --> 00:21:29,720 Speaker 1: for the the time needed. And that's provoked. UM, that 368 00:21:29,840 --> 00:21:33,320 Speaker 1: provokes some pretty uh, you know, loud backlash, and we 369 00:21:33,320 --> 00:21:36,919 Speaker 1: always heard it, particularly from German media, in particular German 370 00:21:37,000 --> 00:21:39,800 Speaker 1: central bankers, who seem to have a very different view 371 00:21:39,800 --> 00:21:43,920 Speaker 1: on the proper conduct of monetary policy. UM then sort 372 00:21:43,920 --> 00:21:47,320 Speaker 1: of the sort of mainstream views that sort of exist 373 00:21:47,400 --> 00:21:51,000 Speaker 1: in Europe and the US. And it even culminated into 374 00:21:51,040 --> 00:21:54,560 Speaker 1: a situation right after you left in the fall of 375 00:21:55,160 --> 00:21:59,360 Speaker 1: nine in which uh, there was criticism of the Draggy 376 00:21:59,440 --> 00:22:03,920 Speaker 1: era for their view stoking inflation, and you pushed back 377 00:22:03,960 --> 00:22:06,920 Speaker 1: on it publicly and you said it wasn't helpful. How 378 00:22:07,160 --> 00:22:11,000 Speaker 1: much of an impediment was this or is this to 379 00:22:11,119 --> 00:22:15,480 Speaker 1: the evolution of UM, the e c B and monetary 380 00:22:15,560 --> 00:22:19,000 Speaker 1: policy to address the various crisis of the times. This 381 00:22:19,160 --> 00:22:22,919 Speaker 1: sort of very sharp break that there is with the 382 00:22:23,000 --> 00:22:25,960 Speaker 1: sort of core European or sort of the German view 383 00:22:26,320 --> 00:22:30,200 Speaker 1: of monetary policy. How difficult of a challenge was that 384 00:22:30,280 --> 00:22:33,800 Speaker 1: in your eight years on the executive board. No, you're right, 385 00:22:33,920 --> 00:22:38,200 Speaker 1: I mean I was very often surprised that in spite 386 00:22:38,200 --> 00:22:41,200 Speaker 1: of all what you say, that it worked. We always 387 00:22:41,359 --> 00:22:44,640 Speaker 1: in the Governing Council could design uh. And of course 388 00:22:44,680 --> 00:22:47,600 Speaker 1: there were some different views in the governing Council, which 389 00:22:47,640 --> 00:22:50,160 Speaker 1: is not the case today with the COVID shop, which 390 00:22:50,200 --> 00:22:53,400 Speaker 1: is is a bit of a different situation. But in 391 00:22:53,440 --> 00:22:57,000 Speaker 1: these years you had, of course a lot of differences 392 00:22:57,040 --> 00:23:00,600 Speaker 1: across countries. You know, some like Germany recovered very quickly 393 00:23:00,600 --> 00:23:03,159 Speaker 1: after the sovereign death after the sovereign death cries and 394 00:23:03,200 --> 00:23:05,440 Speaker 1: the global financial crisis, not the case of course of 395 00:23:05,520 --> 00:23:08,439 Speaker 1: countries like Italy and others. I think the main problem 396 00:23:08,520 --> 00:23:10,440 Speaker 1: we had in the e c B and I think, 397 00:23:11,560 --> 00:23:15,000 Speaker 1: especially with Mario Mario Dragi, I think, you know, we 398 00:23:15,080 --> 00:23:17,840 Speaker 1: were at some point the only game in town, you know, 399 00:23:17,880 --> 00:23:22,399 Speaker 1: because the political institutions, the institutional settings you know, supporting 400 00:23:22,440 --> 00:23:25,239 Speaker 1: these sort of situations, very extremely weak in you and 401 00:23:25,320 --> 00:23:29,800 Speaker 1: so I think that the CB had to take this leadership, 402 00:23:30,800 --> 00:23:33,160 Speaker 1: and I think a little bit contrary to what you said, 403 00:23:33,280 --> 00:23:36,399 Speaker 1: at the political level, it was accepted, you know, that 404 00:23:36,480 --> 00:23:39,840 Speaker 1: whatever it takes was very much endorsed and accepted, you know, 405 00:23:40,080 --> 00:23:43,560 Speaker 1: including in Germany at the highest level political level, in 406 00:23:43,600 --> 00:23:46,440 Speaker 1: the population. Of course, one of the issues is that 407 00:23:47,560 --> 00:23:50,639 Speaker 1: the situation you know about negative rates. Of course, we 408 00:23:50,680 --> 00:23:52,359 Speaker 1: had to have negative rates. If you look at the 409 00:23:52,359 --> 00:23:56,320 Speaker 1: curve in Germany for example, today you have minus fifty 410 00:23:56,320 --> 00:23:59,760 Speaker 1: basis points for the short term rates minus point five 411 00:24:00,320 --> 00:24:01,960 Speaker 1: and then when you go to the long end to 412 00:24:02,040 --> 00:24:06,160 Speaker 1: the tenure you know curve, you get minus fifty five. Today. 413 00:24:06,359 --> 00:24:08,880 Speaker 1: If you look at a country like Japan for example, 414 00:24:08,920 --> 00:24:12,640 Speaker 1: where you say Japan is not a particularly growing country, 415 00:24:12,760 --> 00:24:16,480 Speaker 1: you know with inflation, well the curve is minus tend 416 00:24:16,520 --> 00:24:19,119 Speaker 1: to zero, and the US it goes you know, it 417 00:24:19,200 --> 00:24:24,240 Speaker 1: goes up to point nine percent. So the country doing 418 00:24:24,280 --> 00:24:26,480 Speaker 1: the best, you know, being a sort of safe asset, 419 00:24:26,920 --> 00:24:29,760 Speaker 1: gets extremely low rates, and countries you know where the 420 00:24:29,840 --> 00:24:33,520 Speaker 1: risk a bit higher get higher rates. And during the 421 00:24:33,560 --> 00:24:38,120 Speaker 1: COVID crisis we lived again, you know, that situation when markets, 422 00:24:38,160 --> 00:24:40,960 Speaker 1: you know, get nervous, you have an increase of the 423 00:24:41,000 --> 00:24:44,480 Speaker 1: spreads you know, across the countries and all the interesting 424 00:24:44,520 --> 00:24:48,840 Speaker 1: cresses that you find within the Union, you know, as 425 00:24:49,080 --> 00:24:52,080 Speaker 1: you know emerging you know in the in in the 426 00:24:52,080 --> 00:24:57,320 Speaker 1: financial asset prices tremendously and at that time Mario had 427 00:24:57,359 --> 00:25:00,160 Speaker 1: to intervene and saying, you know, we do whatever it takes. 428 00:25:00,160 --> 00:25:03,520 Speaker 1: You took that initiative. In the COVID crisis, it was 429 00:25:03,560 --> 00:25:07,679 Speaker 1: a different situation where there was a full consensus, including 430 00:25:07,720 --> 00:25:11,200 Speaker 1: to intervene you know, sometimes more in particular markets than 431 00:25:11,240 --> 00:25:15,120 Speaker 1: other markets because of that particular situation. That's a revolution actually, 432 00:25:15,520 --> 00:25:17,760 Speaker 1: but it's you're right, I mean, it has been in 433 00:25:17,800 --> 00:25:22,000 Speaker 1: the governing Council not too difficult to get, you know, 434 00:25:22,160 --> 00:25:25,000 Speaker 1: a very strong consensus, you know, all all the measures 435 00:25:25,000 --> 00:25:29,320 Speaker 1: with it, but not not always unanimity. But it's the 436 00:25:29,760 --> 00:25:31,919 Speaker 1: length you know of this period, you know, and I 437 00:25:32,000 --> 00:25:34,480 Speaker 1: explained that by the succession of shocks that we had. 438 00:25:34,960 --> 00:25:37,359 Speaker 1: I thought in two thousand and eighteen that this time, 439 00:25:37,400 --> 00:25:40,159 Speaker 1: you know, that's it, they're going to be able to exit, 440 00:25:40,240 --> 00:25:43,320 Speaker 1: you know, from que progressively, and we announced that, you know, 441 00:25:43,400 --> 00:25:46,639 Speaker 1: I was, I was there when you know, I proposed 442 00:25:46,640 --> 00:25:49,000 Speaker 1: you know that at the gnomin In Council at that time. 443 00:25:49,520 --> 00:25:52,680 Speaker 1: But then we had again the new shock that came 444 00:25:53,040 --> 00:25:54,880 Speaker 1: and then now we have a coverage show there came, 445 00:25:54,960 --> 00:26:00,560 Speaker 1: So there's normalization never happened. Actually, Uh, since we're talking 446 00:26:00,560 --> 00:26:05,080 Speaker 1: about the whatever it takes moment from Mario Joggy, I 447 00:26:05,119 --> 00:26:06,879 Speaker 1: kind of wanted to ask you about that. Actually, So 448 00:26:07,200 --> 00:26:11,600 Speaker 1: when when he made that famous speech he was basically 449 00:26:11,680 --> 00:26:16,359 Speaker 1: calling the markets bluff, right, was there ever any doubt 450 00:26:16,600 --> 00:26:20,560 Speaker 1: within the e c B that that just uttering those 451 00:26:20,560 --> 00:26:23,679 Speaker 1: words would be enough to stop contagion. What was the 452 00:26:23,720 --> 00:26:26,760 Speaker 1: debate like before he went out and actually made that statement. 453 00:26:27,359 --> 00:26:29,440 Speaker 1: I think we can say that the president of the 454 00:26:29,520 --> 00:26:33,239 Speaker 1: Central Bank to took his responsibility by making, you know, 455 00:26:33,320 --> 00:26:37,280 Speaker 1: that announcement. So that is a sort of announcement that 456 00:26:37,480 --> 00:26:40,960 Speaker 1: is not without risks. I think so that I gave 457 00:26:41,080 --> 00:26:44,280 Speaker 1: him really the credit by taking this risk as a president, 458 00:26:44,400 --> 00:26:47,439 Speaker 1: because that's as you say something you know it may 459 00:26:47,480 --> 00:26:50,520 Speaker 1: not work, and you know it worked pretty well, and 460 00:26:50,560 --> 00:26:54,480 Speaker 1: then you have to ask yourself why did it work really? First? 