The interview was conducted by Dennis Kremer.

Sabine Mauderer, let’s talk about Europe. How badly is the continent doing?

Please forgive me for saying so, but I think that question is too negative. We Europeans need to grasp that we’ve got momentum right now. We’re exposed to many negative geopolitical influences, that’s true. But recent experience has shown that we can successfully withstand those headwinds if we present a united front. 

Did we really achieve that? When European leaders paid a visit to the White House a few weeks ago, Europe wasn’t exactly looking especially strong. 

I travel around the world a lot in my current job. And one thing I notice over and over again is that Europe is a real place of longing for many people worldwide. There are things we can be really proud of, and the most tangible symbol of that is our single currency, the euro. 

That sounds a bit like a wishful thinking by a central banker. 

Most definitely not. It might have been drowned out somewhat recently, but the euro has an approval rating of 83 %, its highest level ever. That’s something I’m really pleased to see. And we should also be encouraged by the growing interest that global investors are showing in Europe. We are seeing brisker demand not just for European stocks, but for European bonds as well. It matters a lot to investors that the principles of democracy, the rule of law and the separation of powers are firmly anchored on our continent. Central bank independence is another principle that is respected. Functioning underlying principles like these are hugely important for long-term investors in particular. Investors are therefore watching developments in the United States closely.

But even so, those principles don’t seem to be helping us in every regard. In the negotiations with Donald Trump, Europe ended up having to accept higher tariffs. If anything, that looked like a sign of weakness. 

At least it wasn’t the worst possible outcome. In my view, if there’s one main takeaway from recent events it is this: Europe will only be able to engage with other powers as an equal if it presents a united front, and does so both politically and economically. The two key topics of economic strength and defence capabilities are closely intertwined in this regard: To wit, you can only defend yourself if your economy is strong. And you can only have a strong economy if you are able to defend yourself. These two factors go hand in hand, though it’s safe to say that Europe still needs to up its game in both respects. When both those requirements have been met, Europe will also have the corresponding bargaining power. 

Recently, Germany’s economy actually contracted by even more than it was expected to. Following on from what you just said, that must surely, if anything, be a worrying development. 

That’s not a good state of affairs, of course. Not just Germany but Europe, too, is experiencing low GDP and productivity growth. Take a look across the Atlantic and you will see the United States far ahead on both measures. But this is another area where I think we should take heart. We are seeing more than ever nowadays how quickly things can change. One reason why the United States has long seen such good growth was that it permitted a high level of migration – it was migrants who helped to drive the economy forward. Politicians now seem to be turning their back on that idea. That opens up an opportunity for Europe to attract the brightest minds from across the world.

Many Europeans would seem to disagree. It’s a topic the general public are very sceptical about. 

We need to make a distinction between refugee policy and labour market-oriented immigration. In my opinion, Spain sets an example that the rest of Europe might consider following. Spain saw its economy grow by 2.8 % on the year in the second quarter – that’s the highest rate of growth recorded among the large euro area countries. And the Spanish economy is also benefiting from the influx of skilled workers from abroad, who are urgently needed. Needless to say, many immigrants are finding it easier to assimilate there because many of them come from South America and speak the same language. Overall, though, this is one example of how successful integration can help deliver economic success stories within the space of a few years. That is more important than ever in times of demographic change in Europe. 

Are you emphasising that insight so much because you fear that it might be drowned out in the current political debate? 

Yes. Of course, it is important to take people’s concerns seriously. That’s why I think it is so important to tell them that if we want to preserve our growth and prosperity levels on a permanent basis, we are quite simply also going to need targeted immigration given that our population is getting older. Otherwise, the economy will end up not growing at all. But I also appreciate that it’s not so easy to convey how these factors are interconnected. 

The new Federal Government is piling up record-breaking levels of debt, partly with a view to stimulating economic growth. The Bundesbank has traditionally been critical of this approach. 

Here again, I think it’s important to see things from an international perspective: And the global response has been to give an exceptionally warm welcome to Germany grasping at long last that it needs to invest. Mark my words, global investors will also be keeping a close eye on how exactly we spend that money. Will it be used more for consumption or will it actually be used for investment in the true sense of the word? Will we be using it to promote outdated business models in branches of industry that know the ins and outs of political lobbying, or will we be nurturing the business sectors of tomorrow? If Germany takes the wrong turning here, investors would also react with disappointment. 

Speaking as a representative of the Bundesbank, do you think Germany is on the right track? 

We will only find out over the next few months where the money will actually go and also how quickly our country can put all these projects into practice. In addition, the government has further reforms on its agenda for the fourth quarter. It would also be important to pay greater attention to the topic of pensions.

Germany is currently borrowing at a pace unseen in the history of the Federal Republic. Should we really be keeping a cool head over this, like you are?

The big numbers we are talking about here do sound dizzying at first. But by international standards, Germany’s debt level is comparatively moderate – especially when you look at the United States, where the debt-to-GDP ratio is more than 120 %. Compared with that, we are on very steady ground with our debt ratio of 62.5 % in 2024. But let me say it again: What matters to me is how the fresh money is spent and whether that helps the economy grow. Only then does it make sense to borrow. 

The euro has appreciated by around 10 % against the US dollar in the year to date. Isn’t that harming growth in a German economy that is still very reliant on exports?

Let’s not forget that this is making imports cheaper – but of course, those movements in exchange rates are creating headwinds for exporters in particular. That said, I don’t think that can be linked to any particular exchange rate threshold. It’s more a matter of the pace at which the euro’s exchange rate to the US dollar evolves. The recent change was certainly fast-paced, and not so easy for businesses to adjust to. Pressure from forex markets is forcing German firms to become more competitive still if they want to preserve their strong position in export markets. We have often demonstrated our ability to deal with situations of this kind. Just think back to the 1980s when the Deutsche Mark was very strong.

Are you expecting the euro to remain strong? Is it not more a case of the dollar being weak, which might unwind again just as quickly?

If the dollar is weak, the euro stands to benefit most out of the group of major currencies. We are seeing more cases of international investors – including some from the United States, incidentally – issuing bonds denominated in euro. But what the brisker demand for these Reverse Yankee bonds, as they are known, also shows is that the euro is regarded as an alternative to the dollar in these circles. The US dollar accounts for 58 % of foreign currency reserves, but the euro is right behind it, at around 20 %. The euro, then, is the second most important currency in the world. That alone is an enormous sign of confidence.

Is that enough to contest the dollar’s role as the world’s leading currency?

Most definitely not. The dollar’s strength has evolved over decades; it isn’t going to vanish overnight. But it is weakening at least somewhat.

Shouldn’t Europe seize the moment to also experiment more with cryptocurrencies of its own, say? At present, the United States is far ahead in this regard. 

Even though that name has become commonplace, it bears repeating that those are not currencies, but crypto-assets such as Bitcoin and Ether. They have nothing in common with currencies like the dollar or the euro. Those assets fluctuate strongly in value. They’re hugely popular among young people, who should be aware that they risk losing a lot of money very quickly. This relatively young market is still evolving. Just think of stablecoins, which have bounced back into the headlines recently. We are keeping an eye on these developments. When we at the Bundesbank talk about a digital currency, we mean the digital euro. Even though the policy decision to implement the digital euro has not yet been taken, I believe that Europe can already claim to be spearheading developments on this front.

What’s less exemplary is the Bundesbank’s role in another field. The cost of renovating the Bundesbank’s old Central Office has got out of hand. What are you doing about that?

The Bundesbank is aware of its responsibility and will make a reasonable economic decision.

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