Interview with IMF Head Dominique Strauss-Kahn 'It Is Dangerous to Think the Financial Crisis Is Already Behind Us'
Part 2: 'We Have to Find New Sources of Growth'
Strauss-Kahn: In the past, many countries tried to avoid dealing with the IMF because they did not like the strings and conditions attached to our loans. After the crises in Asia and Latin America, they built up huge currency reserves. This is understandable from a political point of view. But it is bad for their own economies and bad for the global economy, because this money is not being put to work, but is essentially immobilized. It would be much better to have a global financial safety net coordinated by the IMF that could be tapped by countries in financial need.
SPIEGEL: A kind of global insurance against world financial crises?
Strauss-Kahn: Exactly. I am not saying that countries will have to have 100 percent insurance and should not hold any reserves at all. But it would make sense to draw on the IMF as global rescuer. That would save national resources and help create stability in the global economic system.
SPIEGEL: It would require additional funds, though. How much do you need for this new role?
Strauss-Kahn: If our member countries agreed to this role for the Fund, it would need to be determined how much additional resources that would require. But it certainly would be vastly more than our current resources.
SPIEGEL: Many would like to see the IMF in the role of a super-regulator, a kind of world police for the global financial system. Does that not appeal to you?
Strauss-Kahn: This idea came from journalists, not from the IMF. We do not want to be in the role of setting standards. We do not have enough staff, nor do we have the right expertise. I do not see the IMF as a policeman but rather as a doctor. We provide advice to the patient on how to stay in good health. If he gets sick, we provide medicine.
SPIEGEL: The patients, namely the countries, generally do not like their medicine. Often they complain it's too bitter.
Strauss-Kahn: That also happens to real doctors, right? The Fund is often the doctor who tells the patient to stop drinking because he is sick. The patient does not like it but he stops drinking -- and promptly feels awful. He then blames the doctor for feeling that way.
SPIEGEL: But during the current crisis, you were a lenient doctor. You advised your patient the United States to drink more: Take another swig from the debt bottle!
Strauss-Kahn: In this crisis, I would compare our role and that of governments to firefighters. We all saw that the house was on fire. A lot of water was needed to put the fire out. Of course, afterwards we have to mop up. But it is better to have a soaked house than a house burned to the ground.
SPIEGEL: Do you have any idea when the house will be dry again, how the government interventions could be terminated? Is there an exit strategy?
Strauss-Kahn: I agree, we do need such an exit strategy and we are working on it. But I disagree if your question implies that we should consider implementing it already.
SPIEGEL: How many more trillions of dollars should governments continue to pump into their national economies?
Strauss-Kahn: In the minds of too many -- not only regular people but also top politicians -- the financial crisis is already behind us. That way of thinking is dangerous. The global economic crisis continues despite the fact that Germany and France saw some positive growth figures for the last quarter. However, unemployment is set to rise for at least another year, and will probably peak in mid-2010. So the financial crisis has not only been followed by an economic crisis, but also by a social crisis which has not yet reached its apex.
SPIEGEL: But the question remains: What is the exit strategy? Will central banks and finance ministers be able to pull all that additional money out of the markets before global inflation eats up savings and the purchasing power of billions of people?
Strauss-Kahn: We will have to withdraw liquidity from the markets. There is no question about that.
SPIEGEL: But how?
Strauss-Kahn: Possibly a combination of raising interest rates and an end to direct interventions by the central banks.
SPIEGEL: Or do you and others tacitly accept inflation? After all, it also helps to shrink the value of debts, including federal debts.
Strauss-Kahn: In this type of crisis, no policy action is without risk. But the question is: Where are the greatest risks? In my view, the risk that demand is stifled prematurely is much greater today than the risk of inflation.
SPIEGEL: For the first time in decades, American consumers are saving more. That means, however, they are also cutting back on consumption. Is that good or bad?
Strauss-Kahn: Both. During the last decades, American consumers served as the engine for global economic growth. The American consumer is now changing his behavior, at least the generation between 25 and 45 years of age. They are saving more. Will this trend continue? I do not know. But if it does, it would raise a new question. Who would take on the role the American consumer has played for the last 25 years?
SPIEGEL: Chinese consumers, perhaps?
Strauss-Kahn: It is not obvious that that will happen, and even if it does, it does not solve the entire problem. The Chinese invest primarily in basic goods, in education and infrastructure. US consumer demand is focused on other kinds of goods, especially in the area of high technology.
SPIEGEL: But are US consumers not well advised to save more after decades of living on credit?
Strauss-Kahn: What is right for the individual can create new problems for the global economy. We have to find new sources of growth. We cannot simply say that the Brazilians, the Indians, and the Chinese are going to consume more.
SPIEGEL: The American economist and Nobel laureate Paul Samuelson proposes another solution. Slow down, is his advice to the United States. Slow down capitalism. According to Samuelson, economic growth should be lower in the future but more sustainable.
Strauss-Kahn: Samuelson is right -- growth will probably be lower in the future. But whoever pleads for growth to slow down should also acknowledge that it will lead to higher unemployment worldwide.
SPIEGEL: Mr. Strauss-Kahn, we thank you for this interview.
Interview conducted by Gregor Peter Schmitz and Gabor Steingart.
- Part 1: 'It Is Dangerous to Think the Financial Crisis Is Already Behind Us'
- Part 2: 'We Have to Find New Sources of Growth'
© DER SPIEGEL 38/2009
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