Weidmann: EU has proven itself capable of taking action in these times of crisis Interview for the Funke media group newspapers
Jens Weidmann was interviewed by Jochen Gaugele and Kerstin Münstermann.
Mr Weidmann, how has the Bundesbank fared over the first few months of the pandemic?
Fairly well, all told. We did not have many cases of COVID-19. The transition to virtual collaboration has worked well. In some ways, it’s even made us more efficient. There's no need to spend large amounts of time travelling to appointments, for instance. That said, we are increasingly missing direct, personal interaction and realising how important it ultimately is for our work.
Money is being printed as normal?
The cash supply had to keep running smoothly even under these difficult conditions. Of course, that’s not really a job our employees can do from home. So we put precautions in place, setting up split teams to lower the risk of infection chains, for example. That also worked well.
China put banknotes into quarantine in order to prevent potential transmission via contaminated notes. Is that an option that you considered, too?
Special quarantine for our cash is not something that we consider necessary. Studies show that the risk of transmission via coins and notes is no higher than with other everyday items. It’s a matter, then, of sticking to the usual hygiene rules. Incidentally, I’m not aware of any cases of an individual catching coronavirus from a banknote.
Is the pandemic providing new arguments in favour of cashless payments?
Experience has shown that when times are uncertain, people gravitate towards cash. And demand for cash was correspondingly high in the first few weeks of the pandemic. However, the fear of picking up the virus then gave a boost to the figures for contactless payments. To what extent the pandemic will also alter payment behaviour over the long term remains to be seen.
Will there still be cash ten years down the line?
I am sure of it. It’s true that there is a gradual trend away from cash and towards electronic means of payment. And that trend can pick up pace – as we’ve seen with Sweden, for example. But for many members of the public, cash remains crucial. Some find that it helps them to keep a better eye on what they’re spending. Data protection is also a factor. For some, banknotes and coins are also a kind of “coined liberty”.
Are you sure that the euro will survive the coronavirus crisis?
We are not experiencing a euro crisis. COVID-19 is a global phenomenon, as is the severe economic downturn that it has brought with it. The aim now is to stabilise the economy and get it back on track in terms of growth. In Europe, in particular, this is not just a national task, but one shared by all.
Policymakers are responding with rescue packages and economic stimulus programmes worth hundreds of billions of euro. How much debt can future generations shoulder?
High government debt is something I am critical of. But, in a crisis of this kind, the government has to take decisive remedial action, and financing that through new debt is the right thing to do. It was important to provide swift and comprehensive assistance to households and enterprises. The fact that we are preventing a downward spiral ultimately benefits future generations, too. Germany’s bet on sound public finances over past years is now paying off, incidentally. It means we’re able to respond powerfully to the crisis.
You don’t see any danger of Germany overreaching itself?
Government debt is rising sharply, but it can still be stemmed. We are anticipating a debt ratio of around 75% of economic output this year. The low interest rate will certainly make that easier to bear. And Germany’s balanced budget provision, the debt brake, will help to bring deficits and the debt ratio back down again once the crisis is over.
Might further assistance programmes be a possibility?
Yes, if necessary, there’s room to take things up a notch again. That may well end up happening – it’s highly uncertain how things are going to develop, after all. But for now, it is a case of waiting and seeing how the measures already adopted actually work. It is important that assistance measures are of a temporary nature. They’ll then automatically come to an end as time passes, and public finances will stabilise again. The same applies to government stakes in firms. They may be needed now but the state should quickly pull back once the crisis has passed. Governments aren’t the better entrepreneurs in this case. The centrepiece of Germany’s economic stimulus programme is the cut to VAT lasting until the end of this year.
Policymakers could be tempted to extend the relief into the 2021 super election year…
There may be a temptation to gear economic stimulus programmes to elections. But – as I said earlier – I don’t think we can immediately rule out the possibility that the economy might be in need of further stimulus next year. Of course, that doesn’t necessarily have to come in the form of an extension to the reduced VAT rate.
Are you in favour of a quick end to other aid measures, such as those relating to short time working arrangements?
Right now, it’s about kick-starting economic recovery. We have only just left the peak of infections and the economic low point behind us …
…What makes you so sure that we’ve moved past that point?
Retail sales have picked up again, and output is rising. Overall, the data show that the economy bottomed out in the spring and is gradually recovering. But sectors are moving forward at different paces. Industry is tending to lag behind, for instance. It is heavily dependent on a reliable outlook, on global demand and thus also on infection rates abroad.
What does that mean for short-time working benefits? Do you think they are already superfluous?
No, not at the moment. It makes sense to use short-time working benefits to bridge a temporary economic downturn. It helps to keep employees on board who will be needed again later on. However, short-time working benefits should not reinforce structures that have no future, such as where business models have become outdated. This is why they should be the subject of regular review by policymakers.
Much larger sums are being dealt with at the European level than at the national level.
Did the special summit in Brussels set the right course for recovery?
It is important that the EU has proven itself capable of taking action in these times of crisis. Solidarity in Europe – including financial solidarity – is, I think, the right approach in this situation. Determining what shape this takes and its degree is a matter for policymakers. Given the size of the package, it is not surprising that the summit involved heavy wrangling. Controls are needed to ensure that the funds are used in a meaningful and efficient manner. Fundamentally speaking, collective debt for the purpose of substantial transfers rings alarm bells for me. At the very least, the package should not serve as a stepping stone to large-scale EU debt as a means for regular budgetary financing.
Wouldn’t Chancellor Merkel have done better to ally herself with the “Frugal Four”– Austria, Sweden, Denmark and the Netherlands – instead of siding with France’s President Macron?
With Germany having assumed the EU presidency, the need for the Chancellor – as president of the Council of the European Union – to do her bit to achieve a compromise and avert a failed summit was doubtless particularly acute. The objective was to find a mutual solution. At the end of the day, all Member States, including the “Frugal Four”, agreed with the outcome.
How important is it for Europe that the United States overcomes the crisis?
The United States is an important trading partner. And the same goes for the United States as for us and everybody else: we need to overcome this severe economic slump quickly.
That is contingent upon keeping infection rates under control …
… which isn’t working out at all well in the United States.
The United States eased some of its measures at an early stage and is now tightening them up again in some places. This stop and start pattern is certainly difficult for the economy. At any rate, this shows how important it is to remain vigilant, to closely monitor infection rates and to prevent another flare-up. And that’s something we can all play a part in.
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