I'm very glad to be now joined by Joachim Nagel, the president of the German Bundesbank. Good morning. Good morning. So perhaps we first of all look at the inflation picture because, of course, everybody looks at the inflation numbers now coming in. Spanish inflation was hotter, French inflation a little bit lower. So what do you think? Will inflation be higher than we want it to be for the foreseeable future?
I believe there's a probability that it will stay on an elevated level. So I think the energy price shock that started with that conflict in the Middle East is not over; it is still in the system. So I expect that the inflation rates will stay significantly above our target.
And what does it mean for monetary policy? Are you in the camp of those who think more rate hikes or at least a rate hike is needed to rein that in?
I think it is too early to make such a call. I think monetary policy has to remain vigilant. I think we decided in June to hike interest rates. This was the right decision based on our projections and forecast. There was a clear picture that inflation for this year will stay significantly above our target. It will remain on a higher level for 2027 and it will come back in 2028 to our target. So this rate hike was the right decision. Now we have to wait. The situation is still very opaque. Is it stable or not in the Middle East? We do not know. There are these peace talks. They have 50 days or more or less left, and then we will see how reliable this whole situation is. But if energy prices, especially oil price, now stay at that lower level, that keeps the pressure off from the ECB. Well, first of all, I have to admit that the retreat of the energy prices, oil price, that was a surprise, not only for me; so many others said something different before that happened. So many said, well, there are these supply constraints, we do not know how fast the Straits of Hormuz will be open. So this retreat of the energy prices is a surprise, but now we have to wait: is it stable? What does that mean for the inflation picture in total? So it's still a very, let me say, opaque situation, and I will wait till I have a clearer picture. What does that mean? We will come together again in July for discussing maybe our future path regarding interest rates. Then in September we will have new forecasts, and I will keep all the optionalities open.
So, I know you can't tell me exactly what the next move and when it will be, but it sounds very much to me that July is more of a meeting where we look at the data and then we might decide in September.
Well, again, it's too early to make this call. I think it can happen. There can be a lot of things happening over the course of the next three weeks. So I guess we have to wait till we have all the information that is necessary to come to a conclusion, and then we are coming together again in July, and then we will see.
And let's talk about economic growth as well, because clearly one of the big topics here in Cras as well: how to revive economic growth. And one of the answers, at least it seems for Europe, is to boost defense spending, but we're not catching up enough on technology advances. So what's your opinion here?
It is important to have such a discussion about economic growth. We all know that Europe is lagging behind here. So we have to collect all the information that is necessary to really give, let me say, some hint or recommendation what we can do to really bolster economic growth. Defense maybe is one element, but it's not the only one. I think what I believe is of utmost importance is to strengthen our capital markets, the savings and investment union, the topic that we have been discussing for years and years now. I see now some signs that there is some push in that direction. I think there are a lot of elements that are necessary to come to a higher productivity path, and I believe this discussion here is of utmost importance.
Do you think also the fact that Germany seems now to move on the pension reform into a more capital market oriented system will help as well to push the capital market union, because Germany, clearly with the deposit scheme, is one of the countries who were not really in favor of pushing that?
Definitely. I think what the commission said, this expert group about how to strengthen the pension system in Germany, and then what the government said, yes, we will implement the full scope of what this expert group said is necessary to do, this was good news for Germany, and it's an important step forward for strengthening the capital market union, the capital markets in Europe.
One of the takes was as well that Germany is one of the, perhaps not a lot of countries can push through reforms currently because of the populist in Europe, and also not only populist but the diversion in views when it comes to policy. And one of the positive takes was as well that Germany can get its act together, but it doesn't hold true for countries like France. So how difficult is the situation politically?
