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Things must be serious if he’s quieter than usual

Things must be serious if he’s quieter than usual Interview with the "Welt am Sonntag"

23.12.2018 | Jens Weidmann

Interview with Jens Weidmann conducted by Jan Dams, Anja Ettel and Dagmar Rosenfeld.

Translation: Deutsche Bundesbank

You always seem so calm and collected. When was the last time you really lost your cool?

I’m not the kind of person who loses his cool. You can make a point without getting red in the face and shouting until you’re hoarse. On the ECB Governing Council and here at the Bundesbank they understand me just fine as it is. You know, my children have a habit of saying that things must be serious if he’s quieter than he usually is. (laughs)

Does it bother you when an EU country keeps dragging its feet over getting its financial house in order and gets its own way?

I’m not annoyed – I’m concerned about what it spells going forward for fiscal discipline in the euro area. In any case, the original promise to reduce the deficit is now off the table. Looking ahead, the Commission and other governments will find it harder still to insist on sound government finances.

Would you like to see a tougher stance from Brussels?

It's got nothing to do with being tough. When the crisis was raging, the idea was floated of introducing more effective fiscal rules in return for increased risk sharing. My wish, then, would be for the rules to be implemented strictly and for their binding effect not to be weakened further – that’s also important when it comes to the acceptance of further steps towards integration. Regrettably, that hasn’t been the case in the Commission’s agreement with the Italian government.

French President Emmanuel Macron is also seeking to placate the “yellow vest” protesters by summarily putting aside his reforms and doling out new handouts.

President Macron intends to press ahead with his reform plans, and that’s good news. He announced additional measures in a number of areas to gain further backing for his policy. That is a legitimate political decision. That said, its overall design does need to conform with the European fiscal rules we have all agreed upon.

You mean because France will be crashing through the deficit ceiling of 3% of GDP? 

That’s not yet clear. But it’s a likely prospect if the measures don't have the funding. And yet this would be the right time to reduce the deficit – the economy is ticking over nicely, and debt levels are still very high. It would be smart to make hay while the sun is shining, adhere to the 3% limit and reduce the structural deficit in an appropriate fashion.

Europe will be marking the euro’s 20th birthday next year, but that doesn't seem to be a cause for celebration for many people across the EU.

Europe and the euro may have faced a barrage of criticism, but let's not forget that the euro’s approval ratings are high in most countries. Indeed, a recent survey has found that two-thirds of people in the euro area think that the single currency is a good idea, and in Germany the numbers are higher still. One thing is clear: membership of the euro area means that countries can no longer use their own monetary policy and exchange rate as levers, so that puts an even greater strain on national economic policy. This, it would seem, is a point which did not get the attention it deserved before the crisis. And overcoming the crisis has proven to be a longer and more arduous task than anticipated.

So why do many people feel left behind?

The financial and sovereign debt crisis eroded confidence in the market economy system. Taxpayers were forced to step in and bail out banks. At the same time, the lethargic recovery in some countries led some people to take a dimmer view of globalisation and see technological progress as a threat. But isolationism, and efforts to turn back the clock, are the wrong response.

So what are you suggesting?

The opportunities presented by technological and economic change need to benefit as many people as possible. At the same time, it would be wrong to lose sight of social equalisation. Striking the right social balance, over and over again, is a particular hallmark of the social market economy model. The onus is mainly on the individual countries when it comes to having an education system that is fit for purpose, say, or competitive infrastructure. At the European level, we need to get away from the fruitless debate surrounding redistribution mechanisms and instead focus more of our attention on projects that deliver a discernible European value added for the general public. Border protection, climate policy and defence are three examples I could name here. There’s a strong case for Europe to take the lead here.

This is also a case of redistribution because some will pay more than others.

That's true. If you’re implementing a joint project across 19 countries, you're right to say that it may well also have a redistributive effect. And it is understandable, of course, that the countries contribute towards the project according to their ability to pay, just like they do with the EU budget. But what’s important is that jointly funded tasks are also decided upon jointly, and that we do not burden the community with legacy problems. If we achieve that, then actions and liability will be in alignment.  

Have we reached the point at which monetary union needs to be expanded into a political union?

Monetary union and political union would make a perfect fit, there's no doubt about that. But I don’t see the willingness needed to take that step – there is no desire to transfer national decision-making powers on any great scale.

