The whole is more than the sum of its parts Speech marking the change of office ceremony at the Regional Office in North Rhine-Westphalia

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1 Welcome address

Ladies and Gentlemen,

I am very pleased to welcome you to the ceremony marking the change of office at the Regional Office in North Rhine-Westphalia. Fortunately, we are now well-versed at participating virtually in such events. Today, many have come together to bid farewell to Ms Müller and to welcome Mr Metzger to his new role. I would like to welcome you all – those of you in Düsseldorf as well as those of you in front of your screens.

“The whole is more than the sum of its parts.” Margarete Müller once used this sentence to stress to her colleagues here in North Rhine-Westphalia just how important fruitful cooperation is.

The importance of fruitful cooperation is also a fundamental insight in economics. Adam Smith began his work “The Wealth of Nations” by describing the advantages of the division of labour using the example of a pin factory.[1] Here, the workers specialise in certain activities instead of each performing all of the operations individually. This way, together they can produce a much greater number of pins than they could overall by working alone.

Today, industry is globally specialised and interconnected through supply chains. We are currently seeing what effects can occur when the replenishment of supplies in this system falters: economic growth slows down and the rate of inflation increases.

I will discuss current economic developments in Germany, the price outlook and monetary policy in the euro area in more detail later. But the main focus of my speech will be the change of office.

2 Margarete Müller

Ms Müller, for 39 years you have dedicated your heart and soul to your work at the Bundesbank. Prior to this, you trained as a bank clerk at the Kreissparkasse Heinsberg (a district savings bank), studied economics at the University of Wuppertal and also became well acquainted with the internal workings of a private institution, Dresdner Bank.

You then decided to work for the Bundesbank, joining us in September 1982 as a trainee civil servant in Düsseldorf. You remained connected to your home state of North Rhine-Westphalia for most of your career with the Bundesbank. Here in the region, you acquired extensive experience in a number of different roles. You oversaw the introduction of new cash processing machines in the branches, were responsible for facilitating teamwork, and helped organise German monetary union as well as the introduction of euro cash. By undertaking regular roadshows, you acquired companies for credit assessments – first as a branch manager and then as head of Credit Assessment and Securities in Düsseldorf.

And whether in branches or at the Regional Office, you addressed ways to optimise internal processes: in Mönchengladbach, Moers, Aachen and Düsseldorf. You then became Head of In-House and Branch Operations of the Regional Office in Frankfurt am Main for two years. These professional positions no doubt strengthened your special commitment to the Bundesbank’s branches, and ultimately it is the branches which perform the important task of supplying banks and the economy with cash. In this way, the Bundesbank is able to ensure that sufficient high-quality cash is available in Germany at all times.

Eight years ago, you were appointed President of the Regional Office in North Rhine-Westphalia. Soon after you assumed office, the European Single Supervisory Mechanism (SSM) was set up. Its establishment was one of the cornerstones of the response to the financial and sovereign debt crisis. A number of European banks were unable to shoulder the losses incurred during the financial crisis. Their insolvency would have significantly impacted their respective national economy. For this reason, banks received support from or were even bailed out by their governments. This put a strain on public finances and thus on taxpayers.

It should not come to such a scenario again. European supervision of the significant banks is intended, among other things, to ensure that the same stringent supervisory standards are applied in all member countries. In addition, capital requirements were increased and special resolution regimes were created for banks. This was accompanied by numerous changes related to the supervision of the less significant institutions, with this responsibility being exercised locally by the regional offices. Additionally, some banking supervisors moved to the European Central Bank (ECB). This was done with your blessing, Ms Müller, because you were always interested in the personal and professional development of your colleagues – and in institutional exchange. You also overcame other challenges in connection with supervisory reform with great creative drive.

At the same time, another major project demanded your special attention: the new branch in Dortmund. Not only is it an impressive and complex building with modern workspaces for the employees; it is, above all, a sign of the Bundesbank’s clear commitment to cash.