461 00:26:54,520 --> 00:26:56,679 Speaker 1: I mean, you have to be a good communicator. I 462 00:26:56,720 --> 00:26:59,480 Speaker 1: think that he was. He knew that he would be 463 00:26:59,480 --> 00:27:02,959 Speaker 1: backed by the Governing Council, even if they would be 464 00:27:03,000 --> 00:27:06,879 Speaker 1: you know, some problems potentially, but he would be backed 465 00:27:06,880 --> 00:27:09,320 Speaker 1: by the Governing council, served a strong majority of the 466 00:27:09,359 --> 00:27:14,159 Speaker 1: Governing Council. And maybe more importantly to all this is 467 00:27:14,200 --> 00:27:18,119 Speaker 1: that before the announcement of Mario in July two thou twelve, 468 00:27:18,280 --> 00:27:21,240 Speaker 1: before that, you had the head of State and Governments 469 00:27:21,800 --> 00:27:26,800 Speaker 1: that decided, you know, to improve the institutional setting of 470 00:27:26,840 --> 00:27:30,240 Speaker 1: Europe by putting in in place, you knows, a single 471 00:27:30,280 --> 00:27:36,240 Speaker 1: supervisory mechanism, the supervision of bank looking at crisis management. 472 00:27:36,560 --> 00:27:40,359 Speaker 1: So there was an institutional change which was accepted by 473 00:27:40,440 --> 00:27:44,439 Speaker 1: government despite the politicians before the announcement of Mariue and 474 00:27:44,480 --> 00:27:47,679 Speaker 1: I know some politicians at the time they thought that 475 00:27:47,760 --> 00:27:51,439 Speaker 1: the e CV was not reacting sufficiently fast to the 476 00:27:51,600 --> 00:27:54,680 Speaker 1: innovations that were decided by the government, and so there 477 00:27:54,720 --> 00:27:57,520 Speaker 1: was a little bit for the president also the timing 478 00:27:58,160 --> 00:28:01,560 Speaker 1: of the announcement that uh, the c B had to do. 479 00:28:01,640 --> 00:28:04,000 Speaker 1: I think it had to do that, and certainly the 480 00:28:04,119 --> 00:28:06,320 Speaker 1: c B would not I don't think the ECB would 481 00:28:06,320 --> 00:28:09,280 Speaker 1: not have made that sort of you know, commitment with 482 00:28:09,400 --> 00:28:12,719 Speaker 1: all the institutional improvements that were decided by the at 483 00:28:12,720 --> 00:28:16,080 Speaker 1: the political level, and the markets understood I think pretty 484 00:28:16,080 --> 00:28:19,959 Speaker 1: well that the politicians would back the Central Bank and 485 00:28:20,000 --> 00:28:24,440 Speaker 1: they would also improve the institutional environment of the monetary union, 486 00:28:24,520 --> 00:28:27,760 Speaker 1: which caused all the problems we solved. Uh. And so 487 00:28:27,880 --> 00:28:32,320 Speaker 1: the fundamentals, the institutional fundamentals would improve, and the Central 488 00:28:32,359 --> 00:28:37,400 Speaker 1: Bank would support that by its police commitment and UH, 489 00:28:37,480 --> 00:28:40,480 Speaker 1: and then you know, the CB came. You know. Then, 490 00:28:40,520 --> 00:28:43,040 Speaker 1: of course, I was very much involved in the design 491 00:28:43,560 --> 00:28:45,840 Speaker 1: of what we call the O m T, which was 492 00:28:45,880 --> 00:28:48,800 Speaker 1: basically that the ECB would you know, do whatever it takes, 493 00:28:48,840 --> 00:28:51,440 Speaker 1: but it would not be a blank check. It would 494 00:28:51,440 --> 00:28:56,440 Speaker 1: be subject to a conditionally the framework where institute European 495 00:28:56,480 --> 00:29:00,240 Speaker 1: institutions would be at political institutions would be involved. So 496 00:29:00,280 --> 00:29:04,360 Speaker 1: I think the framework. But it came, and that's why 497 00:29:04,400 --> 00:29:08,840 Speaker 1: I say, you're will be forced in crisis. Fine, we survived, 498 00:29:09,320 --> 00:29:12,400 Speaker 1: but it was very close, I must say, And so 499 00:29:12,520 --> 00:29:16,920 Speaker 1: it worked. The COVID is a new situation. Indeed, so 500 00:29:17,640 --> 00:29:22,120 Speaker 1: you you mentioned that back inen you had some hope 501 00:29:22,440 --> 00:29:26,239 Speaker 1: that perhaps the era of extraordinary monetary policy might come 502 00:29:26,320 --> 00:29:27,840 Speaker 1: to an end and that we might return to just 503 00:29:28,000 --> 00:29:31,920 Speaker 1: ordinary monetary policy. But of course that didn't happen, and 504 00:29:31,960 --> 00:29:34,240 Speaker 1: we don't even seem like, you know, it's anywhere close. 505 00:29:34,360 --> 00:29:37,480 Speaker 1: These days, the European Central Bank in many ways has 506 00:29:37,520 --> 00:29:40,280 Speaker 1: been far more innovative than say the FED, and more 507 00:29:40,400 --> 00:29:44,160 Speaker 1: and trying multiple tools. So you mentioned negative rates, we've 508 00:29:44,240 --> 00:29:47,840 Speaker 1: also seen dual rates. We've seen not only quantitative easing 509 00:29:47,960 --> 00:29:51,160 Speaker 1: but also easing through the credit channels in a way 510 00:29:51,160 --> 00:29:54,440 Speaker 1: that the FED hasn't done. Essentially all different kinds of 511 00:29:54,480 --> 00:29:57,760 Speaker 1: efforts to get around the lower bound ef fact that 512 00:29:58,160 --> 00:30:00,200 Speaker 1: rates are more or less zero don't have much there 513 00:30:00,240 --> 00:30:04,400 Speaker 1: to go in your view, what are the most promising 514 00:30:04,880 --> 00:30:09,400 Speaker 1: tools for central banks? What actually works at the lower bound? 515 00:30:10,560 --> 00:30:14,240 Speaker 1: That's a very good question. I would say yes, in particular, 516 00:30:14,640 --> 00:30:17,760 Speaker 1: give credit to very brilliant people in the staff of 517 00:30:17,800 --> 00:30:22,520 Speaker 1: the CB, and they're still there, very creative people, and 518 00:30:22,920 --> 00:30:28,440 Speaker 1: it is true that the CBS very often being very innovative. 519 00:30:29,320 --> 00:30:32,680 Speaker 1: I would caution quotion you that when you look at 520 00:30:32,680 --> 00:30:35,400 Speaker 1: the toolbox, you have to look at the combination of 521 00:30:35,440 --> 00:30:38,160 Speaker 1: the toolbox. It's very difficult to say, I take, I 522 00:30:38,200 --> 00:30:41,760 Speaker 1: pick up one instrument and what is the most efficient one. 523 00:30:41,840 --> 00:30:44,800 Speaker 1: It depends on the context, It depends a little bit 524 00:30:44,920 --> 00:30:48,680 Speaker 1: the circumstances that in which you are. One question today 525 00:30:48,880 --> 00:30:50,920 Speaker 1: is to say things that have worked in the past 526 00:30:51,320 --> 00:30:53,920 Speaker 1: do they still would they still work today? So you 527 00:30:54,080 --> 00:30:58,280 Speaker 1: always continuously have to revisit, you know, your toolbox and 528 00:30:58,320 --> 00:31:01,200 Speaker 1: the way they interrelate. I think that snow communicated by 529 00:31:01,320 --> 00:31:05,400 Speaker 1: Christine lag A very clearly that maybe you know in 530 00:31:05,400 --> 00:31:07,920 Speaker 1: December they will take more or less the same decisions. 531 00:31:07,920 --> 00:31:10,800 Speaker 1: You know about the PEP, you know the pandemic, you 532 00:31:10,840 --> 00:31:15,680 Speaker 1: know emergency preshas program, and the you know, cheap lending 533 00:31:15,760 --> 00:31:17,880 Speaker 1: for banks they may do that again and that looks 534 00:31:17,960 --> 00:31:20,880 Speaker 1: quite you know, quite not not a very big innovation 535 00:31:20,920 --> 00:31:23,800 Speaker 1: that may limit but they will always look at all 536 00:31:23,840 --> 00:31:26,400 Speaker 1: the instruments in the relationship between the instruments. So you 537 00:31:26,440 --> 00:31:29,240 Speaker 1: do always this sort of exercise. I think when you 538 00:31:29,240 --> 00:31:32,800 Speaker 1: answer the question what is the most efficient I would 539 00:31:32,800 --> 00:31:35,840 Speaker 1: say today today, because as I said, it's context related. 