Burkhard Balz: International cooperation in challenging times
Address by Mr Burkhard Balz, Member of the Executive Board of the Deutsche Bundesbank, to
mark the change of Bundesbank representative in São Paulo, São Paulo, 25 April 2022.
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1. Introduction
Ladies and gentlemen,
I am delighted to be here with you today to celebrate the inauguration of Alexander Lieber as the
Deutsche Bundesbank's representative in Brazil. Mr Lieber had already taken over the role last
year from his predecessor, Eike Berner. Sadly, the coronavirus pandemic prevented us from
holding the official handover ceremony at an earlier date. We have all the more reason to enjoy
being able to meet today in person, here in the residence of the German Consul General in the
heart of São Paulo.
2. Economic activity and monetary policy
Ladies and gentlemen,
This handover ceremony is taking place during turbulent times. We are all horrified by the
invasion of Ukraine by Russian troops, which is causing unspeakable suffering; nothing and no
one can justify it.
There is no doubt that the attack on Ukraine also has economic repercussions - for Germany,
the euro area and the entire world. Last week, the International Monetary Fund published its
World Economic Outlook, in which it envisages global growth of 3.6% this year, following on from
around 6% last year. The estimate for world economic growth this year is thus 0.8 percentage
points lower than it was in the January forecast. Much like the International Monetary Fund, the
European Central Bank (ECB) and the Bundesbank also perceive further downside risks to
economic activity.
The war means that forecasts are highly uncertain at present. The shock hit Germany and the
euro area just when a strong recovery from the coronavirus crisis was on the horizon. The
economic recovery will now be much weaker on account of the war, but probably won't be cut
short. The severity of the war's impact on the economy will depend on developments which
cannot reliably be gauged at the moment. How dramatically will energy prices rise - could energy
supplies from Russia even be stopped altogether? How badly will foreign trade and supply chains
be disrupted? And how much of a strain will uncertainty put on private consumption and
investment?
Both Germany and the euro area as a whole are net importers of energy. This means that we
lose purchasing power against the rest of the world because of the huge increase in energy
prices. This comes at the cost of our growth. However, it is not just commodity prices for energy
that have risen significantly, but also transport costs, import prices and producer prices. This
feeds through to consumer prices. Alongside heating oil, fuels and gas, the prices of food
products and other goods have also gone up substantially, as have the prices of services, which
were hit especially hard by the pandemic.
Even before the war, there was broadly based upward pressure on prices, which is now being
amplified further. In March, inflation rates in the euro area stood at 7.4%, and at 7.6% in
Germany, as measured by the Harmonised Index of Consumer Prices. This was their highest
level in the history of the euro. On average this year, our economists now expect Germany to see
inflation of around 6%.
Naturally, people are worried. They are losing purchasing power as well as confidence. Recent
surveys show that sentiment among consumers has fallen considerably. At the same time,
surveys such as the Bundesbank's Online Panel indicate that consumers have once again
adjusted their inflation expectations upwards for the next twelve months; very significantly so in
March. In other words, they are not expecting the wave of inflation to subside swiftly.
Now, it is not up to monetary policymakers to eliminate energy price inflation and all its
consequences at the click of a finger. Even governments can, at most, take mitigating
measures, as is already being done in a number of euro area countries. What monetary policy
can do, though, is prevent the strong price pressures from becoming entrenched.
According to the March projections of ECB staff, inflation rates in the euro area will drop back
towards the 2% target over the next two years. But right now, uncertainty is exceptionally high,
including for price forecasts. Unlike the distinct downward risks for the economic outlook,
inflationary risks are clearly tilted to the upside. It now appears increasingly unlikely that the
inflation rate will return to a level as low as it was prior to the coronavirus crisis in the medium
term.
This is why the Governing Council of the ECB has taken the first steps towards a monetary
policy normalisation. In December 2021, it decided to discontinue net asset purchases under the
pandemic emergency purchase programme, or PEPP, at the end of the first quarter of 2022.
This marks the beginning of monetary policy's exit from the pandemic crisis mode. This was
followed by the decision in March to reduce net purchases under the asset purchase
programme, or APP, more quickly than planned, from €40 billion in April to €20 billion in June.
Once net purchases under the APP have been discontinued, the ECB Governing Council can
raise policy rates. Its decisions will be data-dependent and taken incrementally.
3. Bundesbank representative in São Paulo
Ladies and gentlemen,
Russia's attack on Ukraine represents a new fundamental challenge, a watershed moment.
Politics, the economy and society are all faced with a new reality. Old certainties no longer hold
true. Long-held beliefs are being put to the test.
But that being said, close international cooperation, the exchange of expertise and the creation of
networks across national borders - all this has not lost importance. On the contrary, I believe it is
even more important than ever. And that is precisely why the Bundesbank's foreign
representatives exist. Their task is to observe economic developments in the country of their
posting and to maintain personal contact with local central banks, financial and supervisory
authorities, banks and other key players.
Eike Berner has done an excellent job not only of this side of things. In his four and a half years in
São Paulo, he was a superb representative of the Bundesbank. He added to the Bundesbank's
network in Brazil, and also cultivated relationships beyond national borders, making new contacts
in Chile, Peru and Ecuador, amongst other places. In several cases, this then led to closer
cooperation with the Bundesbank in the context of international central bank dialogue. Mr
Berner's particular focus was payment systems, which are evolving extremely dynamically in
Latin America. I am thus especially pleased that he is contributing his expertise to our Directorate
General Payments and Settlement Systems now that he is back in Frankfurt.
We have found a competent successor in Alexander Lieber. After joining the Bundesbank in
2010, his first role was in the Directorate General Financial Stability, where he mainly worked on
issues relating to the International Monetary Fund and the G20. From 2015 to 2018, he was
seconded to the International Monetary Fund in Washington D.C., where he served as Senior
Advisor to the German Executive Director and built up an excellent international network. Upon
returning to Frankfurt, Alexander Lieber dealt mainly with issues concerning the global financial
architecture. This makes him just the right person to represent the Bundesbank in Brazil and
Latin America. Some of you have already got to know him. I encourage the rest of you to make
contact with him. He is looking forward to meeting and talking to many of you in person.
4. Conclusion
Ladies and gentlemen,
Stefan Zweig, one of the best-known German-speaking writers of the 20th century, once said:
"Anyone who truly experiences Brazil has seen enough beauty to last half a lifetime." On that
note, Mr Lieber, I hope that you will truly experience Brazil over the next few years. Best wishes
and best of luck in your new role. And to all those present, thank you very much for your
attention!