German Finance Minister on the Euro Crisis 'We Can't Allow a Second Lehman Brothers'
Last week, Greece passed strict austerity measures and is out of immediate danger of insolvency. For now. SPIEGEL spoke with German Finance Minister Wolfgang Schäuble about what happens next, whether a Greek default is inevitable and how dangerous the debt crisis is for democracy.
SPIEGEL: Minister Schäuble, 15 years ago, a leading German politician wrote a book in which he predicted that the euro would no longer allow countries belonging to the European common currency the luxury of "relapsing into comfortable debt creation." Do you have any idea who made this prognosis?
Schäuble: I have an idea, but I'm sure you're going to tell me.
SPIEGEL: It was the then-floor leader of conservatives in parliament, Wolfgang Schäuble.
Schäuble: At the time, I was expressing an expectation that many held -- and current tendencies have confirmed it. In the case of Greece, we are currently seeing that the currency union doesn't allow its member states to pursue unsound financial policies for extended periods.
SPIEGEL: But, in the case of Greece, we have also seen that politicians have ignored such problems for years. This is now forcing them to break promises that they made in European Union treaties stipulating that Germany wouldn't be required to cover the debts of other member countries. Has the euro lost its credibility?
Schäuble: If we are going to have a common currency, we also have to be able to defend it -- and to do so in a way consistent with EU treaties. We've managed to do that: The euro is stable, and an increasing number of countries are denominating their financial reserves in the euro not least because of the high degree of faith they have in it. Incidentally, our goal in helping is not to cover the debts of others. More than anything else, we are helping in our own interest.
SPIEGEL: Still, taxpayers once again make billions of euros available to Greece, even after the EU and the International Monetary Fund (IMF) put together a 110 billion bailout package for Greece last year. Can you promise Germany this will be the last aid package?
Schäuble: We always resisted the early, simplistic notion that everything could be taken care of with a single payment to the Greeks in 2010. We said from the beginning that this was a complex challenge that would need a plan and would take time. Because we were aware of the size of the problem, we said early on that a lasting mechanism for overcoming the debt crisis had to be created. The European Stability Mechanism (ESM) is now there and is being ratified. But it won't take effect until 2013. So we need an interim solution, and that's what we're doing now.
SPIEGEL: Most experts doubt that the interim solution will work. They've concluded that Greece ultimately won't be able to avoid having to restructure its debts. Do you see things differently?
Schäuble: Absolutely. The program for Greece will become viable once Greece has implemented all the measures it has agreed to. That's not just my opinion; it's also shared by the IMF, the European Central Bank (ECB) and the European Commission. I have great respect for the way the people of Greece have approached this exceptional challenge. It won't be easy, but the Greeks have resolved to follow this path. And I'm convinced that they will do everything possible to work their way back out of this predicament.
SPIEGEL: Your views put you in a minority. Greece will soon have to spend a 10th of its gross domestic product on interest payments alone, and the country's economy is not competitive. How do you intend to solve these problems?
Schäuble: Greece has considerable potential when it comes to bolstering its market competitiveness. Just look, for example, at the share of the Greek economy that is controlled by the state -- it's almost as large as it was in formerly communist countries. If Greece were now to privatize state-owned companies on a massive scale, it would not only bring in money to state coffers, it would also liberate major growth forces. We Germans in particular know what is possible when a country undertakes genuine structural reform.
SPIEGEL: At the moment, though, the EU is mostly demanding austerity measures from Greece. Doesn't the country need a kind of EU Marshall Plan to get back on track to economic growth?
Schäuble: What you call it isn't so important. The crucial factor is for the EU to be more willing than it has been to support Greece in generating growth. When my Athenian counterpart makes his upcoming trip to Berlin, I'll be talking with him about how we can move this process forward. Doing so also entails considerable tasks and opportunities for the German economy.
SPIEGEL: None of this will help as long as Greece is being crushed by its enormous debt load. Wouldn't it be better if the country just conceded it is broke and asked its creditors to liberate it from part of the debt burden?
Schäuble: It's our responsibility to prevent things from escalating to crisis levels. If we don't do that, the crisis could spill over into other euro-zone countries, which would have unpredictable but thoroughly daunting effects on banks, the real economy and possibly the entire financial system. In any case, that's the fear of the European Central Bank; as finance minister, I have to take this into account.
SPIEGEL: Even Peer Steinbrück, your Social Democrat predecessor as finance minister, believes that the consequences could be controlled if Greece were to declare national bankruptcy.
Schäuble: But Mr. Steinbrück also believes that I should make policy in close consultation with the ECB. Those two things don't go well together because it is precisely the ECB that has long been warning of the incalculable and dramatic consequences that would follow a Greek declaration of national bankruptcy. We can't allow a second Lehman case on the financial markets.
SPIEGEL: The comparison doesn't really work. In the case of Lehman Brothers, no one knew exactly the bank's reach. But, in the case of Greece, it's widely known who the creditors are. Politicians would only have to signal that they would stabilize endangered banks in an emergency.
Schäuble: Of course, as a responsible government, we're preparing ourselves for the unlikely event that things defy all expectations and Greece actually does fail to make its payments. Were that to happen, we'd try to avert uncontrolled developments. However, it would be completely wrong to cavalierly force Greece into insolvency. The risks for the Greek economy and the danger of infecting the financial markets would simply be too great.
SPIEGEL: The beneficiaries of your policies are international speculators. During the financial crisis, they were able to count on having the state buy up ailing banks in danger of collapse. They can now count on taxpayers financing countries whenever they go bankrupt. Where will this end?
- Part 1: 'We Can't Allow a Second Lehman Brothers'
- Part 2: 'Politicians Are Not Prisoners of the Financial Markets'