'This Perverse Angst' Draghi Defends Euro Rescue Policies
In an interview, ECB chief Mario Draghi, 66, defends his controversial euro rescue policies, saying Germans' fears have failed to materialize and that conditions in the euro zone are improving.
SPIEGEL: Mr. Draghi, do you know Andrea Nahles?
Draghi: I have heard the name before but I don't know her personally.
SPIEGEL: Ms. Nahles is the new German labor minister and boss of Jörg Asmussen, your former colleague on the executive board of the ECB. The fact that he is giving up this prestigious job has caused great surprise in Germany. Did you chase him out?
Draghi: Jörg and I had an excellent personal and professional relationship. I consider it as a great loss for us that he is returning to the government. Of course we did not agree on every occasion.
SPIEGEL: Asmussen is the third German central banker to give up his job prematurely, after Bundesbank boss Axel Weber and the former ECB executive board member Jürgen Stark. Why aren't the Germans happy at the ECB?
Draghi: You can't compare these cases. Jörg has made it clear that it was only family reasons which prompted him to go back to Berlin. I have no reason to doubt that.
SPIEGEL: In any case, Weber and Stark resigned because of your policies, which led to your famous remark in London a year and a half ago about doing "everything necessary" to save the euro. That means, in an emergency, buying up the government bonds of the crisis-ridden countries and taking on risks amounting to billions for which in the end German taxpayers above all would be liable. Can you understand that many German citizens are at odds with this?
Draghi: Weber and Stark resigned before my arrival at the ECB. But the truth is that conditions in the euro area have improved considerably since then. Consider the latest developments: Crisis-ridden countries such as Ireland and Portugal are exiting the bailout program, the risk premia for loans to crisis-hit countries in Southern Europe are declining and investors from all over the world are once again investing in Europe. In other words, most of the financial-economic data are turning in the right direction.
SPIEGEL: Are you saying the euro crisis is over?
Draghi: No, but the fears felt by some sectors of the public in Germany have not been confirmed. What haven't we been accused of? When we offered European banks additional liquidity two years ago, it was said there would be a high rate of inflation. Nothing has happened. When I made my comment in London, there was talk of a violation of the central bank's mandate. But we had made clear from the beginning that we are moving within our mandate. Each time it was said, for goodness' sake, this Italian is ruining Germany. There was this perverse angst that things were turning bad, but the opposite has happened: Inflation is low and uncertainty reduced.
SPIEGEL: The economic crisis in Europe is still threatening to blow up the euro. Growth is low, so unemployment in Southern Europe is reaching record levels.
Draghi: The crisis has not been overcome, but there are many encouraging signs. The economy is recovering in many countries, the imbalances in European trade are declining and the budget deficits in the monetary union are falling. That's more than was expected a year ago.
SPIEGEL: But the debt level in many euro area countries is rising unabated, and there's less willingness to reform. Greece, for example, will again miss its targets. Does the country need another bailout?
Draghi:. In Greece, quite a few things have changed for the better, but the country has to do more, there's no doubt about that.
SPIEGEL: In fact, the situation is disastrous. If the state has to take up emergency loans again, Greece will definitely be living off the rest of the euro area. How is the country ever to get back on its feet?
Draghi: Some countries need a program that runs for three years; others take somewhat longer. In Greece, the position at the outset was particularly difficult, so now we have to be particularly patient with the country. That's no surprise.
SPIEGEL: The reform process is slowing down in other countries as well. France, for example, is again making debts, and the planned reforms in the labor market or the tax system are not moving ahead. How concerned are you about developments in the euro area's second-largest country?
Draghi: France is facing the same problems as other countries which need to get their budgets in order and to make structural reforms. Many states have raised taxes and cut investments first. This is the easiest way, but both approaches weaken growth. A more promising avenue is to bring current government spending down and introduce structural reforms in the labor market.
SPIEGEL: The only problem is that France isn't doing that. Aren't you getting tired of repeatedly urging the country to reform, but then seeing nothing happen?
Draghi: In Latin you say: "Repetita iuvant -- to repeat is beneficial". The fewer changes made in a country, the more often I repeat my messages. And it works.
SPIEGEL: We have a feeling that the number of governments which can no longer hear your tune is growing. The new coalition government in Germany, for example, wants to undo the pension reforms made by the former coalition government comprised of the center-left Social Democrats and the Green Party years ago and introduce a universal minimum wage of 8.50 ($11.67). Are these policies that help the euro?
Draghi: It is too early to assess the policies of the new German government. I can only say that the crisis has shown that the monetary union is incomplete and that the weaknesses need to be remedied. Germany helps the euro best by further strengthening its competitiveness and promoting growth. Whatever helps that process is right, everything else is wrong.
SPIEGEL: Many economists represent a completely different theory. They regard Germany's competitiveness as the real problem of the euro area and are calling for state curbs on exports. What do you think of that?
Draghi: Not much. It's a mechanistic perspective of economic activity, and there's little I can do with it. We won't make the weak stronger by making the strong weaker, as a very wise man once said. That applies to the economy as well. If Germany were less competitive, the euro area as a whole would lose, because less could be produced then.
SPIEGEL: In Germany, ECB policy is unpopular because you have now pushed the interest rates for investments down so far that they are often no longer enough to compensate for inflation. In other words, only fools save.
Draghi: That's not the fault of the ECB The link between the short-term interest rates set by the ECB and the long-term interest rates paid on investments which are relevant for savers in Germany is not very strong.
SPIEGEL: Really? It's a stated goal of your policy to indirectly suppress long-term interest rates.
Draghi: No, especially in recent years, we were unable to control long-term interest rates -- because investors were very unsettled by the euro crisis. That's why everyone has been taking money into Germany to buy safe German government bonds. That's why the interest rates in Germany have fallen. We take the concerns of savers very seriously. But how can we respond? We run monetary policy for the entire euro area, not for a single country. If we are able to dispel the uncertainty, many investors will again take their money out of Germany and back to their home countries and interest rates will rise again.
- Part 1: Draghi Defends Euro Rescue Policies
- Part 2: 'I Adhere Strictly to the Mandate of the Central Bank'