The interview was conducted in English by Nejc Gole.

We used to say that while others play football, Germany wins. Today, Paraguay wins too. We also used to say that Germany was Europe’s economic engine. Today, it is Europe’s economic patient.  And China is winning. What must Germany do to start winning again on the economic playing field?

Much has changed over the past twelve years, since Germany last won the football World Cup in 2014 – not only in football, but also in the global economy. You mentioned China and its important role in trade. But I believe that better times are coming, not only for German football, but also for the German economy. Last week was very important for Germany. The German government reached an agreement not only on next year’s budget, but also on several reforms, for example pension reform. This is very important, because with it we are building a funded pillar of our pension system. It was also a good week for Europe, as the decision on the digital euro was adopted on 23 June. Germany and Europe have much to offer and better times are ahead.

Can we expect the reforms to have any effect on economic growth, given that the crisis stems from Germany’s excessive dependence on the Chinese market, where buyers have largely turned away from German cars?

Of course, it will take time before we feel a significant impact from the reforms. But that impact will come, and that is important. The mood in Germany is changing; people are becoming more optimistic. However, we must be aware of and accept the fact that we live in very uncertain times. We are facing numerous geopolitical risks. In that respect, the most important market for us in Europe is actually Europe itself. That is why we must do our homework. We must strengthen Europe, work on the single market, and establish a capital markets union. In doing so, we should not focus too much on what is happening in the United States or China. We must do everything in our power to become more independent.

Is our homework the implementation of Mario Draghi’s recommendations?

Mario Draghi’s report is excellent and contains many good solutions. I have already mentioned the capital markets union, but the banking union and the energy market should also be highlighted. All of this could be summed up in one main idea: In the European Union, we must reduce fragmentation and establish a single market that will make it easier to do business. This will lead to greater competitiveness for Europe and Germany and, consequently, to higher economic growth. We need that growth. The German central bank forecasts economic growth for Germany of 0.5 percent this year, 0.8 percent next year, and 1.4 percent in 2028. These are not bad figures, but they are not good either. We can achieve much more. We must be more ambitious and actually create a European market that will give us every opportunity to achieve higher growth rates.

We often hear worrying reports from Volkswagen and other German car manufacturers. How do you see the future of the German automotive industry?

Car manufacturers are operating in difficult times. You mentioned Volkswagen, but this also applies to other manufacturers, not only German ones. They are facing excess production capacity and a changed market. They are currently in the middle of restructuring. However, I also see certain opportunities, for example in the defence industry. To some extent, they will have to shift towards other areas. German industry has shown in past crises that it has the capacity and ability to adapt to new circumstances. That is happening now as well.

At the time of this interview, the NATO summit is taking place. Do you see major opportunities for German companies in the defence industry?

Yes. National security is a public good and an excellent example of why Europe must cooperate in the field of defence. We must also become independent of the United States. That is why Germany is investing heavily in defence in the years and decades ahead. This will stimulate the economy and certain sectors, both directly and indirectly. I mentioned the automotive industry, but there are also other areas, such as artificial intelligence and technology, since the defence industry is no longer what we were used to in the past.

Are there greater opportunities in technology than in the automotive industry, which is high-volume production, while the defence industry is more niche?

Well, I am no longer entirely sure whether the defence industry really is a niche sector. It was in the past, but now it is becoming increasingly important. Take, for example, Germany’s fiscal package: Hundreds of billions will be invested in defence. That is a very large amount. Many sectors will therefore assess whether they can benefit from this development. The automotive industry also has good prospects in this regard.

Inflation fell on a monthly basis in June, oil prices are significantly lower than a month ago, and for the first time in four months prices of non-energy raw materials also declined. Do you expect inflation to continue easing in the coming months?

That is a very difficult question, because we are highly dependent on daily developments. The geopolitical situation in the Middle East remains very complicated. So we must wait. Energy prices are very volatile these days. Otherwise, you are right – energy prices have fallen significantly, which has had a direct impact on the inflation rate. But this can change immediately if the situation in the Middle East changes. That is why it was right that, at the ECB’s June meeting, we raised interest rates by 25 basis points. The decision was based on the data and scenarios we had at that time. Even in the most optimistic scenario, there were many convincing arguments in favour of raising interest rates. We will meet again in two weeks, and at the September meeting we will have new scenarios. So we must wait and see what the future brings. We decide meeting by meeting, which is the right way to conduct monetary policy in these very complicated times shaped by geopolitical events.

I know you cannot tell me whether and when the ECB will act. Since new forecasts will be available at the September meeting and given current market conditions, does this mean that no new decisions should be expected before September?

Monetary policy is based on trust. That trust stems from the commitment of the Governing Council. In recent years, the Governing Council has demonstrated its commitment by consistently fulfilling our mandate, whose aim is to conduct monetary policy in such a way as to bring us close to the inflation target of 2 percent. When Russia’s unprovoked war against Ukraine began and energy prices rose drastically, we raised interest rates ten times. We then cut them eight times. Now we have had to raise them again, because inflation strengthened again after the outbreak of the conflict in the Middle East. What I want to say is that we know what we must do. We are committed to price stability and we will fulfil our mandate. As an economist, I know that the best thing we can do as central bankers is to send a clear message: price stability is essential for economic growth. That is the essence of our work.

