1 00:00:10,800 --> 00:00:14,680 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:14,720 --> 00:00:19,040 Speaker 1: I'm Joe Wisenthal and I'm Tracy Halloway. Tracy, I was thinking, 3 00:00:19,120 --> 00:00:21,640 Speaker 1: we don't really talk that much about Europe these days. 4 00:00:23,640 --> 00:00:27,560 Speaker 1: I mean, I guess not in relation to the heady 5 00:00:27,680 --> 00:00:31,160 Speaker 1: days of the Eurozone debt crisis. No, we don't. But 6 00:00:31,280 --> 00:00:34,800 Speaker 1: also I feel like in this particular crisis, at least 7 00:00:34,840 --> 00:00:36,919 Speaker 1: from some of our episodes. You know, obviously we talk 8 00:00:36,960 --> 00:00:39,479 Speaker 1: a lot in the FED context, in the US contact, 9 00:00:39,960 --> 00:00:42,840 Speaker 1: and of course, uh, you know, talk plenty about Hong 10 00:00:42,920 --> 00:00:46,920 Speaker 1: Kong and Asia and Asian supply chains and China and 11 00:00:46,960 --> 00:00:49,880 Speaker 1: so forth. It feels like we focus a little bit 12 00:00:49,960 --> 00:00:53,880 Speaker 1: less on how this current crisis is playing out in 13 00:00:53,920 --> 00:00:57,280 Speaker 1: the European contact. Yeah. I think that's right. I guess 14 00:00:57,280 --> 00:01:00,120 Speaker 1: the implication is that maybe this has been unfair are 15 00:01:00,120 --> 00:01:03,720 Speaker 1: in some respects because there has actually been something very 16 00:01:03,800 --> 00:01:07,160 Speaker 1: very interesting going on in Europe at the moment. Yeah. 17 00:01:07,240 --> 00:01:09,120 Speaker 1: I mean, for one thing, you know, there's a good 18 00:01:09,200 --> 00:01:11,840 Speaker 1: argument to be made that Europe, at least relative to 19 00:01:11,880 --> 00:01:15,360 Speaker 1: the US, if not necessarily Asian countries, has done a 20 00:01:15,360 --> 00:01:20,920 Speaker 1: pretty decent job overall of suppressing the virus itself and 21 00:01:21,360 --> 00:01:24,360 Speaker 1: you know, for years during the Euro Area crisis, there 22 00:01:24,400 --> 00:01:27,839 Speaker 1: are always people like fiscal policy. Fiscal policy, that's what's missing. 23 00:01:27,880 --> 00:01:29,800 Speaker 1: You've got to spend more. You gotta get the Germans 24 00:01:29,840 --> 00:01:33,199 Speaker 1: to spend more. And uh, you know, maybe this time 25 00:01:33,240 --> 00:01:36,080 Speaker 1: it looks like they're actually doing Yeah, that's exactly what 26 00:01:36,120 --> 00:01:38,640 Speaker 1: I was thinking. So we had the announcement of a 27 00:01:38,680 --> 00:01:43,280 Speaker 1: big deal seven hundred fifty billion euros worth by the 28 00:01:43,319 --> 00:01:47,600 Speaker 1: EU to fund Um, a sort of long term recovery 29 00:01:47,640 --> 00:01:50,280 Speaker 1: fund for the Eurozone. And that's a big deal because, 30 00:01:50,320 --> 00:01:53,120 Speaker 1: as you point out, everyone's been talking about fiscal stimulus, 31 00:01:53,160 --> 00:01:57,280 Speaker 1: but it looks like the Eurozone is finally going ahead 32 00:01:57,280 --> 00:02:00,440 Speaker 1: and doing it right. And so this of course raises 33 00:02:00,520 --> 00:02:02,960 Speaker 1: questions and it's a theme that we've definitely had a 34 00:02:03,000 --> 00:02:07,360 Speaker 1: lot on our podcast, which is does this augur something 35 00:02:07,440 --> 00:02:10,120 Speaker 1: bigger for the post crisis period. So of course it's 36 00:02:10,160 --> 00:02:12,680 Speaker 1: well known that, you know, there's a lot of money 37 00:02:12,680 --> 00:02:16,359 Speaker 1: being spent by governments all around the world, including the US. 38 00:02:16,360 --> 00:02:19,560 Speaker 1: But the question mark is, Okay, when the cute crisis 39 00:02:19,560 --> 00:02:23,080 Speaker 1: phase is over, the government's just retrench or does this 40 00:02:23,160 --> 00:02:27,120 Speaker 1: become a sort of new macroeconomic stabilization model that's a 41 00:02:27,200 --> 00:02:31,000 Speaker 1: theme that we've hit dozens of times, but it's particularly 42 00:02:31,040 --> 00:02:34,080 Speaker 1: important in the European context, I think because people have 43 00:02:34,200 --> 00:02:37,280 Speaker 1: sort of identified the lack of fiscal burden sharing is 44 00:02:37,360 --> 00:02:43,440 Speaker 1: sort of a basic architectural tension or flaw within the eurosystem. Yeah, 45 00:02:43,600 --> 00:02:46,560 Speaker 1: I think that's exactly right. How does the I don't 46 00:02:46,560 --> 00:02:49,160 Speaker 1: want to say the intrusion of fiscal stimulus, but how 47 00:02:49,160 --> 00:02:52,680 Speaker 1: does the arrival of fiscal stimulus on the scene actually 48 00:02:52,800 --> 00:02:57,280 Speaker 1: reshape the way that monetary policy works? And I guess 49 00:02:57,320 --> 00:02:59,560 Speaker 1: we should also mention that the e c B is 50 00:02:59,600 --> 00:03:03,079 Speaker 1: also in the midst of another really important project, which 51 00:03:03,120 --> 00:03:07,440 Speaker 1: is rethinking, um, how it targets inflation. So we have 52 00:03:07,600 --> 00:03:12,079 Speaker 1: all of this going on simultaneously, real existential questions for 53 00:03:12,120 --> 00:03:17,560 Speaker 1: the role of the European Central Bank. Absolutely well, I'm 54 00:03:17,639 --> 00:03:21,240 Speaker 1: very excited. We have a fantastic guest to talk about 55 00:03:21,240 --> 00:03:23,320 Speaker 1: all of this. We are going to be talking with 56 00:03:23,440 --> 00:03:27,560 Speaker 1: Vitor Constantio. He is the former Vice president of the 57 00:03:27,600 --> 00:03:31,720 Speaker 1: European Central Bank from two thousand and ten through May. 58 00:03:32,360 --> 00:03:37,200 Speaker 1: He's now a professor at Navara University in Madrid. The 59 00:03:37,280 --> 00:03:40,120 Speaker 1: perfect guest to discuss all this. So, without further ado, 60 00:03:40,240 --> 00:03:42,160 Speaker 1: let's bring him in a vito or thank you very 61 00:03:42,200 --> 00:03:46,280 Speaker 1: much for joining us. So are you happy to not 62 00:03:46,400 --> 00:03:49,520 Speaker 1: being a policy maker in this time or do you 63 00:03:50,120 --> 00:03:52,400 Speaker 1: do you miss being at the ECB during such an 64 00:03:52,400 --> 00:03:57,040 Speaker 1: extraordinary moment. Well, it's always difficult to get out of, 65 00:03:57,240 --> 00:04:01,520 Speaker 1: you know, executive responsibilities, and I need them. Of course, 66 00:04:01,840 --> 00:04:05,040 Speaker 1: I could not say that I am happy to be out. 67 00:04:05,480 --> 00:04:10,720 Speaker 1: For unfortunate circumstances of the COVID, the shock. We are 68 00:04:10,840 --> 00:04:16,080 Speaker 1: again in a very important period of policy making. But 69 00:04:16,440 --> 00:04:20,960 Speaker 1: fortunately Europe has been doing well I think in these 70 00:04:21,000 --> 00:04:27,440 Speaker 1: episodes better than in the previous episode of two thousands 71 00:04:27,480 --> 00:04:31,320 Speaker 1: tend to two thousand twelve. Just to start out with 72 00:04:31,680 --> 00:04:35,760 Speaker 1: walker thing, the significance of the deal that was agreed, 73 00:04:35,839 --> 00:04:40,080 Speaker 1: the seven hundred billion euros. You tweeted about it. Clearly 74 00:04:40,160 --> 00:04:46,680 Speaker 1: you think it's important. What's the significance, Well, it establishes 75 00:04:47,360 --> 00:04:53,920 Speaker 1: for precedents that are very meaningful. In the first place, um, 76 00:04:54,560 --> 00:04:59,680 Speaker 1: it involves a decision to issue common European depth that 77 00:04:59,760 --> 00:05:04,960 Speaker 1: can aviation will issue seven fifty billion of debt to 78 00:05:05,160 --> 00:05:12,000 Speaker 1: fund these program and that's the first The second point 79 00:05:12,640 --> 00:05:18,839 Speaker 1: is that this is going to be distributed in the 80 00:05:19,000 --> 00:05:25,080 Speaker 1: form of budget transfers and not loans to the countries. Third, 81 00:05:25,640 --> 00:05:31,359 Speaker 1: it's a big program to implement what it is a 82 00:05:31,720 --> 00:05:39,039 Speaker 1: European fiscal policy stimulus to address a recessionary phase in 83 00:05:39,080 --> 00:05:43,440 Speaker 1: the European economy, and that's also the first time that 84 00:05:43,640 --> 00:05:48,920 Speaker 1: this happens at this level. And fourth, the distribution of 85 00:05:49,000 --> 00:05:56,080 Speaker 1: the public transfers, which correspond to a little more than 86 00:05:56,200 --> 00:06:00,360 Speaker 1: half of the seven other than fifty billion, is in 87 00:06:00,360 --> 00:06:04,200 Speaker 1: a way that it is not proportional to the size 88 00:06:04,360 --> 00:06:09,599 Speaker 1: of each country, but indeed benefits more the countries that 89 00:06:09,880 --> 00:06:14,640 Speaker 1: have lower level of living and higher unemployment. So there 90 00:06:14,800 --> 00:06:19,440 Speaker 1: is a convergence play. There is a solidarity aspect of 91 00:06:19,480 --> 00:06:23,040 Speaker 1: this that it's also quite new in terms of transfers. 92 00:06:23,080 --> 00:06:27,240 Speaker 1: To give you two examples on a proportional basis, Italy 93 00:06:27,440 --> 00:06:32,320 Speaker 1: would be entitled to fifty billion, but they are getting 94 00:06:32,440 --> 00:06:37,799 Speaker 1: eighty billion, whereas Germany would be entitled to ninety six 95 00:06:37,839 --> 00:06:42,120 Speaker 1: billion in proportional terms, but are is getting only twenty seven. 