SPIEGEL Interview with Finance Minister Schäuble 'Germany Does Not Want to Rule Europe'
The European Union reached agreement last week on the way forward in the euro crisis. But will it be enough? SPIEGEL spoke with German Finance Minister Wolfgang Schäuble about the deal to cut Greek debt, the dangers posed by Italy and Germany's newly strengthened leadership role in the European Union.
SPIEGEL: Mr. Schäuble, politicians and economists around the world are hailing the recent European Union summit as a success. Has the euro now been saved?
Schäuble: The summit last week moved us forward considerably. But it won't be the last meeting on this issue. It was another important step. This incidentally also appears to be the initial assessment made by the markets.
SPIEGEL: Using market reactions as a guide, one could easily arrive at the conclusion that all problems have been solved.
Schäuble: To repeat what the chancellor has said on this topic on several occasions: There will be no single solution during this process. We are building a new institutional architecture for the euro zone, which will result in more Europe and more stability. We still have a long way to go before all problems are solved, but our chances of success have increased since last week.
SPIEGEL: We are not so sure. If the resolutions are implemented as planned, Greece's debt ratio will only drop to 120 percent of gross domestic product (GDP), which is precisely as high as financially troubled Italy. Do you really believe that this will allow the Greek economy to get back on its feet?
Schäuble: Yes. Debt sustainability is achieved when you have access to the market -- and Italy has that. The troika (eds. note: made up of the International Monetary Fund, the European Central Bank and the European Commission) tells us that this will also be the case for Greece when it has reached this level of debt and improved its competitiveness.
SPIEGEL: Can you explain that in a bit more detail?
Schäuble: If Greece achieves a 120 percent debt-to-GDP ratio by the end of the decade, then this will be the result of extensive debt reduction -- through consolidation, growth and reforms. This engenders trust. However, 120 percent is merely an interim result, and Greece can't allow itself to stop there.
SPIEGEL: That is European summit-speak, but not an answer to our question. Do you seriously believe that Greece can become competitive again with this package?
Schäuble: Yes, because the new program will also contain comprehensive structural reforms to enhance competitiveness.
SPIEGEL: But the summit resolutions neither ensure that Athens will bring its budgetary problems under control nor will they stimulate the labor market.
Schäuble: Wait and see! You are forgetting the sweeping measures that are being taken for and with Greece, which range from support for the implementation of the programs by the European Commission's Greece task force and the troika -- which will now be continually on location -- to EU funds that are available for Greece. It is also clear, however, that the problems have to be solved in Greece -- not in Europe, but with Europe's help.
SPIEGEL: The summit resolutions may even create new problems. Countries like Portugal and Ireland could be tempted to put an end to their problems with a debt haircut similar to the one just agreed on for Greece.
Schäuble: The heads of state and government of the euro zone, including those from Portugal and Ireland, have unanimously emphasized once again that Greece is a unique, exceptional case that calls for a special solution. In exchange for continued and more long-term assistance from the members of the euro zone, Greece will have to take tough measures and accept much closer supervision. You could also say that it will temporarily relinquish some of its sovereignty. I don't think that any country would willingly submit to such severe measures, unless driven by the direst of circumstances.
SPIEGEL: According to the summit resolutions, Greece's private creditors will have to waive 50 percent of their claims -- and do so voluntarily. Do you really believe that will work?
Schäuble: It's true that the details have yet to be finalized. But we have staked out the terrain. Now, private creditors will have to take into consideration that the only alternative to an agreement is no agreement, with all the consequences that this would entail, also for the private creditors themselves.
SPIEGEL: The success of the package now depends on the banks playing along. What will you do if they refuse?
Schäuble: We have always said that we prefer a voluntary debt haircut. In addition, we have a firm commitment from the Institute of International Finance (IIF) (eds. note: The IIF negotiated on behalf of European banks at the Wednesday EU summit). But we have also stated that we have not ruled out a less consensual approach.
SPIEGEL: A few weeks ago, you promised the public that Germany would be liable for a maximum of 211 billion ($298 billion) of the euro backstop fund, the European Financial Stability Facility (EFSF). Now, EU leaders have agreed to "leverage" the fund, to increase its impact to 1 trillion. What is the real story?
Schäuble: What I said is true. First, Germany's liability is limited to 211 billion -- or, to be more precise, 211.0459 billion. Second, we are boosting the effectiveness of the EFSF to achieve a greater stabilization effect with these funds.
SPIEGEL: That sounds like magic.
Schäuble: If we decide to make 100 billion available to Greece, for instance, then the euro states guarantee 20 billion via the EFSF. The rest is contributed by private creditors who can then fall back on these 20 billion as a kind of insurance should Greece default. This allows us to provide more assistance without increasing the liability of the EFSF.
SPIEGEL: But what you are not telling people is that this increases the risks for taxpayers. The EFSF will always have to pay first if something goes wrong.
Schäuble: The risk doesn't necessarily increase. In fact, it may even decrease.
SPIEGEL: Now, that really sounds like magic...
Schäuble: ...but it's economics. By enlisting the help of other creditors to increase the amount that we can cover with the EFSF to 1 trillion, we also bolster the EFSF's defenses against possible attacks from speculators. This reduces the likelihood that we would be liable for losses in the first place.
SPIEGEL: Is the new trillion-euro leverage large enough to rescue a country like Italy if it runs into difficulties?
- Part 1: 'Germany Does Not Want to Rule Europe'
- Part 2: 'We Cannot Solve Italy's Problems in Germany'