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Interview with Yves Mersch, Member of the Executive Board of the ECB, conducted by Foo Boon Ping
What lessons can Asia learn from financial integration in Europe?
[...] Most of our economies depend on loans from banks, and this can be risky. We need a more balanced approach with deeper capital markets financing alongside bank financing. We clearly need both because both are supplementary in absorbing shocks. In Europe as well as in Asia, we might have had overreliance on banking systems. [...]
What are valuable lessons for harmonisation and standardisation?
Standardisation and harmonisation are two vital factors for further financial integration everywhere, but each region has to find its own way to pursue the objective. [...]
In Europe, financial integration is embedded in a long historic process. Europe is not only building on an intergovernmental approach, it is also relying on common institutions. During the crisis we have seen that we need to further strengthen our European institutional setup. That’s why we have built the Banking Union with a single supervisory mechanism and a single resolution mechanism, with a road map to a deposit guarantee scheme.
Moreover, we aim at establishing a Capital Markets Union, for which the European Commission has recently launched an action plan to be implemented by 2019. But we also need real convergence because you cannot bring together economies that are completely divergent. [...]
Has quantitative easing (QE) worked for Europe?
We have had a protracted discussion on QE before we took the decision to start our asset purchase programme. And we are also aware that impacts of QE in the euro area—but also outside Europe—would be different from impacts of QE programmes in other jurisdictions. In the end we have one mandate for the euro area. The ECB’s Governing Council is determined to fulfil this mandate, which is to have inflation close to 2% in the medium term. We do not have a mandate for unemployment, and we do not have a mandate for growth—these are secondary objectives. As a collateral benefit these areas have profited from our forward guidance, a reconfirmation of our policy stance in this respect.
It is very difficult in accounting terms to measure the success of QE because of a lack of the counterfactual. We believe that our programme has been successful. After all, we had increasing risks of deflation in Europe. In the current juncture, amid the renewed decline in headline inflation, we have to be mindful whether there could be second-round effects stemming from the decline in oil prices, or if there is an overestimation in the assessment of the Chinese situation. During the International Monetary Fund annual meetings, a widespread belief was expressed that risks stemming from China would be appropriately managed by Chinese authorities. [...]
A lot has been said about fintechs and how they drive better consumer experience and better facilitate the goals of financial inclusion. We see a number of regulators embracing the fintech industry. What do you think should be the regulatory response?
Disruptive technology is one of the drivers of economic growth and productivity. So obviously it would not be up to the public sector to stifle innovation and to bridle disruptive technology . Therefore it must not be too early when the regulators moves in - neither can they move in too late, though, because that would create havoc and instability. Innovation cannot come at the behest of security. Payments have a lot to do with the confidence of the consumer.
Today, the consumer wants efficiency and speed. But sometimes the consumer forgets that he also wants security. Security is invisible, however, as long as everything goes well. The public sector has to monitor that the right balance between efficiency and security is maintained.