joachim nagel : climate change and central banks – supporting the green transition by pursuing price stability welcome address ( hybrid ) by dr joachim nagel, president of the deutsche bundesbank, at the deutsche bundesbank spring conference 2023 " climate change and central banks ", eltville, 12 may 2023. * * * check against delivery 1 welcome ladies and gentlemen, good morning and welcome to day two of our spring conference. first of all, i would like to thank you very much for coming and sharing your thoughts with us. on the agenda is an abundance of impressive work, promising a deep and fruitful exchange of ideas. we are proud to be able to present the topic of " climate change and central banks " in the multi - faceted way it deserves. climate change is one of the biggest challenges of our time. the necessary green transition affects everyone – and everyone can contribute to it. on the road to a greener economy, we can make the fastest progress when it's clear who has right of way and all the actors involved respect that. governments and parliaments go first. they have both appropriate instruments and the democratic legitimacy for climate policies. central banks should also play their part, acting within the scope of their mandates and making sure they " stick to their lane ". the bundesbank and the eurosystem are aware of this responsibility. and we are acting accordingly, supporting the fight against climate change without overstretching our mandate. our primary objective is to maintain price stability. consequently, i see the safeguarding of price stability as the starting and reference point for any consideration of climaterelated issues in monetary policy. following this approach allows us to make substantial progress without jeopardising our credibility and independence. and, as i will argue in more detail, by pursuing price stability, the eurosystem is supporting the green transition. let me briefly illustrate this key message by looking at three aspects. 2 supporting the green transition by pursuing price stability first, price stability is an important prerequisite for climate policy to achieve its goals. as laurence ball and david romer put it, inflation reduces the informativeness of current prices, causing customers to make costly mistakes [ - ] ". 1 what is true in general is also true in specific cases. price tags on greenhouse gas emissions are not the only instrument, but the most efficient one to address climate change. 1 / 4 bis - central bankers'speeches with low and stable inflation, such

. it is all too clear, after all, that the current crisis is also a crisis of trust in the viability of countries ’ debt positions. and it is a crisis of trust in the soundness of the banks. indeed, in the crisis - hit countries there is a close connection between the crisis of trust in the banks and the crisis of trust in government finances. what bis central bankers ’ speeches we need, therefore, is clear organising principles both for the financial system and for monetary union, principles which prevent the creation of unhealthy incentives. first, bank risks and sovereign risks must be prevented from being too closely intertwined. second, the principle of subsidiarity must be anchored still more firmly. the intertwining of bank and sovereign risks is likened by many to a gordian knot, which it needs a sword to cut if the current financial and sovereign debt crisis is to be resolved. i have to admit that i find this view surprising and, indeed, astonishing. it reminds me of a story by the novelist manes sperber, in which a teacher asks one of his pupils what he knows of the gordian knot. the boy ’ s answer is somewhat unexpected : “ no one could undo the gordian knot, not even alexander. but instead of admitting this, alexander took a sword and cut the knot, which any idiot could have done. after this, alexander was called ‘ the great ’ ”. the teacher did not see the funny side of this : “ six, sit down ”, he replied. ( in those days, grades went from one to six, not aaa to d. ) the loops of the knot : systemic and fundamental aspects of the crisis in trust few words can have had such a high - profile career as the term “ systemic ”. i would like briefly to define it in connection with the financial and sovereign debt crisis. if an event is not systemic, it can be dealt with in isolation. if this were the case, the debt problems and problems with the banking systems in the various countries could be regarded as a series of standalone phenomena, rather than as a systemic phenomenon which affects the euro area as a whole. things are rather different with systemic events : there are contagion effects between the countries and contagion between financial institutions. hence my image of the gordian knot, which refers metaphorically to the feedback loops between the financial sector and the real economy. at the end of last year