1 Welcome

State Secretary Dr Worms,
Mr Wittershagen,
Ms Rutzka-Hascher,
Mr Ollinger,
ladies and gentlemen,

Welcome to the Deutsche Bundesbank. It is nice to see so many of you here to bid Ms Rutzka-Hascher farewell after nearly six years running the Regional Office in Hesse and to welcome Dr Ollinger as the new President of the Regional Office. As a musical introduction you heard the Mainhattan Trio playing one of Peter Klohmann’s own compositions entitled “Brexit Blues”.

One really could have the blues from following the Brexit impasse over the past weeks and months. However, that will remain on the sidelines today. Both of today’s protagonists may also have a touch of the blues, as however exciting and challenging taking over a new task in the Bank may be, it also always signifies a farewell. 

2 The Regional Office in Hesse

Ms Rutzka-Hascher took over the management of the Directorate General Human Resources from Mr Ollinger two days ago. Functionally speaking, it makes sense for them to trade places because it is becoming ever more crucial to attract and retain management personnel for our regional offices, most importantly in the Regional Office in Hesse.

This is because banking supervision plays a particularly important role here even after the creation of the Single Supervisory Mechanism at the end of 2014. Since then, significant institutions have been supervised by international joint supervisory teams led by the ECB and no longer by the Bundesbank. However, Bundesbank colleagues also work in these teams. Thus the Regional Office is by no means excluded from supervisory tasks – quite the contrary: through the new European structures and regulatory reforms following the crisis its tasks have increased and become even more complex.

Recently, preparatory work for Brexit has been added to this list of tasks. Institutions which want to establish new units in the financial centre of Frankfurt or relocate part of their business from London to Frankfurt are closely monitored by us. The authorisation procedures associated with this for banks and securities trading banks are now complete but procedures are still underway for individual financial service providers. Thus far banking supervisors have processed a total of 31 Brexit-related authorisation procedures. Institutions are now well prepared for possible changes.

The supervisors here at the Regional Office in Hesse achieved this in addition to current operations, which include almost 600 meetings a year with banks and financial service providers. All of this demonstrates the extensive volume of work that they do.

Furthermore, digitalisation is changing the role of supervisors and is contributing to banking supervision becoming an increasingly demanding task. Having the right people for this workload is a real challenge.

Here in Frankfurt, the Bundesbank finds itself in competition for the best talents with the ECB and around 170 banks and approximately 230 financial services institutions. The Bundesbank’s University of Applied Sciences in Hachenburg is indispensable for us in this regard, as it essentially ensures a steady flow of very well-trained junior staff.

3 Diana Rutzka-Hascher

Ms Rutzka-Hascher, you have navigated the Regional Office in Hesse through these challenging times with great dedication and success. As an approachable and responsive Regional Office President, you successfully created a climate in which staff members happily engaged and were able to work efficiently.

But it's not just the employees who appreciated your charisma and presence. Here in the financial centre of Frankfurt you shaped the outside perception of the Bundesbank.

Peter Lückemeier wrote about you in the Frankfurter Allgemeine Zeitung: “Diana Rutzka-Hascher has maintained a cheerful and friendly authenticity which has nothing presidential about it.” This is certainly the case but it is far from all of what sets you apart, since cheerfulness and friendliness alone are not enough to run a regional office.

A willingness to make decisions and assume responsibility is also needed, as well as the ability to involve employees even in unpleasant decisions. For instance, you demonstrated this ability with the closure of the Gießen branch in 2015.

With your charisma you were also an ideal ambassador of the Bundesbank in the financial centre of Frankfurt. You were confident that financial institutions and supervision share a common interest, namely in solid institutions and a stable financial system. Your profound knowledge of Bundesbank topics acquired over your 30 years’ experience at the Bundesbank helped you in this context.

As important as networking with the financial market community is, it is also crucial that the Bundesbank has a presence in the broader public. And you have made a contribution to this in a variety of ways over the past years, be it as part of the “Bundesbank Forum” series or the Bank’s open days.

Economic education is essential for us as central banks. Ultimately, we can only fulfil our mandate well if the general public trusts us and the money we issue, and this requires a certain understanding of the subject matter. Given your pedigree in business education, reaching out is particularly close to your heart.

This expertise will no doubt help you in your new area of responsibility. After all, the Bank’s Directorate General Human Resources has been working hard these last few years to promote and establish a state-of-the-art open leadership culture. At the same time, through staff development and management training it is adapting employees’ qualifications to changing requirements.

4 Thomas Ollinger

It is not least thanks to Thomas Ollinger that we have already made considerable progress in this area.

