« Exchanges at Goldman Sachs

Hallo Tech: Germany Adapts to the Digital Age

2018-08-03

Germany is in focus in Europe and around the globe as its historically strong economy undergoes a transformation adapting to the digital age. As part of our closer look at emerging economic and market themes in Europe, we sat down with Wolfgang Fink, chief executive officer of Goldman Sachs Germany and Austria, to talk about Germany's economy and business trends, including how technology is impacting German corporations. "Technology change is affecting all large [German] corporates," Fink says. "Most importantly, with respect to access to their customers… the disruption of their business models, the change in their value chain." Also in the episode, Fink discusses the future of the European Union and political challenges facing Chancellor Merkel.

This podcast was recorded on July 19, 2018.

The information contained in this recording was obtained from publicly available sources and has not been independently verified by Goldman Sachs. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the information contained in this recording and any liability as a result of this recording is expressly disclaimed. This recording should not be relied upon to evaluate any potential transaction. Goldman Sachs is not giving investment advice by means of this recording, and this recording does not establish a client relationship with Goldman Sachs.

Copyright 2018 Goldman Sachs & Co. LLC. All rights reserved.

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This is exchanges of Goldman Sachs when we discuss developments currently shaping markets industries in the global economy. I'm Jake Seaward Global, had of corporate communications here, the firm, Germany is in focus in Europe and around the globe today, as its historically stronger Tommy, undergoes a transformation adapting to the digital age struck about that and much much more were joined by Wolfgang think Goldman Sachs chief executive officer for Germany and Austria Wolfgang walk under the programme. Thank you. Remonstrate grit fear so start by just talking about the state of the german economy. Where are we in a cycle and what's been driving this volatility over there this year since Rio, off the crisis or behind the crisis? Is behind us? Germany's economy has been thriving,
been leading Europe in many respects and that we have seen in particular since two thousand fourteen still very strong performance of the economy. But I'd say we are a bit too The end of the cycle, we are more in line with european growth, we're not outperforming european growth, but we still have slightly ahead of economies like France and ITALY in terms of growth and the expected growth coming country, like Spain strong. So I think we still have a very stable picture, but clearly these very strong years of growth are somewhat beyond and is the strength outside of Germans economy. Should that be helping the german economy as well, or how does it rate relative to the rest of the Euro zone? I think a generally cups to balance it a bit between all of Europe, but generally I'd say that the german employment levels are at a record highs, so you quits
over time, a shortage in the labour market. All our researches believed that there is still a year or two that we can see increasing employment rates. Having said that, it feels like we are pretty much capacity and so is actually good. If we get into a more stable, more moderate, over so Germany's odyssey famous exporter of all sorts of goods, critically manufactured goods world's third largest export what impact is all the global trade tension? Having on that picture of the export picture, you absolutely right, I think the Pacific trade deficit or surplus, as is being discussed, is particularly large reserve in the U S over sixty billion dollars, and That certainly something to look at where we are now in this trade discussions. We talking about very specific sectors and very narrow segments, so tariffs there would have a limited impact the german economy. The big question is obviously, if we trade war and then german
and Europe. Germany is a very, very strong part of Europe would be effected the most. So there is a certain anxiety over this escalating and its impact will determine You mentioned the labour market which we make of the full of new, full employment there were seeing today. Is there. We now see a source of strength to the economy, but is bringing some tensions along with it. We feel that the german economy still has pockets of supply that are not that obvious to the statistics, which are, for example, the part time labour rights saw in the crisis? There was a huge movement to part time, work and part time. Employment and these people still could go to four times or look it's like this, which would allow the economy to further grow anti labour rights still increase. But having said that, we are pretty much at full employment. We are still
as a house as gold. My we're not that optimistic that that will lead to increased inflation for a lot of other reasons, but the MIKE it feels that, specifically for very skilled labour, a specific sector staff shortages building after more than ten years in power, german Chancellor Angela Merkel seems to be having more difficulty on the political front and that's affected her belly. to win backing for her policies, talk a little bit about the political climate today and what issues are top of mine for german people in voters? Clearly, mercury and her governments have stood for stability and reliability in Europe and in Germany, and I think that has and having Germany very well now, with my car
