Luis de Guindos: Interview with El Periódico

1 December 2025

Shocks have been building up since the pandemic, but the most dreaded economic scenarios end up not materialising. As a result, the markets keep rising and rising. But the economy is cyclical. Aren’t you worried that one of these scenarios might actually materialise when you least expect it?

There has been a very significant build-up of shocks, but this has not had an impact on European banks, thanks in no small part to the structural reforms that were implemented, including the creation of the Single Supervisory Mechanism and the Single Resolution Board. This improved banks’ solvency, as did the new Basel-based regulations. In addition to this, countries like Portugal, Greece, Italy and Spain improved their ratings and are more competitive. As a result, although it is growing below its potential of 1-1.5%, the euro area economy is now much more resilient to these kinds of shocks. But there are always doubts and uncertainties; our Financial Stability Review analyses the most relevant ones.

The Review states that there is no artificial intelligence bubble but that there could be a sharp adjustment in stock market valuations if the practical rollout of AI is slower than expected. How likely do you think this is?

The Review identifies potential risks. And the valuations carry a high level of risk. Stock market risk premia are highly compressed, there has been very little volatility and most of the increases in value are concentrated in “Magnificent 7” stocks. What’s more, the markets are pricing in a very benign narrative: geopolitical risks are not crystallising, US monetary policy is still cutting interest rates, and there won’t be a recession. Artificial intelligence seems to be unstoppable worldwide, but we are warning that there may be a problem of excessive valuations. At the same time, the situation doesn’t appear to be like the dotcom bubble 25 years ago. Firms have clear, established business plans, already robust and growing revenues, and profits. So it’s unlikely that this is a bubble. But valuations may suffer a correction if this benign narrative doesn’t actually materialise.

The Review also highlights the risk posed by the non-financial sector, formerly known as the shadow banking sector. There has been talk of the need to regulate and supervise it for years, but no substantial progress has been made. Could the next financial crisis start there?

What we call “non-banks” is very broad term. It ranges from insurance companies, pension funds and investment funds, to hedge funds or risk funds. And there is a new phenomenon in the form of private equity, private credit, i.e. private markets. Insurance companies and pension funds are regulated and subject to strict supervision. But leverage has increased significantly in hedge funds, and a difficult situation could arise in the event of large redemptions, because of liquidity buffers that remain low. Private markets, which are not supervised, are growing in size and there is some opacity in their portfolio valuations. This opacity is reflected in, for example, difficulties in selling their shares. The fundamental warning is in relation to the strong interconnection that exists between private equity, private credit and hedge funds, and the traditional banking sector that has now important exposures to all three non-bank segments on both the asset and liability side of its balance-sheet. Given the lack of strict supervision, high leverage, and problems relating to the opacity and illiquidity of portfolios, an incident could have an impact on the European banking sector, which is nevertheless in a robust position.

There seems to be a pendulum effect at play. After the 2008 [financial] crisis, some were saying shadow banking was a problem. There then followed a phase of arguing that the European economy needed more non-bank funding. Now this type of funding again seems to be a risk that, between one thing and another, has ended up not being properly monitored.

There are a lot of these kinds of funds operating outside Europe. What is needed is global regulation. And, given the interconnectedness with the banking sector, the process of supervising the markets and these types of institutions in Europe should be more integrated. Currently it is in the hands of national securities commissions. We are calling for a single, integrated vision, which is also essential if we want to develop the capital markets union, or, as it’s now called, the savings and investments union.

A third risk identified in the Review is that “fiscal fundamentals in some euro area countries have been persistently weak”, with the risk that “fiscal slippage could test investor confidence, especially in countries where political majorities are fragile”. France clearly springs to mind. But could the reference to fragile political majorities also be applied to Spain?

We are not talking about one country in particular. In France, however, the risk premium remains moderate, the French bond market is liquid and there has been no contagion to firms or banks. Our Review talks about the future. In Europe, the fiscal deficit stands at 3% and the debt-to-GDP ratio at 90%. At the same time, a significant effort is required to increase defence spending, which is an absolute priority for Europe. On the other hand, the lack of political stability to approve budgets may have an impact on the credibility of medium-term budget plans. There are fiscal challenges and it is crucial to send a message of fiscal stability in line with political stability. It is difficult to come up with a medium-term budget plan if the annual budget can’t be approved. This is a general warning, although it may be more urgent for some countries than for others.

You said recently in Portugal that the “main reason” Spain’s growth is better than the euro area average is because its population is growing thanks to immigration flows. Is this type of growth sustainable?

