jens weidmann : the future of the european monetary union ( emu ) and some comments on the german economy keynote speech by dr jens weidmann, president of the deutsche bundesbank and chairman of the board of directors of the bank for international settlements, at the federation of enterprises in belgium, brussels, 19 december 2016. * * * 1. introduction ms sioen mr timmermans mr smets ladies and gentlemen it is a special pleasure for me to speak on european issues right here at the heart of europe. thank you very much for your kind invitation. directly opposite the building we are in today, on the other side of rue ravenstein, the “ palais des beaux - arts de bruxelles ” is located, also known as “ bozar ". as you all know better than me, it was designed by victor horta, one of the leading art nouveau architects, and was built as a new kind of cultural centre that would embrace all forms of art and be open to the general public. according to the bozar website, horta himself imagined this building as being “ immense and yet almost invisible, overlooking the city and yet buried underground, multiple and yet unified, prestigious and yet open to all ". while horta was referring to the “ palais des beaux - arts de bruxelles ", the words could equally serve to describe expectations with regard to the european union : " immense and yet almost invisible, multiple and yet unified, prestigious and yet open to all ". however, over the last few years a growing number of voices have been saying that reality and ambition have increasingly drifted apart : that the european union has become too visible, more multiple than unified, and too open to all. europe, many feel, has become more and more associated with obligation instead of opportunity, with bureaucracy instead of business, with heterogeneity instead of homogeneity. in the following, however, i will argue that now is not the time to throw in the towel, especially where the euro area is concerned. 2. economic situation and monetary policy ladies and gentlemen as all of you know, this year has been marked by an unusually large number of political events with the potential to elevate uncertainty about the future outlook – notably the decision by uk voters to leave the european union, the result of the presidential election in the us and, most recently, the referendum in italy. these results have also been interpreted as signs of a growing scepticism

oil prices about a year ago is now going to be washed out statistically. in addition to this base effect, opec ’ s decision to reduce their oil production might mark a fundamental change of the organisation ’ s strategy. this could lead to a faster closing of the gap between oil demand and oil supply, stabilising oil prices at an elevated level. however, much depends on how other oil producers react. up to now, it ’ s not clear if the current level of oil prices will set incentives to resume oil production. and there is a further reason why inflation is currently so subdued in the euro area. the domestic price pressure is weak because of the adjustment processes in some euro - area member states to overcome the biggest economic shock since world war ii. while it is right that the only gradual increase in inflation justifies an expansionary monetary policy stance in the euro area at the current juncture, reasonable people can disagree about the appropriate degree of monetary accommodation. all the more as monetary policy becomes looser automatically over the coming months, even without central bank action : when inflation rises as forecasted in our projections, the real interest rate declines. the effects are similar to a central bank rate cut. and it is also no secret that i ’ m quite sceptical with regard to eurosystem government bond purchases. although such purchases aren ’ t prohibited per se and they can loosen the monetary policy stance, they are blurring the boundaries between monetary and fiscal policy. and this is especially problematic in a currency union with a single monetary policy and largely autonomous economic and fiscal policies. euro - area central banks are now the largest creditors of their member states. all governments ultimately pay the same interest rate on the debt in central banks ’ balance sheets, regardless of the country ’ s creditworthiness. currently, as the eurosystem ’ s deposit rate is negative, they all receive money for that part of their debt. what ’ s more : the larger the part of the debt that central banks withdraw from the market, the less markets will exert their disciplining forces sanctioning unhealthy public finances with higher riskpremia. this is all the more worrisome as the low - interest - rate environment offers few incentives for governments to consolidate their budgets. fiscal policy in the euro area has been loosened again noticeably over the past few years. what governments are saving in interest payments isn ’ t being put towards the urgent goal of reducing debt, but instead is being spent