in power. In France, the axis between Germany and France is a source of strength for the European Union, and you could see a new kind of impetus. New initiatives coming from their having set that top of mine for many Germans are what's happening right now, which is the transatlantic relationship and its future and how to deal with the challenges there. The question of how do you develop to your, in union and what does it mean for Germany and then obviously the whole question around migration? We have a huge question out there, as there are millions of people in Africa looking to Europe and looking to a better life and in Europe. Politicians have to deal with the questions around political, social, economic do Billowy of taking more migrants in- and I guess this discussions are complicated and they are obviously easy targets for populist movements, and so that's what you see play out now, Margaret how governments have always tried to find a cure
In answer to those questions, because they really affecting Europe and indeed european answers and she's getting on with it, as we have seen in recent weeks, but the progress obviously is slower than many people would like to see, and that is affecting the climate in Germany and her sister party to see as you and all the discussion stare and clearly also some of the populace take advantage of it like the hd movements or we see more friction there more volatility. But I think a course that mercury follows is still a course of stability that reliable. He and european solutions to european problems. Speaking problems were lesson here to go before the UK currently scheduled to leave the European Union at this stage. How integrated is the. You on a political level, as well as a capital markets level in very different kinds of questions. But how do you think about that?
you're navigating running a business in Germany, the I think you're right and some of those discussions around breaks it into UK leaving Europe, but also some of the criticism of president Trump and others on. The progress generally have focused paper on the fact that the European Union is the answer and needs to be the answer, and integration needs to speed up, and so we ve seen probably the adverse reactions so that these kind of events have pushed people towards more Europe and Poor Europe and trying to make Europe happen. Now we have seen slow progress, obviously in some of the areas and concerns on all towards, but we would think that all of this cannot be an excuse in the anti needs to be economic reform.
My business reforms and that needs to continue at a european level from our business. Obviously, capital markets, union and the homeless, genius rules and regulations for the european capital markets is something we really need to make further progress in order to give the european businesses that are very strong businesses to write framework to operate these everyday competitors in the U S and with a view to competitors in Asia. That has been a topic, but it gets a lot of attention these days morsel as of these developments outside of the EU, so I think it's a positive and away so the criticism from both a little Leaders in England and from the United States has had the effect of rallying the Europeans together bet. I would agree that there's been a lot of activity around reforming the euros on banking system. What's your take on the progress made to date, how might have proposed Banking Union ACT is sort of a safeguard against or another economic downturn, and also offer alternatives to lie.
then as a financial centre. For that's another good example. I think there is a general agreement that the European Banking Union needs to be pushed forward, fall the good reasons in order to stabilize these banks and and allow them to weather the next crisis, and some progress has been made with the east end. The european stability mechanism now getting more responsibilities that sort of the bail out fund for european banks, but they also be question still out there. One of them is the European deposit insurance, the question okays: should there be a european wide insurance of deposits and the European Budget and what the budget should be in theirs. Clearly, some reservations, also the german side as too wholesale guarantee or large european budget and that need to be discussed. Having set it at least, discussions on the way and people have agreements would need to be in place. For example, we need to separate state funding from bank funding is a very important prerequisite to make these banks safer
general we advocate European Banking Union as it could serve as a basis for european consolidation and european consolidation of banking lever is important in order to address the cost issues that these banks have and to allow them to invest in new technology to basically face off, then you competition and make sure that there are strong reasons. We deplore competitors again that you as banks and Asia. There hasn't been a lot of consolidation in european banking sector starve national giants by Marge technology likely to change that all or the idea of scale dead in your? in banking, or is it just hard to predict exactly both sides of it in your point, scale is important: getting the costs down sort of advertising this huge investments that we'll have to happen in technology on the one hand, and yet, in fifty regulator, environment stays like individual national level. Then you basically have to replicate. Lots of things is very tough to get these synergies that you should get through scarce
