joachim nagel : europe and its euro – fit for the future? address by dr joachim nagel, president of the deutsche bundesbank, to mark the awarding of the heinrich hertz guest professorship, karlsruhe, 5 october 2023. * * * check against delivery 1 introduction ladies and gentlemen, students of the university, it is a great honour for me to be awarded this year's heinrich hertz guest professorship. i would like to thank kit and the kit freundeskreis und fordergesellschaft e. v., and all of you, for turning out today to attend this address. the honour is great if nothing else given the impressive list of people and topics that have so far been awarded the heinrich hertz guest professorship. may i say up front : i could well be the first and only true native of karlsruhe on this list. i come from karlsruhe ; i grew up here. the university of karlsruhe is my alma mater ; i studied here and worked here as a mid - level faculty member. my ties with karlsruhe run very deep. you can therefore imagine what this award means to me. then there is the fact that many of the honorees came from the fields of science and technology. as the head of an institution that has the status of a supreme federal authority, i am more of a " rara avis ". that said, i am not the first bundesbank president to be given the award : helmut schlesinger received it exactly 30 years ago. in my keynote address today, i would like to focus on europe and its monetary union – " the big picture ", so to speak – and ask : is the euro " fit for the future "? i have divided my speech for today into four parts : 1. where do we stand after 25 years of the euro? 2. what was the historical mission of the monetary union? 3. what institutional reforms have taken place in the euro area and which ones are still outstanding? 4. and what are the challenges facing europe and the euro? fortunately, karlsruhe is well suited to such projects. 1 / 14 bis - central bankers'speeches after assuming his professorship in karlsruhe in 1885, heinrich hertz wrote to his parents with gratitude : i am fine, but i still have a lot to do for the time being. yesterday, i was at least able to shake off one vexation : the inaugural lecture ( " on the energy balance of the earth " ). the

faculty of professors was in nearly full attendance. i was quite dissatisfied with my speech, it felt to me like an utter failure. despite that, i only heard friendly words ; this therefore demonstrates how easily satisfied the audience was. fellow people of karlsruhe : in the knowledge and awareness of your expertise, i would prefer today to count on your goodwill. 2 where do we stand after 25 years of the euro? it has now been nearly a quarter of a century since the euro was introduced. a good time to look back on 25 years of the single currency. and to recall that the creation of a monetary union was met with great scepticism, especially in economic circles. the euro is coming too soon was the name of a manifesto signed in february 1998 by 155 german professors. however, voices of warning were heard not only in germany. nobel laureate milton friedman, for example, predicted that the euro would collapse again soon after its introduction. although that prediction turned out to be incorrect, some of the problems foreseen by friedman and others actually ended up occurring. for starters, however, everything went smoothly with the euro. three years after the euro was introduced as a book currency, it also entered into circulation as cash. and thus squarely into the awareness of the general public. you may remember the small plastic bags known as " starter kits ". in germany, they contained coins worth €10. 23, the equivalent of 20 deutsche mark. prior to this, a largescale ad campaign was launched, with prominent backing, to encourage people to return their deutsche mark holdings at an early stage. meanwhile, enthusiasm for the new notes and coins quickly subsided. after the changeover, many felt that the euro had actually become a " teuro " – a german play on the word " teuer, " or " expensive ". however, this effect was not borne out by statistical evidence. in the long run, the euro has already proved to be a stable currency. the chart tracks inflation in the euro area since 1999. in the early years, inflation rates were mostly above 2 %, but only marginally. this speaks to the success of the euro area national central banks and the european central bank, which together comprise the eurosystem. it was able to credibly communicate that it would conduct a stability - oriented monetary policy. of course, the eurosystem also lucked out by being launched during the " great moderation ". that was the name given to the spell