96 00:06:42,560 --> 00:06:47,480 Speaker 1: So these four points put together constitute indeed very important 97 00:06:47,800 --> 00:06:51,880 Speaker 1: precedents and perhaps, and we all hope so that it 98 00:06:51,960 --> 00:06:56,640 Speaker 1: will be a sign of things to happen if again 99 00:06:57,080 --> 00:07:01,919 Speaker 1: there will be a stressful situation in the European economy, 100 00:07:02,200 --> 00:07:06,400 Speaker 1: and that's a very important element for everyone. The notion 101 00:07:06,680 --> 00:07:12,560 Speaker 1: that when there is a very stressful socio economic situation, 102 00:07:12,800 --> 00:07:19,520 Speaker 1: Europe steps up and takes decisions to fight the the 103 00:07:19,560 --> 00:07:25,040 Speaker 1: recession and does not leave behind any of the member countries. 104 00:07:25,360 --> 00:07:28,400 Speaker 1: It's a big message for the future, and I think 105 00:07:28,480 --> 00:07:35,680 Speaker 1: markets are really beginning to interiorize what these means, and 106 00:07:35,960 --> 00:07:40,480 Speaker 1: we see that already, but it will take time, of course, 107 00:07:40,880 --> 00:07:48,280 Speaker 1: perhaps for the markets, particularly Anglo Saxon markets, to overcome 108 00:07:48,840 --> 00:07:55,560 Speaker 1: the lingering doubts about the European project. So you mentioned 109 00:07:55,600 --> 00:07:59,480 Speaker 1: some really important things for the first time, sort of 110 00:07:59,600 --> 00:08:03,960 Speaker 1: joint that issuance is happening. Also the fact that Germany 111 00:08:04,320 --> 00:08:07,320 Speaker 1: is going to bear more of the burden or the 112 00:08:07,360 --> 00:08:10,080 Speaker 1: idea that their economy is more robust. There will be 113 00:08:10,120 --> 00:08:12,760 Speaker 1: these transfers. But people are calling this for years, like 114 00:08:12,800 --> 00:08:15,720 Speaker 1: ten years now. People say Germany needs to spend more 115 00:08:15,840 --> 00:08:18,400 Speaker 1: euro bonds, Germany needs to spend more. It never happens. 116 00:08:18,920 --> 00:08:21,840 Speaker 1: Talk to us from your perspective, having been an ECB 117 00:08:22,000 --> 00:08:27,160 Speaker 1: policy maker, about the pace that Europe operates, why does 118 00:08:27,240 --> 00:08:29,200 Speaker 1: it sort of from the outside, it's like, oh, this 119 00:08:29,240 --> 00:08:32,200 Speaker 1: took so long, ten years. Everyone knew this needed to happen. 120 00:08:32,800 --> 00:08:35,960 Speaker 1: What is it about Europe that these things tend to 121 00:08:36,200 --> 00:08:40,360 Speaker 1: unfold seemingly quite slowly over a long period. I don't 122 00:08:40,360 --> 00:08:46,040 Speaker 1: even know. The initial design of our monetary union was 123 00:08:46,520 --> 00:08:50,680 Speaker 1: under the influence of what was the macro economic thinking 124 00:08:50,720 --> 00:08:56,080 Speaker 1: of the time, and particularly Central European economic thinking, and 125 00:08:56,640 --> 00:09:01,199 Speaker 1: that maintained that it would be enough to have monetary 126 00:09:01,240 --> 00:09:06,400 Speaker 1: policy as a macro stabilization tool, and that second, it 127 00:09:06,440 --> 00:09:10,880 Speaker 1: would be enough for monetary policy to cater for price 128 00:09:10,920 --> 00:09:17,120 Speaker 1: stability in order for the economy to work smoothly and progress. 129 00:09:17,679 --> 00:09:24,040 Speaker 1: A great believe in the private sector and the market economy, 130 00:09:24,160 --> 00:09:29,319 Speaker 1: and so no one was aware that facing big economic 131 00:09:29,679 --> 00:09:32,800 Speaker 1: shocks as the one in two thousand and eight and nine, 132 00:09:33,320 --> 00:09:37,840 Speaker 1: more would be needed. Initially, of course, because there was 133 00:09:37,880 --> 00:09:40,840 Speaker 1: a big pressure on the banks UH and the banks 134 00:09:40,880 --> 00:09:46,320 Speaker 1: had to be helped by the public sector. There was 135 00:09:46,840 --> 00:09:52,400 Speaker 1: indeed some increase in deficits for that purpose, but very 136 00:09:52,480 --> 00:09:58,520 Speaker 1: quickly since the twenty meeting in Toronto, there was physical 137 00:09:58,600 --> 00:10:02,880 Speaker 1: retrenchment and as a result we had in Europe in 138 00:10:02,960 --> 00:10:07,560 Speaker 1: two thousands, eleven and twelve we had a double deep 139 00:10:08,080 --> 00:10:14,239 Speaker 1: second recession that no other advanced economy or region had 140 00:10:14,480 --> 00:10:17,880 Speaker 1: and that was the result of this thinking and also 141 00:10:18,040 --> 00:10:24,520 Speaker 1: the fear of Central Europeans that if more lacks fiscal 142 00:10:24,559 --> 00:10:29,200 Speaker 1: policy in member countries would be allowed, that could result 143 00:10:29,280 --> 00:10:32,199 Speaker 1: in the future to more need of assistance, and they 144 00:10:32,200 --> 00:10:36,680 Speaker 1: didn't want it. So everyone was a little blocked by 145 00:10:37,280 --> 00:10:42,160 Speaker 1: the initial rules and it took time then even for 146 00:10:42,800 --> 00:10:47,400 Speaker 1: us at the ECB to be able to start quee, 147 00:10:47,440 --> 00:10:52,280 Speaker 1: which we did only in January two thousand fifteen, as 148 00:10:52,280 --> 00:10:56,840 Speaker 1: you know, much later than other major central banks. But 149 00:10:57,040 --> 00:11:04,000 Speaker 1: lessons were learned from that episode. I believe, especially that 150 00:11:04,160 --> 00:11:09,000 Speaker 1: the double deep the second recession was the result of 151 00:11:09,080 --> 00:11:13,280 Speaker 1: too much physical consolidation in all member countries at the 152 00:11:13,320 --> 00:11:17,560 Speaker 1: same time. So this time the reaction was different, which 153 00:11:17,679 --> 00:11:20,480 Speaker 1: was of course also helped not only by lessons learned, 154 00:11:20,880 --> 00:11:24,160 Speaker 1: but also by the fact that this was a symmetric shock. 155 00:11:24,679 --> 00:11:27,600 Speaker 1: It was an act of nature which was eating all 156 00:11:27,679 --> 00:11:30,880 Speaker 1: countries in the same way, and no country could be 157 00:11:31,000 --> 00:11:37,199 Speaker 1: blamed for this shock, so that helped also the response 158 00:11:37,480 --> 00:11:43,520 Speaker 1: to be quite different. And the third point, which I 159 00:11:43,559 --> 00:11:47,320 Speaker 1: think it's also very important, we are in a very 160 00:11:47,360 --> 00:11:51,920 Speaker 1: different geopolitical situation, and so in Europe, starting with German 161 00:11:52,000 --> 00:11:55,640 Speaker 1: but but not only Germany. We are now more aware 162 00:11:56,160 --> 00:12:00,760 Speaker 1: of the need of Europe acting to get there, to 163 00:12:00,960 --> 00:12:06,480 Speaker 1: protect and expand its sovereignty, to be able indeed to 164 00:12:06,720 --> 00:12:12,760 Speaker 1: stay on its own feet, as justl America said some 165 00:12:12,920 --> 00:12:17,480 Speaker 1: time ago. And this awareness increases the sense of collective 166 00:12:17,520 --> 00:12:21,320 Speaker 1: responsibility for the whole and that also it's a big 167 00:12:21,440 --> 00:12:27,760 Speaker 1: driver behind what is happening. This new awareness that Europe 168 00:12:27,880 --> 00:12:33,560 Speaker 1: has indeed to deepen its integration in order to survive 169 00:12:33,720 --> 00:12:38,680 Speaker 1: better and prosper in a new international situation where the 170 00:12:38,720 --> 00:12:42,360 Speaker 1: pressure is coming from Russia, from China and unfortunately now 171 00:12:42,400 --> 00:12:46,560 Speaker 1: also from the US, have to be considered as real 172 00:12:46,760 --> 00:12:51,040 Speaker 1: and serious. M hm. Since we're talking about that shift 173 00:12:51,280 --> 00:12:54,640 Speaker 1: in mindset, if we if we zoom in on Germany 174 00:12:54,640 --> 00:12:57,800 Speaker 1: in particular, I'm just curious, why do you think or 175 00:12:58,160 --> 00:13:01,439 Speaker 1: what is it about either the German economy, the structure 176 00:13:01,440 --> 00:13:05,280 Speaker 1: of the economy, or the German mindset that made them 177 00:13:05,520 --> 00:13:10,679 Speaker 1: so resistant to fiscal spending or you know, establishing some 178 00:13:10,760 --> 00:13:16,320 Speaker 1: sort of your zone wide federal type deficit for so long. Well, 179 00:13:16,400 --> 00:13:23,400 Speaker 1: it was indeed their owned domestic approach for four years, 180 00:13:25,280 --> 00:13:29,480 Speaker 1: which it's called or the liberalism in the sense indeed 181 00:13:29,480 --> 00:13:33,360 Speaker 1: that the central bank and monetary policy taking care of 182 00:13:33,440 --> 00:13:36,440 Speaker 1: price stability would be enough because the rest of the 183 00:13:36,480 --> 00:13:41,600 Speaker 1: economy would work well on its own, and it has 184 00:13:41,640 --> 00:13:45,320 Speaker 1: worked well for for them for quite some time. But 185 00:13:45,440 --> 00:13:48,360 Speaker 1: they reacted to the shock, to the crisis, to the 186 00:13:48,400 --> 00:13:54,360 Speaker 1: banking crisis very fearful of what could happen. And we 187 00:13:54,400 --> 00:13:58,800 Speaker 1: saw that at the time because think for instance, since 188 00:13:58,960 --> 00:14:03,640 Speaker 1: nineteen sixteen nine until two thousand nine, Germany add in 189 00:14:03,720 --> 00:14:09,559 Speaker 1: its very constitutional law the principle of the Golden rule 190 00:14:09,679 --> 00:14:14,600 Speaker 1: for physical policy, meaning basically that investment expenditure would not 191 00:14:14,800 --> 00:14:20,960 Speaker 1: count for the physical rule. They change it into thousand nine, 192 00:14:21,280 --> 00:14:25,960 Speaker 1: introducing an overall that break as it is called, on 193 00:14:26,200 --> 00:14:32,440 Speaker 1: the overall structural deficit and no uh specific treatment of 194 00:14:32,560 --> 00:14:38,680 Speaker 1: investment whatsoever. So they tightened the physical rule precisely at 195 00:14:38,720 --> 00:14:42,720 Speaker 1: the peak of the crisis of oh eight or nine 196 00:14:43,080 --> 00:14:48,200 Speaker 1: for them, and then of course this was exported three 197 00:14:48,280 --> 00:14:53,040 Speaker 1: years later to the European Physical Rule under their influence, 198 00:14:53,400 --> 00:14:56,080 Speaker 1: of course in a softer way than the rule they have. 199 00:14:56,800 --> 00:15:02,120 Speaker 1: But it shows that they react very fearful to the 200 00:15:02,160 --> 00:15:05,520 Speaker 1: shock at the time. Lessons were learned, I think because 201 00:15:05,720 --> 00:15:09,160 Speaker 1: they themselves last year or rather this year, had to 202 00:15:09,280 --> 00:15:13,520 Speaker 1: break in a way that rule in order to expand 203 00:15:13,560 --> 00:15:18,720 Speaker 1: their own physical policy in response to the COVID shock. 