the one belongs to the other and as much progress as we could make. The banking union will allow those effect you describe come through habit technique, in other sectors. Are you seeing an impact, and some of the big industrial companies in Germany has a massive ones, but you were the latter. Two from companies are, those big conglomerates struggling with the disruption of technology. As you see here, technology changes affecting all large corporates that we deal with in many respects, most importantly with respect to access to their customers. The change in the business models, the disruption of the business models to changing the value chain, so
a lot of aspects of corporate activity. Having said that, if you are like many of the large companies in Germany active in multiple sectors, you mighty platter problem, so that in itself is a challenge, because you have to apply this technology answer two different businesses that at different stages of maturity and growth, and so that is a lot of costs that you have to face. A lead in turn drives also a simplification of corporate structures, the question of what belongs to the core and what not? What can you fond and how do you find it? So I think it has ramifications which are much wider than just addressing the technology problem really calls to the core of what the corporate stand for what its core capabilities on which businesses in and should be and in which not. Is that trying to incorporate simplification, driving him any activity or more spin off? We have seen all- in general is more the latter. It drives spin off separations, more independent entities that can deal with these challenges, but it also drives and
more traditional industries, it drives consolidation and therefore emanate because you need to kind of put businesses to get to reap synergies, to address the cost issues or to address investment needs that are coming from. The text of the constitution Let's talk specifically about great german industry, the automotive industry. Last time you are you talked a lot about how technology and new technologies disrupting that sector and how they're making investments in adapting. What's the pictures like today, we have a couple of things that this industry has to face. Clearly and most importantly, I'd say longer term- is a technology change, as we discussed last time round. In the meantime, we had two developments which have gained in prominence oneness Diesel topic clearly that digital technology, a very sophisticated technology, has been a bit in discussion.
question, given that diesel scandal and all these issues with diesel bands and cities now that certainly has heard that part of the business and we continue to hurt it. Generally speaking, this deal setting a lot of cars to german companies producing more than sixteen million cars currently, but that was certainly affect that segment. The other point is the tariff discussions. Clearly, twenty nine percent of the cars being exported to the Eu S that clearly would have an impact on those companies, but coming back to the technology should acknowledge. The issue means that not only to have to look at different power, trains or oceans, be it from search engine to electric to hydro the solutions. So the question there is: can you finance all of this number one and their number two on the distribution side? Who buys these cars? Who owns it? Who finances them, idea, autonomy
striving other driven, so a lot of questions they all have to grapple with, which means lots of investment lots of questions. How do I finance this investment so they're still under a lot of pressure to answer those questions also hear the solution is manifold, like putting a partnerships, joint ventures, getting additional capital in separating entities to gain independent access to the capital market. So a bit of what we talked before is kind of very, very present in the german author that's what I get all of it in a way and a very concentrated form, and you can't pick up plants and move them overnight. But a lot of the big german car manufacturers have massive footprints in the United States. So I'm in there plants in South Carolina in Alabama Kentucky how they thinking about their supply chain. Given some of the talk around tariffs and action on tariffs, as you said, they have global supply chains, they have large presence in the: U S and general large manufacture.
bring their interesting he's some of the? U S China terrorist, affecting them now, because they have producers of cars in the. U s that are being exported to China also receives variant that wind globally, but the whole name of the game is increased flexibility, and if you don't know what the future brings when things get, you have to be more flexible. So that means you need to be able to adapt to producing more locally. To be more flexible in production, which kind of cause you produce where an you obviously have to go to joint ventures to partnerships in order to reduce your risk in certain parts. Again, what you see is flexibility is key for those in the past very monolithic kind of companies and that sort of the general answer Lee, there's lots of specificities as you go line by line accompanied by company, but that has been sort of sticky answer that the executive have to those challenges. Moving away from the big industrial companies. There's a lot of
