IAFEI Quarterly - 31st Issue

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Speech Frankfurt am Main | 20.11.2015
Dr Jens Weidmann President of the Deutsche Bundesbank
How to address the euro area’s economic
challenges?
Keynote speech at the 25th European Banking Congress
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1 Introduction
Ladies and gentlemen
It is a great pleasure for me to speak to you. As I stand before you today, it’s hard to believe
that a whole year has already gone by. I don’t think that there is any event I’ve attended more
regularly - with the exception of the Bundesbank’s presentation of its annual accounts.
At last year’s event, I suggested that contemporary banking and medieval banking have as
much in common as a Ferrari and a donkey cart.
What holds true for a subsystem of the economy certainly must hold for the economy at large.
In terms of complexity and sophistication, today’s economy and its medieval counterpart are
worlds apart.
This, however, raises an obvious question. If the euro-area economy really is a sleek sports
car, why has its performance been decidedly less than dynamic? Is the engine sputtering?
Have the tyres lost pressure? Does the body produce drag?
The answer to these questions is: all of the above. The euro area’s growth engine is not firing
on all cylinders. The euro area’s tyres have lost pressure - that is, Europe’s banks have
reduced their leverage. And although the lowering in the form of fiscal consolidation has been
crucial to prevent the euro area from careening off the road, at the same time, the reduced
ground clearance makes it harder to cushion bumps - meaning that it may become more
difficult to respond fiscally to negative economic developments in the euro area.
IAFEI Quarterly | Issue 31 | 34