Furthermore, this commitment is not called into question by the work on the digital euro. As you all may know, last month the Eurosystem launched the study phase for a project on the digital euro. [2] The digital euro could help reduce transaction costs, make payment transactions more efficient and encourage the development of innovative services. One thing is very clear: it is not intended to replace cash, only to complement it. The Bundesbank will continue to make banknotes available for as long as members of the public in Germany wish to continue using them.

It was a stroke of luck for the Bank that you, Ms Müller, supervised and pressed ahead with the new branch project. It was during this time that the five previous Rhine-Ruhr branches had to be closed. You succeeded here with your approachable and engaging management style in providing guidance to and showing empathy towards employees amid this upheaval. In doing so, you helped ensure that the customary high-quality levels associated with the cash supply were maintained during the protracted and at times tense transitional period and that the other branch functions were also performed smoothly.

The needs of the employees were always a matter of importance to you – with regard to changes resulting from the branch closures as well as to the design of the workspaces in the new branch. And you were instrumental in ensuring that the various divisions of the bank involved in the project worked well together.

In your first Christmas letter as President of the Regional Office, you wrote: “I am convinced that mutual appreciation and cohesion will help us progress.” And you have done much to promote appreciation and cohesion. On various occasions, you brought together employees from the Regional Office and the external Central Office units based here. You also regularly invited people to breakfast in small groups to exchange ideas and get to know each other: “Ten at 10” it was called. Moreover, the open day five years ago here in Düsseldorf not only attracted over 6,000 members of the public, it also cemented the team spirit of those working at the Bundesbank.

The result seems to have been the emergence of a special spirit under your watch. Colleagues from different branches now support each other as a matter of course when there are bottlenecks at one location. This special spirit is also evident in a new magazine hot off the press. It was created at your initiative and is devoted to the subject of bidding farewell and making a new start. It is your way of expressing your sincere gratitude to the employees of the branches that have been closed – and to all your colleagues who were involved in the new branch project. The name of the magazine says it all – for the region and above all for your leadership philosophy. It is called: “WIR” (which is German for “WE”). This expresses how those working at the Bundesbank feel under your leadership here in North Rhine-Westphalia: that they are part of a team.

Your approach is also an example of the broader change within the bank as a whole. In recent years, the Bundesbank has done a lot to strengthen cooperation – among other things, by adopting a new management concept. Together, we have succeeded in establishing a culture of openness and dialogue throughout the Bundesbank. This helps us to leverage synergies between the different divisions and ultimately to better fulfil our important public tasks. Employee surveys show that colleagues have also felt the effects of these changes over the past ten years: appreciation and open exchange are increasingly shaping interactions at the bank.

There is another side to our culture of openness: external transparency. It is tied to the special role of an independent central bank in a democracy. If an independent central bank is not to be a state within a state, it must be accountable to the public. Communication and transparency also make it easier for a central bank to provide guidance to consumers, businesses and markets. If the stakeholders in the economy align their expectations accordingly, monetary policymakers will have to intervene less. Ben Bernanke, the former head of the US Federal Reserve, once described it this way: “… monetary policy is 98 per cent talk and only two per cent action.”[3]

Economic education plays a prominent role in our external communication. Ms Müller, as an extraordinarily committed and very well-connected ambassador of the Bundesbank, you have always championed economic education. At numerous public events (“Forum Bundesbank”) here in Düsseldorf and in the branches, you explained the importance of price stability for members of the public, but also delved into the very recent decisions of the Eurosystem, for example on its monetary policy strategy. And on other occasions you have facilitated dialogue between the Bundesbank and representatives of banks, companies and associations.

The current economic situation, price developments and monetary policy have also discussed time and again. With the pandemic and the economic upheaval it has caused, these issues have once again been thrust into the public eye. And the current high rate of inflation is weighing heavily on many people’s minds.

3 Current economic situation

I already mentioned the division of labour in industry and its global network of supply chains at the outset of my speech. The system is designed to run like clockwork, with precision timing. Raw materials and upstream products are to be delivered exactly when they are needed in the production process: “just in time”, to coincide with demand.

