"It is of utmost importance to keep our social system; I think this is an achievement we shouldn't underestimate," Nagel said when asked whether Europe must choose between maintaining its generous but resource-intensive social welfare system and redirecting resources toward innovation and competitiveness. "And yes, we have to tackle the challenges of the future on top of that."

But there are ways to do this, he acknowledged.

"I think we have to do our homework," the central bank president said. "Europe is a strong economy. We have 450 million people. We have strong corporations, strong small and medium-sized companies. We have very skilled people. So I believe we have all the resources necessary to do what's needed to stay where we are [as] a competitive region, and could even become more competitive over time."

Nagel rejected the saying "The U.S. innovates, China replicates and Europe regulates," which he believes overdoes it.

"I believe we are more than just regulating things," he noted. "I think, as I alluded to, we are a strong economy here in Europe. There's some room to improve; I think we can do things less bureaucratically  — and I believe the new [European] Commission has some plans to really overcome bureaucracy."

According to the DBB chief, the "challenge of the future" will be that Europe was good in the past at analyzing the situation, but now it has to be more active and implement things.

"But I believe — I'm really positive here that Europe can do better," he added. "But we are not the regulator in that understanding [of the term]. I think we are much more."

'Europe will become stronger'

Nagel said that the past few months have been very challenging in terms of the economy, acknowledging that "maybe this is the age of uncertainty," and that the EU has found itself in a situation where it has to improve. He mentioned that the EU could make the right investments in the right areas, such as infrastructure investments and increasing digitalization.

"But take my country — Germany," he continued. "Now we have a fiscal package of around €1 trillion. €500 billion is going into investments and €500 billion is going into defense. And there will be spillovers from Germany to other countries like Estonia. So I believe when Germany is doing well — and I'm rather positive about the future development of my country — I believe there will also be good spillovers to the rest of Europe. So Europe will become stronger over the next couple of years."

Asked why Europe hasn't produced big, innovative firms and tech companies like the U.S., Nagel argued that it has, but admittedly not to the extent that the U.S. side has. He cited Estonia as a perfect example.

"The seed money was there, so companies had the possibility to start their businesses — Estonia is an excellent example here," he noted.

"But then to scale up a company — this is much easier in the United States than in the EU," he continued, adding that Europeans are more risk averse than Americans when it comes to investing capital.

"We have to do better here," Nagel said. "And one element to doing better here is the so-called Savings and Investment Union (SIU). We have to make it more attractive here for private capital to go into investments like this. And the SIU — part of the EU's so-called Competitive Compass — could be one trigger to make the European Union even more attractive for startups."

Even so, he admitted the EU has a long way to go. "I think we have to work on that," he said. "We are lagging behind here, and this is why I'm saying we have to do our homework."

National, not EU-level spending

Regarding Germany's cautious approach to taking on joint EU debt, the DBB president stressed that the responsibility for funding spending on things like investments and defense remains on the national level.

"There are some ideas in the Draghi report," Nagel noted. "For example, could we do something together when it comes to defense? Should we establish a joint defense budget to do joint funding on the European level?"

He said this is worth considering in the future. "But at the moment, I would say the fiscal responsibility is still on the national level, and that focus should be kept on the national level," he added.

Watch the full video interview with Deutsche Bundesbank (DBB) President Joachim Nagel below.

--

Follow ERR News on Facebook, Bluesky and X and never miss an update!