204 00:15:19,160 --> 00:15:23,720 Speaker 1: This text time, but lessons, lessons have been learned, and 205 00:15:23,760 --> 00:15:28,760 Speaker 1: we see everywhere for many reasons, a return of physical policy, 206 00:15:29,560 --> 00:15:34,640 Speaker 1: not only because of short term reaction to conjunctual shocks, 207 00:15:34,680 --> 00:15:38,360 Speaker 1: but also that in the in the context of the 208 00:15:38,480 --> 00:15:44,160 Speaker 1: second stagnation phase, that advanced economies are going through fiscal 209 00:15:44,280 --> 00:15:51,560 Speaker 1: policy as a unsubstitutal role to play. And finally there 210 00:15:51,720 --> 00:15:58,200 Speaker 1: is a recognition of that even in Germany. So do 211 00:15:58,200 --> 00:16:00,880 Speaker 1: you feel this is a never going back moment, as 212 00:16:00,960 --> 00:16:04,800 Speaker 1: in now we have established or now Europe has established 213 00:16:04,840 --> 00:16:09,000 Speaker 1: this fiscal policy mechanism, some precedent for burden sharing. That 214 00:16:09,240 --> 00:16:11,960 Speaker 1: I feel confident, at least for the time being and 215 00:16:12,000 --> 00:16:14,200 Speaker 1: for years to come, this is going to be a 216 00:16:14,200 --> 00:16:18,440 Speaker 1: part of the talk kit. Well, no one can predict 217 00:16:18,480 --> 00:16:22,040 Speaker 1: the future. Of course, this will be operational for a 218 00:16:22,120 --> 00:16:24,800 Speaker 1: number of years because it will take time to implement, 219 00:16:25,280 --> 00:16:28,720 Speaker 1: and then the economy will improve and so on. But 220 00:16:29,200 --> 00:16:34,560 Speaker 1: indeed these shows that there is a new awareness about 221 00:16:34,600 --> 00:16:40,560 Speaker 1: the importance of keeping Europe really covisive, which is even 222 00:16:40,640 --> 00:16:46,400 Speaker 1: more important in terms of having a monetary union. Now, 223 00:16:46,800 --> 00:16:52,240 Speaker 1: the big cements that we have in the European project 224 00:16:52,760 --> 00:16:58,480 Speaker 1: is indeed the monetary Union and the europe because it's objectively, 225 00:16:59,320 --> 00:17:04,440 Speaker 1: i would say, a practically unbreakable experience. And then it 226 00:17:04,480 --> 00:17:07,320 Speaker 1: means that if there are stresses, if there are shocks, 227 00:17:07,680 --> 00:17:10,880 Speaker 1: they have to be coped with. This president shows that 228 00:17:10,920 --> 00:17:15,000 Speaker 1: there is this collective sense of responsibility that I am 229 00:17:15,080 --> 00:17:20,440 Speaker 1: sure will happen again if there is a major crisis. 230 00:17:20,440 --> 00:17:23,720 Speaker 1: This does not mean that, you know, we are going 231 00:17:23,760 --> 00:17:26,880 Speaker 1: to have a physical union around the corner. It's not 232 00:17:27,400 --> 00:17:34,639 Speaker 1: the case. It does not mean that other institutional reforms 233 00:17:34,640 --> 00:17:39,040 Speaker 1: are going to happen in the visible horizon. But indeed 234 00:17:39,280 --> 00:17:42,520 Speaker 1: is a game changer and the result of the new 235 00:17:42,600 --> 00:17:47,840 Speaker 1: situation and of the lessons learned from the previous crisis, 236 00:17:48,280 --> 00:18:06,760 Speaker 1: and that will not, of course go go away. So 237 00:18:06,800 --> 00:18:10,960 Speaker 1: we have this uh new or growing recognition of the 238 00:18:11,000 --> 00:18:14,200 Speaker 1: importance of fiscal stimulus, not just in Europe, of course, 239 00:18:14,240 --> 00:18:17,320 Speaker 1: but in a lot of other places um specifically the US. 240 00:18:17,920 --> 00:18:20,400 Speaker 1: I feel like we talk a lot about the need 241 00:18:20,440 --> 00:18:23,520 Speaker 1: for fiscal stimulus, but we don't talk as much about 242 00:18:23,560 --> 00:18:27,600 Speaker 1: what that fiscal stimulus should actually look like. So when 243 00:18:27,600 --> 00:18:31,920 Speaker 1: it comes to the European Deal. What is the best 244 00:18:32,000 --> 00:18:36,919 Speaker 1: way to spend that seven fifty billion euros and what 245 00:18:37,119 --> 00:18:41,879 Speaker 1: kind of spending I guess would promote long term economic 246 00:18:41,920 --> 00:18:47,320 Speaker 1: recovery the best it it will be spent mostly on 247 00:18:47,440 --> 00:18:51,520 Speaker 1: toblic investment by the Member states. And there is already 248 00:18:51,600 --> 00:18:56,840 Speaker 1: a rule principle in the decision of the European Council 249 00:18:57,000 --> 00:19:02,920 Speaker 1: that says that thirty cent has to be used for 250 00:19:03,600 --> 00:19:10,040 Speaker 1: the purpose of grining of our economies to fight climate change. 251 00:19:10,359 --> 00:19:17,119 Speaker 1: So it's already a chunk of the overall amount that 252 00:19:17,280 --> 00:19:22,280 Speaker 1: has to be dedicated to investments that will help this 253 00:19:22,560 --> 00:19:27,080 Speaker 1: fight and these objective that Europe has defined to reach 254 00:19:27,240 --> 00:19:32,120 Speaker 1: a situation of being carbon neutral um and so there 255 00:19:32,119 --> 00:19:36,960 Speaker 1: are targets, there are milestones, there is a timetable. All 256 00:19:37,040 --> 00:19:39,800 Speaker 1: that is going to be very present in the national 257 00:19:39,920 --> 00:19:43,040 Speaker 1: plans that now the member states will have to develop 258 00:19:43,160 --> 00:19:46,119 Speaker 1: to use the money. And then there are of course 259 00:19:46,600 --> 00:19:50,840 Speaker 1: other types of infrastructure needs in all countries that will 260 00:19:50,880 --> 00:19:54,800 Speaker 1: benefit from from this plan, and in itself it's an 261 00:19:54,800 --> 00:19:59,439 Speaker 1: element of stimulating aggregate demands. So it will be really 262 00:20:00,000 --> 00:20:04,880 Speaker 1: going mostly to investment. I hope also that it will 263 00:20:04,920 --> 00:20:09,679 Speaker 1: help some countries with the lower level of living to 264 00:20:09,840 --> 00:20:17,000 Speaker 1: have the resources to support some segments of the population 265 00:20:17,640 --> 00:20:20,679 Speaker 1: that are not so well protected by the programs that 266 00:20:20,760 --> 00:20:26,040 Speaker 1: already have been put in place. I'm thinking about gig workers, uh, 267 00:20:26,800 --> 00:20:33,640 Speaker 1: precarious workers, say in performing arts and other types of 268 00:20:33,680 --> 00:20:37,760 Speaker 1: things that do not have a regular employment and were 269 00:20:37,800 --> 00:20:41,480 Speaker 1: not the object of the peneply of measures that were 270 00:20:41,520 --> 00:20:45,639 Speaker 1: put in place to help everyone in these initial stages 271 00:20:46,280 --> 00:20:50,399 Speaker 1: of the crisis. So and that of course also is 272 00:20:50,440 --> 00:20:57,600 Speaker 1: important for stimulating aggregate demands. So it's basically the eighth anniversary. 