In fact, demand has recovered quickly from the slump at the beginning of the pandemic crisis. By the end of 2020, global industrial production and world trade had already returned to their pre-crisis levels and are now markedly outstripping those levels. This is because many households have redirected their spending as a result of the pandemic. For a time, they were unable to avail themselves of a number of services or only to a limited extent. Instead, households bought more goods. However, the sharp and strong recovery in demand would hardly have been possible without assistance, namely the enormous support in the form of fiscal and monetary policy.

The resulting increase in demand has been so rapid that industry has not been able to keep up with production since the beginning of the year. Companies are reaching their limits: shortages and long delivery times are causing problems for industry, especially with regard to semiconductors. Problems on the supply side have also contributed to this. For example, due to the pandemic, some assembly lines are at a standstill and shipping has stalled in places. The gears of the clock have ceased to work in harmony the way they normally do.

An illustrative example of these problems is the congestion outside California’s ports. Typically, 20 container ships wait there to be unloaded. In early November, however, more than 100 ships holding around 250,000 containers were backed up. The situation at the ports was so strained that the President of the United States is said to have considered sending in the National Guard to speed up the clearance process.[4]

German industry is being hit particularly hard by the various bottlenecks. Since the beginning of the year, the gulf between the bulging order books and weakening industrial production has widened ever further. Such a divergence has not been reported since 1991. Accordingly, overall economic output is currently being constrained considerably. The German economy nevertheless grew robustly as a whole in the second and third quarters – in each case by almost 2% on the quarter. The uptick came mainly from the services sectors. Thanks to the relaxation of coronavirus protection measures, industries such as the hospitality sector have been able to welcome customers again.

The current quarter, on the other hand, may see the German economy tread water. This is because the strong boost by the reopening of service sectors has already dissipated. At the same time, the problems in industry are lasting longer than expected. For this reason, economic output will probably not yet return to its pre-crisis levels in the current quarter either. And the average rate of growth in the German economy in 2021 as a whole will probably be considerably lower than projected in our June outlook.

However, in view of the well-filled order books, a stronger recovery has likely just been pushed back. As soon as the gears mesh again, industrial production can be ramped up. That being said, it is currently difficult to estimate when the supply bottlenecks will ease, which is a key source of uncertainty in making any forecasts.

In addition, the outlook remains tied to the course of the pandemic. We are currently in the middle of the fourth wave of infections. Current events are also likely to have an impact on the economy – for example, due to new protective measures designed to fight the pandemic. However, thanks to progress in vaccination, among other things, such measures are likely to be less of a burden on the economy than during previous waves of infections.

4 Price outlook

While growth has slowed in recent months, the rate of inflation in Germany has continued to rise. The current high rate can also be attributed to special factors. The return to higher VAT rates alone currently raises the inflation rate by 1¼ percentage points. Added to this are the introduction of CO2 certificates in individual sectors and the recovery of the oil price from its very low level in the previous year.

This is also why, since the second quarter, I have been drawing attention to elevated rates of inflation towards the end of the year.[5] And yet the rate of inflation has increased even more than our experts had estimated in their June outlook. Measured by the Harmonised Index of Consumer Prices, the inflation rate in Germany in October was 4.6%, more than one percentage point higher than expected in June. This is largely due to three factors:

Firstly, the prolonged supply bottlenecks in industry are also playing a major role here. This is because the increased commodity prices, shipping costs and prices for upstream products are having an impact on consumer prices.

Secondly, the opening-up of the economy is contributing to the rise in the rate of inflation. It is for this reason that prices in individual service sectors, such as leisure and transport, have risen significantly.

And thirdly, the prices of crude oil and natural gas have risen sharply in recent months. You have surely noticed the increase in prices at the petrol pump. It will take some time, however, before the effects of higher gas prices are felt.

One thing is for sure: current inflation is eroding purchasing power considerably. And people are worried – not just in Germany but in other euro area countries, too.

Overall, we believe that the high price pressure in Germany is likely to ease off again. This is because contributory factors such as the VAT effect will cease to apply next year in any case. Additionally, the supply bottlenecks should resolve over time. And the surge in demand following the relaxation of coronavirus protection measures is also likely to weaken.

