hermann remsperger : financial market trends in germany speech by professor hermann remsperger, member of the directorate of the deutsche bundesbank, at the european summit of financial journalists, frankfurt, 29 october 2001. * * * banks play a relatively dominant role in the german financial system. at the end of 2000 bank lending amounted to ε 3 trillion, and ε 2. 2 trillion worth of debt securities were in circulation. that means loans by banks accounted for most of the finance raised by the economy as a whole. of those debt securities again, ε 1. 4 trillion were issued by banks, which used this instrument to refinance their lending business. the market capitalisation of all companies listed on german stock exchanges was ε 1. 4 trillion in december 2000. that is around 70 % of gdp, which is relatively low by international standards. however, the german financial system is going through a period of considerable change. important longer - term trends include the mounting importance of securities markets, the increasing institutionalisation of investment and the german financial system ’ s deepening integration with international financial markets in general and with other european financial markets in particular. entry into stage three of emu at the beginning of 1999 caused the elimination of intra - european exchange rate risk and the lifting of foreign exchange restrictions on investors in the euro area, and therefore made a major contribution to broadening the base of investors in bonds and equities and to fostering an increasingly european outlook in investment strategy. 1. increased significance of securities markets the sharp increase in sales of corporate bonds in 1999 and 2000 as well as the record amounts of stock market issues during the same period are particular testimony to the increasing importance of the securities markets in germany. over 80 % of the total amounts outstanding of ε 200 billion of german companies ’ debt securities are issued via their foreign financial subsidiaries. these financial resources are then channelled back to the parent company as loans. advantages relating to the trade earnings tax are likely to be the main reason for this “ indirect ” method of raising finance in the capital market ; 50 % of the interest on long - term debt ( bonds ) is included in the tax base, whereas interest on short - term loans – lending by the foreign financial subsidiary to the parent institution – remains tax - free. 1 the increasing substitution of bonds for bank loans has proved to be particularly effective in raising the large volume of funding needed by the telecommunications sector and other big corporations. whereas the amount outstanding of corporate bonds and commercial paper

in underlying consumer price inflation. bundesbank economists recently studied almost 230 episodes of disinflation in 46 advanced and emerging market economies since 1960. 7 and, in line with the available 3 / 7 bis - central bankers'speeches literature, they found an average sacrifice ratio of approximately one. 8 this means, for example, that a reduction in the inflation rate by five percentage points " costs " on average five percent of gdp. however, the economic costs during the current period of disinflation appear to be well below this historic average, they found. their calculations demonstrate this for almost all major advanced economies. given the rapid and strong tightening of monetary policy, one would have expected considerable losses in output as well as sharp recessions. but, while the restrictive monetary policy measures slowed these economies, there have been no sharp recessions. overall, the current process of disinflation has been relatively painless thus far. of course, some losses might still be yet to come. nevertheless, even after factoring the moderate outlook for growth into the calculation, the sacrifice ratios remain rather low. among the economies under review, germany has the highest sacrifice ratio, which has attracted particular attention from german newspapers. " die welt ", for example, ran the headline " germany, the lonesome loser ". this is clearly an exaggeration, because even germany's sacrifice ratio is still below average. however, i will not be focusing on the reasons for the differences between countries and will instead try to explain this phenomenon in general. 4 possible explanations for the comparatively painless process of disinflation so why has the current episode of disinflation been less painful compared to previous ones? there are a variety of reasons. take the rapid fall of energy prices, for example. during the past year, this was a major driver of disinflation. but, at the same time, it stimulated the economy. the same applies to the resolution of supply chain disruptions. this lowered inflation and boosted economic activity by removing obstacles to production. other reasons relate to factors that support demand, such as the pent - up demand from the coronavirus pandemic. i am sure you will all remember the time when the pandemic forced us to stay at home and prevented us from spending money. think back to the closures of restaurants and bans on travel. during this time, many households accumulated involuntary savings. according to ecb estimates, households in the euro