273 00:20:57,640 --> 00:21:00,840 Speaker 1: I guess we just passed it of when Mario Droggi, 274 00:21:01,600 --> 00:21:03,960 Speaker 1: who is the president of the e c B, when 275 00:21:03,960 --> 00:21:06,199 Speaker 1: you were the vice president, he had his famous whatever 276 00:21:06,200 --> 00:21:12,399 Speaker 1: it takes speech establishing that the ECB would, theoretically, if needed, 277 00:21:12,440 --> 00:21:16,440 Speaker 1: backstop government debt. And we saw spreads on peripheral debt 278 00:21:16,880 --> 00:21:19,040 Speaker 1: close very sharply, and that was sort of the beginning 279 00:21:19,480 --> 00:21:23,160 Speaker 1: of the end of the Euro Area crisis. Are we 280 00:21:23,240 --> 00:21:25,760 Speaker 1: ever going to get back, in your view, to the 281 00:21:25,800 --> 00:21:28,680 Speaker 1: sort of boring old central banking of how we used 282 00:21:28,680 --> 00:21:31,960 Speaker 1: to think about it. It's like occasionally high grades, occasionally 283 00:21:32,119 --> 00:21:34,680 Speaker 1: cut rates. No one ever talks about balance sheets or 284 00:21:34,680 --> 00:21:37,520 Speaker 1: anything like that or is that gone for good? And 285 00:21:37,600 --> 00:21:39,720 Speaker 1: if we do have this world where fiscal plays a 286 00:21:39,800 --> 00:21:43,280 Speaker 1: much more active and aggressive role, what is the future 287 00:21:43,520 --> 00:21:49,280 Speaker 1: of central banking even outside of a crisis. Well, I 288 00:21:49,320 --> 00:21:54,719 Speaker 1: would say that it is normal that in certain situations 289 00:21:54,800 --> 00:21:58,760 Speaker 1: of recession or in the case of a monetary union, 290 00:21:58,920 --> 00:22:04,119 Speaker 1: of fragmentation and beyond what would be justified by the 291 00:22:04,240 --> 00:22:08,879 Speaker 1: situation of fundamental values, that in those cases there is 292 00:22:09,200 --> 00:22:16,120 Speaker 1: a implicit collaboration between monetary policy and physical policy because 293 00:22:16,160 --> 00:22:22,080 Speaker 1: the stance of both policies converge in those situations like 294 00:22:22,200 --> 00:22:24,760 Speaker 1: the one we had before and particularly like the one 295 00:22:24,880 --> 00:22:29,399 Speaker 1: we have now, because of course, this time, the phiscal 296 00:22:29,480 --> 00:22:33,080 Speaker 1: policy was more important to respond to this type of 297 00:22:33,119 --> 00:22:37,920 Speaker 1: shock in order to maintain income of the people suddenly 298 00:22:38,080 --> 00:22:42,120 Speaker 1: unemployed or lockdown, and only physical policy could do that, 299 00:22:42,560 --> 00:22:46,760 Speaker 1: and also to help firms to survive these this period, 300 00:22:47,440 --> 00:22:52,160 Speaker 1: and monetary policy took care both of normalizing financial markets, 301 00:22:52,200 --> 00:22:57,440 Speaker 1: avoiding a financial crisis and helping credit supply by the 302 00:22:57,480 --> 00:23:01,840 Speaker 1: banking sect. So the division of labor was easy to 303 00:23:02,160 --> 00:23:07,640 Speaker 1: define and the stands was convergent. But let's not extrapolate 304 00:23:07,760 --> 00:23:13,560 Speaker 1: that for every situation, because the test of this sort 305 00:23:13,640 --> 00:23:19,040 Speaker 1: of new relationship that people talk about. The test will 306 00:23:19,080 --> 00:23:24,840 Speaker 1: come one day when inflation may increase, and then of 307 00:23:24,880 --> 00:23:28,760 Speaker 1: course the central bank has to respond to that, and 308 00:23:28,840 --> 00:23:33,320 Speaker 1: that's the crunch moment when we will see how this 309 00:23:33,960 --> 00:23:40,080 Speaker 1: this go. But we are ears from that challenge to 310 00:23:40,080 --> 00:23:43,679 Speaker 1: to happen, and the degrees of collaboration have varied among 311 00:23:43,760 --> 00:23:48,320 Speaker 1: the countries. I would say that it's important to underline 312 00:23:48,320 --> 00:23:53,320 Speaker 1: the following. Neither in the Euro Area or in the 313 00:23:53,440 --> 00:23:58,959 Speaker 1: US there was any degree of full fledged, properly named 314 00:23:59,480 --> 00:24:04,200 Speaker 1: monetary financing. What the central banks are doing, it's not 315 00:24:04,440 --> 00:24:08,080 Speaker 1: monetary financing. The Bank of England did a little bit 316 00:24:08,320 --> 00:24:14,000 Speaker 1: of monetary financing by giving a bridge credit to the 317 00:24:14,520 --> 00:24:18,080 Speaker 1: to the Treasury, but neither the e c B or 318 00:24:18,160 --> 00:24:23,240 Speaker 1: the FED really did monetary financing. So when I also 319 00:24:23,359 --> 00:24:28,080 Speaker 1: to to take that into consideration, although loosely, of course, 320 00:24:28,160 --> 00:24:31,320 Speaker 1: the media are calling what the central banks are doing 321 00:24:31,359 --> 00:24:35,960 Speaker 1: as monetary financing, but it is not so okay. I 322 00:24:36,000 --> 00:24:40,080 Speaker 1: wanted to pick up on that inflation point because, as 323 00:24:40,119 --> 00:24:43,359 Speaker 1: we mentioned in the intro, the e c B is 324 00:24:43,880 --> 00:24:48,040 Speaker 1: currently thinking very hard about how it approaches its own 325 00:24:48,119 --> 00:24:51,560 Speaker 1: inflation target, which um I think the exact language is 326 00:24:51,600 --> 00:24:56,680 Speaker 1: below but close to two percent. Do you think, I mean, 327 00:24:56,680 --> 00:24:59,360 Speaker 1: there seems to be lots of confusion about why central 328 00:24:59,359 --> 00:25:03,080 Speaker 1: banks around the world haven't been able to hit those 329 00:25:03,119 --> 00:25:06,240 Speaker 1: inflation targets in recent years. And do you think that 330 00:25:06,600 --> 00:25:13,520 Speaker 1: central bankers understand how inflation works? Yeah, good question, of course, 331 00:25:13,560 --> 00:25:16,480 Speaker 1: and it would be a very long answer to address 332 00:25:17,280 --> 00:25:23,840 Speaker 1: aspect for it. But yes, Now the question is starts 333 00:25:24,119 --> 00:25:29,280 Speaker 1: with the following thing. You know, Milton Friedman instilled in 334 00:25:29,359 --> 00:25:33,600 Speaker 1: the minds of many economists and many central banks at 335 00:25:33,640 --> 00:25:38,680 Speaker 1: the time when he was writing that inflation is always 336 00:25:38,840 --> 00:25:43,680 Speaker 1: an everywhere a monetary phenomenon. That's what he said, and 337 00:25:43,720 --> 00:25:48,600 Speaker 1: by that he meant that inflation was determined by the 338 00:25:48,640 --> 00:25:53,879 Speaker 1: development of monetary aggregates. And two in the case of US, 339 00:25:53,920 --> 00:25:57,960 Speaker 1: I am three in the case of you. And so 340 00:25:58,119 --> 00:26:02,639 Speaker 1: the idea that the central banks could fine tune the 341 00:26:02,680 --> 00:26:08,000 Speaker 1: inflation rate, not immediately, not you know, in a very 342 00:26:08,000 --> 00:26:13,359 Speaker 1: short term horizons, but you know, within two, three, four years, 343 00:26:13,640 --> 00:26:17,920 Speaker 1: could indeed put inflation at whatever level they would wish. Well, 344 00:26:17,960 --> 00:26:22,639 Speaker 1: things proved to be much more complex than that, because 345 00:26:22,680 --> 00:26:30,280 Speaker 1: inflation depends on the overall relationship between aggregate demand and supply. 346 00:26:30,760 --> 00:26:35,400 Speaker 1: Uh uh, and that is influenced by many other factors, 347 00:26:36,040 --> 00:26:42,280 Speaker 1: including of course physical policy, but also including external shocks 348 00:26:42,320 --> 00:26:47,080 Speaker 1: that microeconomics, particularly in the US, which has dominated the field, 349 00:26:47,119 --> 00:26:50,919 Speaker 1: of course for all the reasons we know, tended to 350 00:26:51,000 --> 00:26:55,679 Speaker 1: be thinking mostly in terms of closed economies because the 351 00:26:55,760 --> 00:26:59,800 Speaker 1: US being so big, you know, the external sector was 352 00:27:00,000 --> 00:27:05,480 Speaker 1: not so important or seen as so important. But the 353 00:27:05,600 --> 00:27:10,840 Speaker 1: point is that inflation depends for long periods of time 354 00:27:11,240 --> 00:27:15,600 Speaker 1: on many other things. Friedman himself was interviewed in the 355 00:27:15,840 --> 00:27:19,840 Speaker 1: two thousand about Japan, where there was the beginning of 356 00:27:19,880 --> 00:27:23,680 Speaker 1: the deflation, as you know, and he answered, well, it's 357 00:27:23,760 --> 00:27:27,520 Speaker 1: very simple to solve it. You just have to have 358 00:27:27,640 --> 00:27:33,680 Speaker 1: the central bank buying sovereign bonds. That will expand money 359 00:27:33,720 --> 00:27:37,840 Speaker 1: and money aggregates and the problem will be solved. Well, 360 00:27:37,880 --> 00:27:40,640 Speaker 1: it was not followed at the time, but some years 361 00:27:40,760 --> 00:27:44,840 Speaker 1: later it was followed. Now the Bank of Japan has 362 00:27:44,880 --> 00:27:49,760 Speaker 1: bought a little more than one of GDP of Japanese 363 00:27:50,600 --> 00:27:54,320 Speaker 1: public debt and inflation has not responded. So it was 364 00:27:54,359 --> 00:28:00,440 Speaker 1: wrong clearly, and we do have now, you know, many 365 00:28:00,480 --> 00:28:06,280 Speaker 1: reduced form regressions to forecast inflation that take into account 366 00:28:07,280 --> 00:28:11,920 Speaker 1: the import prices, which includes of course the change rate 367 00:28:12,600 --> 00:28:18,920 Speaker 1: that include also possibly other cost shocks that may occur, 368 00:28:19,320 --> 00:28:24,920 Speaker 1: and that include expectations and inertia. That indeed, the economic agents, 369 00:28:24,960 --> 00:28:29,240 Speaker 1: both households and firms, when they decide prices, tend to 370 00:28:29,320 --> 00:28:35,199 Speaker 1: have certain inertia in taking those decisions. By thinking about 371 00:28:35,280 --> 00:28:39,560 Speaker 1: what has been the progression of inflation in previous years, 372 00:28:39,600 --> 00:28:42,400 Speaker 1: and if you put all these elements in a way 373 00:28:42,400 --> 00:28:46,920 Speaker 1: to forecast inflation, you can have relatively reliable ways of 374 00:28:47,080 --> 00:28:51,760 Speaker 1: forecasting inflation where the slack of the economy is also there. 375 00:28:52,200 --> 00:28:56,680 Speaker 1: Of the domestic it's also there. It's still meaningful, but 376 00:28:56,800 --> 00:29:01,400 Speaker 1: of course during certain periods is overwhelmed by the effect 377 00:29:01,520 --> 00:29:05,880 Speaker 1: of the other drivers of inflation. It has not disappeared. 