540 00:31:36,600 --> 00:31:38,560 Speaker 1: Today I think there is a big issue. You have 541 00:31:38,600 --> 00:31:42,840 Speaker 1: a COVIDE shock, which hits a lot the Sames, small 542 00:31:42,920 --> 00:31:45,560 Speaker 1: and medium science firms. Not the very big one that 543 00:31:45,680 --> 00:31:48,240 Speaker 1: can have access to the capital markets, but a lot 544 00:31:48,280 --> 00:31:52,640 Speaker 1: of sammes Sames depend very much of bank lending, and 545 00:31:52,680 --> 00:31:55,760 Speaker 1: the situation of banks is not brilliant. Before the shop, 546 00:31:56,240 --> 00:31:58,600 Speaker 1: you know, the rate of return was a miserable two 547 00:31:58,640 --> 00:32:04,080 Speaker 1: percent returnal equity. And they're well capitalized, the plenty of liquidity, 548 00:32:04,160 --> 00:32:06,880 Speaker 1: which which is good. That makes them resilient, but they're 549 00:32:06,920 --> 00:32:09,960 Speaker 1: not very profitable. And so the biggest risk in your 550 00:32:10,160 --> 00:32:12,720 Speaker 1: when the COVID came was that you've got a credit 551 00:32:12,760 --> 00:32:16,720 Speaker 1: crunch immediately. And so there was a combination of government reactions, 552 00:32:16,720 --> 00:32:19,440 Speaker 1: you know, to give government guarantees and there was on 553 00:32:19,520 --> 00:32:22,400 Speaker 1: the side of the c B cheap lenning funding for 554 00:32:22,520 --> 00:32:25,560 Speaker 1: lending and other measures that the CB and supervisors took, 555 00:32:25,920 --> 00:32:29,080 Speaker 1: you know, to make life a bit easier for banks 556 00:32:29,120 --> 00:32:32,080 Speaker 1: so that they're able to lend to the sector that 557 00:32:32,120 --> 00:32:34,480 Speaker 1: has been hit. So I think the most important instruments 558 00:32:34,520 --> 00:32:38,520 Speaker 1: for today it was because you have a key issue 559 00:32:38,640 --> 00:32:41,840 Speaker 1: is that sort of shock with lending to sames and 560 00:32:42,040 --> 00:32:45,000 Speaker 1: simes depend on bank So you cannot just say, as 561 00:32:45,120 --> 00:32:47,880 Speaker 1: some economies they have written this may be ways that 562 00:32:48,080 --> 00:32:52,680 Speaker 1: money because a lot of sames you know are you know, cinemas, 563 00:32:52,760 --> 00:32:57,000 Speaker 1: you know, restaurants, bars, but tourist industry, etcetera. There big 564 00:32:57,040 --> 00:33:00,600 Speaker 1: the other in services. You cannot just reason like this. 565 00:33:00,840 --> 00:33:04,040 Speaker 1: I think you have to support because that's some very 566 00:33:04,040 --> 00:33:06,920 Speaker 1: good enterprises there. And of course, you know, when you 567 00:33:06,960 --> 00:33:09,120 Speaker 1: close the business, what can you do even if you're 568 00:33:09,120 --> 00:33:11,120 Speaker 1: a good enterprise, And if you let some of these 569 00:33:11,160 --> 00:33:15,040 Speaker 1: firms go down, it's very difficult to recreate the relationship 570 00:33:15,120 --> 00:33:18,320 Speaker 1: that you had before. And that's a classical problem. So 571 00:33:18,360 --> 00:33:20,960 Speaker 1: I think here I would say number one that it 572 00:33:21,040 --> 00:33:24,480 Speaker 1: is the the the how will the bank react, will 573 00:33:24,520 --> 00:33:27,560 Speaker 1: they continue to lend? And one of the policy tools 574 00:33:27,640 --> 00:33:30,360 Speaker 1: that you need to ensure that, And it's a combination 575 00:33:30,400 --> 00:33:34,080 Speaker 1: of government evention and Central Bank. You know, I would 576 00:33:34,080 --> 00:33:36,719 Speaker 1: call it even subsidies for the banks. I don't like 577 00:33:36,800 --> 00:33:39,320 Speaker 1: so much the word. But you know, when you lend, 578 00:33:39,600 --> 00:33:42,000 Speaker 1: you know it minus one percent two banks on the 579 00:33:42,040 --> 00:33:45,200 Speaker 1: conditions that they keep the loan book. You know, basically 580 00:33:45,280 --> 00:33:49,040 Speaker 1: two sam is constant. You know that they're not reduce it. Well, 581 00:33:49,080 --> 00:33:51,320 Speaker 1: it's a form of subidary of course, because that comes 582 00:33:51,320 --> 00:33:53,280 Speaker 1: away from the P and L of the Central Bank. 583 00:33:53,640 --> 00:33:56,680 Speaker 1: But I think the CM has been quite innovative, you 584 00:33:56,720 --> 00:33:59,640 Speaker 1: know in lending at negative rates and and and below 585 00:33:59,800 --> 00:34:02,800 Speaker 1: you know, the money market rates. So it doesn't it's 586 00:34:02,800 --> 00:34:05,720 Speaker 1: not a guarantee, of course, of success, but I think 587 00:34:05,920 --> 00:34:08,000 Speaker 1: it's because the banks could decide not to lend, you know, 588 00:34:08,080 --> 00:34:11,799 Speaker 1: even with these incentives. But that's why the government interventions 589 00:34:11,840 --> 00:34:15,560 Speaker 1: have been absolutely key as well. So that's that's an 590 00:34:15,560 --> 00:34:19,719 Speaker 1: important thing. The other instruments that we have is what 591 00:34:19,760 --> 00:34:23,520 Speaker 1: we call the PEP, you know, the Pandemic Emergency Purchase Program, 592 00:34:24,480 --> 00:34:28,440 Speaker 1: which is just like que but it's more than than 593 00:34:28,480 --> 00:34:31,719 Speaker 1: the traditional QUEI because here you have an envelope that 594 00:34:31,719 --> 00:34:34,440 Speaker 1: that's the I D and you can use this envelope 595 00:34:34,520 --> 00:34:38,680 Speaker 1: extremely flexible. So there were a number of constraints on 596 00:34:39,000 --> 00:34:44,000 Speaker 1: que before across countries. For example, in this case, you say, well, 597 00:34:44,480 --> 00:34:47,280 Speaker 1: if I see that the transmission of monetor policy doesn't 598 00:34:47,280 --> 00:34:50,960 Speaker 1: work well in a particular country because interest rates go up, 599 00:34:51,040 --> 00:34:53,200 Speaker 1: you know, in that country, and that's not what I want, 600 00:34:53,719 --> 00:34:56,800 Speaker 1: I will buy more of these bonds. Let's say Italy, Spain, 601 00:34:56,880 --> 00:34:59,560 Speaker 1: some of the countries which have been hit more by 602 00:34:59,600 --> 00:35:03,160 Speaker 1: the shock, I would buy more. And Marcus will know that, 603 00:35:03,239 --> 00:35:06,160 Speaker 1: of course, and there will be some you know, I 604 00:35:06,160 --> 00:35:09,400 Speaker 1: will normalize. I will facilitate the transmission of my monetary 605 00:35:09,440 --> 00:35:13,840 Speaker 1: policy by specific targeted intervention in some countries. This is 606 00:35:13,840 --> 00:35:17,680 Speaker 1: a revolution because we we we never we never did that. Actually, 607 00:35:18,120 --> 00:35:20,080 Speaker 1: in the O M team, we had a promise that 608 00:35:20,120 --> 00:35:23,800 Speaker 1: we would do that under conditionality. In the case of COVID, 609 00:35:24,160 --> 00:35:27,960 Speaker 1: the CD has an envelope, big envelope and says, I'm 610 00:35:28,080 --> 00:35:32,000 Speaker 1: going to use my firepower powder to ensure that the 611 00:35:32,040 --> 00:35:35,799 Speaker 1: transmission of monitor policy corresponds to what I want. And 612 00:35:35,880 --> 00:35:39,960 Speaker 1: it was very successful because the spreads went down immediately. 613 00:35:40,480 --> 00:35:44,320 Speaker 1: But I immediately say that it was successful also because 614 00:35:44,360 --> 00:35:47,600 Speaker 1: a little bit later you had the recovery fund that 615 00:35:47,680 --> 00:35:51,319 Speaker 1: came from your pain side. So in this crisis, and 616 00:35:51,360 --> 00:35:53,320 Speaker 1: I think it should have been in the previous crisis 617 00:35:53,360 --> 00:35:56,640 Speaker 1: as well. When you have a sort of good coordination 618 00:35:56,719 --> 00:36:00,880 Speaker 1: between the fiscal authorities, the political institutions in the Central Bank, 619 00:36:01,440 --> 00:36:04,920 Speaker 1: I think the impact can be quite good. Uh. And 620 00:36:04,960 --> 00:36:08,000 Speaker 1: that's not what we had in the global financial crisis, 621 00:36:08,320 --> 00:36:11,000 Speaker 1: and certainly not in the sovereign debt crisis in the beginning. 622 00:36:11,280 --> 00:36:14,399 Speaker 1: And then it came and unfortunately it costed a lot 623 00:36:14,520 --> 00:36:18,520 Speaker 1: in terms of who else in Europe. That that's now 624 00:36:18,560 --> 00:36:21,480 Speaker 1: we have a good cooperation between the two. When will 625 00:36:21,520 --> 00:36:24,320 Speaker 1: it end, you know, because that's the next question, of course. 626 00:36:24,360 --> 00:36:26,239 Speaker 1: For the time being, you know, there is no inflation, 627 00:36:26,440 --> 00:36:31,200 Speaker 1: there are some deflationary risk in the economy, and so 628 00:36:31,360 --> 00:36:35,560 Speaker 1: the cooperation between the two is pretty good because there 629 00:36:35,640 --> 00:36:39,239 Speaker 1: is no diverging you know, interest aligned on both sides 630 00:36:39,280 --> 00:36:41,520 Speaker 1: and the inflation is low. That's the mandate of the CB, 631 00:36:42,280 --> 00:36:45,759 Speaker 1: and supporting the economy for that sort of shock, you know, 632 00:36:45,880 --> 00:36:47,800 Speaker 1: is also the priority of government. So I mean it 633 00:36:48,160 --> 00:36:51,200 Speaker 1: works pretty well. The question, of course, which is not 634 00:36:51,320 --> 00:36:53,600 Speaker 1: yet discussed in the markets, of course, because I think 635 00:36:53,600 --> 00:36:56,319 Speaker 1: it's too early, is that supposed the vaccine you know, 636 00:36:56,640 --> 00:36:59,160 Speaker 1: gets very good results in the second half of twenty 637 00:36:59,200 --> 00:37:03,720 Speaker 1: one and that, you know, the animal spirits changes changed 638 00:37:03,760 --> 00:37:07,240 Speaker 1: totally because people start getting optimistic, you know, and there's 639 00:37:07,280 --> 00:37:10,320 Speaker 1: all this you know, uh, pent up demand. You know, 640 00:37:10,440 --> 00:37:13,080 Speaker 1: it's going to be materialized. People start buying, they start 641 00:37:13,120 --> 00:37:15,719 Speaker 1: going in restaurant, they want to add fun and then 642 00:37:15,760 --> 00:37:19,080 Speaker 1: suddenly the cycle turns very much. Then