joachim nagel : stocktake - the state of the economy and banks in germany speech by dr joachim nagel, president of the deutsche bundesbank, followed by a discussion verbandstag der sparda - banken, frankfurt am main, 21 september 2023. * * * check against delivery 1 words of welcome ladies and gentlemen, the many contributors ahead of me have set the stage well for the topic of " renaissance and transformation ". in my speech, i will shed light on both these aspects : with regard to banks, there is the renaissance particularly in interest business, coming after so many years of low rates. and with regard to the economy and society, there are the transformations – and i am using the plural deliberately here – that will need to be mastered and shaped. i will begin by briefly taking stock of our current position. where do we stand right now? what's the state of the economic environment? 2 economic activity and price developments in germany much has been said and written about the deterioration of the german economy. indeed, germany's economy is currently treading water. following a technical recession in the last quarter of 2022 and the first quarter of 2023, activity levelled off in the second quarter. lacklustre foreign demand weighed on industry, primarily on account of the weak chinese economy. and increased financing costs meant that demand for construction and capital goods was moderate at best. but there were positive aspects, too. high order backlogs across parts of industry and construction combined with easing supply bottlenecks buoyed aggregate output. private consumption also found its feet, having contracted significantly in the winter half - year. there was a sharp rise in wages. this meant that employees'purchasing power was not eroded any further, despite the current inflation. and the labour market, too, was still in very robust shape. while employment growth flattened slightly and unemployment picked up moderately until the middle of the year, there is also still a relatively large number of job vacancies. for the third quarter, we at the bundesbank are currently expecting economic activity to decline again somewhat. and that means we are expecting a small – less than one percent – decline for full - year 2023 as well. given this state of play, describing germany as a " sick man " seems excessive to me. after all, the current lull in growth is being driven by special factors. subdued global activity is having an outsized impact on germany, with its strong export base

the japanese financial sector is still suffering from its excessive effects. that is a burden not just for japan but for the world as a whole. moreover, there is the other part of the foundations which international cooperation should not undermine either : the appropriate arrangements among countries themselves and with the financial markets. international action should improve, and not harm, the operation of the financial markets. but that is precisely what happens if there are public bail - outs of investors in the event of a crisis. they encourage moral hazard, thus weakening the efficiency of the markets. therefore, publicly financed bail - outs ultimately attack the economic basis of legitimacy for free capital markets. my criticism of some of the imf ’ s past activities is not new. in the case of mexico and, to some extent, in the crises of a few asian countries, financial resources have been thrown into the fire too quickly and too extensively and private investors have not been adequately involved or only fairly late on. certainly, the imf has been under considerable political pressure regarding some of its actions. that explains much but does not justify everything. there must be no more rescue operations without the involvement of the private creditors. the imf cannot and should not be lender of last resort. fortunately, there is now growing recognition of this. i do not wish to be misunderstood : we have urgent need of the imf. for that reason, i cannot agree with the fundamental criticism of the imf either. we need the imf, above all, as an international monetary promoter of open borders and free markets and as an advocate of sound and transparent policies on the part of its members. that is the task of the imf. it has the function of a catalyst. it can assist many countries in following and safeguarding the road to the market economy internally. the imf can help to make global finance more efficient. nevertheless, the countries themselves must ensure that their internal financial systems have a sufficiently sound structure. and the imf can act as an intermediary in the event of a crisis. in doing so, the primary objective should be maintaining access to private capital for countries in crisis. of course, in such an event financial support by the imf might play a limited role. but support has to be linked to conditionality which covers the actual causes bearing in mind that the formula for overcoming a crisis might not be the same for every country affected. this function of the imf as a catalyst is not a minor role. in today ’ s