The courage to strive for more Europe Speech delivered at the Bundesbank’s Capital City Reception
Check against delivery.
1 Welcome
Ladies and gentlemen,
May I extend a warm welcome to you all here at the Bundesbank’s Capital City Reception. We’re celebrating a little anniversary this year: the Bundesbank has been hosting this reception for ten years now.
Needless to say, monetary policy is also on the agenda here in Berlin today. You’ll remember that Berlin was the venue for the ECB Governing Council’s external meeting back in September. Last week’s interest rate decision will be the first topic I shall talk about in just a few moments. After that, I’ll share my thoughts on Europe’s future in a changing world.
It is my firm belief that, if we want to hold our own in the world – if we want to decide for ourselves what our future will look like – we in Europe need to act together as one. External tensions and differing interests within Europe make common action more challenging and, at the same time, more crucial.
When we selected the topic for this year’s Capital City Reception back in spring, we chose a relevant and topical theme about strengthening the European idea, and for good reason. Back then, though, we had no way of knowing just how relevant, and just how topical, that theme would turn out to be today.
Without wishing to get ahead of myself, there’s one thing I can tell you right now: For all the difficulties and uncertainties, my commitment to Europe and to the Franco-German engine remains unshaken by the challenges we are seeing at the moment. Quite the opposite, in fact. This evening, we’re going to peek into the gearbox of that engine and see how those driving forces have worked, from the past right up to the present day.
2 Inflation and monetary policy
Europe is faced with a whole raft of major policy challenges. Abstract though they might sound, they impact directly or indirectly on people’s everyday lives. One challenge stands out quite prominently: the energy crisis. The rising cost of living is a cause of concern for many. Among other things, we are seeing this all across Europe, with people demonstrating for affordable housing and living. Many people are wondering whether they can still afford to fill the car with fuel, pay the rent and do their weekly shopping if everything is getting expensive.
As a monetary policymaker, that doesn’t leave me cold. Our core task is to preserve price stability. We’re quite some way off that target at the moment. Euro area inflation climbed to 3.8 % in September, and stood at 3.3 % in Germany and 3.4 % in France. And the October flash estimate delivered a reading of 2.8 % at home and 3.8 % on the other side of the Rhine.
This is mainly due to the ongoing conflicts in the Middle East, which have sent energy prices skyrocketing. There is little that monetary policy can do to counter the surges in energy prices that such supply-side shocks cause. What we can and must do, though, is prevent this from sparking broader inflation. That is why the ECB Governing Council has already raised the key interest rates twice this year.
At last Thursday’s meeting, we decided not to take a further interest rate step for the time being. Supporting our decision to keep rates on hold, the signs of second-round effects have been scant so far: The high energy prices are not yet feeding through into higher wage demands, which would stoke additional, broad-based inflation.
From today’s perspective, though, an increase in policy rates in December is very likely to be necessary. The baseline scenario of the September projections already included a further upward shift in key interest rates. Since then, the inflation outlook has deteriorated. We are getting closer to the adverse scenario of the September projections. In our view, it is now highly likely that inflation pressure will be greater than expected in September. What is more, repeated surges in energy prices can cause the prices of other goods and services to appreciate more strongly, too. And these can increasingly feed through into wage demands as well. That, in turn, would push prices higher.
The Governing Council will be gathering for its next monetary policy meeting just before Christmas. At that session, Eurosystem staff will give us their latest projections which, incidentally, extend into 2029 for the first time. Those projections will be the basis for our decisions. As things stand right now, though, there is hardly any getting around an interest rate hike as long as the inflation outlook does not improve significantly.
3 The courage to strive for more Europe
Ladies and gentlemen,
Let me now take you on a journey back in time. Eighty years ago – just a year after the end of the Second World War – Winston Churchill delivered his famous speech on Europe in Zurich.[1] Churchill used his remarks to outline his vision of a European community built around the partnership between Germany and France.
Why does that matter again today? Because the world around us is undergoing profound change. The geopolitical climate has become harsher and more fitful, international competitive pressure has intensified, and artificial intelligence is revolutionising one field after another, from the world of work to education, science and defence. In this new setting, peace, freedom and prosperity cannot be taken for granted, including in Europe.
How the world around us changes is something we can only influence to a degree. But we have it in our power to make Europe strong and sovereign enough to cope with the new global situation. The need for European integration is particularly urgent where size is the crucial factor.
That concerns the European single market in all its dimensions. Much has already been achieved on this front. But it is vital to keep dismantling the remaining hurdles, like those in capital, energy and services markets. However, it is also a question of defence and foreign policy. Those are domains where action at the level of individual Member States comes up short. National interests are best served whenever policymakers act together as Europeans.
I appreciate that a great deal of persuading will need to be done here. If we want to reap the benefits of more Europe, we also need to be willing to give up something in return. Germany and France play a key role in this regard. It would send a strong signal if those two countries made it clear that even the two biggest countries in the EU can achieve more within the family of 27 than each of them can on its own. Germany and France won’t see eye or eye on everything. Nor do they have to. Rather, it is a matter of forging sustainable compromises in the common interest.
Acting together can work well, as we can see from the activities of the Eurosystem. And also from the many successful cooperative initiatives, large and small, between our neighbouring countries. For the gentleman I am talking to this evening, that approach is quite simply part and parcel of everyday life – he owns a German and a French company under a single roof.
4 Conclusion
Ladies and gentlemen,
Eighty years ago, Winston Churchill demanded: “In this urgent work, France and Germany must take the lead together.
[2]
Together, Germany and France can make a great deal happen. Even if the engine might seem to occasionally sputter these days and the terrain is rocky, there is no way getting around the Franco-German cooperation. As a strong and dependable core alliance, France and Germany are the crucial engine driving the entire continent.
Shaping Europe’s future is a matter for all Member States together, but as the Franco-German axis, we need to provide bold impetus, seize the initiatives our partners put forward and, in so doing, work together to forge sustainable solutions. I am in no doubt that it’s worth having the courage to strive for more Europe!
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