November 4, 2015 - RaiNews24 aired an interview with SEP Scientific Council Member Stefano Manzocchi, in which he discusses the statement made by ECB President Mario Draghi regarding a Banking Union. Below is a rough translation.
[00:15] Rai: We have listened to two speeches—one with ECB President Mario Draghi, in which he emphasized the necessity of creating a banking union, and another with FED Chair Janet Yellen, who signaled a possible increase in interest rates in December, assuming the American economy remains strong. What information can we glean from these two statements?
S. Manzocchi: As we know, in the West, banks are a cornerstone in the economic system. Banks have to, effectively, prop up the system by doing their jobs—supplying credit to businesses and families, participating in the bond market, etc. They have to support, in one way or the other, everything that requires credit. In other words, they finance standard economic activities and investment.
On the other hand, after a crisis of the magnitude we have just experienced, the banks themselves need to be propped up. This is the point of Draghi’s speech, which reminds us of the need for a European system of deposit insurance that would allow the major banks in the EU, at least, to remain credible to savers. Naturally, this needs to be done within the scope of the area’s regulations. A banking union would need to have solidarity and risk-sharing between member states, as well as a system of controls, particularly because the area has a history of over-investment and over-exposure, especially in the construction industry, which has weakened the system.
[02:50] Rai: Yellen has stated that the United States does not need quantitative easing. What is the significance of the fact that America doesn’t need this “bazooka,” which is considered necessary in Europe.
S. Manzocchi: Well, no one was expecting America to employ quantitative easing. In fact, we have been waiting for many months for them to inverse their monetary policy and move toward becoming more restrictive, which is why we expect an increase in interest rates either at the end of this year or the beginning of the next.
Quantitative easing was very important for relaunching the US economy, and it was done alongside other measures, which resulted in success. However, they have stabilized the banking system and dealt with the mortgage crisis. Therefore, one wouldn’t expect them to continue quantitative easing. All people are waiting for at this point is an exact date for when interest rates will increase.
On the flipside, Draghi has said many times that it is very likely there will be an expansion in the EU’s quantitative easing program, which would allow the ECB to also buy bonds that would have been otherwise excluded.
[11:45] Rai: What is the major criticism of the “Legge di Stabilità”?
S. Manzocchi: I would not go on the offensive here. Every advanced democracy such as ours needs Executive powers, which allowed the presentation of this bill, as well as a system of checks as balances, embodied by the courts and, in a different manner, by the Bank of Italy. Obviously, this new set of laws is going to have some problems. Remember, it still needs to go through parliament, where it will be reasonably modified.
However, the central idea of this bill is to reduce fiscal pressure. We have had a small recovery this year, and we are hoping to at least maintain it in the next. If these laws could help do so by even a few decimal points, it is worth it, because we really need an economic recovery. We can discuss the minutiae, and even I have my own criticisms, but the main goal is to reduce fiscal pressure and, above all, to advance future recovery.
- The full interview (in Italian) is available from RaiNews24.