jens weidmann : containing the sovereign debt crisis – germany's role and contribution special address by dr jens weidmann, president of the deutsche bundesbank, at the highlevel public - private sector conference, g - 20 agenda under the mexican chairmanship, mexico city, 24 february 2012. * * * 1. introduction ladies and gentlemen first of all, i would like to thank secretary jose - antonio meade, governor agustin carstens and managing director charles dallara for the invitation to deliver a speech to such a distinguished audience. it is the second time since 2003 that mexico has hosted the g20. a lot has changed since then, however. emerging market economies, including mexico, have significantly increased their weight in the world economy. at the same time, the role and the standing of the g20 have also changed appreciably. the g20 ’ s upgrade among the global fora is partly due to the worst financial and economic crisis in decades, which hit the world economy in autumn 2008. although this crisis largely originated in the advanced economies, it may also have significant implications for emerging market economies. for example, low interest rates in advanced economies can swell capital flows to emerging market economies, while distressed banks may curtail their cross - border investment. moreover, an economic slump in the advanced economies squeezes emerging countries ’ export chances. mexico has assumed the g20 chairmanship at a time when the financial crisis, and in particular the sovereign debt crisis in the euro area, are putting a severe strain on global growth. progress on the g20 agenda could contribute significantly to avoiding another global recession and to promoting sustainable global growth. i am very confident that the mexican authorities will make this a successful presidency and i am looking forward to attending the g20 meetings during the mexican chairmanship. i would like to focus my remarks on what is currently still the most severe risk for global growth, namely the euro - area sovereign debt crisis. in particular, i would like to say something about the specifics of emu – europe ’ s economic and monetary union – and the role of the euro area ’ s major economic player germany. let me start by correcting a popular misconception about germany, namely the mistaken view that germany, while itself managing to dodge the flames of the current crisis, is now selfishly refusing to come to the aid of the stricken countries by acting as chief firefighter. let us take a look at the facts. first, germany is doing a

the cycle eventually turns. the flexibility of existing monetary policy frameworks but these insights do not automatically lead to the conclusion that central banks must adjust their monetary policy frameworks. this is because the representation of monetary policy as focusing on a short policy horizon and with little regard for broader financial cycles does not do justice to the strategies that many central banks follow today, and certainly not to the strategy of the ecb. in fact, our monetary policy framework is more flexible than the aforementioned scenario of a rigid inflation - targeter suggests. our strategy includes important safeguards to prevent an overly narrow and zealous interpretation of price stability from becoming a source of financial see for instance the 2015 / 16 bis annual report. see fahr, s., r. motto, m. rostagno, f. smets and o. tristani, “ a monetary policy strategy in good and bad times : lessons from the recent past ”, economic policy, volume 28, issue 74, 1 april 2013, pp. 243 – 288. de groot, o., “ the risk channel of monetary policy ”, international journal of central banking, volume 10, no. 2, june 2014, pp. 115 – 159. l. christiano, c. ilut, r. motto and m. rostagno, “ monetary policy and stock market booms ”, paper prepared for macroeconomic challenges : the decade ahead, a symposium sponsored by the federal reserve bank of kansas city jackson hole, wyoming august 26 – 28, 2010. bis central bankers ’ speeches instability. indeed, it incorporated a “ leaning - against - the - wind ” approach even when the academic consensus pointed in a different direction. 16 there are two elements to our monetary policy strategy that institutionalise this approach. the first is the flexible and shock - dependent medium - term horizon, which ensures that supply shocks do not automatically elicit a monetary policy response unless there is a danger that they become embedded in inflation expectations. the second is the monetary pillar, which alerts the governing council when trends in credit markets may presage emerging risks to financial stability – even when inflation is quiescent. 17 together, these elements coalesce into a leaning - against - the - wind orientation which helps us evaluate the impact of economic shocks over sufficiently long horizons and account for their implications for lower - frequency asset price cycles. monetary analysis, in turn, informs us about the funding patterns that underlie these asset price cycles and alerts us,