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Juan María Nin is a former Vice President and CEO of Caixa Bank, and currently an independent advisor to multinational Día and Société Générale. He has devoted his life to the banking sector. During the restructuring of the Spanish financial system, he led several mergers and acquisitions as well as the complex transformation of a savings bank into one of the leading financial institutions in the country’s banking industry. His latest book, Por un crecimiento racional (For Rational Growth), deals with questions about the financial crisis, encompassing the past, present and future of the global economic system. Sonia Cuesta Maniar caught up with him at the 2017 Hay Festival in Segovia.
Throughout the past year, established two-party systems have faced opposition from smaller alternatives. In France, for example, third party candidate Emmanuel Macron and his party, En Marche, won elections in May. Do you think we are in a time of long-term political reform?
I must start by saying that democracy, in my opinion, is the most successful political system, despite its shortcomings. Political parties, however, must rule within the normative framework of democracy, and the value system agreed upon in the Washington Consensus after two world wars. Political opinions are inextricably bound to certain values, an ideology, and a field of action.
When minority parties refuse to accept this set of basic rules and offer non-forward-looking understandings of politics, they must be slowed down and their success, prevented. Historically, partial views encourage the emergence of authoritarian figures, totalitarian ideologies and nationalist movements, in the public and private sphere. Despite the current political trend, there is nothing less progressive than alternative, populist groups.
Of course, there is room for new parties but only within a common, evidence-based set of policies and values. Post-war society requires stability and if parties reject this in favour of senseless change they are doomed to eventually fade from the political sphere, allowing for the known-status quo to prevail.
The European Union is the most transcendental political party that we can align ourselves with because of our shared past. The speed at which the EU was assembled and its influence in rebuilding Europe was the true Reformation.
It is undeniable that smaller parties are receiving a great deal of voter support in Europe. Some of these parties (notably Podemos in Spain, the Five Star Movement in Italy or Syriza in Greece, amongst others) have become critical of the Euro. Can a European currency survive in a time of alternative movements?
It is essential that we understand our past. The creation of the EU and the euro as a common currency were another step in the legitimate aspirations that united the continent after the social, political and economic disaster caused by World War II. As an institution, the EU reinforced the pre-existing determination to prevent the resurgence of the war and ideas contrary to natural law. It was necessary to have a strong union to face the dictatorship of charismatic leaders.
In this case, the Euro represents a lot more than just a currency. It was intended as an instrument which represented a common historical past, values, and the self-defence of individual and common interests. The European population and the political elite must be aware of this before making assertions against the Euro.
Smaller, alternative parties and movements that refuse to understand these fundamental ideas show an unacceptable lack of knowledge of the past, and therefore should have their position within politics questioned. Both concepts, minority parties and a strong, monolithic currency can coexist, and both are necessary in order to maintain a stability that we cannot afford to lose again.
On the topic of unity and dialogue in Europe, do you believe it is possible to create a European Banking Union?
I really do, and I believe we are incredibly close to doing so. The political unity envisioned by the European Project is dependent on economic unity as well. Before this economic unity can be attained, however, there are certain bridges that have to be crossed.
The first steps taken by the EU were the free movement of goods, followed by the free movement of persons and workers. The final step was the free movement of capital via the monetary union. The EU also has well-established mechanisms of economic conflict resolution. We recently saw how when a bank, such as Banco Popular, encounters financial trouble, Frankfurt and Brussels implement policies of resolution. However, developing a single market with a single coin and a banking unity is incredibly complex.
Each member of the EU will have to contribute economically to a deposit guarantee fund- and their how they will contribute to this is yet to be established. A project like this cannot be successful if we are lacking a lender of last resort and a guarantee fund. We need to secure being able to bailout a bank from bankruptcy, if necessary.
Despite this, the fundamental infrastructure for a European Banking Union is already in place for a future implementation. Indeed, the economic union is practically in existence as the EU is responsible for determining European banking regulation. We have also secured is established by the EU. We are also halfway through to attaining political unity having a common court of justice, parliament, a well-applied executive power and elected members of the community. Banking unity is the natural step forward.
