This is an edited version of the original speech in Spanish delivered at the Enrique Fuentes Quintana conference cycle/Real Academia de Ciencias Morales y Políticas on the 16th January 2023. The views expressed in this policy note are those of the author and do not necessarily represent the views of the European Central Bank and the Eurosystem.
The shock waves from Russia’s invasion of Ukraine have hit hard the EU economy due to our close economic ties to Russia and high dependence on fossil fuel imports from that country. The rise in the prices of natural gas and other essential commodities, which we have to import, make EU citizens poorer and adjustment unavoidable. Current circumstances are very different from those prevailing during the COVID crisis and call for different responses from economic policies, putting consistency of the various instruments at a premium. With monetary policy focused on price stability, fiscal policies need to ensure medium-term sustainability of public finances, whilst supporting the most vulnerable in society. Incomes agreement would also help to share the costs of the rise in imported goods prices fairly between firms and workers, thus preventing second-round effects from emerging. Finally, there are also important roles to play by supply-side policies -that reduce energy dependence and increase productivity and potential growth- and by EU-wide policies to improve the functioning of the single market and reinforce risk-sharing channels within the euro area.
In this short paper, I give first a brief overview of the key current European economic developments in order to contextualise monetary policy conduct. Then I offer my opinion on how other economic policy should make a consistent contribution, so that we can chart a course through these uncertain times towards prosperity and opportunity.