At this critical juncture, we need to focus more than ever on the challenges which the economic transition of recent years has been facing. In fact, rather than fading, these issues actually need to be addressed more quickly:

1 Effects of the pandemic

Over the course of the pandemic, the economy recovered and industry experienced high employment rates and full order books. However, this development is now clouded by a longer-term disruption and reorganisation of global value and supply chains. The pandemic has also changed the way we work: working from home, domestic life and digital networking have taken on a whole new meaning and will have an impact on economic life. But the term ‘digitalisation’ goes far beyond this with the expected lasting effects on business processes and models in the real and financial economy.

2 Sustainability and digital transformation

To achieve its sustainability goals, which are now also geostrategically relevant, the European Union is continuing its regulatory course. The transparency requirements arising from regulation for sustainable finance pose major challenges for both the finance industry and the real economy. In this context, sustainable finance could prove to be a high threshold for financing the real economy. In addition, there are rapid developments around DLT technologies, above all blockchain, decentralised finance and digital currencies, which are keeping us on our toes. Despite all the challenges: The transformation to a sustainable economy also holds opportunities for the realisation of the European Capital Markets Union.

3 Monetary and fiscal policy

The European Central Bank needs to address the implications of monetary and fiscal policy in times of the coronavirus. Is rising inflation a temporary or a longer-term phenomenon? How can the exit from ultra-loose monetary policy be initiated? These questions need to be re-evaluated in light of the further increases in the cost of energy and living due to the war in Ukraine. This raises the further question of how serious the consequences for the economy will be and how heavily the expected economic growth in 2022 could be affected. Lasting consequences for consumer behaviour are also to be expected against this backdrop.

4 Impact on banks, companies, consumers and credit markets

How are current developments likely to affect our heavily bank-based financing structure in Europe?

• First-round effects due to credit exposures related to Russia and Ukraine are likely to be bearable, but weigh on banks' capitalisation
• Secondary effects due to sanctions and rising energy, commodity and food prices will strongly depend on the extent of the war's course
• Decline in economic growth to the point of recession will affect credit ratings of companies and consumers, exacerbated by the ‘cost-of-living crisis’ that was already evident before the war began
• Due to inflation and the need for tapering, central banks have hardly any leeway left for monetary policy support
• Financing investments for further transformation requires intensive use of all financial instruments; European banking regulation should favour increasing capital market financing in this context