One of the common criticisms of the European Banking Union is the contribution made by member states to establish a guarantee fund. Given the economic disparity between countries, how can we determine the contribution each state ought to make for the successful development of this Union?
As a banker I must admit that there are high risks attached to developing a banking union amongst 27 countries, we cannot have a pie-in-the-sky attitude towards this. To make sure this step forward is successful, it is crucial we allow different countries to contribute at different speeds.
Legitimately, the citizens of EU member states are only willing to share risks when said risk is within tolerable levels. If the difference in social and economic progress between any two countries is too great, citizens in the poorer country will undoubtedly feel uncomfortable putting their taxes into a large pool to be used in countries other than their own.
A realistic common budget is the main thing that will prevent these issues from arising. Not all European countries are at the same level of political and economic development. We therefore cannot expect every member to provide the same amount of their taxes to this endeavour. Though we often discuss equality of opportunities and justice, but we should come to terms with the fact that equality as an absolute value is very difficultly attained.
Indeed, and that is something covered in the Treaty of Lisbon where leaders settled the constitutional basis of the union. Our predecessors decided about the future of the EU at different speeds, considering the shortcomings of some of the member countries. Therefore, the creation of the European Banking Union must be developed in this same fashion and follow a speed the poorer members of the EU can abide by.
Recently Banco Santander bailed out Banco Popular to solve its issues of liquidity. Last July, however, Italy experienced a much less favourable situation when the executive committee of the EU began its process of restructuring the struggling bank Monte dei Paschi di Siena to save it from bankruptcy while ensuring stability to the Italian banking sector. What real risks do these banks pose and how can the EU solve these situations effectively?
Once mechanisms of resolution are established by the EU, the process, in principle, should be simple and not pose much danger to the stability of the EU. However, it all depends on the conditions citizens are willing to accept in the short term.
The problem with this arises when the citizen feels unfairly penalised for the actions of the state, while lacking the capacity to complain. Economics are a law, with fixed rules and consequences we need to abide by and be realistic about.
Though I might be biased, I believe Spain has executed and applied these norms very effectively. Halfway through losses, Banco Santander became Banco Popular’s lender of last resort and was prepared to buy it once in slightly better shape, preventing the further loss of money.
There is an order of priorities: banks can cover deposits of up to 100,000 euros, which covers 99.8% of the population. While the majority of depositors will recover all their money, the remaining 0.2% have to accept that the rest ought to be used to reorganise the bank. Though a difficult statement, one must remain rational about this.
Though I might be biased, I believe Spain has executed and applied European-imposed norms very effectively. Halfway through losses, Banco Santander became Banco Popular’s lender of last resort and was prepared to buy it once in slightly better shape, preventing the further loss of money and keeping shareholders out of the equation.
In Italy, however, the government did not have the courage to let thousands of Italians lose their capital, in fear that this would cause a political turn to the left. Thus, they went on to use public money to reorganise the bank rather than using it for public projects such hospitals, tribunals, and schools.
The money was injected back into the bank with the sole purpose of saving its shareholders. This has arguably polarised the population. The EU resolution norms must be accepted in order to avoid getting into these situations, since the main risks these banks pose are not only economic but also affect the social and political welfare of the country.
So, do you believe that fiscal transfers to redistribute wealth and soften the effects of economic disparity amongst the members of the EU are essential to secure the survival of the Eurozone and economic unity?
Fiscal transfers have existed since the beginning of the EU. Spain, Italy and Greece have been the biggest beneficiaries of this system with a proven record of national development. Clearly fiscal transfers have helped the infrastructural development of the less developed members of the EU. The transnational contribution from countries with more solvency to others with less is logical given our common set of values.
There is, however, a limit. The economic disparity imbalance amongst member countries inherently makes this system one that has to be properly formulated to avoid wrongful financing and corruption – both elements that would completely destabilise the sustainability of the Eurozone and the long-term relationships of the member countries.
Interview by Sonia Cuesta Maniar. Juan María Nin can be contacted via his personal website.