SPIEGEL: Mr. Reitzle, 2012 is viewed as a watershed year for the euro. Do you fear that the European common currency will break apart?
Reitzle: The euro will not break apart -- and certainly not in 2012, because all politicians are determined to keep the euro zone together. Greece, however, is a different story. The country is incapable of structuring itself in such a way that it can remain in the monetary union.
SPIEGEL: So Greece has to leave the euro zone?
Reitzle: Yes, in the medium term Greece must leave. And the country's debts will ultimately have to be written off at 100 percent, not at 50 or 70. In addition, we will have to pay even more money as long as Greece is in the euro zone, because it is not capable of making ends meet on its own. All in all, this is a 500-billion ($635-billion) problem.
SPIEGEL: And how is the country expected to get back on its feet?
Reitzle: It will take at least a generation to create the necessary conditions. Greece has very little to offer that the world needs. Even in the case of olive oil, revenues are not generated primarily by sales of the product, but by subsidies to growers, some of which have even been based on false data in the past.
SPIEGEL: But a Greek withdrawal from the euro zone would lead to new turbulence in the financial markets.
Reitzle: The capital markets moved away from the subject of Greece a long time ago. Italy will be the litmus test. If Italy makes it, Spain will have a role model, and then perhaps even France may be able to push through reforms, which doesn't seem likely at the moment. Italy now has a government containing leading experts. The question will be whether they manage to implement the necessary reforms in a way that has the desired effect.
SPIEGEL: What can the government do?
Reitzle: I see four problems that must be solved in Italy. First there is the bureaucracy, which paralyzes the entire country. Second, the labor market has to become more flexible. Together these two things create the conditions for growth. Third, tax evasion has to be fought and, fourth, the retirement age has to be raised gradually. But all of this takes time, which is why the crucial year for the euro is not 2012. It will actually come three or four years later.
SPIEGEL: In 2012, especially in Italy, debts in the triple-digit billions will have to be refinanced. Although the bond markets eased a little, late last week, the question remains whether the financial markets will be willing to underwrite bonds issued by countries saddled with this much debt.
Reitzle: It takes years to bring about reforms, whereas the financial markets expect quick successes
SPIEGEL: which is precisely the problem
Reitzle: and that means that the European Central Bank will still have to intervene if the bonds cannot be fully placed in the market. It won't work without the ECB.
SPIEGEL: So far, the German government and the Bundesbank have resisted such excessive purchases of government bonds by the ECB. Are they wrong?
Reitzle: No, and I too feel that the ECB's purchases are fundamentally wrong. But at the moment I see no other option, if we want to prevent the monetary union from breaking apart. That's why it's all the more important that the reforms be accelerated in the individual countries. Besides, the problem is much bigger than it's actually being portrayed: It's usually only the government debts that are taken into account. But the Target2 balances are still growing beneath the surface.
SPIEGEL: You're referring to the imbalances in payments by the central banks in the ECB system.
Reitzle: Basically, this means that the Bundesbank is guaranteeing the trade deficits. In other words, we are essentially the ones financing the German cars and machine tools that are shipped to Spain or Italy. These balances also include the roughly 100 billion that Italians have taken out of their country in the last few months and invested elsewhere -- in Berlin real estate, for example. These Target2 balances have already grown to 770 billion, with about 500 billion at the Bundesbank alone. In the worst case, we will be the ones paying for this.
SPIEGEL: For 27 percent of it, based on the Bundesbank's share of the ECB system.
Reitzle: I know, France has 20 percent, Italy 18, and so one. But that's a purely statistical view. In an emergency, these countries will be unable to pay, and solvent countries will have to assume the shares of insolvent countries. A development is unfolding here, invisible to the public, which is further exacerbating the crisis.
SPIEGEL: You describe the dramatic situation so impressively that we have to ask ourselves where you get the optimism to believe that eventually everything will somehow work out for the best.
Reitzle: I'm just describing realities. There is no pain-free solution. But if the Italian government manages to demonstrate this year that it is instituting reforms in the right places, interest rates for Italy could go down again. The sense of relief would be immediately apparent. Then Spain could also make it. And then the euro countries could sweat out the problem over time.
SPIEGEL: A highly optimistic scenario
Reitzle: and it's my favorite scenario. But even in this positive case, I don't believe that politicians can reduce the debts. Not even Germany is able to do this, despite extraordinary tax revenues, which is pathetic. For politicians, saving money now means incurring fewer debts than before -- which, for me is an odd definition.
SPIEGEL: So can debts only be reduced by inflation?
Reitzle: In the best case, debts are reduced through inflation, provided countries are able to finance their way to a lower interest rate. If not, in the worst case, there is the threat of currency devaluation.
SPIEGEL: The risks to the German taxpayer, which you have clearly outlined, are continuing to grow. Why should the euro be rescued at all costs?
Reitzle: I believe that the rescue can succeed, but I do not believe that the euro must be rescued at all costs. I fear that willingness to reform will fade if the ECB is to intervene in the end, anyway. Support for rescuing the euro will evaporate as soon as German citizens have to pay taxes of more than 50 percent to finance the other euro countries.
SPIEGEL: And then?
Reitzle: If we don't manage to discipline the debt-ridden countries, Germany will have to withdraw.
SPIEGEL: Excuse me? Germany is supposed to withdraw from the euro and introduce its own currency? The consequences would be tough: This currency would appreciate, and German industry would have trouble selling its products abroad.
Reitzle: Of course it would lead to appreciation of the deutsche mark, the northern euro or whatever currency we would then have. But it would soon be less than we fear. Although unemployment would rise in the first few years, because of declining exports, we would come under growing pressure to become even more competitive. And within only five years, Germany could be in a stronger position relative to Asian competitors.
SPIEGEL: Are you saying that withdrawing from the monetary union would be advantageous for Germany?
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