Joachim Nagel: Why do we need Europe?
Speech by Dr Joachim Nagel, President of the Deutsche Bundesbank, at the Annual
Summit of the Stern Stewart Institute, Elmau, 19 September 2024.
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1 Global challenges need global answers
We are living in a period of significant change. Many distinct forces are contributing to
this change. Examples here include global warming and the switch towards carbon-free
energy, progress in digitalisation and AI, as well as geo-economic factors and
demographic developments.
What do all the changes I've mentioned have in common? They affect humanity at the
global level. It therefore does not seem useful to limit one's attention to national
solutions. That said, the European elections have shown us that many voters backed
parties calling for greater national sovereignty or even nationalism-as well as less
Europe. The Brexit referendum, eight years ago, can be seen as an example of this
trend. As, too, can the recent German regional elections.
Why is this? Global changes often lead to global challenges, and sometimes to global
crises. This means a lot of complexity. Those who are in charge are responsible for
properly explaining this complexity. If we don't assume this responsibility, simple
political messages may trump complex ones. And there is no doubt that politics at the
European level are complex. Just think of the legislative process behind the new
Corporate Sustainability Due Diligence Directive-a directive that sets rules for firms to
mitigate their negative impact on human rights and the environment. Or the slow
progress that has been made regarding the capital markets union-a topic I will return to
later.
However, as the current major challenges are global in nature, national responses
alone will not resolve them. Action is needed on a global scale. Take the pandemic, for
example. Overcoming this required unprecedented vaccine research, large-scale
production and global distribution. Or consider the climate crisis. While Germany can
lead by example in terms of decarbonising its economy, it cannot solve the climate
crisis alone. As for European countries, this means that we have to work on European
responses to the current challenges. This holds true for Germany, too-despite it being
one of the largest economies in the world. Germany should see itself as part of a wider
European team-a team that can provide greater stability given the current geopolitical
risks. Take the increasing global trade restrictions, for example. Between the two main
global players, the United States and China, only a unified European approach stands a
chance of defending European interests. This view is shared by almost three-quarters
of Europeans surveyed at the beginning of this year.1
2 Europe is not a weak spot-it is a source of strength
It is true that open democratic societies tend to have complex and cumbersome
decision-making processes. The more fragmented the political landscape, the more
difficult it becomes. This already holds for the national level-as can currently be seen in
the case of France and Germany. At the European level, complexity is even greater.
There, agreeing on a compromise is like an art in itself. However, democratic
decisionmaking processes have one great benefit. They integrate the diverse interests and
preferences of the people.
In fact, a significant majority of EU citizens are satisfied with the way democracy works
in the EU.2 And the share of people who have a positive image of Europe is nearly
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twice as big as the share of people who have a negative one. This might well reflect an
observation made by the Spanish philosopher José Ortega y Gasset at the beginning of
the last century. He noted that four-fifths of our intellectual property stem from our
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common European heritage. People seem to have a good understanding of what
"European" means: the common ground of our liberal, democratic societies and the
intellectual achievements we have made.
Once we realise these strengths of Europe, we can use them to move forward, to
manage the changes I mentioned at the outset of my speech. Europe does not have an
analytical deficit, but a deficit in taking action. For example: A deeper single market
could help seize the opportunities of digitalisation more fully. And a unified European
approach to decarbonisation could serve as an example and help the formation of
larger climate clubs. These clubs derive mutual benefits from sharing the costs of
producing less CO2- emissions. The members of such a voluntary club have incentives
to adhere to its rules as long as the gains from the club are sufficiently large.5
3 What it will take to move forward
And what will it take to move forward? As President of the Bundesbank and as a
member of the Governing Council of the European Central Bank, I am doing all I can
within my remit. First and foremost, I am striving to restore price stability. This is
because price stability is a crucial requirement for economic development and for the
welfare of our societies. And I am also supporting measures that help Europe to act. It
is in this context that I return to the topic of the capital markets union. The capital
markets union can be an important means of providing companies with the necessary
funding to manage change. This includes funding for new scientific knowledge and for
innovations to help us thrive in our future environment. Europe is relatively good at
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research. And research is a crucial basis for innovation. However, a lack of available
capital often prevents young innovative companies from growing. A key reason is that
capital markets in Europe are still highly fragmented and rather underdeveloped
compared to those in the United States, for example. Although market structures are
not fully comparable, venture capital investment may serve as an example here.
Relative to GDP, its size in European countries is less than one-tenth the size in the US.
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A European capital markets union would give firms better access to risk capital in
Europe-notably young firms in their start-up and scale-up phase, and it would provide
better exit options. By mobilising more private capital, the capital markets union could
improve opportunities for economic growth. And it could foster much needed
investments in Europe's digital and sustainability transformation.
It is a real challenge to make progress at the European level and in the 27 Member
States on the legal initiatives necessary to realise the capital markets union. But if we
agree that the changes we see are global in nature, then we should not try to deal with
them at the national level. We should strive for multilateral solutions. Here in Europe,
the European Union provides a wonderful opportunity to find common approaches that
many around the world can subsequently gather behind.
I am optimistic that the new European Commission will build momentum to move
forward-not least with respect to the capital markets union, which was recently given
fresh impetus by Member States' political leaders. We have the potential to rejuvenate
the European idea. A thriving research and innovation ecosystem will support that
goal-with stable prices, sufficient financing opportunities and steady growth. Let us all
do what we can to strengthen Europe at the current juncture.
1
European Union (2024), Europeans' attitudes on trade and EU trade policy
2
See Eurobarometer Spring 2024, question SD18a, Standard Eurobarometer
101-Spring 2024
3
See Eurobarometer Spring 2024, question QA12, Standard Eurobarometer
101-Spring 2024 : 62% say that they are optimistic about the EU, 35% that they are
pessimistic.
4
Ortega y Gasset, José (1931), Der Aufstand der Massen, p. 198.
5
American Economic Review (2015), 105(4): pp. 1339-1370, Climate Clubs:
Overcoming Free-riding in International Climate Policy
6
Nature Index: 2023 Research Leaders; on Germany see also: KfW Research:
Wettbewerbsfähigkeit-vom kranken Mann Europas zum Superstar und zurück: Wo
steht die deutsche Wirtschaft? p. 15.
7
Demertzis, M., M. Domínguez-Jiménez and L. Guetta-Jeanrenaud (2021), Europe
should not neglect its capital markets union, Policy Contribution 13/2021, Bruegel, p. 6.