Yesterday I had an interview with Visa’s chief economist, who assessed that the possibility of another interest rate increase had diminished. What do you think about that?

His answer may have been linked to the significant fall in energy prices. I agree that the fall in energy prices was surprising, at least to me. But I was not the only one; many experts had predicted that such a fall would take more time because of bottlenecks in the Strait of Hormuz and the prolonged process of increasing capacity back to pre-war levels – levels to which, because of new uncertainties, we may not return at all. It seems that your interlocutor yesterday was right, since energy prices did indeed fall. Today, however, they have risen again because of renewed escalation. That is why we must be very cautious when predicting future monetary policy measures. I am therefore firmly convinced that the approach of making decisions meeting by meeting on the basis of current data is, in times of great uncertainty, certainly the best possible path.

In one of your recent interviews, you mentioned that you see signs of strengthening capital markets. Where do you see these signs? Are you optimistic?

I would not say that I am optimistic, but I do see that in Brussels and across Europe there is a broad understanding that it is urgently necessary to reduce barriers to the development of capital markets. In the European Union, for example, we have 27 national financial market supervisory authorities. For investors from outside the European Union, it is complicated to invest here. That is why we must reduce all barriers and establish a common market, perhaps even a 28th regime for the European Union. If we want to attract private capital, we must implement the capital markets union.

What would that mean for smaller markets such as Slovenia?

Although there are often concerns that smaller markets could fall behind, I do not agree with that. For markets such as Slovenia, it would mean new opportunities. Financing costs would fall and it would be easier to attract foreign capital. Thanks to a broader market, Slovenia could offer its products to a much larger circle of customers.

Germany will also strengthen its capital market through pension reform.

The most important element of this reform is the fact that we are starting this project at all. Some might say that we should have done this decades ago, but now is the right time – to provide a capital base that will offer an additional safety net alongside the traditional pension system. The population is ageing, and demography is the greatest challenge. We must do everything in our power to ensure an adequate supply of labour in the future. Pension reform is only one element in this. Through it, we are also strengthening the capital market by investing in shares and bonds. I believe that other countries will watch what Germany is doing in this area and that some of them may perhaps be encouraged to do the same. We should look to countries such as Sweden and the Netherlands, which show the positive effects of linking the pension system to the capital market. At the beginning of the interview, I mentioned that it is good for Germany to be adopting this kind of pension reform, which will change this market segment in the coming years and decades.

The digital euro proposed by the ECB is slowly moving towards implementation. What will it bring Europe?

This project convinced me from the very beginning. Payment systems are of systemic importance. I see them as a public good. We must not become dependent on providers outside Europe. The providers I know are not based in Europe, but mostly in the United States. That is why, particularly in crisis situations, we should offer a solution based on our technology and our cloud infrastructure, so that every citizen in Europe could use the digital euro. And the digital euro will come. On 23 June, the European Parliament’s Committee on Economic and Monetary Affairs gave this project the green light. I expect that by the end of the year we will have a legal framework for the digital euro, allowing us to move into the final stage of implementation. I hope that by the end of my term, which expires in 2029, I will be able to pay with the digital euro.

Visa and Mastercard are increasingly emphasizing their commitment to Europe. What does the digital euro mean for them?

I am not sure whether we should focus on the companies you have just mentioned. What we are doing in the field of the digital euro is in our interest. We must establish reliable technology that will enable all European citizens to make payments in all possible circumstances, including in crisis situations – both online and offline. It is therefore intended for everyone and is inclusive. We are offering a payment system that works in all countries of the European Union. Often, there are only national solutions, or providers that cannot ensure the full range of products and services in all countries of the European Union that we will offer in the future. The digital euro is the most important project for the Eurosystem in the years ahead.

The digital euro is part of Europe’s digitalization. But the largest artificial intelligence companies come from the United States and China. The latter has also overtaken Germany in the number of robots per capita. How can Europe catch up with its rivals in the technology race?

We must make up the gap, and that will require enormous investment. Yes, you are right. At least as far as the most advanced artificial intelligence models are concerned, most of them come from the United States. However, in Europe too we have providers and companies that are developing and expanding their business models. In addition, we can help them, either as central banks or as public authorities, since we might consider using software from companies operating in the European Union. So that depends on us. The same applies to payment solutions. We should have more confidence in our own companies and in the technology we can offer here in Europe. I believe that Europe has good prospects for competing. This will take time, but I think the goal is ultimately achievable.

So we should buy “made in the EU”?

Why not? We often discuss what is happening on the other side of the Atlantic, but it would be better to do everything in our power to improve ourselves. It may sound simple, although in practice it is complicated. But it is feasible. 

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