Mr Ollinger, you led the Directorate General Human Resources for six years with the highest level of commitment and enthusiasm. Human Resources was already your field when you started at the Bundesbank exactly 22 years ago. You started out as a lawyer in the Legal unit, but there you were also initially responsible for human resources issues. In 2007 you then made the logical move to the Directorate General Human Resources.

The Office for Policy Issues, which you led from 2008 on, also already dealt back then with the staffing situation in the regional offices. Yet the Bundesbank found itself in the process of staff and organisational downsizing in the wake of structural reform, with the regional offices and branches hit especially hard. The core question was how to reduce staff numbers in a socially compatible way.

But you, Mr Ollinger, recognised at an early stage that a shortage of suitably skilled workers was also becoming an issue for the Bundesbank and that employers were increasingly competing for the best talents. That’s why you directed attention to the “Bundesbank” employer brand and fostered what is known today as employer branding.

You also recognised that, as a public-sector employer, the Bundesbank only has limited scope in terms of the financial provisions of employment relationships. But we do offer unique tasks for the common good in an international environment. You successfully and systematically underscored this in the Bank’s HR marketing stance.

The Bundesbank also scores highly in its initiatives promoting a healthy balance between work and family life. Under your leadership, the Bank developed its pioneering role. In the most recent staff survey in 2016, 80% said that working at the Bundesbank offered a good balance between career and family life.

Mr Ollinger, both of us, however, saw room for improvement, particularly in the Bank’s corporate and leadership culture. For an institution is more efficient and successful when appreciation and a willingness to communicate shape the interaction between management and staff.

That was the background to the development of the management principles and the establishment of regular management feedback and coaching for management staff. And they have already shown signs of success! According to the most recent staff survey, significantly more employees, namely 75%, are satisfied with the communication with their direct manager than four years previously. Mr Ollinger, as an approachable and dependable team player, you personally have been a role model in this regard.

In other words, such a modern corporate culture bolsters the Bundesbank in terms of skilled workers in the face of intensifying competition, which is especially driven by demographic change. This change also means that the ratio of older people is increasing – including in the Bundesbank’s workforce.

With the last Bundesbank management conference on the topic of “Healthy leadership”, together we placed particular emphasis on this issue and made the health of our employees and maintaining their performance at work a topic across the entire Bank. With the operational framework demography, the Bundesbank now has suitable instruments at hand to master the demographic challenges in the Bundesbank, given that between 2020 and 2030, a particularly large number of employees will retire.

Now as the Bank’s first demography representative, you will continue to shape this field and I look forward to the contribution you will make in the future.

5 Demographic change as an economic policy challenge

Ladies and gentlemen,

Demographic change is, however, naturally a much broader issue. By international standards, Germany is one of the countries particularly affected by population ageing.

Even today, every year around 200,000 more employed people are retiring than young people entering the job market. And this development will intensify in the future. By the end of the next decade, the ratio of the population of usual working age to older citizens will shrink from 3:1 to roughly 2:1.

This demographic change will reduce the labour supply and dampen the long-term growth of our economy. According to Bundesbank estimates, aggregate capacity is currently growing by around 1.5% per year. Looking to the future, potential growth is, however, faltering and is expected to fall to under 1% over the coming decade.[1]

There are various approaches to counteracting the reduction in size of the labour force due to demographic change. An important example of this is the participation of women in the labour force. Although today the number of women in employment in Germany is higher than the EU average, at the same time, the ratio of part-time employees is significantly higher than in other countries.[2] Better provisions for supervising children or people in need of nursing would be an incentive to encourage more to work.

It will, however, also be imperative to bolster aggregate productivity. For example, investment in the digital infrastructure or investment in education offer opportunities in this regard.

Demographic change will, however, not only dampen economic growth, but also weigh considerably on our social security system and public finances. It is all the more important to improve the sustainability of the pension system in particular. In doing so, special attention should be paid to fair compensation among the generations. And it should be ensured that none of the main levers of the pension insurance scheme – the pension level, the contribution rate or the retirement age – is pulled too far, but also that none becomes taboo.

6 Economic activity and monetary policy

Ladies and gentlemen,

Demographic change is, however, just one of the challenges our economy needs to come to terms with.

Businessweek magazine recently ran a cover story on “Germany’s Fragile Future”.[3] Germany today, the journalist wrote, “feels like it’s living out the final days of an era; there’s an air of impending change for which no one seems prepared. The country remains wealthy and politically stable, but it’s hard to escape a sense that Germans are complacent about the threats to the foundations of their prosperity.”

And he might have a point: the excellent constitution of Germany’s economy over the past few years may well have blinded us to the underlying problems the country is facing. By the same token, it could well be that the current doubts have something to do with recent deterioration in the state of the economy.

