El independiente
Pablo Hernández de Cos – a policy profile
By Tim G. Jones - London, 10 June 2026
This is the second in a series of ECB profiles based on speeches, interviews, meeting accounts, media reports, and background conversations with Eurosystem officials.
You are free to republish the profile in any outlet if you cite Tim G. Jones and 242econ.news.
Joachim Nagel was delighted. After hours of deadlocked debate, the governor of Germany’s central bank had got what he came for. And, to his surprise, Nagel had his Spanish counterpart to thank for it.
It was 14 September 2023 and the European Central Bank’s 26-member governing council had been unable to agree whether to raise interest rates for the tenth consecutive time. Inflationary pressures in the euro area were clearly ebbing. The inflation rate had halved since peaking close to 11% a year earlier as the outbreak of the Russian-Ukrainian war compounded price pressures generated by the end of Covid-pandemic social distancing. An aggressive disinflationary process was well underway – helped along by 425 basis points of ECB rate hikes over 12 months – but Nagel and his fellow hawks were still uneasy.
After all, the ECB staff’s forecasts had systematically underestimated inflation over the previous year, unemployment was rising more slowly than expected, service-sector inflation was stuck above 5%, and Russia and Saudi Arabia had just agreed to curb output to drive up the oil price. Lifting the ECB’s deposit-facility rate (DFR) from -0.50% to +3.75% had significantly tightened monetary conditions but the hawks kept pressing for one last 25-basis-point “insurance” hike. Across the table, more dovish policymakers were as uncomfortable with a hike as the hawks were without one. As the Bundesbank’s president, Nagel had outsized influence but the group arguing for a rate hold included governors from three of the euro area’s four largest economies – François Villeroy (France), Ignazio Visco (Italy) and Pablo Hernández de Cos (Spain) – supported by board member Fabio Panetta, who would go on to succeed Visco as governor at the following council meeting.
These doves had agreed with all nine consecutive rate hikes but now, in September 2023, they believed the signs of organic and embedded disinflation were unmistakeable. Growth had been flat since the end of 2022 and staff projections revised down while evidence was growing that firms were finally absorbing the costs of higher wages rather than passing them on. The services sector had held up but was now cracking under the strain of higher costs and ebbing demand. Chinese activity was slowing so sharply that officials suspected the Saudi-Russian oil-output cut had been a last bid to maximise profits before a price downturn. By pausing the tightening cycle, the doves argued, the ECB could assess how much its earlier hikes had passed through the economy. Another rate increase may have to be reversed, they said, which would undermine the central bank’s credibility.
The council was stuck but, eventually, it was Hernández de Cos – the then 52-year-old Banco de España (BdE) governor – who broke the logjam. The risks were balanced enough to justify taking the DFR to 4%, he concluded, but on the firm understanding that this was indeed an “insurance hike”. This meant that, if this 25-basis-point hike threatened to derail the inflation path from 2% over the coming three years and justified an “insurance cut”, the council’s hawks should be just as flexible.
Done, said Nagel. The moment the council session ended, the German governor strode across to Hernández de Cos, thanked him for his concession and reassured him of his open-mindedness to an insurance cut if required. Everyone was a winner. Hawks got their rate hike, while doves won an implicit acceptance that it would be the last in the cycle and banked some good will that would make an early cut easier to deliver.
September 2023 was a classic monetary-policy turning point or – as too many people now say too often – a “pivot”1. Once they are underway, interest-rate cycles are often auto-piloted as central banks use tried-and-tested rules to find policy neutrality and accommodate or restrict economic activity on either side of this hard-to-find equilibrium. It’s the cyclical turning points that test the full range of policymakers’ skills – not just their technical abilities but also their skill in making trade-offs. ECB insiders say Hernández de Cos has both, which is why, despite serving just one six-year term on the governing council and having been away from the institution for nearly two years, he swiftly emerged as a potential candidate to replace Christine Lagarde as president. Alongside Klaas Knot, Joachim Nagel and Isabel Schnabel, the 55-year-old General Manager of the Bank for International Settlements is still a hot tip for the ECB role despite reports from Madrid that centre-left prime minister Pedro Sánchez now prefers his former deputy Nadia Calviño. Even if this is true (and alternative sources say it isn’t), the nomination may not be Sánchez’s to bestow if Lagarde decides against stepping down before her term ends on 31 October 2027. At the latest, a Spanish election must be held by August 2027, and a scandal-plagued Sánchez is trailing in the polls.