Our experts currently expect the rate of inflation in Germany to peak at almost 6% this month before going back down. According to their assessment, however, the unanticipated inflation seen in recent months means that the inflation rate will probably not fall below 3% until the end of next year.

Moreover, the fact that forecasts have repeatedly underestimated the rate of inflation illustrates how uncertain the price outlook is at present. Price increases such as we are currently experiencing have not been seen for decades. However, our analyses and models are calibrated to historical contexts in an environment of rather low inflation rates. Their informative value could therefore be reduced at present.

Certainly, there are also downside risks to the price outlook in Germany and the euro area. But in my view the risks are clearly tilted to the upside – if anything, even more significantly of late. I would like to highlight three upside risks:

Firstly: Households have cut back on consumption during the pandemic and built up additional savings. Now they may want to make up for this lack of spending. In Germany alone, our experts put the additional savings of the past two years at roughly €200 billion. In light of this fact, pent-up consumer demand could be stronger than expected, giving companies more scope to raise their prices.[6]

Secondly, it might take longer for supply bottlenecks to resolve and for price pressure to abate at the upstream manufacturing stages.

And thirdly, even an initially temporary upsurge in prices could become sustained if inflation expectations or wage growth pick up. Both factors – higher inflation expectations and stronger wage growth – could reinforce each other. And the longer the increased price buoyancy lasts, the more plausible it seems that such second-round effects will gain momentum. Otmar Issing, the former chief economist of the ECB, warns that uncertainty increases the longer the target rate of inflation is overshot and that expectations about future rates of inflation could then change as well.[7]

So far, we see no evidence of a significant increase in wage pressure on a broad basis in Germany. Meanwhile, however, companies’ complaints about labour shortages have increased considerably – especially in Germany, but also among our European neighbours. Going forward, such tensions in the labour markets should make it easier for workers and trade unions to push through markedly higher wages.

Short-term inflation expectations have already risen considerably. And this applies not only to the expectations of households and companies in Germany, but also – with regard to price developments in the euro area – to the expectations of experts and financial market participants. Currently, market-based indicators (known as inflation swaps) point to an average annual inflation rate of around 3% for the euro area in 2022. As recently as January, this forward rate of inflation stood at just 1%. Longer-term market-based inflation expectations have not risen as strongly, but still to a significant extent. For the first time since 2014, they are again close to 2%.

In the past, these market-based metrics have at times been markedly low. My advice then was not to take them at face value, and it is still my advice today.[8] This is because the metrics also reflect the preferences and investment behaviour of market participants. In the current situation, market participants are hedging against the risk of increased inflation. As such, market-based indicators are likely to overstate expected inflation somewhat.

However, according to surveys, experts’ long-term inflation expectations have also risen slightly towards 2%. The fact that inflation expectations are approaching our medium-term target rate of 2% is generally welcome from a monetary policy perspective. Our new monetary policy strategy with its clear symmetry also works in this direction.

All in all, however, it could well be that the inflation rate in the euro area will not fall below 2% again in the medium term. With that in mind, it is vital that monetary policymakers focus not just on the risk of an inflation rate that is too low but also on the risk of one that is persistently too high.

5 Monetary policy

Furthermore, it is important not to allow monetary policy’s current pandemic mode to persist indefinitely. The emergency measures are rightly inextricably linked to the pandemic and must be brought to an end as soon as the crisis has been overcome. In my view, this also includes not applying the increased flexibility of the pandemic emergency purchase programme, or PEPP for short, to other programmes. Its flexible design was a specific response on the part of the ECB Governing Council to the particular problems posed by the pandemic crisis. This flexibility should be reserved for exceptional situations. Otherwise, there is a danger that monetary policy will be harnessed to fiscal policy and the financial markets.

A distinction must be made between the general orientation of monetary policy and the emergency monetary policy measures. The key question here is how persistent the increased inflationary pressures in the euro area will prove to be.

