MNI: Buba's Dombret Sees Global Economic Upswing Accelerating

By Christian Vits

     FRANKFURT (MNI) - The pace of global growth is increasing and should be

used to enact more structural reforms, Bundesbank board member Andreas Dombret

said Monday.

     "The global economic upswing is accelerating. However, demographic change

and weak productivity growth are weighing on many countries' longer-term outlook

for growth," Dombret said in a briefing on the upcoming meetings of the

International Monetary Fund and the World Bank in Washington from 12 to 15

October. 

     Against the background of the beneficial economic situation, structural

reforms should be undertaken to strengthen growth potential and resilience of

these economies, he noted.

     "At the same time, we should refrain from measures which, by pursuing a

more strongly nationalistic economic policy, would further weaken the

longer-term forces of growth," Dombret added, apparently with a view to the U.S.

administration.

     The IMF's funding needs require "careful reviewing," he noted. The IMF's

primary source of financing should be through its quotas, any shift in their

structure would be predicated on a quota increase.

     But as the US holds a blocking minority at the Fund "a signal at an early

stage as to whether it will approve a quota increase will be important when it

comes to continuing the talks in a constructive manner going forward," he said.

     Brexit will trigger relocations of bank activities from the UK to the

European Union, leading to structural changes in the German financial system,

Dombret said. "Whatever else happens, banks have to be subjected to a uniformly

high standard of supervision. We can guarantee these standards within the Single

Supervisory Mechanism."

     UK institutions doing business in the EU will also have to be adequately

represented there. "'Empty shells' that simply route business to London are

neither wanted nor permitted under supervisory law," he underlined.

     Regarding the German banking sector, Dombret noted that the low

interest-rate environment is putting German credit institutions to the test.

"Most institutions have sufficient capital to cushion falling earnings in the

medium term. 

     However, the longer interest rates stay low, the more banks and savings

banks, whose business models depend heavily on deposit and lending business,

will come under pressure," he stressed, as sustainable earning power is a

"decisive" factor in maintaining banks' long-term resilience.

--MNI Frankfurt Bureau; +49 69 97782671; email: christian.vits@marketnews.com

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