of course you 643 00:37:19,239 --> 00:37:21,080 Speaker 1: have to see what will be the reaction of the 644 00:37:21,120 --> 00:37:23,760 Speaker 1: central bank. At what point. I don't think the central 645 00:37:23,800 --> 00:37:26,600 Speaker 1: bank is to rush because the damage to the economy 646 00:37:26,600 --> 00:37:29,480 Speaker 1: is so big, you know that. I think inflationy forces 647 00:37:29,480 --> 00:37:32,320 Speaker 1: will come much later. But I mean, you know, markets 648 00:37:32,360 --> 00:37:36,160 Speaker 1: like to anticipate all situations, and I think that's a 649 00:37:36,200 --> 00:37:39,200 Speaker 1: situation that you know, needs a little bit more work 650 00:37:39,520 --> 00:37:42,600 Speaker 1: from the side of the CB, more compunication. It's probably 651 00:37:42,640 --> 00:37:45,080 Speaker 1: too early to do that, because that's not a priority 652 00:37:45,120 --> 00:37:47,680 Speaker 1: to think, you know about phasing out. You may send 653 00:37:47,719 --> 00:37:51,000 Speaker 1: ambiguous messages if you do that, but at some point 654 00:37:51,000 --> 00:37:53,760 Speaker 1: they will have to to to start, you know, in speeches, 655 00:37:53,800 --> 00:37:57,440 Speaker 1: maybe communicating about you know, how do we see a 656 00:37:57,520 --> 00:38:01,680 Speaker 1: situation where inflation starts to go a bit too fast? 657 00:38:01,719 --> 00:38:04,759 Speaker 1: Maybe you know the aligned interest you know that you 658 00:38:04,800 --> 00:38:07,400 Speaker 1: see today between Treasury and the central bank would not 659 00:38:07,480 --> 00:38:09,960 Speaker 1: be there anymore at some point. I don't think it's 660 00:38:10,080 --> 00:38:13,120 Speaker 1: it's for the time being a situation which is realistic, 661 00:38:13,440 --> 00:38:15,759 Speaker 1: but it may happen at some point, and as you know, 662 00:38:15,840 --> 00:38:18,799 Speaker 1: markets always have to be ready for any situation. You know, 663 00:38:18,840 --> 00:38:21,560 Speaker 1: we always have seen surprises in the past, so you 664 00:38:21,600 --> 00:38:25,040 Speaker 1: can always have surprises. So that's the strategy of phasing 665 00:38:25,040 --> 00:38:28,680 Speaker 1: out and the relationship with governments with the treasury. I 666 00:38:28,719 --> 00:38:31,200 Speaker 1: think that would be a key debate for the coming years. 667 00:38:31,239 --> 00:38:33,840 Speaker 1: I mean, as as you said in your introduction, rightly, 668 00:38:34,600 --> 00:38:36,400 Speaker 1: I wanted to go back to what you were saying 669 00:38:36,480 --> 00:38:39,799 Speaker 1: about the banking system, because, of course, one of the 670 00:38:39,840 --> 00:38:44,960 Speaker 1: criticisms of unconventional monetary policy is that it damages banks. 671 00:38:45,080 --> 00:38:48,760 Speaker 1: It potentially pushes risks outside of the banking system onto 672 00:38:49,160 --> 00:38:52,839 Speaker 1: shadow financial institutions that we don't really have very good 673 00:38:52,920 --> 00:38:57,759 Speaker 1: data or insight into what they're doing. And you know, 674 00:38:58,239 --> 00:39:02,440 Speaker 1: we're now into at least our tenth year of unconventional 675 00:39:02,520 --> 00:39:07,160 Speaker 1: monetary policy. How confident can central bankers be that they're 676 00:39:07,160 --> 00:39:11,040 Speaker 1: going to be able to offset the longer term risks. 677 00:39:11,120 --> 00:39:14,560 Speaker 1: The longer term financial risks is reach for yield, things 678 00:39:14,600 --> 00:39:20,480 Speaker 1: like that of their unconventional monetary policies. Yes, I think 679 00:39:20,480 --> 00:39:24,480 Speaker 1: that's an excellent question. Uh, for the time being, it's 680 00:39:24,480 --> 00:39:28,720 Speaker 1: a question around financial stability, and uh, you know, financial 681 00:39:28,800 --> 00:39:32,439 Speaker 1: stability risks moving from the banking sector to the non 682 00:39:32,600 --> 00:39:36,080 Speaker 1: bank you know, the non the other financial institutions, and 683 00:39:36,840 --> 00:39:39,239 Speaker 1: we don't have that to to the same degree as 684 00:39:39,239 --> 00:39:42,000 Speaker 1: in the United States. So I think it's a it's 685 00:39:42,000 --> 00:39:45,360 Speaker 1: still in Europe, I would say it's unfortunate. In Europe 686 00:39:45,400 --> 00:39:48,440 Speaker 1: you still have a highly bank intermediated environment. And as 687 00:39:48,480 --> 00:39:51,280 Speaker 1: I said, you have a shocking SAMES which really depends 688 00:39:51,320 --> 00:39:54,680 Speaker 1: on banks. It's it's it's very simple, so that's the priority. 689 00:39:54,840 --> 00:39:58,160 Speaker 1: On the other hand, you're right, I mean when you 690 00:39:58,200 --> 00:40:03,040 Speaker 1: look at the instruments like Hui and when the central banks, 691 00:40:03,080 --> 00:40:05,799 Speaker 1: for example, also in Europe, I said that also we 692 00:40:05,880 --> 00:40:11,839 Speaker 1: want to ensure that financial conditions remain very accommodative. Well, 693 00:40:11,880 --> 00:40:17,000 Speaker 1: financial conditions are equity prices, you know, bond prices, everything, 694 00:40:17,040 --> 00:40:20,280 Speaker 1: credit spreads and all that. When you say financial conditions, 695 00:40:20,320 --> 00:40:23,239 Speaker 1: so it's a sort of compact, you know, a sort 696 00:40:23,280 --> 00:40:26,000 Speaker 1: of average of all asset prices. And if you say 697 00:40:26,080 --> 00:40:29,439 Speaker 1: you want to keep them accommodative, I think it's fine, 698 00:40:29,440 --> 00:40:32,400 Speaker 1: that's that's your objective. But of course at some point, 699 00:40:32,440 --> 00:40:37,839 Speaker 1: you know, it gives the impression among market parsities participants 700 00:40:37,880 --> 00:40:40,279 Speaker 1: there is a sort of backstop or sort of put 701 00:40:40,840 --> 00:40:43,720 Speaker 1: cheap put option which is put in place by central 702 00:40:43,719 --> 00:40:46,640 Speaker 1: banks basically saying, well, look, if there is an event 703 00:40:46,719 --> 00:40:51,960 Speaker 1: somewhere and financial conditions deteriorate, maybe because equity prices certainly 704 00:40:51,960 --> 00:40:55,440 Speaker 1: fall very much, and what would be the reaction of 705 00:40:55,520 --> 00:40:59,960 Speaker 1: central banks? So markets start to internalize the reaction function 706 00:41:00,000 --> 00:41:02,520 Speaker 1: of the central bank saying this is a quasi objective 707 00:41:02,600 --> 00:41:05,719 Speaker 1: of the central bank is to keep financial conditions, you know, 708 00:41:05,960 --> 00:41:09,800 Speaker 1: as they are accommodative. And then the central the market 709 00:41:09,880 --> 00:41:12,080 Speaker 1: people would then say, well, look there is a backstop. 710 00:41:12,120 --> 00:41:14,480 Speaker 1: You know, it's as that pricess fall, you know, anyway, 711 00:41:14,640 --> 00:41:17,839 Speaker 1: the central banks would intervene and uh and that may 712 00:41:17,920 --> 00:41:20,200 Speaker 1: lead of course to excess us in the market where 713 00:41:20,239 --> 00:41:22,680 Speaker 1: people don't perceive your tail risk on the left side, 714 00:41:23,080 --> 00:41:25,040 Speaker 1: and they basically say there is a backstop on the 715 00:41:25,080 --> 00:41:27,000 Speaker 1: central banks. So I think central banks have to be 716 00:41:27,080 --> 00:41:31,320 Speaker 1: very cautious, and I personally, when I was there, always 717 00:41:31,360 --> 00:41:36,239 Speaker 1: avoided to say things that I read sometimes in communication 718 00:41:36,280 --> 00:41:39,200 Speaker 1: of central banks. For example, to say we want to 719 00:41:39,360 --> 00:41:44,120 Speaker 1: ensure that financial conditions are going to remain accommodative. I 720 00:41:44,160 --> 00:41:46,600 Speaker 1: think that's fine, that's what they want to do. But 721 00:41:46,719 --> 00:41:50,080 Speaker 1: what you want to ensure something is well, you know, 722 00:41:50,239 --> 00:41:53,560 Speaker 1: it's uh, you have to be careful about that. What 723 00:41:53,600 --> 00:41:55,600 Speaker 1: do you do about this? I mean the answer, the 724 00:41:55,640 --> 00:41:58,120 Speaker 1: classical answer is to say, well, you have to monitor 725 00:41:58,320 --> 00:42:01,520 Speaker 1: this sort of risk, you know, so you have micropudential framework, 726 00:42:01,800 --> 00:42:05,000 Speaker 1: you have regulation and supervision, and that's basically what you 727 00:42:05,040 --> 00:42:07,960 Speaker 1: have to do. And uh. And but we know, for example, 728 00:42:07,960 --> 00:42:12,320 Speaker 1: in the United States, the toolbox in terms of micropudential 729 00:42:12,440 --> 00:42:15,600 Speaker 1: instruments is not very is not very impressive. I mean, 730 00:42:15,640 --> 00:42:17,040 Speaker 1: if you look at the U S and I know 731 00:42:17,160 --> 00:42:20,239 Speaker 1: that in several speeches, you know, some governors in the 732 00:42:20,320 --> 00:42:24,520 Speaker 1: US have complained about this. So that's an issue. In Europe, 733 00:42:24,520 --> 00:42:26,040 Speaker 1: I think we have a little bit more in the 734 00:42:26,080 --> 00:42:29,239 Speaker 1: toolbox at the national level and also the European level, 735 00:42:29,440 --> 00:42:32,600 Speaker 1: but essentially the national level. But I would agree also 736 00:42:32,760 --> 00:42:36,480 Speaker 1: that the toolbox in macrol pudential is not impressive for 737 00:42:36,520 --> 00:42:39,440 Speaker 1: the time being to deal with the problems you mentioned. 