“Unwelcome” advice
Although he didn’t join the ECB as a governor until June 2018, Hernández de Cos had sat on the governing council as an adviser and deputy to Luis María Linde since October 2015. He soon developed a reputation as a technician and, to some staff at Calle de Alcalá, as a sometimes obsessive policy communicator. With 20 years of pre-policymaking research at the BdE and ECB under his belt including as Director General of economics, statistics and research, Hernández de Cos can hold discussions at the highest technical level with heads of divisions. This goes a long way to explaining the support he commands among some ECB staff. Second, as he often told his aides, Hernández de Cos lives by the rule that it means nothing for policymakers to reach the right conclusion unless they invest time and effort in convincing colleagues to agree or find a compromise. Then, once that policy decision is made, it must be communicated efficiently not just to financial markets but to the widest-possible audience.
Officials say Hernández de Cos believes that an essential factor in achieving the second goal – building a consensus around a preferred decision – is to avoid being labelled as an unshakeable hawk or dove. However analytically gifted those officials are, they quickly lose influence on the council and as market signallers. A diehard hawk in his early days as Dutch governor, Klaas Knot managed to develop a reputation as a policymaker with a hawkish lean but ready to concede and deal. Hernández de Cos is his mirror image from the dovish side although, as a fiscalist with a long record of finding fault with governments’ budgetary policy, he’s a public-finance hawk.
A born and bred Madrileño (Metropolitano, not Bernabéu), Hernández de Cos is the second of two children born to Carlota de Cos and Inocencio Hernández Amores – an interior ministry civil servant who went on to become a close aide to Adolfo Suárez, Spain’s first post-dictatorship prime minister2. Educated at the Complutense University, Hernández de Cos quickly stood out for his abilities and found champions in professors Javier Irastorza and Enrique Fuentes Quintana, Suárez’s first finance minister, who recommended him to BdE recruiters. Plucked out of the BdE’s research department in 1997 to make a public critique of a paper co-written by José Manuel González-Páramo, Hernández de Cos so impressed the BdE board member that he became his doctoral adviser and mentor. When he was nominated for the ECB board in 2004, González-Páramo asked the young economist to join him as his policy counsellor – arriving in Frankfurt just as Olaf Sleijpen, who succeeded Knot as Dutch governor in July 2025, was leaving his job as the ECB’s first chief counsellor. Advising the board between 2005 and 2007, Hernández de Cos had a close-up view of the ECB’s last non-crisis tightening cycle.
In 2007, he was persuaded by BdE governor Miguel Ángel Fernández Ordóñez to return to Madrid to oversee economic-policy analysis on the understanding that he would be in a position to succeed the long-serving head of research. In 2015, three years after Fernández Ordóñez was replaced by Linde, Hernández de Cos got his wish and became director general of economics and statistics. Untainted by involvement in banking supervision during Spain’s 2012 financial-sector crisis and with hands-on ECB experience from 2004-07 and as an alternate from 2015 onwards, Hernández de Cos was well-placed to succeed Linde in 2018.
Adding to his luck, the appointment fell during the short interregnum between Mariano Rajoy’s conservative and Pedro Sánchez’s socialist governments. At first, the new governor was regarded as a non-partisan appointee – a view reinforced by the close involvement of this Rajoy nominee in the design and rollout of Sánchez’s fiscal response to the pandemic. But, once the need for social distancing faded, the BdE didn’t hold back and publicly badgered the Sánchez cabinet into taking back pandemic-era subsidies. Unlike other central banks – most notably the Federal Reserve – the BdE is statutorily bound to “advise the government” on any policies with spillovers into monetary policy. As far back as 1988, a BdE governor wrote to the European Commission, stressing that “the duty to advise the government is not dependent on a request to that effect from the government. Actually, the Bank of Spain has discharged itself from this advisory duty even when it knew or had reason to assume that the content or the timing of its advice would be unwelcome”3.
Hernández de Cos took this duty to be “unwelcome” seriously, criticising the Sánchez government’s minimum-wage increases, pension-reform rollback, and active labour-market measures. He believes that, as an institution benefiting from unusually high levels of public trust, the central bank has a duty to express its expert opinion on matters of broad economic policy. This, along with reports that the conservative PP would make him finance minister if it won the July 2023 election, marked Hernández de Cos as a man of the right. He was never interested in going into politics4 and, according to one intimate, he wished he’d had the opportunity to criticise a PP-led administration from the BdE. Uncomfortable as it can be, Hernández de Cos believes this advisory principle should also apply to the ECB; it’s a matter of independence that goes beyond autonomy in conducting monetary policy. Under two of its four presidents – Jean-Claude Trichet (2003-11) and Mario Draghi (2011-2019) – the ECB crossed the line into occasional but significant fiscal advice. As a former finance minister, Lagarde has been careful to keep the ECB in its lane but Hernández de Cos would be more likely to export Spanish practice to Frankfurt.
