SPIEGEL Interview with Ex-ECB Chief Economist Issing 'The Euro Will Exist for a Long Time to Come'
Part 2: 'I Am One of Those Idiots'
Issing: I would rule it out for Spain. The country is finally on the road to reform. For example, it is cleaning up rigidity in the labor market stemming from the days of the Franco dictatorship. Portugal still stands a chance of making do without assistance.
SPIEGEL: Even more pressing is the question of Greek debt. Do you believe Athens will be able to raise money on its own once the assistance runs out?
Issing: It was important to help Greece in its acute crisis to prevent it from spreading to other countries. But as soon as the other countries are out of danger, the Greek government debt will have to be restructured. This can be done by cutting that debt or by extending the terms of the loans, but there is no getting around a debt restructuring, no matter how you calculate it.
SPIEGEL: Can banks and insurance companies cope with such a measure?
Issing: Lengthening loan periods would be more palatable than a haircut. It will not force the banks to write off their claims. They'll get their money back; it'll just take longer.
SPIEGEL: Even should its debt be restructured, Greece would still struggle for years to pay off its loans. Wouldn't it be better to simply exclude the country from the monetary union?
Issing: Such debates are superfluous because they ignore reality. You need to amend agreements to eject a country. This can only be done unanimously. No "candidate" would agree to it. It's a complete waste of time to even think about it.
SPIEGEL: And what if a country wants to leave the monetary union of its own accord?
Issing: I think that would be political and economic suicide.
SPIEGEL: Does that also apply to Germany?
Issing: It also applies to Germany, but in a different sense.
SPIEGEL: That also, of course, means that Germany is chained to the euro, for better or worse. Does that not mean that a transfer union becomes inevitable?
Issing: It depends what you mean by the term. At a joint panel discussion last summer, former Foreign Minister Joschka Fischer claimed: Anyone who denies that we have been living in a transfer union for a long time is an idiot.
SPIEGEL: How did you respond?
Issing: I told him that I am one of those idiots. Of course, there are already many European financial transfers today: agricultural subsidies, structural aid, the cohesion fund. But these tools are earmarked and limited with respect to amount. In this case, however, we are talking about possible transfers for which there are practically no upper limits. It's a completely different dimension.
SPIEGEL: But their purpose is to save the euro. Isn't helping member states in trouble part of European solidarity?
Issing: No. In fact, the notion of the strong helping the weak is not the issue here. This is about those who abide by the rules paying for those who break the rules. This isn't solidarity, but a perversion of it.
SPIEGEL: How so?
Issing: It's simple: A country like Germany, which behaves in accordance with the rules, has to support the Irish. Meanwhile, per capita income in Dublin is higher than it is in Berlin. Is that fair? If we take this approach in the long term, we will end up with a German population with the kinds of anti-European sentiments I would find horrifying. The German population's identification with Europe is already declining to a disconcerting extent.
SPIEGEL: What does this mean for the euro?
Issing: It certainly doesn't mean that it will be dissolved. It's a good bet that the euro will continue to exist for a long time to come. The question is not whether the euro will survive, but which euro will survive. If everyone is liable for everyone else, even in the case of bad policies, it will become more and more difficult for the European Central Bank to defend the stability of the euro.
SPIEGEL: Will we see higher inflation?
Issing: History has taught us that solid public finances and stabile money belong together. However, I don't believe that there will be significantly higher inflation. The ECB has a clear mandate and is sufficiently independent to keep this from happening. But tensions would rise considerably within the monetary union.
SPIEGEL: What would happen?
Issing: If fiscal policy gets out of hand, the imbalances between sound and unsound countries increase. Growth declines and unemployment rises. In short, the euro zone does not become a center of economic strength. The euro is weakened.
SPIEGEL: To help highly indebted countries, the future bailout fund is to be permitted to buy up the bonds of at-risk countries. How do you feel about that?
Issing: It's a completely wrong approach. Bond purchases tie up a great deal of money, provide little relief and are difficult to reconcile with the democratic principles of our constitution. The most important right granted to parliament is to decide on the government's finances. This right is undermined when key decisions are made in European institutions that lack adequate democratic legitimacy.
SPIEGEL: Does this mean that you wouldn't help needy countries at all in the future?
Issing: Not at all, but the basic principle must be that assistance only be provided under certain conditions.
SPIEGEL: On the other hand, as an experienced central banker, you ought to be pleased that the ECB has been relieved of a burden now that it no longer has to buy up bonds.
Issing: I don't want a situation in which you have to choose between the plague and cholera.
SPIEGEL: Was it a mistake for the ECB to have purchased bonds?
Issing: I swore to myself that I would never comment on and certainly would not criticize the institution for which I worked so long. But no one will deny that this case is extremely problematic and borders on the impermissible. In the final analysis, the ECB was the only institution capable of taking action. That's why the expansion of such a crisis mechanism, which also unburdens the central bank, makes fundamental sense.
SPIEGEL: Bundesbank President Axel Weber has clearly spoken out against this decision. He resigned because he refuses to support the ECB's policy. Was that the right step?
Issing: If someone is convinced that such positions are inconsistent with his conscience, he must be prepared to bear the consequences.
SPIEGEL: Mr. Issing, thank you for this interview.
Interview conducted by Christian Reiermann and Michael Sauga
Translated from the German by Christopher Sultan
- Part 1: 'The Euro Will Exist for a Long Time to Come'
- Part 2: 'I Am One of Those Idiots'