738 00:42:39,880 --> 00:42:43,120 Speaker 1: I think the central banks in the monetary policy deliberations, 739 00:42:43,160 --> 00:42:45,200 Speaker 1: you know, when you decide about queen, if you do 740 00:42:45,320 --> 00:42:49,160 Speaker 1: more quee, I think in the future they need they 741 00:42:49,160 --> 00:42:52,520 Speaker 1: will need to put in the discussions in the monetary 742 00:42:52,560 --> 00:42:55,880 Speaker 1: policy discussions to give a more prominent role, you know, 743 00:42:55,920 --> 00:43:00,440 Speaker 1: to financial stability consideration. Usually, you know, the monitor policy 744 00:43:00,480 --> 00:43:04,160 Speaker 1: decisions are not very focused on financial stability in general. 745 00:43:04,280 --> 00:43:06,040 Speaker 1: If you're a big shock, of course there will be 746 00:43:06,600 --> 00:43:10,240 Speaker 1: but there will not be a systematic discussion about financial 747 00:43:10,320 --> 00:43:12,920 Speaker 1: stability risk and the sort of you know, what are 748 00:43:12,920 --> 00:43:15,840 Speaker 1: the trade offs you know, between the different risks. I 749 00:43:15,880 --> 00:43:19,120 Speaker 1: think this has started in recent years and I think 750 00:43:19,120 --> 00:43:22,680 Speaker 1: it will continue. As Custine I think has rightly said, 751 00:43:22,719 --> 00:43:25,760 Speaker 1: you know, in response to the German constitutional court issue 752 00:43:26,080 --> 00:43:29,040 Speaker 1: by saying, you know, we look at you know, the 753 00:43:29,080 --> 00:43:33,279 Speaker 1: pros and cons of our measures, including you know, the 754 00:43:33,280 --> 00:43:36,640 Speaker 1: side effects on financial stability. But I think this will 755 00:43:36,719 --> 00:43:39,560 Speaker 1: have to be done in a more systematic way in 756 00:43:39,640 --> 00:43:42,239 Speaker 1: the deliberation of monetory policy. It's not easy to do, 757 00:43:42,320 --> 00:43:45,279 Speaker 1: you know, this sort of armitage. I think if that 758 00:43:45,440 --> 00:43:48,640 Speaker 1: had been done in recent time with a compte shock, 759 00:43:48,719 --> 00:43:51,200 Speaker 1: for example, I don't think it would have changed anything 760 00:43:51,280 --> 00:43:55,520 Speaker 1: in monetary policy, because they was the reaction of the 761 00:43:55,560 --> 00:43:58,319 Speaker 1: Central bank to the sort of shock that we saw 762 00:43:58,680 --> 00:44:01,360 Speaker 1: was very clear, so I think it would have changed. 763 00:44:01,360 --> 00:44:03,279 Speaker 1: But in the future it may be when you think 764 00:44:03,320 --> 00:44:06,560 Speaker 1: about the length you know of your interventions in the markets, 765 00:44:07,440 --> 00:44:09,920 Speaker 1: or the way you intervene in specific markets, like with 766 00:44:10,000 --> 00:44:13,960 Speaker 1: the pandemic purchase program. I think there you you need 767 00:44:13,960 --> 00:44:17,760 Speaker 1: that sort of discussion about you know, other market prices. 768 00:44:18,239 --> 00:44:21,759 Speaker 1: Right do you see movements which you think are exuberance? 769 00:44:22,600 --> 00:44:24,880 Speaker 1: You know, the CB for example, has said, you know, 770 00:44:24,920 --> 00:44:28,360 Speaker 1: when you know, we want to go against non fundamental 771 00:44:28,480 --> 00:44:32,000 Speaker 1: volatility in the spreads. You know, that sort of a message, 772 00:44:32,360 --> 00:44:35,879 Speaker 1: the non fundamental volatility in spreads in spreads of some 773 00:44:35,920 --> 00:44:38,520 Speaker 1: countries for example. I mean when you're going when you 774 00:44:38,640 --> 00:44:42,000 Speaker 1: go into that sort of reasoning, it's it's very delicate 775 00:44:42,080 --> 00:44:44,680 Speaker 1: to do. I think in crisis you can say that 776 00:44:44,800 --> 00:44:48,640 Speaker 1: because you know there was so much you know, access volatility. 777 00:44:48,680 --> 00:44:50,960 Speaker 1: But when you're go into more normal time, you know 778 00:44:51,200 --> 00:44:54,080 Speaker 1: you may have more minor shop and what are you 779 00:44:54,120 --> 00:44:59,160 Speaker 1: going to qualify as you know non fundamental volatility, what 780 00:44:59,360 --> 00:45:03,960 Speaker 1: is or close to the fundamentals? And this is a 781 00:45:04,000 --> 00:45:06,879 Speaker 1: tricky issue. So in a cute phase, you don't ask 782 00:45:06,880 --> 00:45:09,080 Speaker 1: yourself this sort of question. Because you have to act 783 00:45:09,360 --> 00:45:12,279 Speaker 1: and very quickly and frontload your interventions. And I think 784 00:45:12,320 --> 00:45:14,640 Speaker 1: the CB pretty well with the COVID shock. I was 785 00:45:14,800 --> 00:45:31,279 Speaker 1: very impressed on the say, by what they did. M M. 786 00:45:32,440 --> 00:45:34,880 Speaker 1: I want to ask another question about a sort of 787 00:45:34,920 --> 00:45:39,319 Speaker 1: post crisis risk. Obviously trade to talk about financial risks, 788 00:45:39,400 --> 00:45:41,880 Speaker 1: but there's also you know, you mentioned all of these 789 00:45:42,400 --> 00:45:45,399 Speaker 1: um same s, many of which could end up going 790 00:45:45,400 --> 00:45:49,000 Speaker 1: out of business, whether it's movie theaters, restaurants, bars. Some 791 00:45:49,080 --> 00:45:51,440 Speaker 1: will be saved, that may not be saved, and that 792 00:45:51,800 --> 00:45:54,799 Speaker 1: the thing I'm interested in is hystory sists and the 793 00:45:54,840 --> 00:45:58,239 Speaker 1: idea that if we have you know, the longer this 794 00:45:58,400 --> 00:46:03,440 Speaker 1: goes on, the more the economy suffers a sustained degradation 795 00:46:03,920 --> 00:46:07,600 Speaker 1: of productive capacity that even after the vaccine is let's 796 00:46:07,600 --> 00:46:09,960 Speaker 1: say we get a vaccine in the spring or early summer, 797 00:46:10,280 --> 00:46:13,080 Speaker 1: that there's because of this sustained shutdown, because of lots 798 00:46:13,080 --> 00:46:17,400 Speaker 1: of businesses that can't easily be reverse. We're just in 799 00:46:17,440 --> 00:46:19,799 Speaker 1: the US, are Europe or anywhere there's not as uh, 800 00:46:20,080 --> 00:46:22,239 Speaker 1: we don't have what it takes productively to come back. 801 00:46:22,560 --> 00:46:25,520 Speaker 1: How big of a risk is that in your view 802 00:46:25,920 --> 00:46:29,239 Speaker 1: in terms of growth potential post crisis and how much 803 00:46:30,080 --> 00:46:34,879 Speaker 1: does say, aggressive fiscal policy now help mitigate that risk? 804 00:46:35,880 --> 00:46:38,600 Speaker 1: You know, Joe, this this is my main concern what 805 00:46:38,640 --> 00:46:41,480 Speaker 1: you say, no, because when you look at major shocks 806 00:46:41,520 --> 00:46:44,239 Speaker 1: like the global financial crisis, but also other shocks, you 807 00:46:44,280 --> 00:46:46,880 Speaker 1: know that the old shock in the seventies, what you 808 00:46:47,000 --> 00:46:50,640 Speaker 1: always saw is that the potential growth went down, so 809 00:46:50,680 --> 00:46:53,120 Speaker 1: the long term growth went down, so that it's it's 810 00:46:53,200 --> 00:46:56,359 Speaker 1: very much the supply side of the economy. And so 811 00:46:56,760 --> 00:46:59,600 Speaker 1: you know, when you talk about, for example, the fiscal 812 00:46:59,640 --> 00:47:02,759 Speaker 1: policy and the sustainability of debt, people will tell you 813 00:47:03,200 --> 00:47:05,920 Speaker 1: good news. You know, interest rates are very low and 814 00:47:05,960 --> 00:47:08,600 Speaker 1: the growth rate is higher, so you know, you can 815 00:47:08,760 --> 00:47:13,120 Speaker 1: you can have sustainable debt at much higher ratios. The problem, 816 00:47:13,200 --> 00:47:16,000 Speaker 1: of course is that j you know, the growth rate 817 00:47:16,040 --> 00:47:18,719 Speaker 1: the long term has also fallen, so interest rates go down, 818 00:47:19,040 --> 00:47:22,000 Speaker 1: but the long term rates also go down. And the 819 00:47:22,040 --> 00:47:25,400 Speaker 1: extent to which this happened is not sufficiently factored in 820 00:47:26,000 --> 00:47:28,719 Speaker 1: in the long term that sustainability analysis that you see 821 00:47:28,760 --> 00:47:31,360 Speaker 1: among many market participants. So I think this is a 822 00:47:31,400 --> 00:47:36,080 Speaker 1: real issue now Europe. You're paying politicians, I mean have 823 00:47:36,160 --> 00:47:39,799 Speaker 1: understood that actually, and the recovery plan is precisely to 824 00:47:39,880 --> 00:47:42,920 Speaker 1: try to answer to your question by saying, look, we 825 00:47:43,000 --> 00:47:46,040 Speaker 1: don't talk about support measures for the economy as it is, 826 00:47:46,600 --> 00:47:50,440 Speaker 1: but we want to invest, you know, in technologies of 827 00:47:50,480 --> 00:47:54,600 Speaker 1: the future digitalization. Now the question can they realized that, 828 00:47:55,000 --> 00:47:58,200 Speaker 1: because as you know, before the crisis, you know, potential 829 00:47:58,239 --> 00:48:01,759 Speaker 1: growth was trending down in most economies was trending down. 830 00:48:01,880 --> 00:48:05,000 Speaker 1: It was not trending up, and so these these problems 831 00:48:05,000 --> 00:48:07,680 Speaker 1: of the past are still there. So the optimistic view, 832 00:48:07,719 --> 00:48:11,279 Speaker 1: which I must say, I I don't share really, I 833 00:48:11,280 --> 00:48:14,160 Speaker 1: think it's going to be very challenging. But the optimistic 834 00:48:14,239 --> 00:48:16,400 Speaker 1: view is to say, well, it's a big shock. People 835 00:48:16,440 --> 00:48:18,920 Speaker 1: have understood, you know that your future depends, you know, 836 00:48:18,960 --> 00:48:21,880 Speaker 1: of innovation and all these things. Europe is going to 837 00:48:22,120 --> 00:48:25,160 Speaker 1: make a lot of efforts to improve the economy, etcetera, etcetera. 