Pablo Hernández de Cos, the former governor of the Bank of Spain and incoming director of the International Payment Bank, received the honor of Doctor ‘Honoris Causa’ from Nebrija University. The ceremony, held at the Polytechnic and Social Sciences campus in Madrid-Princesa, was a testament to his extensive professional career and his significant contributions to the economic and financial sector.

Reflections on Global Economic Dynamics

In his acceptance speech, Hernández de Cos analyzed the global economic landscape, noting that “Europe is staying behind in terms of economic dynamism with respect to the rest of the world’s great economies.” He highlighted that Spain has been on a “path of sustained convergence in per capita income with the rest of our European partners.”

Challenges and Solutions for Europe

Hernández de Cos identified several key challenges facing Europe and Spain, including geopolitical uncertainty, population aging, rapid technological development, and the fight against climate change. He emphasized the need for ambitious responses to these challenges, stating that the “most appropriate” strategies involve “an additional and definitive impulse to the European integration project, combined with deep structural reforms nationwide, and the maintenance of a macroeconomic stability environment – price stability and budgetary stability -.”

Economic Growth and Productivity

Hernández de Cos presented data showing that Europe has been losing economic influence globally due to lower relative growth compared to other powers. Between 2002 and 2023, the EU grew at an average annual rate of 1.5%, compared to 2.2% for the United States and 8.3% for China. In per capita terms, the available income of European families has grown almost half as much as in the United States since 2000.

“Behind this lower growth is, above all, the low growth of productivity, which has caused a fall in European competitiveness. And the fundamental cause of the reduced European productivity is found in the investment deficit, despite the fact that the savings rate of European families is high, compared to the United States, and to maintain a current account surplus,” he explained.

Technological Deficit and Business Dynamism

The technological sector and business dynamism are central to these differences. Hernández de Cos noted that only four of the fifty world technology companies are European, and EU companies’ R&D spending is significantly lower than that of their main competitors. This gap has widened since the financial crisis.

Population Aging and Public Spending

Population aging, which will increase public spending on pensions, health, and elderly care, is another critical issue. Hernández de Cos warned that an “extreme” scenario of global economic fragmentation, such as a split between the East and West with tariffs as high as 30%, would have very negative consequences, particularly for Europe.

Strategic Autonomy and Defense

Hernández de Cos also highlighted the need for Europe to achieve strategic autonomy in defense, which would require significantly increasing current spending levels. He emphasized the importance of maintaining the fight against climate change and addressing Europe’s high concentration of imports from a few external suppliers, particularly China, and its high external energy dependence.

Competition Policy and Industrial Policy

Hernández de Cos noted that competition policy has been a fundamental factor in the dynamism of the European economy. However, the rise of technological giants in the United States and production scale in China has challenged the effectiveness of these policies in Europe. He proposed redefining relevant markets in some sectors to favor larger companies with greater investment capacity and international competitiveness, as seen in the telecommunications sector.

Taxation and Social Welfare

The public social welfare system, while generating positive effects on equal opportunities and equity, also forces higher tax levels that reduce the competitiveness of European companies. In 2022, the EU had a tax revenue ratio of 40.2%, compared to 27.7% in the United States and 20.1% in China. Hernández de Cos suggested that the EU must continue to promote an international order based on rules and the development of the foundational values of the European project.

Internal Barriers and Market Integration

Reducing internal barriers would help European companies reach an optimal scale to compete globally. According to a recent IMF report, internal barriers in Europe are equivalent to tariff rates of 44% in manufacturing and 110% in services, reducing growth potential by about 10%. Hernández de Cos advocated for a preponderant role for European policies over national initiatives to deepen the single market.

Fiscal Union and Budgetary Stability

At the ceremony, Hernández de Cos defended investments in large projects, a move towards a fiscal union, and a guarantee of budgetary stability. He suggested that a joint financing strategy would help overcome Europe’s historical deficiency of a centralized fiscal capacity of sufficient magnitude. He also proposed strengthening the role of independent fiscal responsibility authorities at national and European levels to ensure the credibility and predictability of fiscal rules.

Banking Union and Capital Markets

Hernández de Cos recognized significant advances in the Banking Union with the creation of a single supervision mechanism, a single resolution mechanism, and a unified regulatory framework. However, he noted that the creation of a fully mutual European guarantee fund is still pending. He emphasized the importance of private financing, the completion of the Banking Union, and the creation of a capital markets union.

Labor Market and Youth Unemployment

Hernández de Cos highlighted the need to review current policies to reduce structural unemployment in Spain, noting that youth unemployment, long-term unemployment, and the employment situation of workers nearing retirement are critical issues. He suggested that although Spain has made progress, the unemployment rate remains almost double that of other European countries.

Conclusion

In his closing remarks, Hernández de Cos emphasized the importance of a “more prosperous and united” Europe. He dedicated his career to working towards this goal, serving in the Bank of Spain, the European Central Bank, and various EU work groups and committees. His vision for Europe’s future is one of resilience, innovation, and unity, essential for navigating the complex challenges ahead.