The change in the global world order and economic system isn’t a temporary phenomenon. Globalisation and digitalisation mean this change will be a perpetual process, First Deputy Governor Sabine Mauderer announced at a symposium organised by the Institute for Banking and Financial History (IBF) and the Center for Financial Studies (CFS). Hosted by the Bundesbank’s Regional Office in Hesse, this event saw participants discuss how trade conflicts and tariff policy can impact on economic growth, globalisation and international cooperation.

Mauderer: The geopolitical climate has become harsher

The First Deputy Governor explained how US trade policy, overcapacity from China, and Russia’s invasion of Ukraine had spurred many countries to re-evaluate their economic relations. The narrative, she reported, was for them to strengthen their own sovereignty. Bolstering resilience and mitigating critical dependencies did make sense, Mauderer argued: But it’s the global division of labour we have to thank for the prosperity we enjoy today. Economic relations that are centred less around efficiency create costs. The upshot of this, she reasoned, were productivity losses, higher prices and lower welfare gains from the international division of labour.

Moreover, trade policy was increasingly pursuing different policy purposes against the backdrop of geopolitical developments. Mauderer stressed that trade policy driven by political motives risked undermining mutual trust among trading partners.

European market a key lever

The First Deputy Governor argued that the European Union (EU) needed to leverage its economic weight and its market of 450 million consumers to confidently stand up for its interests in the global arena. A Europe that stands together as one has the opportunity to shape its own future, she said. At the same time, though, Europe had to reduce its dependencies in critical areas – for example, for certain raw materials – and rely more on different sources for imports. Wherever possible, however, we also need to further expand the single market in a way that leaves us less dependent on non-European suppliers for critical infrastructure, Mauderer argued. 

The First Deputy Governor regards the savings and investments union (SIU) and the digital euro as highly promising initiatives: We need them not least for a more competitive and growing European economy. These initiatives, she added, could reduce dependencies in the financial system and boost resilience.

Strengthening European sovereignty – deepening international cooperation

The EU with its single market can stand tall on the global stage as an attractive and reliable partner, Sabine Mauderer argued. This proposition had already borne fruit, she noted, in the shape of the recently concluded free trade agreements with India, Australia and the Mercosur countries. The EU, Mauderer stressed, needed to press ahead along this path and look to conclude further agreements. 

Outlook for the German and European economy

Later in the day, Bundesbank Executive Board member Fritzi Köhler-Geib took part in a panel alongside Lisandra Flach, trade expert at the ifo Institute and professor at LMU Munich, and Jan-Otmar Hesse, professor at the University of Bayreuth. Köhler-Geib stressed that Germany and Europe needed to deal strategically with existing technological dependencies and reduce them. Investing in innovations and future technologies like quantum computing and artificial intelligence is essential – at the same time, we need to strategically strengthen our digital sovereignty, she said. At present, Europe was importing more than 80 % of its digital infrastructure and technologies. 

Technologies were also a source of risks, the panellists warned. Recent Bundesbank research, for example, indicated that various types of AI systems deployed in trade could have an impact on financial stability. The challenge is to understand AI systems, to create transparency about what types of models are used in the market, and to update public institutions’ toolkit accordingly, Köhler-Geib observed.

The main thing needed to boost European resilience was for Germany to embrace structural reforms, she argued, alongside a completed European single market and an integrated European financial market. Only thus, she said, would it be possible to raise investment in innovations and digital technologies of the future and elevate potential growth. Lisandra Flach emphasised that German industry stood to benefit from a harmonised European market for services, including, for example, the market for automotive software.