“We did what a central bank is meant to do” Interview in the Frankfurter Allgemeine Zeitung

13.03.2020 | Jens Weidmann DE FR

Interview conducted by Gerald Braunberger.

Mr Weidmann, financial markets are very jittery right now. Are we heading for a repeat of the 2007-09 crisis? 

The situation today isn’t like the situation back then. This crisis hasn’t originated from the financial system. It’s mainly about containing coronavirus. Plus, the financial system as a whole is far more stable than it was before.  

Today’s decisions by the European Central Bank came as a disappointment to financial markets. Should you have done more? 

No, we responded appropriately, given our role and the options available. People may have been expecting too much from the ECB, just as they had with the Fed and the Bank of England. Right now, central banks aren’t on the first line of defence. 

So what is your role, then? 

We did what a central bank is meant to do above all else in a crisis – we made sure that banks have a generous supply of liquidity. And we did this while keeping interest rates exceptionally low, too. This is how we are staving off the spectre of a credit crunch. We eased our monetary policy stance further, including by expanding our net asset purchases. 

Is a recession on the horizon? 

Our economic forecasts so far have been too optimistic, of course. It is true that there will be a considerable worsening in the near term. But once the virus has been contained, the economy will recover again, though it’s difficult to say at present when that might be. 

Should we be concerned about the stability of banks? 

No. German banks have boosted their capital, and there is abundant liquidity in the banking system. And European supervisors announced today that banks can fully use capital and liquidity buffers. 

If the scope for monetary policy is limited, who do you think should act now? 

What matters most of all is safeguarding public health and taking action to contain the pandemic. And fiscal policymakers need to act, too. Their first priority should be to make it easier to access short-time working benefits and to support businesses that experience brief difficulties. They need to make sure that a temporary problem doesn’t cause lasting damage to the economy. This may also call for broader economic assistance further down the line. 

Is Germany’s “black zero” – its commitment to balanced budgets – back on the table? 

This isn’t really the time for a dogmatic debate about Germany’s commitment to balancing its budget. The country’s fiscal discipline in recent years is precisely why it has ample room for manoeuvre within the existing European and national rules. However, this doesn’t gloss over the long-term challenges that lie ahead for the government budget after the current crisis has been overcome, not least due to the issue of demographic change.

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