Given the current exceptionally high uncertainty regarding the price outlook, I advocate not committing to the very loose monetary policy stance for too long. Because one thing must be clear: if required to safeguard price stability, monetary policy as a whole will have to be normalised again. Ultimately, that also means reducing large bond holdings.

Monetary policy decisions are always made amid uncertainty. For this reason, some of the discussions also take aspects of risk management into account. The question is, how severe would the effects be if – in retrospect – monetary policymakers made the wrong decision? Some see it as the less risky option to maintain a highly expansionary monetary policy stance for longer than is necessary: the central banks need to neutralise the threat of inflation rates staying too low for too long, and monetary policy should therefore under no circumstances be normalised prematurely, they argue. If the central banks were then required to tighten monetary policy at a later stage, even if it had to be all the more abrupt, the economic costs would not be so high, they maintain.

I am not convinced by this line of reasoning. Interest rates have been very low for quite some time now. Leverage among companies, households and governments has increased and the financial system has become more vulnerable to interest rate changes.[9] An abrupt, steep interest rate hike could lead to problems in the financial system that could in turn adversely affect the economy and, ultimately, price stability. This risk must also be factored into the overall assessment.

Admittedly, even a timely and gradual normalisation of monetary policy is unlikely to meet with much approval – either in the financial markets or by governments. After all, their financing costs are impacted by monetary policy. However, the central banks must not allow themselves to be deterred by outside pressure. In order not to raise false expectations, they need to start communicating clearly now that we will safeguard price stability even if it clashes with the objectives of other policy areas. It is precisely for scenarios like these that central banks were granted independence.

6 Closing remarks

Ms Müller, you have succeeded in speaking with a clear voice for the Bundesbank in North Rhine-Westphalia. I would like to thank you very much – also on behalf of the Executive Board – for your nearly 40 years of service to the Bundesbank and monetary stability. I know that saying farewell is not easy for you, but I also know that you are looking forward to the next chapter in your life.

“Life begins at 66,” you said yourself recently. Whereas Udo Jürgens had motorbikes, leather riding gear and a jazz band in mind, your focus will be more on spending time with family and travelling, both of which have come too short in recent years. I hope you find the fulfilment in this phase of your life that you found in your career. Of one thing I am sure: the “we” in your life will continue to be writ large.

You are leaving your successor, Mr Metzger, a regional office that is unique in spirit. A finely woven network spans this regional office and its three branches. The handover has been very well prepared.

Ladies and gentlemen, many of you are very familiar with Mr Metzger. You have come to know him as an accomplished central banker with a great deal of experience, especially when it comes to payment transactions and settlement systems. In recent years, he has championed technical advances and innovations with gusto, for instance blockchain technology. What sets him apart is his adeptness at passing on his extensive knowledge. Mr Metzger has already been a compelling ambassador for the Bundesbank, namely by the Rio de la Plata (or River Plate) in Buenos Aires. He will also superbly fill the role in the Rhine and Ruhr region. Mr Metzger, I wish you the best of luck and every success in carrying out your new duties and responsibilities.

And now I’d like to finish by thanking you all for your attention.


  1. Smith, A. (1776), An Inquiry Into the Nature and Causes of the Wealth of Nations, W. Strahan and T. Cadell, London, Chapter I: Of the Division of Labour.
  2. Weidman, J., Exploring a digital euro, speech from 14 September 2021.
  3. Bernanke, B. S., Inaugurating a new blog, The Brookings Institution, 30 March 2015.
  4. Schmieder, J., Kalifornien droht eine Logistik-Katastrophe, Süddeutsche Zeitung Online, 4 November 2021.
  5. Weidmann, J., Statement at the press conference presenting the Deutsche Bundesbank’s Annual Report 2020, 3 March 2021.
  6. Deutsche Bundesbank, Households’ motives for saving during the pandemic and their implications for the projection, Monthly Report, June 2021, pp. 25-28.
  7. Issing, O. (2021), Ist die Inflation gefährlich?, Die Zeit, No. 32/2021.
  8. Weidmann, J., Expectations matter, speech from 26 September 2019.
  9. European Central Bank, Financial Stability Review, November 2021.