Is this debate just a distraction?

The expectation right back when the euro area was launched was that it would need to function for quite some time, and perhaps even permanently, without political union. And that is precisely why the common fiscal rules, the no-bail-out clause for sovereign debt, and the ban on monetary financing of government – to name but three – were agreed upon. They are the counterpart of national fiscal and economic policy autonomy. Calling for joint liability on the one hand but insisting on national ownership of financial affairs on the other simply doesn’t square up.

So what does this mean for the common deposit insurance plan?

 If its design is flawed, it would undermine the euro area's fundamental stability. Imagine a situation where banks are still allowed to get their fill of domestic government debt and a crisis strikes – if this happened, a common deposit insurance scheme would implicitly redistribute sovereign risk throughout its members.

So you’re still opposed to it?

European deposit protection can be a useful addition to the banking union. I’m just making it clear that it comes with conditions attached: harmonised insolvency legislation, an appropriate reduction of non-performing loans, and a cap on sovereign risk on bank balance sheets. These are areas where we need agreements we can rely on.

Is there a lack of general consensus about what stability actually means?

Not necessarily, but views on how best to reach that destination are mixed. And there are differences of opinion over topics like the urgency of high government debt levels and thus the point of having fiscal rules.

Which post is more important for Germany: European Commission President or ECB chief?

That depends on whom you ask.

We're asking you.

They’re both crucial European positions. The ECB has demonstrated what a pivotal role it can play, especially when a crisis strikes. But that’s not to say that the post of European Commission President is any less important. At the end of the day, these appointments are political decisions at the European level. And from Germany, the Union parties are fielding Manfred Weber as their candidate for the Commission presidency.

Berlin's reading is that they can exert greater influence with a Commission President than through an independent ECB President.

Ultimately, the President of the European Commission, just like the incumbent at the ECB, chairs a body that passes the decisions. Neither of them should be representatives of national interests.

Are you still in the running to become the next ECB chief?

Journalists have asked whether I could imagine taking on that job. I replied that anyone who, like myself, is a member of the ECB Governing Council, ought to aspire to being a driving force in matters of monetary policy. I’m sure you’ll agree that it would have been somewhat unusual if I had ruled out wanting to take on greater responsibility. But that’s not quite the same as an outright job application.

Would it be possible in Europe to gain a majority for putting in place a German President of the ECB?

At the least, the fact that someone has a particular nationality should not in itself be a reason for excluding them from certain EU posts. That would surely be incompatible with the European idea.

When it comes to filling these posts, why does it feel like we’re at a bazaar?

Ultimately, it’s also necessary to achieve agreement on policy. And, looking at the end result, the Presidents of the ECB up to now have, at all events, always been recognised experts in the field of monetary policy. But I rather thought we were here to talk about monetary policy and not about staff matters.

The ECB has confirmed it will no longer be purchasing government bonds from the end of this year. Will that really be the end or just a brief pause? 

For me it is especially important that ending net purchases of government bonds means we have decided on taking a first, significant step in returning to normal. Nevertheless, we shall still be reinvesting the principal payments from maturing bonds for some time to come. Seen in that light, the bond-buying programme has not ended, nor will monetary policy become restrictive as a result – it remains decidedly accommodative. Put in simpler terms, the ECB Governing Council is keeping its foot on the accelerator, but not pushing it down any further.

The ECB has revised down its outlook for growth and inflation. How great is the risk of entering the next recession with negative interest rates? 

Over the past few months, the economy has lost some momentum. But even though the high growth rates of the past few years are unlikely to be matched, the outlook is still positive. And the latest forecasts see inflation on a path that is, by and large, consistent with our medium-term definition of price stability. With this in mind, it is indeed possible to ask how long it will take to bring about a return to monetary policy normality. In the process of returning to normal, monetary policymakers must not needlessly lose any time: they will then also regain room for manoeuvre more quickly.

Germany won’t face a downturn?

The recent blip in economic growth has a lot to do with the specific situation of the German car industry. We are assuming that the economy as a whole will continue to perform well.

What will you do if you don’t become ECB President next year?

There are important tasks for me to perform here at the Bundesbank. I am delighted to represent an institution that is second to none in its reputation for a successful stability-oriented monetary policy.


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