ECB Insight: ECB’s de Guindos Highlights Economic Improvement

23 June 2021

By David Barwick – FRANKFURT (Econostream) – European Central Bank Vice President Luis de Guindos, assessing the economic recovery on Wednesday, struck perhaps the most positive tone heard to date from the ECB Executive Board.

The risks to growth, he said during a virtual event with a Spanish university, ‘are balanced’, and he noted explicitly that the shift to this characterisation earlier in the month contrasted with the previous view of risks being tilted to the downside.

‘Now, for the first time since the start of the pandemic, the risks are balanced’, he said.

That relatively unequivocal appraisal would seem to represent a slight upgrade from ECB President Christine Lagarde’s wording at the press conference two weeks ago.

Lagarde, still loath to express any optimism, initially called the risks to growth ‘broadly balanced’, a formulation not as wholehearted as de Guindos’. Some minutes later she said that risks were ‘now considered as balanced’ – as if to say that they were only ‘considered’ as such and leave open the question of how they actually looked.

Her only other references on June 10 were to ‘this assessment of more balanced risks’, hardly better than in April, when she also spoke of medium-term risks as remaining ‘more balanced’. And just this Monday, speaking before EU Parliament, she was unwilling to do better than ‘broadly balanced’.

‘Broadly balanced’ is not as good as ‘balanced’. Although ‘broadly’ means approximately the same as ‘more or less’ in normal use, so that ‘broadly balanced’ could potentially be better than simply ‘balanced’, in the ECB context of studied negativism it is clearly a reservation, meaning de Guindos’ language today was more positive.

The Vice President was in other respects also clearly optimistic, whether expressing expectations of ‘very significant’ growth, explicitly noting that the predicted return to pre-Covid output levels in 1Q constituted an improvement over previous projections, or holding out the hope that the ECB’s current recommendation against bank stock dividends would be reconsidered if economic projections held up.

But de Guindos did not stray far. He emphasized repeatedly that robust inflation ‘is of a temporary nature’ due to base and technical effects and saw no second-round effects on labour markets, which were exhibiting only ‘very moderate’ wage developments.

Moreover, he was in no hurry to see support withdrawn, noting that the pandemic emergency purchase programme was to run until next March, whereas it was only June now. ‘We have time, we perfectly well have time’ to consider what to do, he insisted.

The removal of support, including fiscal, would only be ‘gradual and cautious’, he said, and depended on the evolution of economic data.

Though squarely in the dovish camp by our ranking, de Guindos is good for a mildly hawkish surprise from time to time. In early May, he suggested that the emergency measures taken by the ECB might be approaching the point at which they would need phasing out.

‘The way in which the economy develops will be the deciding factor’, he said at the time. ‘If by speeding up the vaccination campaign we manage to have vaccinated 70% of Europe’s adult population by the summer and the economy starts to pick up speed, we may also start to think about phasing out the emergency mode on the monetary policy side.’

Days later, he called the 70% goal ‘perfectly attainable’ and said, ‘What we are seeing is the situation can improve in a very rapid and very intense way.’