378 00:29:06,320 --> 00:29:09,560 Speaker 1: What has disappeared, and it's also in all the media, 379 00:29:10,160 --> 00:29:15,440 Speaker 1: is that the initial Philip's curve, what's just a relation 380 00:29:15,680 --> 00:29:21,960 Speaker 1: between in this case wages and unemployment, that simple bivariate 381 00:29:22,240 --> 00:29:27,280 Speaker 1: relations as indeed collapsed UH and a more complex way 382 00:29:27,320 --> 00:29:31,640 Speaker 1: of UH forecasting inflation, which the economy is also called 383 00:29:31,840 --> 00:29:35,360 Speaker 1: Philip curves. Adding to the confusion of all these discussion. 384 00:29:35,840 --> 00:29:39,160 Speaker 1: The slack is still there, but it's also a factor. 385 00:29:39,440 --> 00:29:44,840 Speaker 1: And as you see, monetary aggregates are not there any anymore. 386 00:29:45,320 --> 00:29:49,400 Speaker 1: So it has been difficult then, just by monetary policy 387 00:29:49,560 --> 00:29:53,080 Speaker 1: to change inflation to the level in a period where 388 00:29:53,280 --> 00:29:58,960 Speaker 1: globalization and the entry of more than one billion Asian 389 00:29:59,080 --> 00:30:03,520 Speaker 1: workers with low wages in the world economy put a 390 00:30:03,640 --> 00:30:09,760 Speaker 1: lot of pressure on declining prices of many industrial products, 391 00:30:09,880 --> 00:30:14,560 Speaker 1: and that was a major shock that affected the overall 392 00:30:14,880 --> 00:30:19,240 Speaker 1: economy of inflation in all our countries so much that 393 00:30:19,480 --> 00:30:23,640 Speaker 1: the pure domestic slack was not so much in command 394 00:30:24,360 --> 00:30:28,560 Speaker 1: of inflation as it was in the past. And that, 395 00:30:28,720 --> 00:30:31,960 Speaker 1: as of course, is still true, and that's why central 396 00:30:32,000 --> 00:30:36,800 Speaker 1: banks indeed have not the easiness the discretion to put 397 00:30:36,880 --> 00:30:40,880 Speaker 1: inflation at whatever level they want within the period of 398 00:30:41,440 --> 00:30:46,440 Speaker 1: say five years. But that is not imply that monetary 399 00:30:46,520 --> 00:30:51,480 Speaker 1: policy had a big contribution to avoid even a worse 400 00:30:51,760 --> 00:30:56,320 Speaker 1: scenario of deflation, and that was avoided in all advanced 401 00:30:56,320 --> 00:31:01,840 Speaker 1: economies with the exception of Japan, and that indeed the 402 00:31:02,000 --> 00:31:06,880 Speaker 1: role of the central banks has been very important, sometimes 403 00:31:07,200 --> 00:31:12,200 Speaker 1: however not helped. That's particularly in Europe by what fiscal 404 00:31:12,240 --> 00:31:30,680 Speaker 1: policy was doing. M M. I wanna I want to 405 00:31:30,920 --> 00:31:33,920 Speaker 1: expand more talk more about inflation and the role of 406 00:31:33,920 --> 00:31:36,840 Speaker 1: central banks, and thinking back to I mentioned Mario drag 407 00:31:37,200 --> 00:31:40,760 Speaker 1: whatever it takes, and part of the innovation in his 408 00:31:40,960 --> 00:31:44,560 Speaker 1: in the logic of that speech was that sovereign government 409 00:31:44,600 --> 00:31:48,360 Speaker 1: bomb spreads should be considered part of the e CBS 410 00:31:48,400 --> 00:31:52,280 Speaker 1: mandate to narrow because the widening of them were impeded 411 00:31:52,360 --> 00:31:55,440 Speaker 1: monetary transmission. So even if there was some technical rule 412 00:31:55,560 --> 00:31:58,880 Speaker 1: that said the ECB camp by government debt, you could 413 00:31:58,920 --> 00:32:01,840 Speaker 1: get around it by saying it fits into the monetary 414 00:32:01,880 --> 00:32:06,520 Speaker 1: policy transmission. Now we're seeing a potential sort of more 415 00:32:06,560 --> 00:32:10,280 Speaker 1: things falling under the mandate for the goals of the 416 00:32:10,320 --> 00:32:15,760 Speaker 1: central bank, including perhaps thinking about climate and inequality and 417 00:32:15,880 --> 00:32:19,719 Speaker 1: other sort of economic concerns that in the past may 418 00:32:19,760 --> 00:32:23,360 Speaker 1: not have been as strictly narrow as just keeping inflation targeting. 419 00:32:23,680 --> 00:32:25,719 Speaker 1: Do you see any risk with this? Do you worry 420 00:32:25,760 --> 00:32:29,840 Speaker 1: about the ECB specifically or other central banks taking on 421 00:32:29,960 --> 00:32:36,680 Speaker 1: too much potentially? Well, yes, those are say subordinated targets 422 00:32:36,760 --> 00:32:40,680 Speaker 1: to the role that the central bank must perform in 423 00:32:40,800 --> 00:32:46,600 Speaker 1: our economies. They are always there. They are also in 424 00:32:46,640 --> 00:32:52,000 Speaker 1: the treaty in the our case that says that without 425 00:32:52,080 --> 00:32:58,480 Speaker 1: prejudice to price stability, then monetary policy should help all 426 00:32:58,600 --> 00:33:03,480 Speaker 1: those others. Is that you mentioned in general and that 427 00:33:03,680 --> 00:33:07,200 Speaker 1: are listed of course in the treaty itself, but there 428 00:33:07,240 --> 00:33:12,240 Speaker 1: are subordinated goals and cannot be the probate dominant goals 429 00:33:12,320 --> 00:33:16,160 Speaker 1: because it would make really no sense because in a way, 430 00:33:16,360 --> 00:33:20,560 Speaker 1: what central banks can do, for instance, in what regards 431 00:33:21,000 --> 00:33:25,400 Speaker 1: climate change is not very much. Of course, central banks 432 00:33:25,440 --> 00:33:29,800 Speaker 1: have a portfolio of securities, but nowadays when they buy 433 00:33:30,800 --> 00:33:35,640 Speaker 1: and that can become and should become greener and certainly 434 00:33:35,680 --> 00:33:41,080 Speaker 1: avoiding the more brown sort of securities. But if you 435 00:33:41,280 --> 00:33:45,960 Speaker 1: look to the numbers after that effort to make the 436 00:33:46,000 --> 00:33:51,360 Speaker 1: portfolios greener, you see immediately that the overall effect on 437 00:33:51,520 --> 00:33:55,480 Speaker 1: what is at stake with climate change is indeed and 438 00:33:55,520 --> 00:34:00,440 Speaker 1: perhaps unfortunately, but it's indeed small. Regarding inequality, t well, 439 00:34:00,480 --> 00:34:04,719 Speaker 1: it's a mixed thing because if one end, it is 440 00:34:04,760 --> 00:34:10,920 Speaker 1: true that the purchases increase the price of risky assets, 441 00:34:11,000 --> 00:34:16,520 Speaker 1: which are mostly held by m I income segments of 442 00:34:16,600 --> 00:34:21,640 Speaker 1: the population, they also have increased the price of housing, 443 00:34:22,200 --> 00:34:27,520 Speaker 1: particularly in Europe, and housing is the element of overall 444 00:34:27,600 --> 00:34:32,239 Speaker 1: wealth in our economy, is that is bigger then financial 445 00:34:32,280 --> 00:34:37,719 Speaker 1: wealth and particularly stocks, and that stock of housing is 446 00:34:37,880 --> 00:34:41,640 Speaker 1: held mostly by the middle class, and the price of 447 00:34:41,680 --> 00:34:46,000 Speaker 1: those assets has increased as I made a speech about that, 448 00:34:46,239 --> 00:34:49,200 Speaker 1: and there are there there are two papers published by 449 00:34:49,200 --> 00:34:53,680 Speaker 1: the ECB later and also pointed to those factors. And 450 00:34:53,760 --> 00:34:57,800 Speaker 1: also there is of course the effect of expansionary monetary 451 00:34:57,840 --> 00:35:02,480 Speaker 1: policy on employment, on reducing unemployment, and that is a 452 00:35:02,600 --> 00:35:07,480 Speaker 1: very powerful way of also of taking care of inequality. 453 00:35:07,560 --> 00:35:11,399 Speaker 1: But monetary policy by definition cannot do everything. There are 454 00:35:11,440 --> 00:35:15,520 Speaker 1: trade offs, and so monetary policy has to have priorities, 455 00:35:15,520 --> 00:35:19,279 Speaker 1: and it test priorities defined by the law, and so 456 00:35:19,400 --> 00:35:26,240 Speaker 1: what it can take in from those other secondary objectives 457 00:35:26,280 --> 00:35:30,319 Speaker 1: important as they are for the society at large, there 458 00:35:30,360 --> 00:35:34,279 Speaker 1: are other public authorities that are more responsible for that. 459 00:35:34,480 --> 00:35:38,240 Speaker 1: Take for instance, climate change. It's certainly for the government 460 00:35:38,760 --> 00:35:43,319 Speaker 1: to step up their initiatives to take care of that 461 00:35:43,680 --> 00:35:50,920 Speaker 1: big objective. So I see these as indeed a consideration 462 00:35:51,400 --> 00:35:56,680 Speaker 1: which is there and should be there, but cannot be predominant. 463 00:35:56,840 --> 00:36:01,000 Speaker 1: The same for instance regarding the so called zombie firms. 