Joachim Nagel ©Gaby Gerster

Nagel: Germany as an investment location could become a true turnaround story

In an interview with “Der Tagesspiegel”, Bundesbank President Joachim Nagel stressed that, although economic growth in Germany was still weak, it was slowly improving. “The general trend for orders in industry appears to be stabilising, and consumption is likely to pick up again soon. Germany could become a true turnaround story, by which I mean a success story, if a concerted effort is made to address and resolve structural problems,” he remarked. 

Dr Nagel explained that Germany was experiencing difficulties navigating the path towards digital transformation and climate neutrality, and that demographic developments were making this even harder. Alongside these problems, though, Bundesbank President Nagel also sees great opportunities: “In the past, the German economy and its workforce have repeatedly shown that they can adapt to changing conditions. For example, we have largely moved away from Russian gas – faster than many expected.” 

We need to mobilise the labour force

In view of demographic developments in Germany, Dr Nagel explained that it was important to mobilise the labour force. Germany needs to remain attractive to foreign skilled workers, he continued, stressing that it will otherwise not be possible to solve the skilled labour shortage. At the same time, in his view, something needs to be done to ensure that people who want to work can work. According to the Bundesbank President, one way of making this happen would be to expand childcare provision. 

Dr Nagel sees a need for reform with respect to the statutory pension. He finds it appropriate to generally factor rising life expectancy into the statutory retirement age. He also believes that consideration needs to be given to how to make it easier for pensioners to continue working while receiving their pension.

Inflation is moving in the right direction

Asked about the ECB Governing Council’s interest rate decisions, Dr Nagel affirmed the interest rate hikes between July 2022 and September 2023. “Inflation is on the decline. And we expect it to hit our target of 2 % by the end of 2025 at the latest, the Bundesbank President said. The rate cut in June was consistent with that outlook, he noted. While there were still some goods and services whose prices were continuing to rise significantly, all in all, inflation in the euro area and in Germany had fallen to 2.5 % in June 2024, Dr Nagel explained.

He stressed that the choice of when the next rate cut would occur would be made in a data-dependent manner. Core inflation, which excludes highly volatile energy and food prices, is still running at a relatively high 2.9 % in the euro area. The ECB Governing Council would therefore reassess its stance at every meeting and remain cautious. 

The Bundesbank is committed to cash

When asked in the interview whether there was a threat of cash being abolished, Dr Nagel provided a reassuring response: “Our mandate is to provide cash, and we will continue to do so in the future. Cash is still the most widely used means of payment for Germans, although the use of cash is gradually declining.” The Bundesbank therefore remains firmly committed to cash in the future. 

But at the same time, he went on to say, the world was also becoming increasingly digital and digital payment media were becoming more important. This is another reason why we in the Eurosystem are working to ensure that, in future, we will be able to provide not only euro cash, but also the digital euro, the Bundesbank President remarked. He described how cashless payments available today use international card systems, leaving extensive data trails behind them. “I want everyone in Europe to be able to pay using a single European payment system – be it in a beach bar in Italy or when shopping online in Finland. And with the highest data protection standards, the Bundesbank President said. He expects the digital euro to be introduced in four years’ time.