Jens Weidmann: Monetary policy and the role of central banks – an outlook

Speech by Dr Jens Weidmann, President of the Deutsche Bundesbank and Chair of the Board of Directors of the Bank for International Settlements, to the Freundeskreis of the Ludwig-Erhard-Stiftung, virtual, 1 July 2021.

Central bank speech  | 
09 August 2021

1 Introduction

Mr Koch,
Mr Seeler,

Many thanks for your warm welcome and words of introduction.

Ladies and gentlemen,

Last spring, the coronavirus pandemic plunged our economy into a deep crisis. Still it continues to shape our everyday lives; even this speech is taking place in the virtual sphere.

Advances made on the vaccination front are raising hopes that the pandemic can be suppressed for good and that the protective measures that are restricting economic life so much can be lifted. But there's still no telling what long-term implications the pandemic will have for our society. "[Epidemics are] as important to understanding societal development, as powerful forces in societal change as wars and revolutions," writes American historian Frank Snowden.  

An epidemic also features in early western literature. Homer's Iliad, perhaps the oldest epic poem recorded in writing in Europe, tells of the last days of the Trojan War. Agamemnon, the general of the Achaeans, harshly rejects one of Apollo's priests, whereupon Apollo punishes the Achaeans by unleashing a plague, and conflict breaks out between Agamemnon and the hero Achilles. The rage of Achilles and his retreat from the battlefield bring the Achaeans to the brink of defeat. This just goes to show that epidemics have accompanied mankind for millennia. Time and time again, they have shaped the course of history, as well as being something of a societal stress test.

My speech today mainly considers what euro area monetary policy might look like in the aftermath of the COVID-19 crisis. I'd particularly like to discuss the thorny relationship between monetary policy and fiscal policy.

The pandemic hit the Eurosystem just as we had started our monetary policy strategy review. That delayed discussions surrounding our future strategy, which have not yet been finalised. But there are a few facets of this debate I'd like to illuminate today – specifically, how we could formulate our monetary policy objective in concrete terms, and what significance climate protection might have for the fulfilment of our mandate.