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Bundesbank president Joachim Nagel has urged Germany’s next government to embark on sweeping reforms to reinvigorate Europe’s largest economy, as the central bank declared a €19.2bn loss.
Germany’s centre-right CDU/CSU won Sunday’s election, with its leader Friedrich Merz set to engage in coalition negotiations with the Social Democrats, despite the left-leaning party finishing third — behind the far-right Alternative for Germany.
Nagel said the coalition would need to enact supply-side reforms and cut red tape to boost an economy facing another year of economic stagnation in 2025.
“A meaningful economic upswing is not in sight for now,” Nagel said, adding that he hoped the next government would wake up Germans from their “snooze”.
“Germany needs to fight for its competitiveness,” the central bank president said, adding that it was “five [minutes] to 12”.
Germany’s state-owned lender KfW warned on Tuesday that it expected GDP to shrink for the third straight year in a row, forecasting a decline of 0.2 per cent.
Europe’s largest economy contracted by 0.2 per cent last year, after shrinking by 0.3 per cent in 2023.
The Bundesbank, meanwhile, swung to a €19.2bn loss, placing it in the red for the first time since 1979 following a sharp rise in interest rates.
The main driver was the central bank’s net interest income. The net interest income balance stood at a negative €13.1bn last year as a result of far lower interest rates on its bond holdings, bought as part of the European Central Bank’s quantitative easing programme, than the deposit rate it pays out to German lenders.
In 2023 the Bundesbank broke even after using €2.4bn of risk provisions that it had built in previous years.
Nagel told journalists that the peak of the annual losses was “likely to be behind us” and stressed that, while the losses were “unfortunate”, the central bank’s balance sheet was “sound”.
The central bank usually transfers its profits to the federal government.
Nagel also stressed that annual losses in the 1970s were higher as a share of GDP than they are at the moment and pointed to a sharp rise in the value of its gold reserves.
Nagel said the ECB was on track to meet its medium-term 2 per cent inflation target “over the course of this year” and stressed that “this would allow us to further lower key interest rates”.
The Bundesbank governor warned against “jumping the gun”, as he called on the ECB to stick to its meeting-by-meeting approach, adding there was “no point” in speculating where interest rates may stand by the end of the year.