When they go low
Joining the ECB’s governing council as Linde’s alternate in October 2015, Hernández de Cos missed the launch of the public-sector purchasing programme (PSPP) that had been greenlit nine months earlier. But, given the failure of a menu of pre-PSPP unconventional policy measures to offer the prospect of jolting core inflation – excluding energy and food prices – from under 1% in 2014 even to 1.5% in 2016, he was fully on board with moving to full-blown quantitative easing (QE). Already, before January 2015, the ECB had offered banks four-year targeted longer-term refinancing operations (TLTROs) loans at just 0.05-0.15% and started buying asset-backed securities and covered bonds with the aim of swelling its balance sheet by €1 trillion. The DFR had been taken negative, to -0.20%, and the ECB had introduced “forward guidance” by reassuring markets that this and its two other official rates would “remain at present or lower levels for an extended period of time”.
Throughout 2015-17, Hernández de Cos supported the council consensus that sustained balance-sheet expansion until policymakers could see “a sustained adjustment in the path of inflation” towards 2% was required to meet the ECB’s then asymmetrical inflation mandate5. In his first council meeting as governor in December 2018, he didn’t deviate from the pre-agreed view that the flow of asset purchases had done its job in flattening the yield curve over four years of excessively low inflation to see off the risk of a deflationary spiral. By ending net purchases and freezing the balance sheet close to €4.7 trillion by reinvesting maturing assets, the flow would be replaced by the “stock effect” – limiting supply of fixed-income assets and encouraging investors into higher-risk, growth-generating securities.
Hernández de Cos had already ended his term by the time the ECB concluded its 2025 reassessment of its four-year-old review of monetary-policy strategy. Had he still been in office, he would have opposed those officials who wanted to set parameters for the re-use of QE in the future. By implying that the barrier to using QE would be higher from now on than it was in 2015, the ECB would be reducing a crucial element of its communications power. The stabilising impact of central bank asset purchases is obvious at times of acute crisis like 2012 and 2020, although the first worked purely through its announcement effect while the second required an initial €750-billion downpayment. But, as Hernández de Cos wrote last year, QE should also be available as a tool to combat an excessively low-inflation environment. Using such an unconventional tool in this circumstance is less obvious than it is in an acute deflationary crisis when the stimulative power of policy-rate cuts is spent. But, if the alternative is to do nothing or use less-effective policy tools in the face of potentially de-anchoring inflation expectations, QE must be an option. While they are formally committed to targeting inflation symmetrically around a 2% target over a rolling three years, a minority of governors has no problem with a lower rate as long as they are confident it will stay positive. Hernández de Cos isn’t one of them.
Although serial shocks since 2020 mean it will be a while before the ECB faces another “lowflation” challenge, say people close to the BIS chief, Hernández de Cos is less confident than some other policymakers that the forces that created it have gone away. If interest rates are calculated to be at their effective lower bound (ELB)6 and inflation is stuck below target, they say, he wouldn’t hesitate to re-use the 2015-17 playbook as part of a campaign to push it back up.
Stop-go policymaking
In this respect, he and Knot agree. They didn’t, however, in September 2019 when, in a last hurrah as ECB president, Draghi persuaded the council to restart asset purchases. The monthly amount was low - just €20 billion - but the commitment was effectively open-ended since the council pledged to continue purchases “for as long as necessary to reinforce the accommodative impact of our policy rates, and to end shortly before” the DFR needed to be raised. This split the council. Not only perma-hawk governors Jens Weidmann (Germany) and Robert Holzmann (Austria) were opposed and board member Sabine Lautenschläger so frustrated that she resigned two weeks later, but even Draghi-aligned French officials - François Villeroy and Benoît Cœuré – feared overkill. The day after the meeting, Knot took the unusual step of making a formal dissent, issuing a statement criticising the easing package as “disproportionate to the present economic conditions”.
Hernández de Cos didn’t share this view. In line with the majority, he argued that, while conditions were much improved in 2015-18, the ECB was still far from meeting its inflation mandate and that a growth slowdown had made the target more remote. Compared to their June forecasts, ECB staff economists had cut their projected core-inflation path from 1.4% to 1.2% for the year ahead (2020) and from 1.6% to 1.5% for 2021. To see off any downside risk to inflation expectations, the council had a duty to ease again. In the Spanish governor’s view, the DFR was at its effective lower bound at -0.5% and, unlike 2015-16, the absence of deflationary risks meant the ECB’s balance-sheet expansion should be more modest. Markets needed a reminder that the ECB took its inflation mandate - not just positive inflation but something close to 2% - seriously. They didn’t need an electric jolt like they got in 2015 and 2016 but they needed reassurance of the duration of the ECB’s accommodative policy stance. By resuming net purchases in November 2019 at a third of their launch volume nearly four years earlier and linking them directly to interest-rate forward guidance, Draghi and his allies - including governors Visco and Hernández de Cos as big-country counterweights to more hesitant French policymakers - sought to kill two birds with one stone.
