Luis de Guindos, vice president of the European Central Bank (ECB), said this morning at a conference at the General Council of Economists in Madrid that “it is not ruled out that the eurozone enters a technical recession, with two consecutive quarters of negative growth, but in any case it will not be an excessively intense recession”. Guindos explained that after a very good second quarter of 2022, he sees “an intense slowdown” in both the third and fourth quarters.
This negative reality, already advanced weeks ago, occurs, as he recalled, at the same time that employment in the eurozone is holding up well: “The good behavior of the labor market is positive and that pre-Covid levels are already recovering.” However, the persistence of inflation forces the ECB to continue raising interest rates in the euro area and will continue to do so, as announced.
The fight to lower inflation will be long. “We believe that until the end of the year it will remain at current levels, around 10%, and that in 2023, due to base effects, it will be above 6%”, added Guindos. Although he has admitted that inflation expectations are anchored, families and companies expect it to be above 3%. And that places the ECB, Guindos said, in the position of reaffirming its credibility. Therefore, rate hikes are inevitable.
Christine Lagarde’s deputy has asked for support from fiscal policy, “which can play a very important role and which has to be selective, granular and help the most vulnerable”, he insisted. In this sense, he has been against general fuel subsidies, as is the case in Spain, and has pointed out that it would be preferable to facilitate the reduction of dependence on Russian energy.
With regard to the banking tax, Guindos commented that a panel of experts has already been set up at the ECB to examine the tax from all points of view, including that of financial stability. “I want to remind you that the ECB will issue an opinion that is not binding on the rate, which will be ready in a few days or a few weeks.” The former Spanish minister has not wanted to advance any further, but he has said that the ECB’s pronouncements on similar rates are known. In July, the government introduced a bill in parliament to create a temporary levy on banks and large energy companies, with the aim of raising €7 billion by 2024 to ease cost-of-living pressures.
