Interview With German Finance Minister Schäuble 'The US Has Lived on Borrowed Money for Too Long'

German Finance Minister Wolfgang Schäuble.
REUTERS

German Finance Minister Wolfgang Schäuble.

Part 2: 'The EU Wasn't Founded To Create Wealth for Financial Investors'


SPIEGEL: And now Germany has agreed to a permanent extension of the billions in bailout packages for Greece and Europe. Isn't this a high price to preserve the peace in the EU?

Schäuble: No, because we created a completely newly crisis mechanism, under which we achieved our most important demand: In the future, private lenders, that is, the banks and financial investors, will have a stake in the game when a country can no longer service its debts. Those who collect high risk premiums on government bonds will also have to bear that risk in the future when things get serious. This is an important principle: In the future, governments and investors will behave much more cautiously when it comes to new government debt.

SPIEGEL: Sounds good. But first the measures will have to be approved by the individual governments, on the one hand. On the other hand, it's completely unclear what the participation of private investors will look like.

Schäuble: We are in the process of working out the details within the German government and at the European level. It's already clear today that the new mechanism will not apply to old debt but only to new loans. I imagine that all bonds issued by euro countries will contain clauses in the future that specify exactly what happens to the claims of creditors in case of crisis.

SPIEGEL: Specifically, they will only get some of their money back.

Schäuble: In the event of a crisis. But the European Union wasn't founded to create wealth for financial investors. I imagine a two-stage process. If a country is having financial difficulties, the EU will launch an austerity and restructuring program, as it did in the case of Greece. In a first step, the maturities of those bonds that come due in this critical phase could be extended. If that doesn't help, private investors will have to accept a markdown on their claims, in a second step. In return, they'll receive guarantees on the rest.

SPIEGEL: And who will monitor the process, a European organization or the International Monetary Fund (IMF), which the Europeans already brought in during the Greek crisis?

Schäuble: For well-considered reasons, we decided at the time that we would involve the IMF. It proved to be a good approach. There is no other institution worldwide with a comparable amount of expertise on restructuring or a similarly strong reputation on the markets. We can also use this expertise in the future crisis mechanism. After all, we have to convince the financial markets that the new rules work.

SPIEGEL: You'll also have to convince your fellow Germans. When the euro was introduced, it was said repeatedly that German taxpayers would never have to pay for the debts of other countries.

Schäuble: Precisely because we want German taxpayers to be called upon as little as possible in a crisis, an organized debt restructuring involving the private investors is so important. But we should all recognize that keeping the euro stable is primarily in our interest. No one benefits from the common currency as much as the biggest European economy.

SPIEGEL: European Central Bank President Jean-Claude Trichet hasn't been won over by your crisis mechanism either. He fears that the prospect of losing money in a crisis would only scare away investors.

Schäuble: I disagree. We will develop a convincing crisis mechanism for the euro zone that increases the credibility of the common currency in the long run. We cannot achieve this goal if we simply extend the bailouts without changing the rules.

SPIEGEL: The markets aren't really convinced of this. The phrase "Merkel crash" was already making the rounds last week, because private investors are afraid of the risks that the European heads of state want to impose on them.

Schäuble: I have to question whether the movement on the markets was truly a consequence of our summit meeting decisions. Something else is more important: Europe has always made progress when Germany and France took the initiative. This is precisely what Sarkozy and Merkel demonstrated in an effective way by reaching an agreement on the crisis mechanism. That's the real signal coming from the most recent EU summit, and I'm sure that this signal will reach the markets sooner or later.

SPIEGEL: Mr. Schäuble, we thank you for this interview.

Interview conducted by Michael Sauga and Peter Müller

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esperonto 11/08/2010
1. why make pretenses?
I like stagnation. I want a stagnant economy. I dont like the idea of the federal reserve lowering or raising bank reserves, or interest rates, buying or selling bonds and mortgage securities. It all seems too fictional. If its all fiat money, why make pretenses how its entering the economy?
plotinus 11/09/2010
2. "some sort of"? Please be more precise, Herr Schäuble!
' *Schäuble:* The German export successes are not the result of some sort of currency manipulation, but of the increased competitiveness of companies. *[Ungh! A direct blow to Uncle Sam's solar plexus! These Germans play rough!]* The American growth model, on the other hand, is in a deep crisis. The United States lived on borrowed money for too long, *[Sorry for the cash register's _ka-ching!_, folks---but it's the Sound of Freedom!]* inflating its financial sector unnecessarily and neglecting its small and mid-sized industrial companies. There are many reasons for America's problems, *[You're telling me!]* but they don't include German export surpluses. *[But..but..but the Wall Street Journal says they do! They wouldn't lie to us!]* .
BTraven 11/09/2010
3.
I do not think that Americans need his advice. And the insolvency framework for indebted countries is, according to many economists, nonsense. http://www.guardian.co.uk/commentisfree/cifamerica/2010/nov/07/globalisation-global-economy
BTraven 11/12/2010
4.
Zitat von plotinus' *Schäuble:* The German export successes are not the result of some sort of currency manipulation, but of the increased competitiveness of companies. *[Ungh! A direct blow to Uncle Sam's solar plexus! These Germans play rough!]* The American growth model, on the other hand, is in a deep crisis. The United States lived on borrowed money for too long, *[Sorry for the cash register's _ka-ching!_, folks---but it's the Sound of Freedom!]* inflating its financial sector unnecessarily and neglecting its small and mid-sized industrial companies. There are many reasons for America's problems, *[You're telling me!]* but they don't include German export surpluses. *[But..but..but the Wall Street Journal says they do! They wouldn't lie to us!]* .
A person who made against better knowledge the unification more expansive with his policy of accepting debts companies had to take because of the structure of economy is highly unqualified to criticise the policy of the FED.
Insulaner 11/12/2010
5. Schäuble? Don't trust him either
Zitat von plotinus' *Schäuble:* The German export successes are not the result of some sort of currency manipulation, but of the increased competitiveness of companies. *[Ungh! A direct blow to Uncle Sam's solar plexus! These Germans play rough!]* The American growth model, on the other hand, is in a deep crisis. The United States lived on borrowed money for too long, *[Sorry for the cash register's _ka-ching!_, folks---but it's the Sound of Freedom!]* inflating its financial sector unnecessarily and neglecting its small and mid-sized industrial companies. There are many reasons for America's problems, *[You're telling me!]* but they don't include German export surpluses. *[But..but..but the Wall Street Journal says they do! They wouldn't lie to us!]* .
Schäuble should have been thrown into prison already a long time ago. I do not know how long it will take the USA to recover, but it might be a long and hard time if they really manage to recover. I guess they will, but I do not know by when, and not at what price. The campaigning was abit ridiculous though, the ones who left the mess were the ones winning.... Regards Insulaner
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