In an interview with Funke Mediengruppe, Bundesbank President Joachim Nagel emphasised that he could imagine a moderate reform of the debt brake. However, we could also afford to run up somewhat higher deficits during certain phases without jeopardising stability, he said. In our view, those would be periods when the government debt-to-GDP ratio is below 60%. According to Dr Nagel, the additional scope opened up in this manner could then be used to invest in the future. 

People and businesses needed a clearer vision of how the energy transition and the challenges it presents would be overcome, as he saw it. What mattered now, though, was to actually implement the Growth Opportunities Act. The Bundesbank President saw further potential to relieve the burden on enterprises by reducing bureaucracy and accelerating procedures. We need a strong collective response for Germany as a business location, he said, adding that only then would Germany stop lagging behind when it came to growth rates.

Germany’s particular situation was, in his view, also partly responsible for stagnant economic growth. The economy had suffered due to the impact of the war of aggression against Ukraine, especially on the back of high energy prices. Weak foreign demand was currently a major factor, too. In the interview, he stressed that this was offset by a strong German labour market with a high level of employment, and that We should not paint the situation blacker than it actually is. We are not the sick man of Europe.

Dr Nagel did, however, voice concerns about the shortage of skilled workers: “We are experiencing a shortage of labour, and that is only going to get worse as the population ages. If we are now living longer, the retirement age should also rise, and this in line with a fixed formula.” This, he said, would alleviate the shortage of skilled workers and support long-term growth.

Inflation to decline further 

The Bundesbank President had a positive outlook on price developments in Germany and the euro area, saying that: Barring a deterioration in the underlying conditions, the inflation rate in Germany will continue to decline this year. He expected average annual inflation to run at around two-and-a-half percent, with the target rate of 2% in the euro area being reached in 2025. 

Whilst energy prices had fallen and food prices were no longer rising as sharply, there were still strong price increases in the services sector, Dr Nagel said. 

With regard to key interest rates, he continued, the ECB Governing Council would not cut the key interest rates until it was sufficiently certain that inflation will indeed continue its rapid descent. 

“The digital euro will be a success”

In the interview, Dr Nagel also talked about the future “digital euro” project. He was confident that it would be a success. “It ticks all the boxes,” he said, explaining that the digital euro would let users pay quickly and conveniently using a mobile app, but that it could also be used offline. Compared with the existing conventional electronic alternatives, transactions with the digital euro would also be designed to be more cost-effective for retailers.

Furthermore, individual privacy would be given maximum possible protection. There is no reason for anyone to be afraid of becoming a ‘see-through customer’ as a result of the digital euro, the Bundesbank President reassured. He anticipated that the digital currency would be available in the next four to five years. However, even if electronic payment options continued to grow in number, consumers would still be able to pay in cash in future. Cash isn’t going to vanish, Dr Nagel said.