Just four months later, in March 2020, it was as if the dispute never happened. Everything changed. Draghi had been replaced by Lagarde and Covid had struck. To provide governments emergency funding space in response to the global outbreak, the ECB went way beyond €20 billion a month and launched a €750-billion pandemic emergency purchasing programme (PEPP). Over the following two years, this expanded twice more into a €1.85-trillion programme as new viral variants appeared, containment measures were reinstated and vaccines were developed and rolled out.
During the most acute phase of the pandemic, differences over real-time policymaking were minimal, so policy arguments migrated to the strategy review Lagarde had initiated on taking office in late-2019. Concluding in mid-2021 when core inflation was still officially projected to pick up from just above 1% to below 1.5% two years later, the review fought the last war rather than the next. Hernández de Cos agreed with the analysis and risk assessment that informed the revised strategy. This assumed that r* – the natural interest rate that maintains effectively full employment at a stable 2% inflation rate – was negative. Moreover, population aging and the propensity to save more meant the ECB was likely to be in a prolonged struggle to get inflation to 2% and keep it there. To support this fight, the council agreed to make its asymmetrical inflation target (“below but close to” 2%) a symmetrical 2%. On top of that, this target needed to be met not just over a vaguely defined “medium term” but over the ECB’s three-year projection horizon. To cap it all, policymakers agreed that it was insufficient for inflation to be 2% at the end of the three-year horizon. It should be forecast at 2% throughout the second 18 months and built on a solid foundation of realised core inflation. Unveiling the new strategy, Lagarde said it was designed to “avoid premature tightening that would be detrimental to the economy”.
The conclusions of the review were moot within nine months as post-Covid reopening and Russia’s invasion of Ukraine drove up market interest rates and forced the council into an accelerated unravelling of its intricate policy stance. Net purchases were tapered sharply in the first half of 2022 to allow room to lift the DFR out of negative territory but the unexpected severity of the inflation required 250 basis points of hikes by the end of the year. Hernández de Cos was on board for getting a tightening cycle underway in mid-2022 but only once the danger of “fragmentation” was addressed. This meant that a rapid tightening cycle by the central bank should not translate into significantly widening spreads between euro area sovereign bond yields. In the nine months before the ECB started raising rates in mid-2022, the Italian-German 10-year spread had widened by more than 100 basis points. Led by Knot, hawks realised they would need to design a transmission protection instrument (TPI) if they were to have any hope of carrying out a normal rate cycle. For Hernández de Cos, say former aides, it was about more than tactical necessity. It was a matter of principle. Multinational monetary policy should be transmitted equally throughout its jurisdiction; the spread between market rates in the core and the periphery should not widen simply because their joint central bank was raising official rates.
At the onset of the cycle in mid-2022, Hernández de Cos was irritated by a couple of colleagues who claimed – against the weight of evidence – that inflation expectations were de-anchoring. But, with the TPI in place, he supported frontloaded DFR hikes and pleasantly surprised some hawks with his readiness to keep going through the first half of 2023. With the benefit of hindsight, Hernández de Cos would have voted to hike a quarter earlier in 2022 but, say officials close to the former governor, that would have required the Eurosystem’s models to incorporate today’s understanding of how higher input costs pass through to output prices and finally to the consumer. In September 2023, he would have paused at 3.75% but eventually agreed to an “insurance” move. In early 2024, he joined Villeroy in arguing that the council should consider a first rate cut as early as March. The cut, when it eventually came in June 2024, was at Hernández de Cos’s last meeting.
Fighting the next war
Away from the ECB for two years, how would he have reacted to the shock to oil, natural-gas and fertiliser prices triggered by the US-Israeli war with Iran and its aftermath? Typically, a central bank would look through a pure supply shock and wait to see whether it spreads and threatens to embed in inflation dynamics. This is what the Federal Reserve and the Bank of England are doing (for now) but, after three months of hesitation, the ECB is about to go it alone and raise its policy rate.
