Dr. Dombret Identifies Challenges in the Economic Recovery

Dr. Andreas Dombret, member of the Executive Board of the Deutsche Bundesbank, shares his positive evaluation of economic recovery on both sides of the Atlantic. Interviewing with AGI Business & Economics Program Director Alexander Privitera, Dr. Dombret affirms the health of the euro and the U.S. dollar, but he also highlights multiple weak spots. The nexus between sovereigns and financial institutions is the most imminent of these.

As the euro zone “rebalances” and prepares for a third stress test, policymakers are still working to decouple sovereigns and banks. Zero percent risk rates on sovereign bonds and the lack of an upper limit on exposure to these assets are also under reconsideration. Furthermore, a single supervisory authority should be available to support the single recovery mechanism.

Yet, the European Union has been doing its best to shelter and support the real economy from any further damage or unnecessary risk. Moreover, there is no end in sight. Dr. Dombret emphasizes that the crisis took a long time to build up, and a resolution will be similarly lengthy.