Uwe Fröhlich DZ BANK AG Opening remarks International Capital Markets Conference September 6, 2018 Berlin Check against delivery! 1
Ladies and gentlemen, let me welcome all of you to the second day of our International Capital Market Conference. I hope that those of you that attended the first day are still in a positive mood despite all the talk about the end of globalization, the rise of populism and tariffs and the numerous new turbulences capital markets are facing. It surely was wise to end yesterday s conference with the somewhat more uplifting topic of sustainable finance and if that didn t work I am pretty sure the dinner at the KfW might have helped to raise your spirits. All jokes and sentiments aside, I think that yesterday s discussions served an important purpose, as we charted the terrain we are currently facing. I guess it is fair to say that things indeed have become even more volatile, complex and off balance as we would have imagined in the not so distant past. And this holds also true for the behavior of certain actors no longer sticking to their roles and institutions losing their appeal. 2
Take the European Central Bank: While we can all agree that it acted responsibly in the aftermath of the financial crisis and paved the way for quick economic recovery, the unwillingness to raise interest rates in a timely manner is effectively destabilizing the European banking market day by day. Without a stable interest rate curve there can be no stable European banking system, which, as a potential hard Brexit looms, will face new turbulences when the city the most vital financial center will no longer be as accessible as before. Stability also does not seem to be a top priority for an increasing number of states deciding to abandon their conservative approach to debt resulting in a massive global growth of public debt which, as the IMF warns, has already surpassed the pre-financial crisis level. Piling up state debt in times of prosperity and economic growth is not only unsustainable and undermines the credibility of responsible government it also raises the question how states would behave in times of recession. Looking at Europe an increasing number of member states tend to consider the Maastricht criteria as minor details rather than binding rules. 3
Italy seems especially eager to challenge the general assumption that states are the most reliable borrowers deepening the European crisis even further. We are witnessing an erosion of believes and assumptions that remained uncontested for several decades at least in the western hemisphere. First that free trade will be beneficial to all parties involved and second that democracy represents the best and desirable mode of government. The decline in public support for free trade may in large parts be driven by the decision of the US administration to relinquish its position as the champion of global trade. Questioning the wisdom of the current US trade policy is only fair, but we should also remember that not too long ago Europe decided to refuse a transatlantic trade deal because of chlorinated chicken. Explaining why democracy is losing ground is somewhat more complex. It is mostly related to a growing feeling of increasing inequality and with it a rising distrust towards the elites and democracy. 4
More and more people do no longer believe that the system works in their favor, but simply takes from them to give their fair share to the others Handing the winning formula to all those populist forces left and right of the political center that have emerged in the last few years and with it a new fascination for strong leaders. As worrying as these development might be, looking at global economic growth we may be tempted to say: so what? Indeed we are facing a somewhat paradox situation: Despite increasing political instabilities, new uncertainties and trading risks, the global economy continues to grow virtually unflustered. We are witnessing the longest bull market in post-war US history. Looking at Germany, employment levels are hitting new records every month, our government realizes another budgetary surplus and even domestic consumption is growing. In other words: Things could be worse. Yet Financial Times Columnist Alphaville might be about right in ending one of his recent contributions with the advice that we should Enjoy the sunshine while we can! 5
Signs are mounting that the era of ever expanding liquidity fueling the current cycle of growth is slowly coming to an end. So it is about time to orient ourselves and look out for new directions and fortunately that s what the second day of the International Capital Market Conference is all about. Of course charting a clear path forward would not be possible without some clear points of reference in our case money market benchmarks. As a longstanding member of the EURIBOR and EONIA bank panel, DZ BANK did not only live up to its responsibility by dedicating considerable effort and resources, but is also involved in the current reform process. As you all know, the discussion on how the world post January 2020 will look has proven to be rather complex and some commentators believe that a timely agreement is beyond reach. Yet I still believe that we need to dedicate ourselves to this reform process, consider risks and opportunities and also ensure to involve our customers and business partners, as the future of money market benchmarks will impact on the wider economy. 6
I am pretty sure that our first speaker Henner Asche, Deputy Director General Markets at Deutsche Bundesbank, will support this pledge and more importantly will provide the audience and the following panel discussion, chaired by Dr. Karsten Stroborn, Head of Division General Market at Deutsche Bundesbank, with some guidance and direction. All in all, today s program should offer just the right amount of insights and inspirations helping us to move beyond and complexity and volatility, regain focus and look for new direction and opportunities. And with that being said, let me hand over to today s first speaker. Mr. Asche, the floor is yours. 7