Germany saw its economic growth begin to falter in the second half of 2018. The oft-cited problems afflicting car manufacturers and other one-off effects go some way towards explaining the malaise, but there have been other factors besides. Indeed, activity flagged across industry as a whole. For one thing, exports have not been providing stimulus of any note since back in early 2018. And that’s not the only demand-side factor: household consumption was also sluggish, even though labour market conditions were excellent.

The dip in growth is proving to be more stubborn than initially thought. German GDP will probably have expanded noticeably in the first quarter of the year, but that will have been partly due to one-off effects such as the mild weather conditions, which will have spurred construction activity.

All things considered, there are no signs as yet that the situation will improve much this year, though consumption is one exception here. I wouldn’t be overly pessimistic about the path of the economy, though, especially since major forces of growth are still intact. The upbeat funding conditions for enterprises, rising wages, good employment prospects and loose fiscal policy are all indications that Germany’s economy will rally during the course of the year and bounce back from the lull with fresh momentum.

But what’s also clear is that growth in 2019 will arguably fall well short of the potential rate of 1.5%. The Federal Government is still expecting to see the economy expand by 0.5% this year, which is very much a plausible number given the data currently available.

What is more, the risks are still mainly skewed to the downside. Just take the simmering trade conflict and the persistent uncertainty surrounding the questions of whether, when and how Brexit will materialise.

The slowdown in economic activity might have been particularly noticeable in Germany, but it hasn’t left the other Member States of the euro area unscathed, either. Weaker growth dynamics overall will prevent euro area inflation from firming up quite as briskly as we had been expecting at the end of 2018.

This prompted the ECB Governing Council to adopt a raft of policy measures at the beginning of March aimed at ensuring that inflation stays on a medium-term path that is consistent with its price stability objective. In one major policy decision, the Governing Council used its forward guidance on the future level of policy rates to shift the timing of a first possible rate rise somewhat further into the future. Thus, it is now expecting key ECB interest rates to remain at their present levels at least until the end of 2019, and in any case for as long as necessary.

I dare say many members of the general public, and a number of banks, too, would have liked to have seen interest rates pick up again long ago, and I can appreciate their concerns. The protracted low interest rates are placing an ever greater burden on credit institutions for which traditional deposit-taking and lending operations are the main source of income.

That said, it is about more than just the sums of money which the banking sector pays in negative interest to the Eurosystem. You see, these amounts make up a small proportion of their net interest income. Seen from this perspective, the potential relief provided by a tiering system would undoubtedly make itself felt, but the overall impact would be modest. And that relief would presumably be smaller than the additional burden caused by the shift in normalisation expectations which this debate has sparked.

A more pressing question from the vantage point of monetary policy is whether the problems which the low interest rate environment is causing for banks is disrupting or even hindering the transmission of policy stimulus. The onus is primarily on the banking industry itself to improve bank profitability levels.

Monetary policy is there to maintain price stability in the euro area. This means responding to weak domestic price pressures but also continuing along the path of normalisation and not putting it off unnecessarily, the inflationary outlook permitting.

Given the diminishing effectiveness of monetary policy, I have made a point of highlighting the risks and side effects. And I am not just talking about bank income or the interest that savers earn on their deposits. I’m also referring in particular to the potential risks to financial stability which could ultimately also pose a threat to price stability.

7 Conclusion

Policy normalisation looks set to be a challenging task for the Eurosystem over the next few years – and stability-oriented action by economic and fiscal policymakers in particular will play a major role in this regard. But speaking from the perspective of a central bank, we also see the importance of tackling demographic change and shaping the process of digitalisation.

These are challenges we can only meet with managers who think beyond the here and now, pull up their sleeves and show commitment and dedication. It fills me with pleasure and pride that we have two such individuals at the helm of our Directorate General Human Resources and the Regional Office in Hesse.

Ladies and gentlemen,

When Jürgen Klopp, currently the manager at Liverpool Football Club, left Borussia Dortmund back in 2015, he said: “It doesn’t matter what they think about you when you arrive, but what they think when you leave”. The people you are leaving behind, Ms Rutzka-Hascher and Mr Ollinger, think only the best of you.

And you can be sure that the people at your respective new destinations will also give you a warm welcome and all the support you need. I wish you both the best of luck and every success in your new positions.

And with that, I would now like to hand over to Dr Martin Worms, State Secretary at Hesse's Ministry of Finance. Thank you for your attention.

Footnotes:

1. See Deutsche Bundesbank, Outlook for the German economy, Monthly Report, December 2018, pp. 15-32; as well as Deutsche Bundesbank, Demographic change, immigration and the potential output of the German economy, Monthly Report, April 2017, pp. 35-47.
2. See Deutsche Bundesbank, Part-time employment in Germany and France, Monthly Report, May 2018, pp 54-56.
3. Businessweek, 15 April 2019.