social market economy : continuing the success story with practical support and advice keynote speech marking the 70th anniversary of the german economic institute 27. 05. 2021 | virtual | jens weidmann de fr 1 introduction 2 guiding principles of the social market economy 3 how the social market economy has evolved over time 4 scientiﬁcally - based policy advice 5 relationship between market and government after the pandemic 6 conclusion 1 introduction mr kirchhoff, members of the presidium and of the management board of the german economic institute, ladies and gentlemen, it gives me great pleasure to be with you here today to deliver the keynote speech. first things ﬁrst : please accept my heartfelt congratulations on your institute ’ s 70th anniversary. the history of the german economic institute is closely intertwined with that of our country ’ s economic system. that ’ s why we need to turn the clock back a little further than 70 years to understand how the german economic institute we know today came into being. to the spring of 1948, in fact, when much of germany still lay in ruins, and many people didn ’ t ( tonne ) have enough to eat or a roof over their heads. rationing and price controls were in force, so people needed to present a ration coupon to buy groceries. and shops had nothing but empty shelves. only the black market was booming. around this time, the british and american occupation zones saw a new director of the economic council take [UNK]. journalists ﬂocked to attend the newcomer ’ s inaugural press conference. one of them was marion graﬁn donhoff, a young economist who later became the editor - in - chief and co - publisher of the german weekly newspaper “ die zeit ”. horriﬁed at what she heard there, she reported back to her colleagues, telling them that if germany wasn ’ t ( tonne ) already ruined in the ﬁrst place, this man with his crazy plan to do away with all the economic controls would certainly pull it off. heaven help us if he should ever become the economics minister, she added. the man who elicited such a dire warning from marion graﬁn donhoff turned out to be none other than the later economics minister ludwig erhard. in parallel to introducing the deutsche mark, he dared the unthinkable. turning a deaf ear to the warnings of his advisors and the allies ’ experts, he lifted restrictions and did away with many price controls and rationing rules

is certainly adequate. nevertheless, when interest rates stay very low for a very long time, we may experience unwanted side - effects. one of these side - effects is the search for yield. investors may eventually increase the risk of their investments to make up for the shortfall in yields caused by low interest rates. and, indeed, it seems that investors already began their search for yield. in corporate debt markets, for instance, valuations are already somewhat stretched. and in the global lowinterest rate environment, ambitious valuations may well spread to other market segments. in this regard, the strong recovery in the property markets of some euro - area countries should set us thinking. take the german housing market, for example. between 2009 and 2012, prices in large cities rose by almost 25 %. and, in 2013, they increased by another 8. 9 %. calculations by the bundesbank already point to overvaluations in urban areas. nevertheless, when looking at the german market as a whole, the situation seems less dramatic. in 2013, prices rose by an average of 4. 5 % – a figure that does not give too much cause for concern. overall, prices in germany have not yet moved away from fundamentals. for me, warning bells would start ringing if there was a rapid increase in housing prices accompanied by a significant rise in lending. and even more warning bells would be ringing if this rise in credit was accompanied by deteriorating lending standards. having said that, i can assure you that at this point in time i am surrounded by silence. but it is not only bond markets and housing markets we have to look at. since we are at the nyse, let us take a look at stock markets. in 2013, there was only one way for most stock markets to go and that was up. the eurostoxx 50 increased by 18 %, the ftse 100 by 14 %, the dow jones by 28 %, and the nikkei skyrocketed by as much as 57 %. market volatility decreased, too. after years of risk aversion, sentiment switched to a “ risk on ” mode. did financial markets enter a new phase of “ irrational exuberance ”? such a verdict is certainly debatable. but financial markets are at least anticipating significant further improvements in economic fundamentals and prospects. and they are anticipating that governments around the world will continue to implement the necessary reforms. these expectations create vast scope for confidence shocks. this