perhaps they alot of entrepreneurship in Germany not always is well known outside Germany by a lot in the retail space and others. What do we see? in the start up seen in Germany and once we clean from that, but we have a pretty lively, startup scene and Berlin has been famous for it, but you see it in every light. A city is it in Munich. Feed in internal door from the Rhine, Roy Area, and they come from, be to see as well as to be to be models with lots of ideas that traditional companies are looking where'd you see also in the meantime, is sort of Cyril entrepreneurs, entrepreneurs that sort of had their first start up and brought it to work sides but scale, and then they start the next one very, very positive movement there throughout the region, think the only thing that ports them back a bit this bureaucracy and somewhat difficult kind of legal requirements that are done for mid two large US companies entity. Small entrepreneurs have to deal with something to be worked on, but other than that it's a very lively, seen very active seen. So if you fast forward,
and twenty years do you think the backbone of the german economy. Also be these big industrial companies in them. size, manufacturing companies or will new sector dominate. We get a lot of impetuous love of ideas, lots of good new ways of looking at businesses from those start up companies. Having said that, the more traditional companies have, in my view, woken up to this and are very active in this scene. Looking at what is out there, cooperating investing even buying those companies and be of companies like Mark that around four three hundred fifty years and sort of case book examples of it China has been a huge export market for german manufacturers makers and then like has the trade tension between the? U S and China in the USA and in Europe changed or strengthen relationship a little bit. You could say that,
Kinda have been lots of high profile events and statements from both sides that the migration is important and that China Germany stands to defend free world trade and the benefits of it, and that the benefits could be seen. Obviously through The years that Germany and China have been working together has been very beneficial for both sides, in particular for Germany. That's the one part, the other part ways that China is obviously out there telling the german establishment, politicians, business leaders that their force for good and some of the concerns that were there in Germany, to chinese investment and what happens to technology in the Middle EAST, on the Middle EAST on the patent issues, all of that kind of stuff. That's unwarranted and China is a fair partner, so we'll see how far their goals and what it means in practice, but have be lots of kind of good statements on both sides shortly also feel by some of the other stuff we talked about show how long you been Goldman this year, twenty five years, twenty five years,
Populations, thank you. What's been the most memorable part of the career, it's actually interesting. You always go back to where you started. I got back to analysed training in eighty five. Not too good education right, the training there and you come in there in this room, and you just enter a different world from where you come, and there was one thing that were set and which they too would throw these twenty five years in which I keep saying to myself. I was the company it is not in the room here and not around you. The competition is you it's always you did you compete with that sort of stuck with me in the training and all these years I went through my career Goldman. I still look back at this is quite a memorable time so movie aside from fine what are you read this summer that you ve enjoyed hand? What are you looking for reading as it as elsewhere? tough when joy, I'm looking forward to, I just started it it's a book by SIRI whose failed
an american writer, and it's called the delusions of certainty, its essays that she published as she has published a couple, a very, very famous books, and it talks about the linkage between body Saul consciousness and what sort of remains of us, what we carry over but it's true for us or for animals and other human beings, I find it a very, very thought, provoking book and I'm not through yet, but from what I have read, I really can recommended. What do I look forward to read with all what we talked about? There's a great book by general from clouds of its oppression Army has Famous, it's called on the war, and I started of it and read it and put it aside and read it again until I really thought that this summer, I want to finish it because it has some great lines about the relationship between the army and the commander and politicians
and I think you know when you look and watch what's around there, you look back in USA, while these questions have been there. I ve been around for a long time exactly one of Kissinger's favorite books Wolfgang thanks for joining me today. Thank you for having me. That concludes this episode of exchanges of Goldman Sachs thanks, listening and I hope you join us again next time this spot gas was recorded on July Nineteenth two thousand eighteen. The information contained in this recording was obtained from publicly available sources and has not been independently verified by Goldman Sachs. Neither Goldman Sachs nor any of its affiliates makes any representation or
warranty as to the accuracy or completeness of the information contained in this recording and any liability as a result of this recording is expressly disclaimed. This recording should not be relied upon to evaluate any potential transaction. Goldman Sachs is not giving investment advice by means of this recording, and this recording does not establish a client relationship with Goldman Sachs
Transcript generated on 2021-10-07.