07 May 2020

ECB Vice-President de Guindos to ECON:

I will start by presenting the assessment of the economic outlook and the measures taken by the ECB thus far...then discuss in more detail the impact of the COVID-19 pandemic on the financial sector, and conclude by examining the role that the EU’s financial agenda could play in the recovery phase.

The 2020 economic outlook and the ECB’s recent decisions

Europe and the world are facing an economic contraction of extraordinary magnitude and speed. The measures imposed to contain the spread of the coronavirus have largely halted many economic activities. While these containment measures hit the services sector immediately, they also took their toll on the manufacturing sector. According to preliminary estimates, the euro area economy contracted by 3.8 percent quarter on quarter in the first quarter of 2020, which only partially reflects the severity of the ensuing downturn. Consumer and business sentiment indicators for April have in fact plunged, suggesting an even larger contraction in the second quarter....

The impact of the coronavirus emergency on the European financial sector

The pandemic hit the financial sector with an economic shock of unprecedented speed, scale and global scope. Unlike in 2008, the current crisis did not start in the financial system. But the spread of the virus triggered a market reaction that at times rivalled the 2008 financial crisis in terms of the magnitude of price falls and volatility.

The tightening of market conditions was abrupt, broad-based and, at times, disorderly. Markets calmed following the announcement of forceful responses by monetary authorities around the globe. In particular, the ECB’s announcement of private and public asset purchases has helped to restore market functioning in many asset classes.

In this challenging environment, banks’ resilient balance sheets shielded them from the initial cash-flow shock. Recent efforts to build a stronger banking union allowed the banks to enter this crisis with healthier starting capital and liquidity positions than they had in 2008. At the end of 2019, the CET1 ratios of significant banks in the euro area stood at around 15 percent.....

The road to recovery

Allow me to conclude with a few words on the road ahead, namely on the policy action that will be needed during the recovery.

ECB monetary policy will continue to provide the necessary support so that liquidity gets through to the people of Europe and the real economy. But our response will be made more powerful if all policies reinforce each other.

It is thus vital that the fiscal response to this crisis is sufficiently forceful, in all parts of the euro area. People and companies should be able to contribute to Europe’s recovery wherever they are located. There now needs to be a political agreement to build the appropriate instruments for this common response, and I look forward to the upcoming discussions on the basis of the European Commission’s proposal.

To propel the recovery forwards, Europe has a strong engine at its disposal: the Single Market, the EU’s greatest achievement for its citizens.

As recognised by this Parliament just a few weeks ago, the Single Market is the source of our collective prosperity and well-being. So it is crucial that we repair, strengthen and deepen it in the coming months. And this is even truer for the financial sector. A genuinely integrated and resilient market is essential to ensure financial stability and the financing of our economy. So progress on the capital markets union agenda is crucial.

Priority should be given to initiatives and proposals aimed at mobilising private savings and improving transparency and information for investors at the European level. Given the urgency of the situation, we should be open to any new and innovative ideas which can accelerate progress on the capital markets union.

As Members of the European Parliament and the Committee on Economic and Monetary Affairs, you have an important role to play in bringing forward the legislative work on these dossiers.

Thank you, and I look forward to your questions.

Full statement at ECB

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