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Interview 26.12.2016

Weidmann: Fiscal rules need more bite

Interview published in Bild, title: "Is there any point in saving anymore?"

Interview with Jens Weidmann conducted by Jan W. Schäfer.
Translation: Deutsche Bundesbank.

Which finance minister gave you and ECB boss Mario Draghi the biggest Christmas present this year?

Jens Weidmann: There weren't any presents – why do you ask?

Because, with interest rates at zero, finance ministers have been saving more than €100 billion a year.

Euro-area countries ought to take advantage of the historically low rates to put their financial houses in order. But many either aren't doing enough or they're actually spending more than before. That's a risky move. Because when rates pick up again, governments will have to pay more for their mountains of debt. That can quickly precipitate a fresh crisis of confidence. 

You mean it's only a matter of time before the next debt crisis rears its ugly head?

Whatever they do, governments shouldn't rest on their laurels, because many of them are still sitting on large piles of debt. Things can't stay that way, so governments need a bit of a nudge. Countries that go too far into the red should, by rights, have to pay higher rates of interest in the market. Plus, the fiscal rules need more bite. An independent body which monitors national budgets could help do that. That body should be staffed by experts, not politicians.

You're not trying to tell us that the euro-area countries will stand for that!

The mountains of debt which many euro-area countries have accumulated will place a strain on future generations and could put the stability of the euro in jeopardy. The ball is in the governments' court.

Which country do you think will pose the gravest threat to the euro in 2017?

We experienced the Brexit shock and the Italian referendum in 2016, but neither event really dented economic activity. So you see: not every vote can knock the upswing off course. The economy is more robust than some might think. But it's up to politicians to put the economy on course for long-term growth and employment.

When will rates start picking up again?

We are already seeing inflation bouncing back. ECB projections suggest that inflation will be close to the target rate of below, but close to, 2% by 2019, if not sooner. But if we don't start tightening monetary policy until then, it will be too late, because inflation shows a lagged response to the measures we take. So we have to act in a forward-looking manner, or, to put it another way: once inflation is on a sustainable path towards our target, it's time for us to start tightening the monetary policy reins.

Interest rates are at zero – is there any point in saving anymore?

Yes. You can only spend money later in life if you put it away today. And zero rates aren't here to stay. That said, it's certainly helpful to have other forms of investment alongside a savings account.

Are you saying that gambling in the stock markets is better than saving?

Gambling certainly isn't the right way forward, but it would be wrong to condemn all kinds of investment in the stock markets as gambling. The investments you choose and the risks you are willing to take depend on your particular circumstances. Higher returns are only possible if you take on a higher level of risk. If you need your money soon, you should avoid investments that fluctuate relatively strongly in value. Plus, Germans are slowly changing their investment behaviour, with equities and mutual fund shares, to name but two, now accounting for an increasing share of their investment portfolios.

Italy's Monte dei Paschi bank is teetering on the brink of going bust. Will taxpayers need to bail it out?

A great many questions still need to be resolved here. Generally speaking, we have adopted a set of new rules which are particularly there to protect taxpayers and keep the burden of responsibility on investors. Public money comes last of all in the liability cascade, which is why the bar is set at a high level.

What do you mean exactly?

For the Italian government to push through the measure it intends to take, the bank must, in essence, be in sound economic health. Nor may the funds be used to absorb losses that are already on the horizon. For another thing, the economy would need to be severely disrupted if no financial assistance were provided. All these questions now need to be carefully examined. If public money is nonetheless activated in connection with Monte dei Paschi, the assistance should in any case be properly funded, given Italy's already high levels of government debt.

Is it time for a German to take the helm at the European Central Bank?

It really is far too early for that debate, seeing as ECB President Mario Draghi still has nearly three years left of his term of office. What we need is a stability-oriented monetary policy. The president's nationality is irrelevant in terms of that objective.

Would you be available to succeed Mario Draghi?

That issue isn't on my agenda right now.

© BILD Bundesausgabe, 26.12.2016, Jan W. Schäfer. All rights reserved.

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Dr Jens Weidmann

Interview with Jens Weidmann,
President of the Deutsche Bundesbank

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