Over the past decade, excluding the pandemic period, Spain’s economy has had two clear advantages. The first is a sound financial system. Even in the case of Banco Popular, it was resolved under the resolution framework with no impact on the rest of the sector and at no cost to the taxpayer. The second is that it has become much more competitive, as reflected in developments in goods and services exports – not only tourism-related – as reflected in the surplus of the balance of payments. Several factors intersect with these two structural pillars. One is the very strong population growth owing to immigration, particularly since the pandemic. Spain’s population is growing by 500,000 people per year in net terms, and this obviously pushes up GDP. I’m in favour of immigration. It’s necessary, if not essential, given the demographic developments in Europe and in Spain. A second important factor has been the Next Generation EU funds. Spain has received €70 billion that does not need to be paid back. How these resources were invested will need to be analysed in the future. The third factor is tourism.

But is that growth model sustainable?

Owing to the strong population growth, the main bottleneck facing the model is housing. The rental market should absorb the increase in demand. Rental housing supply has not grown at the same rate. This has pushed prices up, which is affecting labour mobility in Spain and young people in particular. Another more structural medium-term problem is that productivity growth is rather low because immigration mainly flows into lower-skilled sectors. The conclusion is that, officially speaking, GDP growth is excellent – more than double that of Europe. But for other indicators, like GDP per capita, the growth gap is much more modest. There are doubts about its medium-term sustainability owing to housing. Moreover, when the population grows, there is need to invest more in social services, like education and health, because there is greater demand for those services.

How can we solve the housing problem – through price interventions and more construction?

Regulating rental prices does not boost supply – it reduces it. That’s what is happening in certain areas in Spain. Given the strong population growth in the country, ensuring suitable regulation that promotes renting is crucial. It’s not just a matter for the central government; it’s one for the autonomous communities and the municipalities too. A State Pact on renting is vital.

The ECB considers housing to be overvalued by 16.8% in Spain, the highest level since March 2009. The Banco de España is exploring the possibility of activating limits on mortgage lending, like in the rest of the euro area, except Italy and Germany. Would that be beneficial for financial stability?

You can’t compare the situation now to the one 15 years ago, when the housing bubble was accompanied by a credit bubble. We don’t have that today. Macroprudential measures are important as they make it possible to intervene when there are unsustainable price rises over the medium term in order to avoid an abrupt correction when the cycle turns. Some of these measures concern banks’ capital requirements, with banks being subject to capital add-ons. Others focus on borrowers, on mortgage lending to individuals, establishing limits on the loan-to-value ratio. These are reasonable measures and the Banco de España is studying them. But let me stress, we are not in the same situation as we were 15 years ago.

Market reference rates, like the EURIBOR, have started to edge up slightly and to be passed through to the financing conditions of euro area firms. Are you concerned about this monetary tightening in a context where inflation and inflation expectations are still anchored around the 2% target and the economy is improving, albeit not brilliantly?

Our monetary policy decisions are based on inflation developments, which are good, inflation projections, which are also good, and the transmission of the monetary policy. For mortgages, the transmission follows our interest rate decisions very closely. For firms, it’s true that banks are more restrictive as regards who they lend to because the current geopolitical risk landscape could affect the solvency of firms. But in their actual lending, banks reflect our monetary policy decisions. The 12-month EURIBOR, which most mortgages are tied to, takes into account both the current interest rate level and the level in the coming quarters. The markets are pricing in stability, with no rate increases or decreases in the coming months. What we are saying is that the current level of interest rates is appropriate based on the three variables I just mentioned. Although, obviously, given the level of uncertainty and unknowns in the international geopolitical environment, we are open to adjusting it.

You see risks to growth to be balanced, economic growth has improved slightly, and you judge the current level of rates to be appropriate. With this in mind, it seems reasonable to say the baseline scenario is that they will be kept unchanged over the medium term.

Well, that’s what the markets are saying, and what you are saying. My feeling is much more open, and it will depend on the data we receive. But let me say it again: provided the circumstances don’t change, the current level of interest rates is appropriate.

After the last Governing Council meeting, the President of the ECB said that the decision to keep rates unchanged was unanimous, but there were differences of opinion between “hawkish and dovish” governors. Is there a risk of a split within the Governing Council, like there was at the end of 2019, for example?

The Governing Council has 27 members, including the Bulgarian Governor. Of course there are different points of view. That’s human. But now there is a consensus that the current level of interest rates is appropriate, and if circumstances change in the environment, we will adjust the interest rates.

You chair the ECB High-Level Task Force on Simplification, which is developing regulatory simplification proposals to submit to the European Commission. Is it possible to simplify without affecting the resilience of the financial sector or lowering capital levels?

