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What, in your view, does 2020 have in store for us? What is the greatest threat to the global economy?
We would anticipate a growth rate of around 1.1% in the euro area for 2020, which is slightly lower than in 2019. Both within the euro area and globally, the biggest threat is a downturn in trade resulting from a range of uncertainties, primarily affecting manufacturing and hampering investment. This range of uncertainties, in addition to geopolitical risks and issues relating to climate change, includes ongoing trade tensions and Brexit.
Will Europe be weakened as a result of Brexit?
Following the recent elections in the United Kingdom and the approval by the House of Commons of the withdrawal agreement, the UK is due to leave the European Union on 31 January 2020. This means one less uncertainty, which is good news for investors. That said, the biggest challenge is yet to come – namely the issue of reaching a trade deal between London and the EU during the 11‑month transition period. The economic and financial impact of Brexit will depend on the details of that agreement –if indeed one can be reached –during that short period of time. However, what we do know is that, as a result of Brexit, the European Union will lose a wealthy Member State and one that is a powerful military force. The EU will recover, but will need to bolster its efforts to compensate for the UK’s departure.
The President of the European Commission, Ursula von der Leyen, has presented her “Green Deal”. How will it interact with ECB policy? Are you going to transform the ECB into a green bank?
I commend the determination of my friend, Ursula von der Leyen, and her commitment to the environment. This battle is to our credit in Europe, with all of us acting within our remits. In this, I also include the European Investment Bank. We will play our part within the framework of our mandate of maintaining price stability and of banking supervision. What effects do climate-related risks have on our growth and inflation projections? What signals do we send through our bond purchases and what assets are held by the banks that we supervise? The stakes are high enough to arouse a keen interest in these questions, while pursuing our primary mission. As regards monetary policy, the review of our strategy will be the ideal time to address these questions.
Given the low or even negative interest rates, are savers right to be worried about their savings?
The measures taken aim to maintain stable prices. In the medium to long term, this ensures the best possible economic environment and the preservation of purchasing power for all, whether savers or borrowers. Interest rates are instruments rather than objectives in themselves. There have been times in Europe when savers invested in money market funds that delivered high returns, such as at the start of the 1990s. But the monetary environment of that period penalised borrowers and the situation at that time resulted in a deep economic recession. In a recession, savers tend to reduce their savings in an effort to maintain their level of consumption. In other words, a recession is bad for savings. Negative interest rates aim to keep the economy on a balanced growth path and to avoid a recession.
Isn’t it a little shocking that banks could charge for holding deposits?
It would be shocking if the banks did not take full advantage of the historical monetary conditions that they are benefiting from to provide more funding to the real economy. But negative interest rates have been useful and progress has been made. In spring 2014, just before the rate on the deposit facility was reduced into negative territory, lending to the real economy was declining with all that that entailed, such as the risk of an economic downturn and deflation. Today it is growing at about 3.5% per year.
Is creating a cryptocurrency a legitimate task for the ECB?
Innovation in the area of payments is racing ahead in response to the urgent demand for quicker and cheaper payments, especially cross-border ones. The Eurosystem in general and the ECB in particular want to play an active role in this field, rather than just acting as observers of a changing world. In 2018 the Eurosystem launched an infrastructure to provide pan-European instant payments with direct settlement in central bank money (TIPS, i.e. TARGET Instant Payment Settlement). This enables banks to process payments between themselves in a matter of seconds, 24 hours a day, 365 days a year, all over Europe. This caters not only to the preferences of younger generations, who want to make round-the-clock payments with their smartphones, but also to firms, which want to optimise payment and supply chain processes.
In terms of the road ahead, the ECB will continue to assess the costs and benefits of issuing a central bank digital currency (CBDC) that would ensure that the general public remains able to use central bank money even if the use of physical cash eventually declines. However, the prospect of central bank initiatives should neither discourage nor crowd out private market-led solutions for fast and efficient retail payments in the euro area. We are looking closely into the feasibility and merits of a CBDC, also because it could have major implications for the financial sector and for the transmission of monetary policy. At the end of 2019 we created an expert task force at the ECB that will work closely with the national central banks to study the feasibility of a euro area CBDC in various forms, covering all the practical aspects, including how to minimise possible unintended side-effects.