Since he acknowledges that the ECB started tightening a quarter late in 2022, it makes sense that Hernández de Cos would be more pre-emptive this time around. “There won’t be another Spanish banking crisis while a policymaker who lived through the last one is still around,” says a former colleague. “In the same way, there won’t be another inflation shock while the people who were there in 2022-23 are still around. People were frightened. Pablo would take a risk getting ahead of this”.
The risk at the back of every policymakers’ mind is a repeat of the ECB’s notorious rate hikes in 2008 and 2011. Both were triggered by energy-price spikes feeding into inflation expectations and both were rapidly reversed as financial crises kicked in, cratering confidence and driving the air out of incipient inflation. Those who know Hernández de Cos best say he wouldn’t have over-interpreted the lessons of 2008 and 2011 policy errors - both of which were made after signs of financial distress were already evident even if the scale of the oncoming crisis was not. At the same time, they say, this isn’t 2022. Then, demand was especially strong due to pandemic-era excess household savings, expansive fiscal policy and a tight labour market (especially in services) that allowed workers to bid up nominal wages to compensate for lost purchasing power. The persistence of Arabian Sea supply constraints and what this would mean for inflation this year means the ECB needs to raise interest rates this week and perhaps again, depending on how the crisis develops. But, for even an abbreviated rate cycle to develop, say former colleagues, Hernández de Cos would want to see compelling evidence that companies are using recent experience to change prices more rapidly and/or of second-round inflation effects via above-target wage growth and/or profits.
By the time the next president takes office, Iran will be the proverbial “last war”. The best guide so far for how a president Hernández de Cos would gear up for the next one can be found in Lessons for the European Central Bank from the 2021-23 Inflationary Episode - a paper he wrote in May 2025 before joining the BIS. In this post-match analysis, he bases his recommendations on the results of the ECB’s 2021 strategy review, which advocated that “especially forceful or persistent monetary policy measures” should be applied when the policy rate is close to its ELB and undergoing a deflationary shock. He proposes:
“A combination of forcefulness and persistence … whenever there is a threat to the inflation anchor” and not just at the ELB with outright deflation looming.
A clearer distinction between asset purchases to restore market function or add monetary stimulus, which would mean a more “careful assessment of the amount, duration and structure” of purchases.
“An emphasis on flexibility to adapt to the magnitude, origin and persistence of shocks” and an avoidance of “unconditional forward guidance” during what promises to be years of unusually high uncertainty.
More effective communication to markets and populations of this “level of uncertainty and its consequences for monetary policymaking”, starting with greater use of alternative scenarios and sensitivity analyses to convey how easily baseline assumptions can be upended by events.
Retooling the Eurosystem’s models in an effort to produce more accurate forecasts in the wake of what promise to be more frequent supply shocks.
The third and fourth of these are already ECB policies. While the first defines Hernández de Cos as on the dovish side of the debate over the 2021 and 2025 strategy reviews, it is also consistent with the ECB’s revised inflation target. If it is truly symmetrical and negative and positive deviations from 2% are “equally undesirable”, then “forceful or persistent measures” should be adopted to hit it. As for the second, it is music to the ears of hawkish policymakers who soon became sceptical about the accommodative powers of QE beyond its announcement effects, and worry about monetary-policy mission creep.
If he can’t have the job himself, even Nagel could live with an agenda like this7.
I realise it’s a tangent and my bugbear but read Adrienne Burke in Forbes from way back in 2012 on how “pivot” became one of Silicon Valley’s most successful exports. “Easy to see why the term has been co-opted by politicians. Flip flopping was weak. Pivoting is powerful”.
This section on Hernández de Cos’s pre-BdE life borrows liberally from John Müller’s 2022 profile in ABC.
December 1988 letter from Mariano Rubio to Jacques Delors in his role as president of the committee for the study of economic and monetary union.
In June 2023, elEconomista.es director Amador Ayora reported that PP leader Alberto Núñez Feijóo had “a brief conversation” with Hernández de Cos and said “I’m counting on you for the new government” without going into detail. The then governor acknowledged the offer but without commitment since he had no interest in the job, wrote Ayora, and already had his post-BdE eyes set instead on the BIS.
From 2003-21, the ECB set policy to keep inflation “below but close to 2%” over the “medium term”. After a strategy review in 2021, the governing council made its target “symmetric” at “two per cent inflation over the medium term”, meaning that policymakers now consider “negative and positive deviations from this target as equally undesirable”.
In monetary policy, the ‘effective lower bound’ is the rate that no longer adds stimulus to aggregate demand and output, or that generates more negative spillovers (typically into the financial sector) than positives.
More detail on Hernández de Cos’s thinking on a range of subjects is sure to be revealed in his keynote speech to the BIS annual general meeting on June 28.