"We’re starting from a favourable position" Interview published in Die Welt
Interview with Jens Weidmann conducted by Anja Ettel, Olaf Gersemann and Ulf Poschardt.
As the Bundesbank President, how are you getting along working from home? What is your everyday life like now?
Jens Weidmann: Well, the same as yours, I’d imagine – a lot of paperwork, a lot of phone calls, constantly glued to the computer screen. But every now and again I still go into the office, too.
And at the office do you keep the recommended minimum distance of two metres away from others?
Of course. Most of our meetings, including on the Executive Board, are held as phone or video conferences, even if the participants are actually sitting just down the hall from one another. This is just one of the many precautionary measures we have taken to ensure that we remain capable of functioning. After all, the Bundesbank is part of the country’s critical infrastructure.
When did it first become clear to you that the coronavirus could become a serious problem?
In mid-January, there was a meeting of central bank governors at the Bank for International Settlements in Basel. The corona outbreak in China was already a major topic at that time. In my conversations with my Chinese counterpart, it became increasingly clear that China was dealing with a serious humanitarian and economic crisis. But everyone was quite surprised at how fast the problem in China turned into a problem for the whole world.
On Wednesday shortly before midnight, the European Central Bank (ECB) took out its “bazooka” in the form of an asset purchase programme totalling €750 billion. How did the ECB Governing Council, of which you are a member as Bundesbank President, come to this decision?
During a telephone conference. We discussed it in great depth, various points of view were put forward, plus a variety of possible solutions were proposed. But, in the end, we made a decision. Despite any differences regarding individual points, we all agree that we need to take action and that wide-reaching measures are crucial. Now it is a matter of implementing the programme in an appropriate way.
At its regular meeting just a few days earlier, the ECB Governing Council had presented a significantly smaller emergency stimulus programme.
Whether a programme is “big” or “small” depends on the circumstances. The first package was appropriate to the situation at the time it was adopted. However, the situation is now developing rapidly and being reassessed at high frequency.
Has the ECB now shot its wad?
No, that’s what people were saying before the previous decisions, too.
But it doesn’t seem as if an internationally coordinated approach is being taken, for instance with the Bank of England or the Fed.
We are working with our colleagues more intensively than usual. We keep each other posted of the measures we are taking and also coordinate our actions, as shown by the recently agreed swap lines used to supply US dollars, for example.
A recession in Germany ...
... is now likely to be unavoidable.
And how bad will it be?
What’s important at the moment is stopping the spread of the virus. Every individual person must reduce social contact to an absolute minimum. I had been hoping that this would work without needing to be enforced ...
... in the form of a lockdown, which looks like being imposed for a time.
That is indeed a drastic measure. But that is exactly the point of politics: to weigh up the pros and cons of steps like this and then take a decision.
What’s your take on the measures taken by the Federal Government so far?
The Federal Government has acted swiftly and correctly. As I see it, preserving the general public’s faith in governmental action is key. When it comes to economic policy, this means the state cushioning the economic impacts on individuals and businesses. It was also right to announce that robust assistance will be provided to revitalise the economy once the epidemic has been contained. Monetary policy can play a supporting role but it cannot be the first line of defence this time.
How long can we even bear up under this situation?
Not that long ago, there were still some passionate debates going on here in Germany as to how much sense there was behind solid state finances. It’s now crystal clear: Germany did absolutely the right thing by consolidating its budget when economic conditions were good. It’s left us scope to deal with this severe crisis. So we’re starting from a favourable position.
In other, highly indebted euro area countries the situation looks far less rosy. What consequences will this have?
The fiscal rules do not present an obstacle to these countries’ room for manoeuvre, at any rate. You see, there are escape clauses for crises like this. And if it should turn out that additional resources are needed, then it is up to policymakers in Europe to make a decision on financial solidarity. The requisite instruments were created during the last crisis.
The United States is soon to start distributing relief checks to consumers. What do you think about measures like that?
Just like conventional stimulus programmes, those kind of measures can only really come into their own once the pandemic has been brought under control. But nobody knows yet when that will be. At the moment the public are being asked to do precisely the opposite of going to restaurants or concerts – so more money in consumers’ pockets is not going to mean greater demand for those establishments.
So helicopter money won’t help?
You have to draw a distinction there. What’s being launched in the United States are state transfers, not central bank transfers. So it’s not helicopter money in the conventional sense. In Germany we have a well-developed welfare state, and state transfers will be expanded as part of the measures to combat the crisis. Once the pandemic has been brought under control, a decision has to be taken on what further measures might be appropriate to reinvigorate the economy after this heavy blow. For now, the important thing is providing people with the necessary confidence that they will weather this crisis as well as possible.
Many citizens are anxious about their money. What’s your message for them?
This is a challenging situation; that said, this time the financial system and the banks are not the source of the crisis, and they are far more stable than they were before the last crisis. The crucial thing is overcoming the pandemic and then quickly getting the economy back on its feet again.
Monetary policy is normally based on clear rules. What long-term ramifications will it have for our monetary system if citizens and politicians see that it does in fact appear to be possible to print limitless amounts of money?
A crisis like this calls for resolve, and exceptional steps have to be taken. But it is equally important to exit crisis mode in a consistent and reliable manner once the crisis has passed. That is true of action by government in general, but it applies in equal measure to monetary policy. This is why the timeframe for the new programme is tied to the pandemic, for example. Maintaining public confidence in our institutions requires both resolute action in a crisis and a compass to provide guidance at all times.
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