De Guindos: Global shocks, banking resilience, digital euro path

ECB Vice-President Luis de Guindos reflected on the profound changes in the global landscape over eight years, highlighting the significantly increased role of geopolitical risk in economic policy.

He noted the world has transformed due to events like the pandemic, Russia's invasion of Ukraine, and a new US Administration.

De Guindos identified a global supply shock, extending beyond energy, which will impact inflation and growth, worsening terms of trade.

This presents a dilemma for central banks, with a clear impact on economic growth potentially exceeding that of the Ukraine war.

He emphasized the ECB's meeting-by-meeting approach, stating no predetermined decision exists for the upcoming June Governing Council meeting, where new macroeconomic projections and conflict information will be crucial.

He also dismissed comparisons to past rate decisions in 2011 and 2021, stressing current economic policies are not as expansionary, making the situation fundamentally different.

De Guindos affirmed Spain's essential presence on the ECB's Executive Board, citing its robust banking system and economic reforms.

He addressed banking regulation, stating that while simplification is possible, reducing capital requirements would be a mistake.

Current capital levels do not restrict credit and are a comparative advantage for European banks.

Consolidation, he stressed, should be bank-driven, with governments avoiding interference.

Key financial stability concerns include increased geopolitical risk, high market valuations, and doubts surrounding private credit and equity.

De Guindos also warned that AI could increase vulnerability to cyberattacks, urging banks and the ECB to invest more in cybersecurity.