European Central Bank Chief Economist: 'Everyone Is a Sinner at the Moment'

In a SPIEGEL interview, European Central Bank Chief Economist Jürgen Stark discusses the threat of a Greek bankruptcy, disruption in the euro zone and the growing problem of excessive national debts in countries that have adopted Europe's common currency.

SPIEGEL: Mr. Stark, Greece is threatened with a national bankruptcy, other European Union countries are heavily in debt and the common currency has come under great pressure. How safe is the euro these days?

Stark: We have been in a global crisis for more than one-and-a-half years now. We still can't say whether it's over. But you could just as easily apply your question to other regions. No one talks about whether the United States could break apart because of California's ailing finances. So let's not take things too far!

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Photo Gallery: Greece 'Must and Will Make It'

SPIEGEL: Washington and the US central bank, the Fed, would certainly intervene before allowing California to go bankrupt.

Stark: To be honest, I don't see that they would do that. There are many examples to the contrary in the history, including American history.

SPIEGEL: But you have to take citizens' worries about the euro seriously. The common currency is currently undergoing massive devaluation, partly because the Greeks can no longer control their finances.

Stark: I do take those concerns seriously. Nevertheless, I want to question your theory of cause and effect. It is often easy to find a dozen reasons for fluctuating exchange rates.

SPIEGEL: We see the current problems as the biggest test the euro has ever faced.

Stark: There were many skeptics at the beginning of the currency union. Since then, the euro has experienced 11 successful years. However, the current crisis has shown that we are all moving in unknown terrain. For instance, the central banks have had to adopt measures that I would have considered to be impossible only two years ago. But all market players and currencies have been put to the same test since the Lehman Brothers bankruptcy. That, by the way, happened on the other side of the Atlantic and led to the tsunami that then hit Europe.

SPIEGEL: The Greeks already pay about four percent more in interest for their treasury bonds than, for example, Germany. Is this just punishment for old lies, accounting tricks and failures?

Stark: As far as the refinancing of countries goes, we are certainly experiencing differences that are unprecedented in the history of the euro.

SPIEGEL: One couldn't put it more politely.

Stark: There are three dimensions to the Greek case. The first consists of poor statistics ...

SPIEGEL: ... which Athens has apparently systematically manipulated for years.

Stark: It was not possible to obtain reliable figures. This also has to do with the internal Greek structures.

SPIEGEL: But that doesn't explain the most recent acute shock in the financial markets.

Stark: Which brings us to problem number two: It became apparent, almost overnight, that the Greeks had a double-digit and not a single-digit budget deficit, which is close to 13 percent of the gross domestic product. That too has to do with the fact that the implementation of the budget was not truly monitored in the past -- neither by Greek nor external institutions.

SPIEGEL: And the third dimension?

Stark: Greece has lost its ability to compete on the basis of price. Its unit labor costs have risen tremendously. The government in Athens has recognized this. That too is something it will have to quickly come to grips with.

SPIEGEL: But all that has been known for years. Was Greece cheating from the start, or was it that the people in Brussels just didn't want to know the details?

Stark: There were corrections after the fact. But you're right: An economy doesn't lose its competitiveness overnight. Greece covered it up for a long time with an extremely generous spending policy. For example, consumer spending was stimulated with pay increases in the government sector. We here at the ECB were vocally critical of this development several years ago.

SPIEGEL: Given so many failures, don't you sometimes wish that your central bank had real options to apply sanctions?

Stark: First of all, I would like to see better supervision. This is where Eurostat (the European Union's statistical office)and the European Commission, in particular, can play a role. We should all learn from the mistakes of the past. Greece was living beyond its means. That has to be corrected now. On the whole, however, stronger automatic mechanisms are needed in the application of the stability pact.

SPIEGEL: In light of the current protests and strikes, one doesn't get the impression that the Greeks are willing to save.

Stark: The new government has assumed political responsibility and unveiled a package of measures. This is the absolute minimum that has to be implemented now, and more will become necessary in light of the significant worsening of the situation. That requires strong leadership.

SPIEGEL: What will the control mechanisms look like?

Stark: Athens will be required to report monthly on the implementation of the measures. We will see what happens after that. The goal is to bring down new borrowing to less than three percent of GDP by 2012, as provided under the stability program. There is a plan in place for this in 2010. All steps taken after that will have to be outlined more specifically.

SPIEGEL: And if Greece simply doesn't make it?

Stark: The country has no other choice. It has to regain the confidence of the markets. Ireland was in a similar situation and has since regained some confidence.

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About Jürgen Stark
Jürgen Stark, 61, has been a member of the executive board of the European Central Bank (ECB) since 2006, where he has promoted a strong euro and fought against excessive spending in member states that have adopted Europe's common currency. In addition to his role on the board, he is also the ECB's chief economist. During the 1990s, as a state secretary in Germany's Finance Ministry, Stark campaigned for the creation of the European Stability and Growth Pact, which limits deficit spending in euro zone countries to a maximum of 3 percent of gross domestic product and total national debt of 60 percent of GDP. From 2002 to 2006, he served as vice president of the Bundesbank, Germany's central bank.

Graphic: A Threat to the Euro Zoom
DER SPIEGEL

Graphic: A Threat to the Euro

Graphic: Euro-dollar exchange rate Zoom
DER SPIEGEL

Graphic: Euro-dollar exchange rate


Graphic: Euro-dollar exchange rate Zoom
DER SPIEGEL

Graphic: Euro-dollar exchange rate


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