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How bad will the Corona crisis be, Mr. Weidmann?


Jens Weidmann, President of the Deutsche Bundesbank
Picture: dpa

The spread of the corona virus leads to dramatic losses on the stock exchange. Jens Weidmann says how stable the banks are, whether a recession is coming – and what monetary policy can do.

Mr. Weidmann, there is great nervousness on the financial markets. Are we facing a crisis like in 2007 to 2009?

Gerald Braunberger

We are not in a comparable situation today. The crisis does not come from the financial system. The main thing is to contain the corona virus. Overall, the financial system is now much more stable.

Financial markets have been disappointed with today’s decisions by the European Central Bank. Should you have done more?

No, we reacted appropriately to our role and opportunities. Expectations for the European Central Bank were possibly too high, as were expectations for the Fed and the Bank of England. The central banks are currently not on the first line of defense.

What is your role?

We have done what a central bank has to do in the first place in a crisis: we have provided the banks with a generous supply of liquidity. And that with interest rates remaining exceptionally low. This is how we counter the risk of a credit crunch. We loosened the monetary policy line again – also through bond purchases.

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Are we facing a recession?

Of course, our previous economic forecasts are too optimistic. There will be a clear setback in the short term. But after the virus is contained, the economy will recover. However, it is currently difficult to predict when this will be the case.

Do you have to worry about the stability of banks?

No. German banks have strengthened their equity and liquidity is plentiful in the banking system. And the European supervisors announced today that existing buffers can also be used. Of course, we have to be careful that there are no other risks to financial stability anywhere else.

If the scope of monetary policy is limited: who should act now?

Health care and the containment of the epidemic are crucial. And fiscal policy is challenged: first of all, with easier access to short-time work benefits and help for companies that get into temporary difficulties. It must ensure that a temporary problem does not cause permanent damage to the economy. This may also require broader economic support in the further course.

Is there a black zero in Germany?

This is really not the right time to argue dogmatically over the black zero. Precisely because of budgetary discipline in recent years, Germany has extensive scope within the existing European and national rules. However, we also have to see that in the long term and after the current crisis has been overcome, demographic developments alone will put a strain on the state budget.

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