464 00:36:01,520 --> 00:36:06,719 Speaker 1: Again it's a potential problem, but it's not for monetary 465 00:36:06,760 --> 00:36:11,680 Speaker 1: policy to have as a priority to think about the 466 00:36:11,719 --> 00:36:19,480 Speaker 1: fate of weak companies. Monetary policy targets price stability, economic growth, 467 00:36:20,160 --> 00:36:23,920 Speaker 1: that's like in the economy, and not other things. And 468 00:36:23,960 --> 00:36:27,560 Speaker 1: there are trade offs. Zombie firms are more the purview 469 00:36:28,040 --> 00:36:32,719 Speaker 1: of the way banks manage their credit risk by not 470 00:36:32,920 --> 00:36:39,000 Speaker 1: ever greening and not continuing to land to problematic firms, 471 00:36:39,480 --> 00:36:45,960 Speaker 1: than to monetary policy, particularly at this moment. Also, the 472 00:36:46,000 --> 00:36:50,359 Speaker 1: amounts of liquidity and capital in the banks imply that 473 00:36:50,960 --> 00:36:55,480 Speaker 1: the keeping some weaker firms during this period is not 474 00:36:55,640 --> 00:36:59,799 Speaker 1: crowding out the possibility of banks giving credit to all 475 00:36:59,840 --> 00:37:05,000 Speaker 1: the good firms that have good projects and intentions to 476 00:37:05,600 --> 00:37:09,040 Speaker 1: to invest and to expand. So, just to give you 477 00:37:09,480 --> 00:37:15,760 Speaker 1: three examples of some subordinated the concerns that the central 478 00:37:15,800 --> 00:37:20,319 Speaker 1: banks should not ignore but cannot become a priority. UM. 479 00:37:20,360 --> 00:37:23,400 Speaker 1: I have a related question on the sort of modeling 480 00:37:23,600 --> 00:37:29,759 Speaker 1: of monetary policy with politics. One of the options when 481 00:37:29,760 --> 00:37:32,560 Speaker 1: it comes to reviewing the ECB's inflation target is to 482 00:37:32,680 --> 00:37:36,359 Speaker 1: create a flexible target, which would allow the central bank 483 00:37:36,400 --> 00:37:41,879 Speaker 1: to either undershoot or overshoot inflation as needed. And I'm 484 00:37:41,920 --> 00:37:44,160 Speaker 1: curious to get your views on if the e c 485 00:37:44,280 --> 00:37:47,400 Speaker 1: B did adopt that kind of flexible target, and the 486 00:37:47,440 --> 00:37:51,719 Speaker 1: target therefore becomes discretionary, then doesn't that sort of make 487 00:37:51,760 --> 00:37:57,239 Speaker 1: it a political choice to either undershoot or overshoot inflation 488 00:37:57,800 --> 00:38:02,160 Speaker 1: at a particular time, and does that endanger the independence 489 00:38:02,160 --> 00:38:07,680 Speaker 1: of the central bank. I think that the target for 490 00:38:07,800 --> 00:38:13,160 Speaker 1: inflation adopted by central banks should be indeed symmetric, because, 491 00:38:13,280 --> 00:38:16,120 Speaker 1: as we all know, when there is a supply shock 492 00:38:17,239 --> 00:38:22,680 Speaker 1: to the economy that in some cases may lead to 493 00:38:22,840 --> 00:38:28,200 Speaker 1: an increase in inflation, like a big oil price increase, say, 494 00:38:28,440 --> 00:38:32,440 Speaker 1: monetary policy should not respond to that immediately because it 495 00:38:32,480 --> 00:38:37,160 Speaker 1: cannot change that situation and it would only aggravate the 496 00:38:37,200 --> 00:38:41,520 Speaker 1: recessionary effect on the domestic economy of that oil price 497 00:38:41,840 --> 00:38:45,520 Speaker 1: increase that is well known, which means that in those 498 00:38:45,719 --> 00:38:51,319 Speaker 1: periods of supply sharks, inflation could be accepted to be 499 00:38:51,560 --> 00:38:56,280 Speaker 1: above target, and should be accepted to be above target. 500 00:38:57,120 --> 00:38:59,480 Speaker 1: So it should be symmetric, and in my view, the 501 00:38:59,520 --> 00:39:03,279 Speaker 1: best way to have it is what say the fat 502 00:39:03,360 --> 00:39:06,000 Speaker 1: as now, which is to say, well, we have this 503 00:39:06,120 --> 00:39:10,880 Speaker 1: objective one number. It's two percent in the definition of 504 00:39:11,080 --> 00:39:14,160 Speaker 1: the fat, which is not headline inflation as you know, 505 00:39:14,200 --> 00:39:18,120 Speaker 1: but okay, it's two percent, and then it's symmetrically interpreted. 506 00:39:18,360 --> 00:39:21,280 Speaker 1: It can be slightly below, it can be slightly above 507 00:39:21,320 --> 00:39:25,880 Speaker 1: according to the types of shocks that the economy suffers, 508 00:39:26,160 --> 00:39:28,600 Speaker 1: and of course it cannot be kept exactly at two 509 00:39:28,600 --> 00:39:33,680 Speaker 1: percent all the time. So some economists and central anchors 510 00:39:33,800 --> 00:39:37,600 Speaker 1: argued that more explicit flat flexibility will be helpful, for 511 00:39:37,760 --> 00:39:43,399 Speaker 1: instance by adopting a well defined branch around two and 512 00:39:43,400 --> 00:39:45,680 Speaker 1: and put the numbers of the range. I am against 513 00:39:45,680 --> 00:39:52,040 Speaker 1: that because that creates uncertainty and also opens the door 514 00:39:52,480 --> 00:39:56,400 Speaker 1: to the possibility in for instance, situations that are clearly 515 00:39:56,600 --> 00:40:02,760 Speaker 1: recessionary and inflation is weak, if it is within the banding, 516 00:40:02,920 --> 00:40:06,719 Speaker 1: within the range, then it would consider to be all 517 00:40:06,840 --> 00:40:09,359 Speaker 1: right and the central bank would not move policy, which 518 00:40:09,400 --> 00:40:14,600 Speaker 1: is wrong. So I am against ranges. A way of 519 00:40:15,400 --> 00:40:20,200 Speaker 1: also then justifying more flexibility is to go for the 520 00:40:20,320 --> 00:40:24,640 Speaker 1: so called averaging inflation targeting that there is a number, 521 00:40:25,000 --> 00:40:27,280 Speaker 1: there is a target, but it has to be attained 522 00:40:27,360 --> 00:40:31,479 Speaker 1: over a number of years to allow precisely years where 523 00:40:31,520 --> 00:40:36,160 Speaker 1: inflation is below and then years where it is above. Well, 524 00:40:36,239 --> 00:40:40,319 Speaker 1: it's enticing, but again I also do not agree too 525 00:40:40,440 --> 00:40:44,200 Speaker 1: much to that because it's too precise and will tie 526 00:40:44,239 --> 00:40:48,040 Speaker 1: the ends of central banks perhaps too much when they 527 00:40:48,120 --> 00:40:50,759 Speaker 1: say that the six years of the averaging will will 528 00:40:50,920 --> 00:40:54,680 Speaker 1: come and what to do and then possibly fail and 529 00:40:55,040 --> 00:41:02,600 Speaker 1: changing into averaging inflation rates inflation target would not by 530 00:41:02,640 --> 00:41:07,280 Speaker 1: itself move expectations of inflation. It's just not because central 531 00:41:07,320 --> 00:41:10,840 Speaker 1: banks would go for this that now everyone would start 532 00:41:10,920 --> 00:41:14,000 Speaker 1: to take decisions in the economy as if inflation is 533 00:41:14,040 --> 00:41:18,880 Speaker 1: indeed going to increase according to the new averaging target. 534 00:41:18,960 --> 00:41:21,680 Speaker 1: It's not going to happen that way. So I am against, 535 00:41:21,760 --> 00:41:24,560 Speaker 1: but I see that it may happen in the US 536 00:41:25,239 --> 00:41:29,799 Speaker 1: at least, you know, it was very much on the 537 00:41:29,880 --> 00:41:34,440 Speaker 1: cards before these the crisis and may come again if 538 00:41:34,480 --> 00:41:38,840 Speaker 1: it comes, and if the US would adopt that explicitly, 539 00:41:38,920 --> 00:41:42,000 Speaker 1: that would have a big impact on other central banks, 540 00:41:42,000 --> 00:41:45,000 Speaker 1: and then perhaps the e c B would have also 541 00:41:45,040 --> 00:41:50,360 Speaker 1: to adopt that. But it's not something that I favor 542 00:41:50,760 --> 00:41:55,200 Speaker 1: to start with, but I of course could accept for 543 00:41:55,600 --> 00:41:59,120 Speaker 1: the reasons I mentioned it's better to have one number 544 00:41:59,360 --> 00:42:04,080 Speaker 1: and the notion that it is symmetric target to manage 545 00:42:05,280 --> 00:42:08,680 Speaker 1: monetary policy. I thought I said something really fascinating there 546 00:42:08,719 --> 00:42:11,680 Speaker 1: about how if the US were to adopt this overshoot 547 00:42:11,800 --> 00:42:14,960 Speaker 1: or catch up strategy, that might have an influence on 548 00:42:15,040 --> 00:42:18,560 Speaker 1: other central banks. And I just looked like, as someone 549 00:42:18,640 --> 00:42:22,719 Speaker 1: who's attended all these ECB meetings starting from when you 550 00:42:22,760 --> 00:42:24,880 Speaker 1: were the Governor of the Bank of portugals of eighteen 551 00:42:24,920 --> 00:42:29,160 Speaker 1: years worth of meetings. How does change happen over time? 552 00:42:29,200 --> 00:42:33,280 Speaker 1: Do people I think new ideas, do discussions push people 553 00:42:33,280 --> 00:42:36,600 Speaker 1: into new areas? Or is it about simply the composition 554 00:42:36,840 --> 00:42:40,799 Speaker 1: of the ECB changing over time as people swap in 555 00:42:40,880 --> 00:42:43,880 Speaker 1: swap out roles. Lets us a little bit more about 556 00:42:43,920 --> 00:42:46,719 Speaker 1: how sort of evolution of thinking works at the ec 557 00:42:48,320 --> 00:42:55,080 Speaker 1: Opinions move starting in academia, for instance, and events also 558 00:42:55,800 --> 00:43:02,560 Speaker 1: determine change of mind in people certainly, and for instance 559 00:43:02,800 --> 00:43:08,000 Speaker 1: talking about averaging inflation targeting, there is one thing that 560 00:43:08,320 --> 00:43:12,000 Speaker 1: is now in the mind of every central bank in 561 00:43:12,080 --> 00:43:17,239 Speaker 1: advanced economies, which is that after this big shock of 562 00:43:17,360 --> 00:43:22,759 Speaker 1: the virus, there will be scars in our economies and 563 00:43:23,040 --> 00:43:30,680 Speaker 1: unemployment that will take time to be reduced two previous levels, 564 00:43:30,920 --> 00:43:37,000 Speaker 1: which justifies that our economy is from a macro economic 565 00:43:37,280 --> 00:43:42,680 Speaker 1: policy perspective, should be run as high pressure economies, allowing 566 00:43:42,840 --> 00:43:46,880 Speaker 1: a little bit of over eating in order to correct 567 00:43:47,400 --> 00:43:53,239 Speaker 1: quicker the scars in unemployment and in the productive capacity 568 00:43:53,600 --> 00:43:59,000 Speaker 1: that will be destroyed during this period of the virus crisis. 