Of course it is. By the end of the year, the task force will submit its report to the ECB’s Governing Council for approval and, if it gets the green light, we will send it to the Commission. There will be a significant number of recommendations in three areas: capital structure, reporting and supervision. This will make procedures less burdensome and less complex, while not compromising the solvency of European banks.

Does that mean aggregate capital requirements will be similar, but the make-up of that capital will be different?

The capital structure of European banks includes more than ten different capital buffers. We will ask for that number to be reduced, and for proportionality in the supervision and regulation of smaller banks, or changes in the stress test. But none of this implies a reduction in capital requirements. According to our analysis, capital levels are not restricting lending at the moment.

After 11 years without any significant progress, is it realistic to think that the European deposit insurance scheme could be completed before another crisis occurs?

I believe it is essential and I hope that the EU authorities – the EU Council, the Commission and the European Parliament – are aware of just how important it is.

In recent months, there has been political opposition to bank mergers in countries like Spain. The Government has to transpose the revised Capital Requirements Directive (CRD VI) and decide whether the power to approve mergers should be shared with or ceded to the ECB and the Banco de España. That power is enshrined in a 2014 law which you approved when you were a government minister. What do you think would be the best course of action?

2025 is not 2014. In 2014 the country had just emerged from a very deep savings bank crisis. 11 years later, the solvency and profitability levels of Spanish banks are very different. That’s why a change in approach is possible. It is a political decision that the Government will have to make, but I think it is useful to always consider the ECB or the Banco de España in these types of operations. It offers a complementary perspective to that of the competition authorities.

Next year the ECB intends to publish its new Guide on governance and risk culture. Will banks’ executive chairs be obliged to give up their powers to CEOs or will it only be a reinforced recommendation?

That is the responsibility of ECB Banking Supervision and there is a separation there. What I can say is that a separation of powers between a non-executive chair who coordinates and manages the board of directors, and a CEO with executive powers, is regarded as good practice by supervisors all over the world and is usually well received by institutional investors.

The ECB is pushing for the digital euro but, echoing banks’ concerns, has encountered some opposition in the European Parliament, led by Fernando Navarrete, who was previously at the Banco de España and the Spanish Treasury. Has the Parliament’s position surprised you?

I have a great deal of respect for the Parliament and its Committee on Economic and Monetary Affairs. The ECB is obviously in favour of the digital euro, which is quite simply the natural development for banknotes in light of global digitalisation. Banknotes are money issued by the central bank, in other words public money, and will continue to exist. There is no doubt about that. Like banknotes, the digital euro will not pay interest. It will be a means of payment, contributing to reduce our dependence on US-based means of payment. We will consider the digital euro’s potential impact on financial stability, but in the coming years it will undoubtedly play an essential role in boosting both people’s quality of life and European independence.

Are you worried about the global economic consequences if the new Federal Reserve System Governor is perceived as less independent from the Trump Administration?

Central bank independence ensures lower levels of inflation and thus lower interest rates. If the market believes that a central bank is not independent, interest rates will tend to be higher and households and firms will borrow at higher cost. There is evidence that independent central banks control inflation better. When the central bank reports to the government, monetary policy is not focused on reducing inflation, but instead is usually used as a fiscal policy tool.

Your term of office ends on 31 May. Can you see yourself returning to domestic politics if a hypothetical Partido Popular government offers you the economic vice-presidency?

I was a government minister for six and a half years. And I am very proud of that time, considering the circumstances in which we took over and the state of the country when we left. But that chapter is closed and I’m not planning to return to politics.

So what are your plans?

I don’t know yet. I’ve been approached by a few universities, which I will consider. As a member of the Governing Council, there is a strict conflict of interest policy to follow, but teaching is permitted. And I believe from there you can also play a public service role.

When you leave, Spain will lose its presence on the ECB’s Executive Board, because your replacement is unlikely to be Spanish. Three more positions become available in 2027: those of Chief Economist Philip R. Lane, President Christine Lagarde and Board member Isabel Schnabel. Which do you think Spain should aim to fill?

That is for the Spanish government to decide. For large economies like Spain is important to have a presence at the top of the ECB, where decisions are taken in the interest of the euro area. Personally, and always from that broader perspective, I have tried to avoid a repeat of the negative experiences of the past which affected important countries such as Spain and had repercussions for the euro area as a whole.

Do you think the former Governor of the Banco de España, Pablo Hernández de Cos, would have a chance of becoming President of the ECB?

Pablo was an excellent Governor. He restored Banco de España’s reputation. He understands precisely how central banks work and now holds an important position as General Manager of the Bank for International Settlements in Basel, but many factors come into play when these decisions are made.