838 00:48:25,400 --> 00:48:28,360 Speaker 1: They're going to invest in digitalization. But at the same time, 839 00:48:28,440 --> 00:48:30,799 Speaker 1: if you look at climate, take climate for example, a 840 00:48:30,800 --> 00:48:34,279 Speaker 1: lot of the investment will be in climate. And one 841 00:48:34,320 --> 00:48:39,480 Speaker 1: of the questions, uh, is all these investments in climate, 842 00:48:39,560 --> 00:48:43,319 Speaker 1: which I think are necessary, and these investment going to 843 00:48:43,520 --> 00:48:47,200 Speaker 1: increase the potential growth rate. This is not obvious, of course, 844 00:48:47,280 --> 00:48:50,600 Speaker 1: because you could say, uh, you know, the pollution is 845 00:48:50,640 --> 00:48:53,400 Speaker 1: lower and in the long run is better for a society. 846 00:48:53,520 --> 00:48:55,399 Speaker 1: Is even in the short term, but it's it's better. 847 00:48:55,920 --> 00:48:58,160 Speaker 1: And maybe you have less retail risks, you know, and 848 00:48:58,239 --> 00:49:02,560 Speaker 1: shocks climate shocks than before. But in between, you know, 849 00:49:02,600 --> 00:49:06,040 Speaker 1: your potential growth is maybe not stimulated by that. This 850 00:49:06,120 --> 00:49:08,640 Speaker 1: is a key question. That's why the r Pain Commission 851 00:49:09,239 --> 00:49:14,680 Speaker 1: came with a combination of climate change investment and digitalization. 852 00:49:15,040 --> 00:49:17,360 Speaker 1: That was I wouldn't I wouldn't call it the trick, 853 00:49:17,440 --> 00:49:19,600 Speaker 1: but that was the beauty of their plan is to say, 854 00:49:19,760 --> 00:49:22,400 Speaker 1: look as something that would improve the supply side, and 855 00:49:22,440 --> 00:49:24,880 Speaker 1: I will make a diffort you know, in innovation and 856 00:49:24,920 --> 00:49:26,919 Speaker 1: all these things, and at the same time it will 857 00:49:26,960 --> 00:49:30,239 Speaker 1: be climate friendly. Now as as as as we said 858 00:49:30,280 --> 00:49:32,920 Speaker 1: before that many other reforms that you have to do, 859 00:49:33,000 --> 00:49:35,840 Speaker 1: you know, to get you know, to increase your potential 860 00:49:35,880 --> 00:49:37,920 Speaker 1: growth rates. So this is the right question, and I 861 00:49:37,920 --> 00:49:41,480 Speaker 1: think that question about sustainability of public finance is addressed 862 00:49:41,480 --> 00:49:45,920 Speaker 1: by many economies today in a in a way you know, 863 00:49:45,960 --> 00:49:49,200 Speaker 1: which politicians very much like of course, because they say, well, 864 00:49:49,239 --> 00:49:52,799 Speaker 1: are is lower, you know, for almost forever before the 865 00:49:52,800 --> 00:49:55,799 Speaker 1: growth below the growth rates, so you can you can 866 00:49:56,000 --> 00:49:58,920 Speaker 1: increase your public that much further, you know, than than 867 00:49:59,000 --> 00:50:02,160 Speaker 1: what you've thought before. And of course politicians like that. 868 00:50:03,040 --> 00:50:06,480 Speaker 1: Uh No, there's just one qualification to that. So I'm 869 00:50:06,480 --> 00:50:09,560 Speaker 1: worried about this, But there is one qualification I think 870 00:50:09,600 --> 00:50:12,279 Speaker 1: in the short and you have no choice. So I 871 00:50:12,280 --> 00:50:15,279 Speaker 1: I still believe that fiscal policies the way they are 872 00:50:15,280 --> 00:50:19,600 Speaker 1: conducted are absolutely necessary in spite of what I say. 873 00:50:19,800 --> 00:50:23,480 Speaker 1: But when things will normalize, it will be quite complicated. 874 00:50:23,560 --> 00:50:26,480 Speaker 1: And that's why you see I say, you know, there 875 00:50:26,480 --> 00:50:29,279 Speaker 1: may be political tensions in different countries. Then it will 876 00:50:29,320 --> 00:50:32,319 Speaker 1: be probably more asymmetries. You know, some countries will do better, 877 00:50:32,800 --> 00:50:35,279 Speaker 1: and times will be extremely challenging. So you will go 878 00:50:35,640 --> 00:50:38,719 Speaker 1: with the vaccine and improvements. Where is the phase of euphoria? 879 00:50:39,480 --> 00:50:42,680 Speaker 1: Uh And then certainly the problems of the past, magnified 880 00:50:42,719 --> 00:50:45,560 Speaker 1: by what you just said, will come back, you know, enforce, 881 00:50:46,000 --> 00:50:47,640 Speaker 1: and there will be a lot of claims in order 882 00:50:47,640 --> 00:50:50,959 Speaker 1: to say look, you know, look I need I need 883 00:50:50,960 --> 00:50:53,800 Speaker 1: For example, you need to put more money in health care, 884 00:50:53,880 --> 00:50:55,719 Speaker 1: you need to go in climate you know, you go 885 00:50:55,800 --> 00:50:59,440 Speaker 1: into education. And so the politics you know, of the 886 00:50:59,520 --> 00:51:03,160 Speaker 1: post convict shock will be quite complicated. That's not the 887 00:51:03,239 --> 00:51:06,040 Speaker 1: priority today. The priority today is to get out of 888 00:51:06,040 --> 00:51:10,560 Speaker 1: this situation. But after it will not be easy. And 889 00:51:11,200 --> 00:51:14,319 Speaker 1: between the Central Bank and the Ministry of Finance, it 890 00:51:14,440 --> 00:51:18,040 Speaker 1: can be fined as long as inflation as well behaved. 891 00:51:18,719 --> 00:51:22,479 Speaker 1: And I think that's probably part of the good part 892 00:51:22,520 --> 00:51:26,759 Speaker 1: of the good scenario, which has a high probability, and 893 00:51:26,880 --> 00:51:31,000 Speaker 1: the central Bank put then But imagine, for example, imagining 894 00:51:31,040 --> 00:51:34,560 Speaker 1: for example, things go much better and in the markets 895 00:51:34,800 --> 00:51:39,080 Speaker 1: market people start to say, look, plenty of people, plenty 896 00:51:39,080 --> 00:51:42,239 Speaker 1: of investors have bought you know, bonds and other you know, 897 00:51:42,320 --> 00:51:44,719 Speaker 1: long term bonds at negative rates for a very long 898 00:51:44,760 --> 00:51:47,960 Speaker 1: period of long maturity. At some points, as you know, 899 00:51:48,040 --> 00:51:51,200 Speaker 1: markets function, at some points when you will see you know, 900 00:51:51,400 --> 00:51:54,760 Speaker 1: things improving, there will be a lot of people selling 901 00:51:54,760 --> 00:51:59,040 Speaker 1: their positions and go to short, shorter term maturities. And 902 00:51:59,160 --> 00:52:01,800 Speaker 1: when when you see that long term rates will increase. 903 00:52:01,840 --> 00:52:04,960 Speaker 1: You have seen that in in the US following modestly 904 00:52:05,000 --> 00:52:07,399 Speaker 1: you know, ten to fifteen basis points, you know, after 905 00:52:07,400 --> 00:52:10,440 Speaker 1: the announcement on the vaccine. But imagine you go to 906 00:52:10,680 --> 00:52:13,480 Speaker 1: a situation when the vaccine it works, it's it's being 907 00:52:13,920 --> 00:52:17,160 Speaker 1: you know, it's being given to a big part of 908 00:52:17,160 --> 00:52:20,279 Speaker 1: the population and faster than what you expect so in 909 00:52:20,320 --> 00:52:23,080 Speaker 1: the second half of next year, then there will be 910 00:52:23,120 --> 00:52:25,520 Speaker 1: a lot of selling of government bonds because who wants 911 00:52:25,560 --> 00:52:28,360 Speaker 1: to keep you know, a bound at minus fifty sixty 912 00:52:28,360 --> 00:52:31,359 Speaker 1: basis points, And so that means that long term rates, 913 00:52:31,400 --> 00:52:33,640 Speaker 1: as we have seen in this little episode in the US, 914 00:52:33,680 --> 00:52:36,040 Speaker 1: will go up, and then you will have to see, 915 00:52:36,120 --> 00:52:38,680 Speaker 1: you know, at what point the central banks will intervene 916 00:52:38,760 --> 00:52:41,920 Speaker 1: or not intervene in this normalization phase. I think it's 917 00:52:41,920 --> 00:52:44,200 Speaker 1: a little bit too early to think too much about this, 918 00:52:44,640 --> 00:52:46,720 Speaker 1: but the episode in the US, you know, two weeks 919 00:52:46,719 --> 00:52:49,680 Speaker 1: ago with a vaccine, I think was precisely the sort 920 00:52:49,719 --> 00:52:51,920 Speaker 1: of scenario I've in mind, you know, but that a 921 00:52:51,920 --> 00:52:55,200 Speaker 1: bigger scale, and that the central bench should be prepared 922 00:52:55,239 --> 00:52:58,279 Speaker 1: for that steepening of the yield curve. I think when 923 00:52:58,280 --> 00:53:01,120 Speaker 1: you have good news is absolutely not the problem. But 924 00:53:01,200 --> 00:53:04,920 Speaker 1: as you see markets that tend to overshoot usually and 925 00:53:05,200 --> 00:53:07,759 Speaker 1: a strong increase of rates, you know, in a normalization 926 00:53:08,680 --> 00:53:11,520 Speaker 1: will not be welcome. As long as you don't have inflation. 