569 00:43:59,640 --> 00:44:05,040 Speaker 1: And these idea of allowing that a period after the 570 00:44:05,320 --> 00:44:09,680 Speaker 1: crisis of you know, eye pressure of potentially a little 571 00:44:09,680 --> 00:44:13,920 Speaker 1: bit of over eating is well justified by adopting averaging 572 00:44:14,000 --> 00:44:20,240 Speaker 1: inflation targeting, which provides then a more explicit intellectual rationale 573 00:44:20,960 --> 00:44:26,960 Speaker 1: for that way of managing and accepting these development of 574 00:44:26,960 --> 00:44:30,239 Speaker 1: of inflation. And so it may happen, and that, of 575 00:44:30,280 --> 00:44:37,719 Speaker 1: course then may be shared more widely than just say 576 00:44:37,880 --> 00:44:41,759 Speaker 1: in the fat, if indeed the fat moves that way. 577 00:44:41,800 --> 00:44:45,160 Speaker 1: But it is in my view true and it will 578 00:44:45,239 --> 00:44:52,160 Speaker 1: happen that major central banks will allow some degree of 579 00:44:53,000 --> 00:44:58,279 Speaker 1: you know, accommodation of eye pressure economy and potentially a 580 00:44:58,320 --> 00:45:06,400 Speaker 1: little bit of inflation during the immediate period following these crisis. 581 00:45:07,640 --> 00:45:11,840 Speaker 1: I have a slightly weird question, but in the current environment, 582 00:45:11,880 --> 00:45:15,359 Speaker 1: it does feel like there's a lot of outrage directed 583 00:45:15,680 --> 00:45:19,600 Speaker 1: at central banks for a variety of reasons. But I 584 00:45:19,600 --> 00:45:22,239 Speaker 1: think one of those reasons is people feel that the 585 00:45:22,320 --> 00:45:27,760 Speaker 1: central bank is sort of forcing rates ever lower, eroding 586 00:45:27,800 --> 00:45:32,800 Speaker 1: people savings, possibly inflating bubbles in the stock market, things 587 00:45:32,840 --> 00:45:38,600 Speaker 1: like that. Do you what's your response to people who 588 00:45:38,719 --> 00:45:41,359 Speaker 1: criticize the central bank for doing that kind of thing. 589 00:45:41,400 --> 00:45:45,640 Speaker 1: And also, this is the weird question, but do central 590 00:45:45,640 --> 00:45:50,240 Speaker 1: banks actually have the power to set interest rates wherever 591 00:45:50,280 --> 00:45:55,200 Speaker 1: they like? Well, central banks, of course influence very much 592 00:45:55,440 --> 00:46:01,080 Speaker 1: shutdown rates, but now via purchases also a degree of 593 00:46:01,120 --> 00:46:06,320 Speaker 1: effect over medium and long term rates, particularly because the 594 00:46:06,719 --> 00:46:12,120 Speaker 1: markets are afraid of central banks and move in the 595 00:46:12,200 --> 00:46:19,640 Speaker 1: direction of that those purchases more so than what the 596 00:46:19,719 --> 00:46:25,440 Speaker 1: amounts that the central banks are indeed buying would objectively 597 00:46:26,120 --> 00:46:31,440 Speaker 1: objectively justify. But then there is then an influence also 598 00:46:31,640 --> 00:46:36,719 Speaker 1: on medium imment rates. But it's not true that the 599 00:46:36,760 --> 00:46:45,560 Speaker 1: central banks totally determined interest rates throughout the spectrum of maturities, 600 00:46:46,080 --> 00:46:52,759 Speaker 1: because many other factors enter the behavior of investors uh 601 00:46:53,600 --> 00:46:57,200 Speaker 1: and they know that the in the end, the amounts 602 00:46:57,200 --> 00:47:01,520 Speaker 1: that the central banks could mobilize everymite in relation to 603 00:47:01,640 --> 00:47:07,759 Speaker 1: the size of those markets. And let's recall that what 604 00:47:07,920 --> 00:47:11,600 Speaker 1: counts for this purpose in asset markets is the total 605 00:47:11,800 --> 00:47:15,600 Speaker 1: stock of the assets that potentially can be moved. And 606 00:47:15,680 --> 00:47:20,480 Speaker 1: as James Stubborn always said, it's the stock that counts 607 00:47:20,600 --> 00:47:24,400 Speaker 1: for the development of pricing, and not just the flows 608 00:47:24,440 --> 00:47:27,439 Speaker 1: of what the central banks are buying, and and and 609 00:47:27,440 --> 00:47:31,920 Speaker 1: and so on. So because at any moment investors can 610 00:47:31,960 --> 00:47:35,400 Speaker 1: take views about the future that will move big chunk 611 00:47:35,440 --> 00:47:38,880 Speaker 1: of the stock that is there, So there is no 612 00:47:39,000 --> 00:47:43,440 Speaker 1: full control of medium and long term rates that are 613 00:47:43,480 --> 00:47:47,279 Speaker 1: then driven by other factors, but there is certainly an 614 00:47:47,280 --> 00:47:52,759 Speaker 1: influence of course that's now become an instrument because we 615 00:47:52,920 --> 00:47:56,879 Speaker 1: reached the short term policy rates that are very close 616 00:47:56,880 --> 00:48:00,520 Speaker 1: to zero, and then there is this limit and the 617 00:48:00,640 --> 00:48:07,560 Speaker 1: need then to intervene more along the maturity spectrum um 618 00:48:07,840 --> 00:48:12,880 Speaker 1: and that's what Quee in parties doing, is doing other things, 619 00:48:13,120 --> 00:48:16,960 Speaker 1: but it's also doing that. We've been talking about these 620 00:48:17,000 --> 00:48:19,440 Speaker 1: sort of big picture questions about Europe, the future of 621 00:48:19,480 --> 00:48:22,759 Speaker 1: central banking, etcetera. Just to bring it back to the 622 00:48:22,800 --> 00:48:25,600 Speaker 1: current moment, when you look at Europe, do you feel 623 00:48:25,640 --> 00:48:31,240 Speaker 1: confident that the existing fiscal package and the existing stance 624 00:48:31,320 --> 00:48:35,720 Speaker 1: of monetary policy are appropriate to get the economy roughly 625 00:48:35,760 --> 00:48:39,240 Speaker 1: back to where it was pre crisis in a decent 626 00:48:39,239 --> 00:48:42,080 Speaker 1: period of time. Where do you think ultimately they all 627 00:48:42,120 --> 00:48:46,640 Speaker 1: have to be yet furthermore done on the fiscal or 628 00:48:46,680 --> 00:48:49,239 Speaker 1: not in tern front. Well, we are all dependent on 629 00:48:49,320 --> 00:48:53,320 Speaker 1: the virus and on the possibility of a second wave 630 00:48:53,840 --> 00:48:59,600 Speaker 1: that would then require big stimulus, both monetary and fiscal. 631 00:49:00,280 --> 00:49:04,520 Speaker 1: But forgetting that for the moment, I would say that 632 00:49:04,760 --> 00:49:08,520 Speaker 1: perhaps next year there will be needed a little bit 633 00:49:08,640 --> 00:49:14,880 Speaker 1: more of monetary policy fiscal is already very much committed, 634 00:49:15,200 --> 00:49:19,400 Speaker 1: and deficits will continue to be high next year, not 635 00:49:19,680 --> 00:49:22,960 Speaker 1: as high as this year, but still high, as the 636 00:49:23,000 --> 00:49:27,960 Speaker 1: i m F has forecasted amazing twenty three point eight 637 00:49:28,000 --> 00:49:33,240 Speaker 1: percent deficit for the US this year and minus twelve 638 00:49:33,320 --> 00:49:37,160 Speaker 1: point four for next year, and that's before the new 639 00:49:37,239 --> 00:49:43,360 Speaker 1: package being discussed right now. And in Europe deficit this 640 00:49:43,560 --> 00:49:47,399 Speaker 1: year of eleven percent and five point three next year. 641 00:49:48,280 --> 00:49:51,080 Speaker 1: It can be a little higher than ext year because 642 00:49:51,520 --> 00:49:54,560 Speaker 1: one thing is that governments gave a lot of guarantees 643 00:49:54,640 --> 00:49:59,760 Speaker 1: to bank loans and there will be defaults and pls 644 00:50:00,120 --> 00:50:03,879 Speaker 1: UH in many loans, and some of those guarantees will 645 00:50:03,920 --> 00:50:07,279 Speaker 1: be activated next year, and that will increase the deficits 646 00:50:07,520 --> 00:50:11,760 Speaker 1: next year. So the stimulus will continue, the deficit will continue. 647 00:50:11,800 --> 00:50:16,720 Speaker 1: There is the new package, and that should be indeed 648 00:50:16,840 --> 00:50:20,160 Speaker 1: enough for the recovery, which nevertheless will be in my 649 00:50:20,280 --> 00:50:26,480 Speaker 1: view sluggish. I don't anticipate that we will reach the 650 00:50:26,560 --> 00:50:32,640 Speaker 1: same level of GDP of two thousand nineteen before twenty three, 651 00:50:32,880 --> 00:50:36,520 Speaker 1: meaning the end of twenty two perhaps, but certainly not 652 00:50:36,640 --> 00:50:40,600 Speaker 1: before UH and perhaps even the end of twenty three. 653 00:50:41,120 --> 00:50:46,279 Speaker 1: So it's a sluggish recovery. Because there has been a 654 00:50:46,360 --> 00:50:50,560 Speaker 1: structural decrease of demand for many sectors of our economy, 655 00:50:51,000 --> 00:50:53,279 Speaker 1: and the levels of demand for those sectors are not 656 00:50:53,360 --> 00:50:57,280 Speaker 1: going to come back anytime soon to the same levels 657 00:50:57,800 --> 00:51:01,920 Speaker 1: as before, and that will affect, of course, uh growth 658 00:51:02,080 --> 00:51:07,640 Speaker 1: because creation of new productive capacity in other sectors will 659 00:51:07,680 --> 00:51:12,200 Speaker 1: not be as quick as to upset that shock to 660 00:51:12,360 --> 00:51:17,320 Speaker 1: the supply side of our economies, including international supply chains 661 00:51:18,040 --> 00:51:21,920 Speaker 1: and all that. So, and also because consumers will be 662 00:51:23,080 --> 00:51:27,239 Speaker 1: increasing their saving rates for a number of years. It 663 00:51:27,360 --> 00:51:29,480 Speaker 1: happened in two thousand and eight after the shock of 664 00:51:29,520 --> 00:51:32,600 Speaker 1: two thousand and eight, it will happen this time, perhaps 665 00:51:32,680 --> 00:51:37,640 Speaker 1: even more after the experience they had this time. So 666 00:51:37,840 --> 00:51:44,120 Speaker 1: that altogether creates the conditions for sluggish recovery. We have 667 00:51:44,160 --> 00:51:48,080 Speaker 1: to be aware of these limitations, but certainly this recovery 668 00:51:48,480 --> 00:51:51,759 Speaker 1: is going to happen, but it will take you know, 669 00:51:52,880 --> 00:51:55,680 Speaker 1: at least a couple of years, if not a little more, 670 00:51:56,200 --> 00:51:59,920 Speaker 1: to come back to the levels of two thousand nineteen. 