introductory statement to the presidency press conference following the meeting of the g7 finance ministers and central bank governors 20. 05. 2022 | konigswinter | joachim nagel 1 introduction 2 promoting long - term growth and resilience 3 ensuring sound public finances 4 refocusing monetary policy 1 introduction ladies and gentlemen, i, too, would like to bid you a very warm welcome to the g7 ( gruppe der sieben ) presidency press conference. and i would like to add my thanks to those expressed by finance minister christian lindner. i am especially grateful to everyone who helped organise the g7 ( gruppe der sieben ) meeting and whose efforts contributed to the smooth running of events. from my point of view, this meeting of finance ministers and central bank governors has been extremely successful – an impression that i hope our guests also share. we have discussed a number of important issues in depth. finance minister lindner has already addressed our support for ukraine. of course, our talks also focused on the economic consequences of the war and the changes to the inflation environment. at the beginning of this week, for example, the european commission downgraded its forecast for euro area economic growth this year to 2. 7 % ; this figure stood at 4 % in the february projections published shortly before the war broke out. the european commission now estimates that inflation in the euro area will come to 6. 1 % this year rather than the 3. 5 % previously anticipated. today, i would like to focus on the medium to long - term fundamental aspects that we have discussed over the past two days. first, in the light of the new geopolitical situation, how can we strengthen the long - term growth and resilience of our economies? second, looking ahead, how can fiscal policy navigate the conflict between the current challenges and rising debt levels? and third, what needs to be taken into account when refocusing monetary policy? 2 promoting long - term growth and resilience russia ’ s war of aggression on ukraine has changed the geopolitical landscape. policymakers and economists are striving to reduce, diversify or focus economic dependencies on safe trading partners. this shift may come at a cost to efficiency and productivity, which is something we will probably have to accept to some extent. that said, however, we should make all the more effort to promote open markets wherever possible and continue to exploit their advantages. greater resilience and strong integration into the

to strengthen the growth potential of their economies, open up job opportunities to more people and make public finances sustainable over the long term. this is in their own interests, as well as the interests of the euro area. to reinforce the principle of national responsibility, the capital markets, too, would have to price in the risk of government bonds more adequately. so far, investors have been able to rely on bailouts via rescue packages – and thus at the expense of european taxpayers – should a euro - area government run into difficulties. of course, this has weakened investors ’ risk awareness. we are therefore proposing that the maturity of bonds issued by a euro - area state should automatically be extended for a certain period if that state applies for an esm programme. this would keep the original creditors on the hook and would require them to be involved in any debt restructuring arrangements. aside from this, the crisis showed how troubled banks and ailing states can throw each other off balance. that is why we need to sever the close economic ties between sovereigns and banks in the euro area. it was with this in mind that we successfully advocated for the banking regulatory bodies to consider at the international level how to eliminate the existing preferential regulatory treatment of government bonds in banks ’ balance sheets. in future, risk - appropriate levels of capital will need to be held against government loans on banks ’ balance sheets, just as they are for loans to any private borrower. ladies and gentlemen, the founding fathers of monetary union recognised back in the day that europe should not rely solely on the capital markets to set sufficient incentives for sound public finances. that is why they flanked the no - bailout principle with the budgetary rules belonging to the stability and growth pact. but a glance at the government debt of the euro - area countries shows that the binding effect of these budgetary rules was never terribly effective in the past. at least, that ’ s the impression you get when you consider that some countries have now exceeded the budget deficit ceiling for the ninth time in a row. the bundesbank has therefore spoken out in favour of simpler and more transparent rules, and has suggested that responsibility for monitoring these rules is transferred from the european commission to an independent institution. the underlying problem is that the commission plays a dual role as a political authority and the guardian of the eu treaties. this causes a clash which, in the past, has often resulted in the commission making compromises at the expense of budgetary discipline. it was for this