ECB Executive Board Member Asmussen 'German Interest Rates Will Rise Again'
In a SPIEGEL ONLINE interview, Jörg Asmussen, the German member of the European Central Bank's executive board, predicts that interest rates will rise again, argues that the threat of inflation is lower than many believe and says the EU would be stronger if Britain remained a member.
SPIEGEL ONLINE: Mr. Asmussen, for years you served as a state secretary in the German Finance Ministry. Since the beginning of 2012, you have been a member of the executive board at the European Central Bank. Has being at your new job changed your view of the crisis?
Asmussen: A little bit. At the Finance Ministry, I was a European German, but now I am more of a German European. I used to represent German interests in negotiations with Brussels, but today I have to contribute to finding solutions that are appropriate for Europe.
SPIEGEL ONLINE: As someone who has changed sides, do you find it more difficult to tell your former colleagues in the ministry that they should solve the crisis on their own?
Asmussen: No, I actually find it easier because I still know the way the other side thinks and functions.
SPIEGEL ONLINE: In recent months, there has been an increase in the amount of positive news about the financial markets. Have we overcome the crisis, or has it just been covered up with a lot of money from the ECB?
Asmussen: Well, we are certainly in a better position today that we were 12 months ago. The greatest risk for the current year is that everyone will just sit back and not do anything else.
SPIEGEL ONLINE: Since ECB chief Mario Draghi announced that he would purchase unlimited bonds from crisis-afflicted countries if necessary, the financial markets have recovered. Of course, that doesn't mean there has been a fundamental improvement -- it is purely based on the hope that more money will always be available.
Asmussen: There have also been fundamental improvements. Italy now has a primary surplus -- meaning the government there is taking in more than it is spending, if you factor out interest payments. And Greece has reduced its deficit by 9 percentage points over the last three years.
SPIEGEL ONLINE: The strongest weapon in efforts to combat the crisis remains the bond-buying program. So far you have only threatened to use it. Will you actually start using the program this year?
Asmussen: We are not currently purchasing bonds. The option of activating the program is always available, but certain conditions are required. A country must submit to the ESM's tough adjustment program, for example.
SPIEGEL ONLINE: By purchasing bonds, the ECB is financing national budgets and relieving governments of their work. Is that really a central bank's job?
Asmussen: We operate within our monetary policy mandate and we do not finance any states. The program is there in order to eliminate disruptions in the circulation of money. The key interest rate issued by the ECB either doesn't reach the member states or varies greatly when it does.
SPIEGEL ONLINE: So is the situation really still so bad?
Asmussen: We are seeing modest improvements. The financial markets were severely fragmented for a long time. That means that bonds for certain countries were only being purchased by domestic banks. That has changed. We still haven't returned to normal conditions, but there has been clear progress.
SPIEGEL ONLINE: What progress?
Asmussen: During the first three weeks of this year, for example, Italian banks were able to issue unsecured bank bonds. In other words, they are once again getting money from investors -- and even from those outside of Italy. One year ago, that was practically impossible.
SPIEGEL ONLINE: The massive amount of money that the ECB is pumping into the financial markets will at some point arrive in the real economy. Are we faced with the threat of inflation?
Asmussen: No. All forecasts show that inflation within the euro zone will fall below 2 percent this year. And in the coming years, we are not expecting any major deviations from that. It is a fact that we have created central bank money, but the amounts of that money that are actually circulating within the economy only increases very slowly. The money isn't arriving there. And as long as that remains the case, no inflationary pressure can occur.
SPIEGEL ONLINE: But the more the situation improves on the financial markets, the greater the amount of money that will then make its way into the economic cycle.
Asmussen: Let me assure you: If we even see a hint of rising inflationary pressure, we will act.
SPIEGEL ONLINE: The ECB has long held its key interest rates at extremely low levels. For depositors, this is a massive problem. They lose money each year because the interest rates paid by banks are below the inflation. Do you as central bankers see yourself as responsible for the problem?
Asmussen: Our aim is stable prices. We are aware of the concerns of savers. But I am deeply convinced that our policies are also indirectly contributing to normalizing the situation again. The fact that interest rates on the markets, especially in Germany, are so low is not just a product of the key interest rate. It also due to the fact that capital and savings are being brought to Germany because the country is viewed as a safe harbor. The more success we have in bringing Europe back on a growth track, the more the situation will ease. That will also then be reflected in interest rates for normal savers.
SPIEGEL ONLINE: Do you mean that market interest rates will rise?
Asmussen: Yes. Today we have a situation in which the government in some cases has to pay less than 1.5 percent interest on 10-year bonds. That is an abnormal situation. It will surely get back to normal again.
SPIEGEL ONLINE: Without aid from the ECB, many banks in Southern Europe would quickly go bankrupt. Still, five years after the financial crisis, we don't yet have a functioning plan for dealing with ailing banks. Why not?
Asmussen: The issue is a very complex one -- especially given that it has to be addressed internationally.
SPIEGEL ONLINE: What exactly do you mean?
Asmussen: There are always calls for the orderly liquidation of banks that have fallen into trouble. In practice, that means you have a weekend to do it. But things aren't that simple if you are talking about a large institution that is active in multiple countries. Deutsche Bank, for example, is comprised of more than 6,000 legal entities. It's not exactly a trivial task. At the same time, though, it doesn't mean that it shouldn't be addressed.
SPIEGEL ONLINE: What would you propose?
Asmussen: If we do get a European banking supervisory authority in the next year, then we should also create a European mechanism with which we can liquidate major international banks in an orderly manner. We will also need a fund that is financed through contributions from the banks. Those two things go together. A European supervisory authority alone does not suffice for creating a banking union.
SPIEGEL ONLINE: Should this fund be located within the ESM's bank rescue fund?
Asmussen: In my opinion that would be a good solution. The ESM is the first institution that the 17 euro-zone countries have created together. That is a quantum leap. If we want to drive European integration forward, then it would make sense to further expand the ESM.
SPIEGEL ONLINE: By doing so, however, the euro-zone countries would become even further uncoupled from those countries within the EU that are not a part of the currency union. British Prime Minister David Cameron is unlikely to be pleased with that.
Asmussen: As a central banker, I must be very reserved in my comments on statements made by a government leader. But I believe that the euro zone is at the heart of integration.
SPIEGEL ONLINE: Should Great Britain leave the EU?
Asmussen: I think it would be good if Britain remained. The EU and Great Britain would then be stronger. The prerequisite is, of course, that one wants to remain part of it wholeheartedly.
Interview conducted by David Böcking and Stefan Kaiser.
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