1 Introduction

Ladies and gentlemen, 

A very warm welcome to all of you. I am that delighted that we are resuming our annual get-together for the first time since the pandemic.

What a great tradition our Deutscher Abend is! It all started about ten years ago, when the Bundesbank began to actively engage in reserve management and trading here in New York City. Since then, the Deutscher Abend has become a must-attend event for most of us. 

Indeed, there is no shortage of relevant topics this evening. Inflation is still too high in the euro area. At the same time, the economic outlook is weakening – in particular in Germany.

Decarbonisation, digitalisation, an aging population – the challenges the German economy faces are manifold – and they can hardly be tackled in isolation. 

But there is every reason to be optimistic. 

The German economy has demonstrated its ability to adapt: Businesses have coped with sharply higher energy costs. The labour market has remained robust. 

Made in Germany remains highly regarded globally. Yet, there is a need for structural change. Germany’s business model needs an update. Therefore, several policy initiatives are on the table: attracting global players in chip-making, boosting green technologies, reducing bureaucratic hurdles – the direction of travel is clear.

At the end of the day, this transformation can only succeed in a stable financial environment. That is why it is so important that central banks strive to bring the inflation rate back to target.

2 Monetary policy normalisation in the euro area

In that spirit, the ECB’s Governing Council increased interest rates last week for the 10th time in a row. It also reaffirmed the gradual unwinding of its monetary policy portfolios. 

The Eurosystem’s market footprint is shrinking. This has opened up gaps for the markets to fill. And that is what they have done. Market funding continues to advance smoothly across asset classes. Sovereign and credit spreads have remained remarkably stable overall thanks to robust demand – investment funds and retail investors stand out here. 

Going forward, the fundamental question is: How small should a central bank’s market footprint be? There is no universal answer to this question, as every currency-area has its own unique institutional features. 

Against this backdrop, the Eurosystem has started a thorough review of its operational framework. First results are due next year.

Much has changed since the previous review back in 2004. Not only in the financial and regulatory environment, but also regarding the size and composition of the Eurosystem’s balance sheet. Now is the time to make the Eurosystem’s operational framework fit for the future. The overriding principle is clear: The Eurosystem needs to provide sufficient liquidity to effectively steer money markets. But not more – to avoid unintended side effects. Markets should have room to breathe and take on more responsibility again.

3 Conclusion

Ladies and gentlemen, 

The process of monetary policy normalisation in the euro area is ongoing. The Governing Council remains committed to deliver on its mandate. 

Monetary policy tightening is a gradual process. This also presents a good opportunity to review our operational procedures. 

Normalisation does not mean that we will revert to the same framework we had prior to the Global Financial Crisis. Rather, the new normal will be different, yet again.

I now look forward to fruitful discussions with all of you. Thank you.