927 00:53:12,200 --> 00:53:14,839 Speaker 1: The central banks may intervene, but they have already they 928 00:53:14,880 --> 00:53:18,759 Speaker 1: will have already twenty public that in their books. Are 929 00:53:18,800 --> 00:53:21,120 Speaker 1: they going to buy another ten percent in their books? 930 00:53:21,200 --> 00:53:23,600 Speaker 1: Just to make the point. And I think this this 931 00:53:24,040 --> 00:53:26,480 Speaker 1: Nobody wants really to talk too much about this because 932 00:53:26,480 --> 00:53:29,200 Speaker 1: you know, the priority is not yet to think about this. 933 00:53:29,600 --> 00:53:32,040 Speaker 1: But at some point we have to be prepared because 934 00:53:32,880 --> 00:53:34,920 Speaker 1: you know, there is light at the end of the tunnel, 935 00:53:35,000 --> 00:53:38,960 Speaker 1: as we say, and the trade it may it may 936 00:53:39,000 --> 00:53:41,000 Speaker 1: be faster than some people think. So we have to 937 00:53:41,040 --> 00:53:44,239 Speaker 1: be prepared for all scenarios. And I I confess with you, 938 00:53:44,360 --> 00:53:48,200 Speaker 1: I'm I'm worried about the normalization face, but also more 939 00:53:48,200 --> 00:53:51,759 Speaker 1: fundamentally about the potential growth in Europe because normally it 940 00:53:51,800 --> 00:53:54,319 Speaker 1: should go down and not. Now there's a little bit 941 00:53:54,360 --> 00:53:57,760 Speaker 1: hope that you know, people get wiser, they will invest wise, 942 00:53:58,320 --> 00:54:00,040 Speaker 1: and all these things. But that's not so much the 943 00:54:00,480 --> 00:54:02,600 Speaker 1: lessons of the pense what we have seen in the Pense. 944 00:54:02,680 --> 00:54:06,520 Speaker 1: Let's let's hope for that. Well, just as a quick 945 00:54:06,560 --> 00:54:10,040 Speaker 1: follow up to that point, I mean, one of the 946 00:54:10,080 --> 00:54:13,200 Speaker 1: ideas that you here and you certainly hear it in 947 00:54:13,239 --> 00:54:16,520 Speaker 1: the US and maybe implicitly through the FED new framework, 948 00:54:16,600 --> 00:54:19,120 Speaker 1: is that there are benefits to running it hot and 949 00:54:19,160 --> 00:54:23,040 Speaker 1: that okay, we we've we've uh FED sort of implicitly 950 00:54:23,160 --> 00:54:26,759 Speaker 1: has admitted that in the past. It's hip rates prematurely 951 00:54:27,000 --> 00:54:29,839 Speaker 1: that it sort of was too aggressive to normalize rates 952 00:54:29,880 --> 00:54:33,400 Speaker 1: and then had to reverse the rate hikes and uh 953 00:54:33,560 --> 00:54:37,240 Speaker 1: come to mind, and and then the reversal in twenty nineteen. 954 00:54:38,120 --> 00:54:41,040 Speaker 1: Are there benefits to running it hot? And what do 955 00:54:41,080 --> 00:54:44,160 Speaker 1: you feel about this debate? That it's like, Okay, let's 956 00:54:44,239 --> 00:54:47,680 Speaker 1: let the economy grow, let's tolerate some more inflation, and 957 00:54:47,800 --> 00:54:51,000 Speaker 1: that could engender the sort of investment that we need 958 00:54:51,000 --> 00:54:55,400 Speaker 1: to see so that these uh declining trend growth rates 959 00:54:55,400 --> 00:54:58,520 Speaker 1: and as you pointed out, even going into COVID growth 960 00:54:58,600 --> 00:55:01,360 Speaker 1: potential growth rates were going down, that we might actually 961 00:55:01,400 --> 00:55:05,120 Speaker 1: get a meaningful sustain reversal of these trends as opposed 962 00:55:05,160 --> 00:55:08,239 Speaker 1: to just a temporary a temporary growth boom that then 963 00:55:08,400 --> 00:55:11,520 Speaker 1: reverse it again. That's an excellent important I mean, the 964 00:55:11,960 --> 00:55:15,839 Speaker 1: intuition is it is readily simple that if if you're 965 00:55:15,840 --> 00:55:19,719 Speaker 1: trying to stimulate and support demand and even create excess demand, 966 00:55:20,160 --> 00:55:23,279 Speaker 1: firms are going to invest, you see, and and that 967 00:55:23,320 --> 00:55:26,160 Speaker 1: would have an impact on supply side and you can 968 00:55:26,239 --> 00:55:29,480 Speaker 1: have a sort of virtuous circle. Support of aggregate demand 969 00:55:29,480 --> 00:55:32,720 Speaker 1: would follow the followed by you know, good supply side reaction. 970 00:55:33,160 --> 00:55:36,080 Speaker 1: My my, there is probably some point with this, I mean, 971 00:55:36,080 --> 00:55:39,440 Speaker 1: there is always some truth into that, but I would 972 00:55:39,520 --> 00:55:44,000 Speaker 1: I would warrant generally that the supply side depends of 973 00:55:44,080 --> 00:55:47,880 Speaker 1: many other things like taxation, regulation, you know, the business environment, 974 00:55:48,480 --> 00:55:50,799 Speaker 1: and if you support I mean, that's the more classical 975 00:55:50,920 --> 00:55:54,480 Speaker 1: view of that. And I think you know, in Europe, 976 00:55:54,520 --> 00:55:59,080 Speaker 1: if you take the periods before we saw declining productivity 977 00:55:59,160 --> 00:56:03,000 Speaker 1: in just before the financial crisis, you saw declining productivity 978 00:56:03,120 --> 00:56:07,080 Speaker 1: growth in spite of high aggregate demands, you know, very 979 00:56:07,080 --> 00:56:10,080 Speaker 1: strong aggregate demand. So I think it didn't work. I mean, 980 00:56:10,120 --> 00:56:12,480 Speaker 1: you need to have a structural reforms, you know, to 981 00:56:12,719 --> 00:56:15,600 Speaker 1: increase your potential growth. So I think there is some 982 00:56:15,680 --> 00:56:18,839 Speaker 1: point you know, to that, but I would certainly not 983 00:56:18,960 --> 00:56:23,040 Speaker 1: say that this is a sufficient condition. The sufficient necessary 984 00:56:23,080 --> 00:56:26,799 Speaker 1: condition is that you improve your your your your regulatory 985 00:56:26,800 --> 00:56:30,319 Speaker 1: your taxation, your business you know environment if you really 986 00:56:30,320 --> 00:56:32,920 Speaker 1: want to change you know, the potential growth. When I 987 00:56:32,960 --> 00:56:36,120 Speaker 1: see the business environment, it doesn't exclude necessarily the state. 988 00:56:36,280 --> 00:56:39,160 Speaker 1: You know, we know that public infrastructure can play an 989 00:56:39,160 --> 00:56:41,399 Speaker 1: important role if it's well done, of course, and it's 990 00:56:41,440 --> 00:56:44,120 Speaker 1: it's a question of governments. But we immediately said it's 991 00:56:44,120 --> 00:56:46,640 Speaker 1: not supporting aggregate demand that's going to make the trick. 992 00:56:47,160 --> 00:56:49,480 Speaker 1: I think that's that would be an illusion again, and 993 00:56:49,520 --> 00:56:51,600 Speaker 1: we have seen that in the past. I don't see 994 00:56:51,640 --> 00:56:54,000 Speaker 1: reasons why that should be different in the future. So 995 00:56:54,040 --> 00:56:56,239 Speaker 1: you need reforms again. And that's why I'm saying the 996 00:56:56,320 --> 00:56:59,800 Speaker 1: normalization face. Don't forget. We aren't going to get back 997 00:57:00,440 --> 00:57:03,920 Speaker 1: to the level of of pre pre COVID shock to 998 00:57:03,960 --> 00:57:08,200 Speaker 1: the level not before well at best early twenty two. 999 00:57:09,239 --> 00:57:11,719 Speaker 1: Before we get to the level, that means there is 1000 00:57:11,719 --> 00:57:16,680 Speaker 1: a huge empoverishment compared to expectations of people. And that 1001 00:57:16,760 --> 00:57:19,320 Speaker 1: means that you know, at some point people were already 1002 00:57:19,360 --> 00:57:23,040 Speaker 1: complaining before in different countries about you know, their status, 1003 00:57:23,120 --> 00:57:26,200 Speaker 1: you know, the wealth evolution, the income evolution. These things 1004 00:57:26,200 --> 00:57:28,840 Speaker 1: will come back. This is not the priority today, but 1005 00:57:28,920 --> 00:57:31,880 Speaker 1: these things will come back. So I think when we 1006 00:57:31,920 --> 00:57:36,200 Speaker 1: talk about institutions in Europe, it's absolutely essential, including the 1007 00:57:36,200 --> 00:57:38,600 Speaker 1: transfer we talk about that you have the mechanism of 1008 00:57:38,640 --> 00:57:41,480 Speaker 1: surveillance of the money which is being given, that it's 1009 00:57:41,520 --> 00:57:46,040 Speaker 1: efficiently used. Because if that is in place and things 1010 00:57:46,080 --> 00:57:49,680 Speaker 1: go down later on, you know you better have tested 1011 00:57:49,720 --> 00:57:53,040 Speaker 1: your new institutions on that. And there you know, you 1012 00:57:53,120 --> 00:57:58,680 Speaker 1: cannot be optimistic on that naively optimistic because the banking 1013 00:57:58,760 --> 00:58:01,440 Speaker 1: union is not even achieved today. I think we don't 1014 00:58:01,480 --> 00:58:04,320 Speaker 1: have much time to do these reforms, and they have 1015 00:58:04,400 --> 00:58:06,880 Speaker 1: to be done in crisis actually, and I think it's 1016 00:58:06,960 --> 00:58:09,240 Speaker 1: understood by for the banking unions, certainly by the e 1017 00:58:09,320 --> 00:58:11,520 Speaker 1: c B pleading you know, for the Capital market Union 1018 00:58:11,560 --> 00:58:14,400 Speaker 1: and the banking union. But you need, you know, regulatory 1019 00:58:14,480 --> 00:58:18,120 Speaker 1: changes to do that, you need legal changes to do that, 1020 00:58:18,360 --> 00:58:21,400 Speaker 1: solvency loan and that, many things you have to do. 1021 00:58:21,560 --> 00:58:24,960 Speaker 1: And when you see minis of finance, for example, their 1022 00:58:25,040 --> 00:58:27,640 Speaker 1: priority today is not ready to do that because they 1023 00:58:27,640 --> 00:58:30,080 Speaker 1: have to deal the shop now and coming with new 1024 00:58:30,120 --> 00:58:34,280 Speaker 1: regulatory changes, you know, tax changes for the future, completing 1025 00:58:34,280 --> 00:58:37,600 Speaker 1: the capital market union, the banking union. It's it's not 1026 00:58:37,640 --> 00:58:39,600 Speaker 1: the top priority you know, in the day to day 1027 00:58:39,680 --> 00:58:41,920 Speaker 1: life of politicians. They say, well, we'll see that a 1028 00:58:41,920 --> 00:58:44,000 Speaker 1: little bit later because now I have to manage the crisis. 1029 00:58:44,280 --> 00:58:47,080 Speaker 1: But when the crisis is finished, you will lack of 1030 00:58:47,160 --> 00:58:51,320 Speaker 1: course of renewed institution. So I think this message is 1031 00:58:51,480 --> 00:58:55,120 Speaker 1: very well understood by the Central Bank, by the European Commission, 1032 00:58:55,640 --> 00:58:57,680 Speaker 1: by a number of minister of finance. If you look 1033 00:58:57,720 --> 00:59:00,040 Speaker 1: at Germany, they would absolutely approve a thing that's so 1034 00:59:00,240 --> 00:59:03,200 Speaker 1: reasoning that it's not that you have to change and improve, 1035 00:59:03,520 --> 00:59:06,920 Speaker 1: you know, institutions, the internal market, especially with the Brexit. 1036 00:59:07,480 --> 00:59:08,760 Speaker 1: You know, you have to do all this thing. You 1037 00:59:08,760 --> 00:59:11,760 Speaker 1: have to increase the co the political coesient, you know, 1038 00:59:12,040 --> 00:59:14,720 Speaker 1: to deal with China. You know, the US will be 1039 00:59:14,760 --> 00:59:17,720 Speaker 1: a bit better, you know, in the international relations. But 1040 00:59:17,840 --> 00:59:20,360 Speaker 1: I think what we have seen in the US is 1041 00:59:20,360 --> 00:59:23,000 Speaker 1: a warning for the future. I mean, you know, it 1042 00:59:23,080 --> 00:59:25,760 Speaker 1: will not be as before, even with the new administration, 1043 00:59:25,840 --> 00:59:28,040 Speaker 1: it will not be as before. So Europe is to 1044 00:59:28,200 --> 00:59:31,120 Speaker 1: organize itself, doesn't have much time and they have to 1045 00:59:31,160 --> 00:59:34,200 Speaker 1: do it. No, but it's it's it's not easy. I 1046 00:59:34,200 --> 00:59:35,640 Speaker 1: mean for me it is so fine. It's because they 1047 00:59:35,680 --> 00:59:40,320 Speaker 1: have their short term priorities, which is normally Peter, that 1048 00:59:40,480 --> 00:59:44,080 Speaker 1: was fantastic. That really appreciate you taking a time as 1049 00:59:44,080 --> 00:59:46,919 Speaker 1: a real trade to get here your perspective, and thank 1050 00:59:46,920 --> 00:59:50,120 Speaker 1: you for coming out. Thanks Peter, that was great. Bye, 1051 00:59:50,880 --> 01:00:15,080 Speaker 1: but okay, Moe bye bye bye. Yeah, that was a 1052 01:00:15,160 --> 01:00:19,000 Speaker 1: real treat. Tracy Peterson, he's I don't know if pessimistic 1053 01:00:19,200 --> 01:00:21,240 Speaker 1: it was the right word, but at no point did 1054 01:00:21,240 --> 01:00:25,240 Speaker 1: he seem like particularly optimistic, did he? No? I think 1055 01:00:25,320 --> 01:00:28,400 Speaker 1: even in his sort of I mean, I think even 1056 01:00:28,440 --> 01:00:31,120 Speaker 1: in the what many people would say is the best 1057 01:00:31,120 --> 01:00:34,120 Speaker 1: case scenario where we do get a vaccine and things 1058 01:00:34,200 --> 01:00:37,920 Speaker 1: change very quickly, he seemed to lay out a very 1059 01:00:38,040 --> 01:00:42,080 Speaker 1: uncertain policy path in that case, the idea of a 1060 01:00:42,080 --> 01:00:47,000 Speaker 1: potential inflation overshoot or maybe markets getting royaled, like along 1061 01:00:47,000 --> 01:00:49,400 Speaker 1: the lines of what we saw a couple of weeks ago, 1062 01:00:49,520 --> 01:00:52,560 Speaker 1: when we have this big rotation from growth into value 1063 01:00:52,640 --> 01:00:54,240 Speaker 1: and it was supposed to have broken a lot of 1064 01:00:54,280 --> 01:00:58,280 Speaker 1: quant models and things like that. It's not it's not 1065 01:00:58,360 --> 01:01:00,920 Speaker 1: what most people would focus on and when we're talking 1066 01:01:00,920 --> 01:01:04,240 Speaker 1: about the economic implications of a vaccine. But I do 1067 01:01:04,320 --> 01:01:06,520 Speaker 1: think he has a point. No, I mean, I guess, 1068 01:01:06,600 --> 01:01:10,160 Speaker 1: on on the one hand, I think it's good for 1069 01:01:10,640 --> 01:01:14,400 Speaker 1: public official central bankers just sort of maybe they should 1070 01:01:14,400 --> 01:01:17,680 Speaker 1: have a sort of slightly skeptical or pessimistic outlook because 1071 01:01:17,680 --> 01:01:21,120 Speaker 1: they should be guarding against downside. But you know, just 1072 01:01:21,160 --> 01:01:25,080 Speaker 1: thinking about the issues he identified and his sort of 1073 01:01:25,320 --> 01:01:29,400 Speaker 1: skepticism that demands side policies would work, that there's much 1074 01:01:29,480 --> 01:01:34,120 Speaker 1: appetite to engage in reform outside of a crisis, which 1075 01:01:34,160 --> 01:01:37,520 Speaker 1: is another sort of recurring theme that we've talked about 1076 01:01:37,600 --> 01:01:41,480 Speaker 1: a few times. It's it's it's not great, but I mean, 1077 01:01:41,520 --> 01:01:45,160 Speaker 1: I love I loved this perspective. Obviously, I love hearing it. Yeah, absolutely, 1078 01:01:45,280 --> 01:01:48,120 Speaker 1: And it was interesting to hear him reminisce a little 1079 01:01:48,120 --> 01:01:50,960 Speaker 1: bit about, um, what was going on at the e 1080 01:01:51,040 --> 01:01:54,040 Speaker 1: c V during some pretty famous times, like during Mario 1081 01:01:54,160 --> 01:01:57,720 Speaker 1: jogs whatever it takes moment. Yeah, I mean, he's sort 1082 01:01:57,760 --> 01:02:01,120 Speaker 1: of it's it's interesting. It's fairly diploma attic, and obviously 1083 01:02:01,160 --> 01:02:04,960 Speaker 1: most central bankers are pretty good at diplomacy. But one 1084 01:02:05,120 --> 01:02:08,840 Speaker 1: has questions about how annoying the Germans were when it 1085 01:02:08,880 --> 01:02:13,280 Speaker 1: came to physical transfer. I just say, uh, he um, 1086 01:02:13,360 --> 01:02:15,560 Speaker 1: there must have been some pretty tense moments in the 1087 01:02:15,840 --> 01:02:20,000 Speaker 1: behind closed doors between uh, the sort of the Germanic 1088 01:02:20,080 --> 01:02:23,840 Speaker 1: view of central banking versus everyone else who wanted to 1089 01:02:23,840 --> 01:02:27,120 Speaker 1: get things moving along. That's that's also a diplomatic way 1090 01:02:27,120 --> 01:02:29,840 Speaker 1: of putting it. Yeah, exactly, well, man, this is my 1091 01:02:29,920 --> 01:02:33,160 Speaker 1: audition to be a central banker one day that I 1092 01:02:33,200 --> 01:02:35,760 Speaker 1: can that I could describe things like that at up 1093 01:02:36,120 --> 01:02:42,000 Speaker 1: word okay, um on that note, shall we leave it there? Sure, 1094 01:02:42,080 --> 01:02:45,000 Speaker 1: let's leave it there, all right? This has been another 1095 01:02:45,080 --> 01:02:48,120 Speaker 1: episode of the ad Thoughts Podcast. I'm Tracy Alloway. You 1096 01:02:48,120 --> 01:02:51,640 Speaker 1: can follow me on Twitter at Tracy Alloway and I'm 1097 01:02:51,720 --> 01:02:54,040 Speaker 1: Joe Why Isn't Thal. You can follow me on Twitter 1098 01:02:54,200 --> 01:02:58,280 Speaker 1: at The Stalwart. Follow our producer Laura Carlston. She's at 1099 01:02:58,400 --> 01:03:02,280 Speaker 1: Laura M. Carlson. Follow the Bloomberg head of podcast, Francesco 1100 01:03:02,360 --> 01:03:05,440 Speaker 1: Levi at Francesco Today, and check out all of our 1101 01:03:05,480 --> 01:03:09,160 Speaker 1: podcasts under the handle at podcast. Thanks for listening.