The vice president of the European Central Bank (ECB), Luis de Guindos, has asked the governments of the euro area to modify the expansionary fiscal policies, applied during the pandemic, and which he has considered as ‘whatever it takes’, for “prudent” policies and “selective” focused on the most vulnerable groups of the population.

In his speech at the XXIX Meeting of the Financial Sector, organized by ABC and Deloitte, in collaboration with Sociedad de TasaciĆ³n, De Guindos defended the application of a ‘whatever it takes’ tax policy during the pandemic. , in its Spanish translation), referring to the defense of the euro that the previous ECB president, Mario Draghi, made in July 2012.

De Guindos has pointed out that this expansive fiscal policy applied during the pandemic did not have a limit on public deficit or debt, and was accompanied by an equally expansive monetary policy, in order to mitigate the impact of the Covid-19 restrictions. . “It was the logical fiscal policy,” he stated.

However, in a context of higher inflation, in which most central banks are applying rate hikes to stabilize prices, De Guindos has considered that the situation is “different” and that fiscal policy “must be more selective, temporary, focused on the most vulnerable”, who are those who are being most affected by high inflation.

He has also made reference to the situation that has occurred in the United Kingdom, when the fiscal policy plan announced by the Government of Liz Truss, which included a tax cut at a time when interest rates are rising in the country to contain inflation, motivated the increase in the risk premium in the United Kingdom and the fall of the pound.

Finally, the Bank of England had to intervene to avoid a problem in financial stability, although the situation would end up causing the fall of the Truss Executive. Therefore, for De Guindos it is a “very important” example to point out that monetary and fiscal policy “do not collide.”

On the other hand, he has considered it necessary “not to underestimate” inflationary tensions and their consistency and has asked to look at core inflation and second-round effects, and has assured that the European Central Bank (ECB) will continue in its process of normalization of monetary policy, including rate hikes that will last until inflation approaches the target of 2% established by the ECB itself. “We will continue to raise rates until we reach the price stability objective,” she said.

Regarding inflation forecasts, he indicated that the ECB’s ‘macro’ projections will be released in December, although he expects the CPI in the euro area to continue around 10% in the coming months and will slow down from the second quarter 2023. However, it expects inflation to remain at high levels over the next year, in line with the forecasts published yesterday by the OECD, which estimates a CPI of 6.3% for the euro area as a whole.

Likewise, it has indicated that the ECB will begin to discuss the process of reducing the balance of its assets at its December meeting. “The normalization of monetary policy always begins with rate hikes and, at a given moment, due to the fact that many assets have been purchased during the pandemic and at times of lower inflation, the next step is to reduce the balance through a reduction of the positions in those securities”, he explained.