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What are useful tools here to fix the monetary transmission mechanism?
I think we have to do many things. In the context of Banking Union, now the ECB will become the common supervisor and they will do the asset quality review and the stress tests. We will discover whether there are any problems anywhere in the system. We do not expect big ones, maybe a few small ones. So it is important to understand better what the situation of all the big banks is. Particularly because some people of the market are suspicious that there may be problems. Either we find some problems or they are really not there. So that will be important. Also, we need to set up the other instruments that complement the SSM (Single Supervisory Mechanism). There is work going on with the SRM (Single Resolution Mechanism), and the SRF (Single Resolution Fund). We will have, in the end, a real integrated banking market. I think it is the best we can do for the real economy in Southern European countries.
The three pillars of the Banking Union are in progress. But still the sceptics believe more is needed. Do you think we have reached a critical point that things will get better soon?
It will definitely get better. It has been better, more than expected, because most people thought that Europe will disappear. To create a full Banking Union will take a decade. It is a big project, and some people think it is as big as creating the euro. Therefore one needs a bit more patience, because it is a complex technical issue to create a Banking Union. Many steps are needed, and new institutions will be established, so it cannot be done in one night. But I think it is important that the process has started, the ECB has become a common supervisor, and they are preparing themselves. The ESM has been asked to prepare for the possibility of direct bank recapitalisation. That may not happen but the possibility will exist. I think that is very useful to have the instrument. The other elements of Banking Union are still under negotiation with the European Parliament, but I am optimistic that we will make progress in the next few months.
What would be the progress in terms of banking deposit insurance schemes?
That was agreed in December. It was a harmonisation of national deposit insurance schemes. So there will not be one scheme for all. Every country has its own system, and those who don’t have it will create it, and they will all follow the same standards and comparative rules.
You said that we don't need the Troika or the IMF any more?
No. I said that for the next crisis we may not need the IMF. For this one, nobody wants to throw out the IMF. We are in the middle of a process, Spain and Ireland have exited their programmes, but the other three countries (Greece, Portugal, Cyprus) and we are happy the IMF is there. But in the long run, in the next crisis which may come in 20 years or so, we will be in a different situation. Normally there is a crisis once in a generation. It is important that countries adjust to avoid new crises. They are part of our economic system but if a country does its homework and has good fundamentals, it should not happen too soon. With better policy coordination, with adequate institutions, with stronger banks, which are the essential elements of our crisis response, it should also mean that next crisis will not come that soon.
Do you mean that the IMF will become irrelevant in Europe in the medium and long term? No, I wouldn't go that far because all European countries are members of the IMF, like China also is. . If there is another crisis in Europe, we will see how much we can do on our own. But each member state of the IMF supports it and if a country is in trouble it has the right to seek help from the IMF. Why should European or other countries give up that right?
If you have a blueprint for the eurozone in the long term, which part is the most important now?
The countries must conclude their adjustment processes. They have come a long way, but it’s not over. Even Ireland, though it has exited, still has a fiscal deficit of 7 per cent of GDP, which must be reduced and cannot stay at 7 per cent forever. So, the first thing is that countries should conclude their adjustment. The other focus at the moment is the move towards Banking Union. Regarding fiscal union, one extreme definition of fiscal union is that all countries give up their national budgets and there is one budget for all of them. Then we would have the United States of Europe. This is unrealistic and will not happen soon. But we have moved towards a fiscal union in several important ways: tighter rules for policy coordination, particularly on the fiscal side, are a step towards fiscal union, not a complete fiscal union, throwing all budgets together, but on a system of much tighter rules to conduct fiscal policy.