671 00:52:00,440 --> 00:52:03,600 Speaker 1: And of course we will never come back to what 672 00:52:03,840 --> 00:52:07,160 Speaker 1: would be the trend of growth of our economies if 673 00:52:07,160 --> 00:52:11,560 Speaker 1: it had continued without these big shock the same as 674 00:52:11,600 --> 00:52:16,959 Speaker 1: it's happened with the shock of two thousand eight. Vitor, 675 00:52:17,120 --> 00:52:21,560 Speaker 1: that was fantastic. Really appreciate you joining us, Really really 676 00:52:21,640 --> 00:52:25,440 Speaker 1: enjoy getting to hear from someone of your perspective. Thank you. 677 00:52:25,880 --> 00:52:39,400 Speaker 1: It was a pleasure too. That was really great. Thank you, Tracy. 678 00:52:39,440 --> 00:52:41,960 Speaker 1: That was a real treat getting to talk to someone 679 00:52:42,040 --> 00:52:45,920 Speaker 1: who has been so involved with policymaking and some of 680 00:52:45,920 --> 00:52:51,160 Speaker 1: the biggest issues of the economy basically two decades. Yeah. Absolutely, Um, 681 00:52:51,200 --> 00:52:52,840 Speaker 1: you know that's saying to be a fly on the 682 00:52:52,880 --> 00:52:56,040 Speaker 1: wall of you know, room of the ECB meeting, and 683 00:52:56,160 --> 00:52:59,040 Speaker 1: he's sort of been in well a lot of them, 684 00:52:59,080 --> 00:53:03,480 Speaker 1: hasn't he. According to our colleague Lorcan, who knows the 685 00:53:03,560 --> 00:53:06,080 Speaker 1: e C be better than basically anyone else I know, 686 00:53:06,160 --> 00:53:08,480 Speaker 1: he never missed a meeting in eighteen years, so wow, 687 00:53:08,719 --> 00:53:11,160 Speaker 1: that's quite a record. But I do think it's interesting 688 00:53:11,200 --> 00:53:14,439 Speaker 1: to talk to him at this particular juncture because, of course, 689 00:53:14,480 --> 00:53:17,160 Speaker 1: as we've been discussing, it does feel like the very 690 00:53:17,239 --> 00:53:22,240 Speaker 1: nature of central banking and monetary policy is beginning to change. 691 00:53:22,280 --> 00:53:25,520 Speaker 1: It feels like there's there's sort of a handoff from 692 00:53:25,520 --> 00:53:29,040 Speaker 1: monetary policy to fiscal stimulus. But at the same time 693 00:53:29,120 --> 00:53:32,600 Speaker 1: there's the question of how monetary policy is going to 694 00:53:32,640 --> 00:53:37,320 Speaker 1: interact with that stimuls Yeah. I think what's interesting to 695 00:53:37,520 --> 00:53:41,719 Speaker 1: about this moment is that, so obviously, the COVID crisis 696 00:53:41,760 --> 00:53:46,280 Speaker 1: comes along and throws everything into disarray and policymakers scrambled 697 00:53:46,320 --> 00:53:49,239 Speaker 1: to new tools. But I think what's really striking is 698 00:53:49,280 --> 00:53:54,520 Speaker 1: that the sort of intellectual um groundwork for a change 699 00:53:54,760 --> 00:53:58,160 Speaker 1: was in the works pre COVID. You know, this idea 700 00:53:58,200 --> 00:54:02,799 Speaker 1: of okay, more us a consistent um active role for 701 00:54:02,840 --> 00:54:05,719 Speaker 1: fiscal policy. People have been talking about this for a 702 00:54:05,760 --> 00:54:08,520 Speaker 1: while and that's been a theme of some of our conversations. 703 00:54:08,880 --> 00:54:12,560 Speaker 1: So it's kind of like the intellectual um, you know, 704 00:54:12,719 --> 00:54:15,520 Speaker 1: terrain was shifting, and then we got the moment with 705 00:54:15,680 --> 00:54:18,279 Speaker 1: the COVID crisis where suddenly it's like, okay, we have 706 00:54:18,400 --> 00:54:21,440 Speaker 1: this has to go beyond papers tweets, to talk and 707 00:54:21,520 --> 00:54:24,279 Speaker 1: to actually start thinking about how we're gonna put this 708 00:54:24,320 --> 00:54:27,839 Speaker 1: into practice. And so you know, that's sort of it's 709 00:54:27,840 --> 00:54:31,480 Speaker 1: a moment for multiple reasons. Yeah, that's true. Although one 710 00:54:31,480 --> 00:54:34,120 Speaker 1: thing that strikes me whenever we have these conversations with 711 00:54:34,160 --> 00:54:39,480 Speaker 1: economists is just how much of economics is still uncertain. So, 712 00:54:39,840 --> 00:54:44,040 Speaker 1: for instance, why is inflation not necessarily behaving the way 713 00:54:44,080 --> 00:54:47,360 Speaker 1: a lot of people expect it to. Or why is 714 00:54:47,400 --> 00:54:51,200 Speaker 1: the Phillips curve flat? Uh? Where should the natural rate 715 00:54:51,200 --> 00:54:53,239 Speaker 1: of interest be? Is there such a thing as the 716 00:54:53,320 --> 00:54:55,440 Speaker 1: natural rate of interest? I feel like these are all 717 00:54:55,520 --> 00:54:59,279 Speaker 1: really big questions that listening to VI Tour, you can 718 00:54:59,320 --> 00:55:02,840 Speaker 1: tell that they govern a lot of his thinking and 719 00:55:02,880 --> 00:55:06,839 Speaker 1: presumably a lot of other central bankers thinking, But there 720 00:55:06,840 --> 00:55:11,080 Speaker 1: are so many uncertainties swirling around them. Yeah. I was 721 00:55:11,120 --> 00:55:13,440 Speaker 1: really glad that you asked that question about a sort 722 00:55:13,480 --> 00:55:17,080 Speaker 1: of theory of inflation, so to speak, because it's such 723 00:55:17,120 --> 00:55:20,840 Speaker 1: a profound question because if you have all these central 724 00:55:20,840 --> 00:55:23,880 Speaker 1: banks and they're like targeting you know, the East the 725 00:55:23,960 --> 00:55:26,560 Speaker 1: US as a dual mandate, but technically the ECB just 726 00:55:26,600 --> 00:55:30,000 Speaker 1: has one mandate, uh, the inflation mandate. But if you 727 00:55:30,040 --> 00:55:32,440 Speaker 1: set out this mandate, okay, you have to hit this, 728 00:55:32,840 --> 00:55:36,359 Speaker 1: and yet no one can really articulate what drives inflation. 729 00:55:36,840 --> 00:55:38,879 Speaker 1: That just to be against to like such a core 730 00:55:39,000 --> 00:55:42,280 Speaker 1: question about like what are what are central banks even doing? 731 00:55:42,640 --> 00:55:44,279 Speaker 1: If the thing they have to target they don't know 732 00:55:44,320 --> 00:55:48,160 Speaker 1: how to get there. Oh yeah, absolutely, I find inflation 733 00:55:48,560 --> 00:55:51,400 Speaker 1: as a subject just really fascinating. Also how they measure it. 734 00:55:52,040 --> 00:55:54,200 Speaker 1: I think a lot of people in Europe right now especially, 735 00:55:54,280 --> 00:55:57,120 Speaker 1: would argue that living costs are going up even though 736 00:55:57,160 --> 00:56:01,320 Speaker 1: inflation is still persistently under target. But it okay, getting 737 00:56:01,320 --> 00:56:04,040 Speaker 1: slightly off track. That is a topic for another All 738 00:56:04,080 --> 00:56:07,680 Speaker 1: Thoughts episode. It could be a serious Actually, oh yeah, 739 00:56:07,760 --> 00:56:10,600 Speaker 1: let's do an inflation series. Yes, yeah, they'd be a 740 00:56:10,600 --> 00:56:13,319 Speaker 1: good one. Um, okay, just you know, like just what 741 00:56:13,480 --> 00:56:16,239 Speaker 1: Vitour said about, Oh, Milton Friedman, who is sort of 742 00:56:16,640 --> 00:56:20,239 Speaker 1: the godfather of how modern economists thought about inflation for years, 743 00:56:20,239 --> 00:56:23,080 Speaker 1: and he's like, oh, if Japan doesn't have inflation file 744 00:56:23,120 --> 00:56:25,799 Speaker 1: the government debt, it just works. It really sort of 745 00:56:25,840 --> 00:56:29,959 Speaker 1: shows how much work there is to be to be done. 746 00:56:30,040 --> 00:56:34,120 Speaker 1: Still on this topic, Yeah, that was a good annectote. Okay, 747 00:56:34,320 --> 00:56:37,200 Speaker 1: shall we leave it there? All right, let's leave it there. 748 00:56:38,120 --> 00:56:41,239 Speaker 1: This has been another episode of the All Thoughts Podcast. 749 00:56:41,360 --> 00:56:44,080 Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at 750 00:56:44,120 --> 00:56:49,120 Speaker 1: Tracy Alloway. You can follow me on Twitter at the Stalwart, 751 00:56:49,280 --> 00:56:52,759 Speaker 1: and you should follow our guest Vitoor Constantio. He's on 752 00:56:52,800 --> 00:56:57,440 Speaker 1: Twitter at v m R Constantia and follower producer Laura 753 00:56:57,480 --> 00:57:00,920 Speaker 1: Carlson at Laura and Carlson, all of the Bloomberg Head 754 00:57:00,920 --> 00:57:05,000 Speaker 1: of podcast Francesco Levi at Francesca Today and check out 755 00:57:05,040 --> 00:57:08,920 Speaker 1: all of our podcasts under the handle at podcast. Thanks 756 00:57:08,920 --> 00:57:09,440 Speaker 1: for listening.