SPIEGEL: Mr. Prime Minister, should one be allowed to give money to a corrupt country?
Juncker: I can already guess what you're referring to.
SPIEGEL: We're referring to something you said yourself. Not too long ago, you called Greece a "corrupt state."
Juncker: It's true that, three years ago, I said that there was corruption in Greece. But that doesn't mean one shouldn't be allowed to support Greece. On the contrary, one has to help Greece if the country is making honest efforts to put a stop to the corrupt elements that were recognizably there. And Greece is doing just that.
SPIEGEL: Still, these efforts are not bearing any fruit. The so-called troika -- made up of representatives from the European Central Bank (ECB), the European Commission and the International Monetary Fund (IMF) -- has just concluded that practically nothing has changed in the catastrophic state of Greece's public sector.
Juncker: Greece's government is itself aware of the fact that there are elements of corruption at all levels of the public administration, and it has realized how much this issue -- which continues to come to the surface -- weighs on the country's image. The Greeks are currently working hard to stop corruption within government agencies.
SPIEGEL: Though your optimism is admirable, it's already clear that the second aid package for Greece will have to be increased once again because there is a shortfall of tens of millions of euros in the financial plans. Where should the money come from?
Juncker: For a start, private creditors have to make their contribution. Then, we will talk with the Greek government about additional austerity measures. And only after that will we see whether the second aid package, with the €130 billion ($170 billion) that is currently planned, will suffice.
SPIEGEL: Should the ECB participate, for example, by waiving interest earnings on the billions in Greek sovereign bonds that it holds?
Juncker: The ECB is independent; it has to decide that for itself. But, of course, it also bears some responsibility for Greece's future.
SPIEGEL: The European Union has already been battling the Greek debt crisis for three years. But, instead of getting smaller, the problem keeps getting bigger. Is the country even capable of reform?
Juncker: It's correct that our program for Greece has deviated from the intended path because the Greeks have not achieved certain goals. Nevertheless, we have made significant progress together with the government in Athens. The budget deficit has been lowered, and it was possible to reduce labor costs in Greece.
SPIEGEL: You're trying to put a positive spin on the situation. In terms of structural reforms of the economy, Greece has made practically no progress.
Juncker: And you're painting too bleak a picture. It's true that the structural reforms are still not sufficient, but there has been visible progress. The country's economy has made improvements in terms of competitiveness. It doesn't do justice to the actual situation in the country if you pretend that the Greeks are just taking it easy and doing nothing.
SPIEGEL: But they're still not doing enough. The Greeks were supposed to raise €50 billion by privatizing state assets. But now Athens has acknowledged that this figure was just plucked out of the air. How do you explain that to EU citizens?
Juncker: I'm currently engaged in explaining to the EU's citizens the improvements that have been made in Greece. However, when it comes to the issue of privatization, I prefer to address the government in Athens because in this respect it is falling considerably short of what was agreed. Greece has to realize that we're not going to let up on the privatization issue.
SPIEGEL: Do you have any ideas for how to make them understand this more clearly?
Juncker: We will improve our administrative assistance. There are many experts in Europe who have gained a lot of experience during the privatization processes of recent years. These kinds of experts will provide assistance in Greece in the future.
SPIEGEL: Given that you already think foreign experts can be helpful, why shouldn't we have a "budget commissioner" who would ensure that Athens implements all the austerity measures it has committed to, as German Finance Minister Wolfgang Schäuble has called for?
Juncker: Greece is already being closely monitored at the moment. Should Greece stray further from the planned course, the intensity of the monitoring will increase. The idea of a budget commissioner is not absurd, provided that he or she is not only appointed for Greece but, rather, for all the debt-ridden countries that are not on course to reach their targets.
SPIEGEL: But what happens when even more intensive monitoring fails to achieve anything?
Juncker: If Greece substantially deviates from the reform course through its own fault, then Athens can no longer expect that others will show solidarity in the form of financial contributions. If we were to conclude that everything is going wrong in Greece, then there won't be any new aid program, which would mean that Greece will have to declare bankruptcy in March. Greece knows that, and the mere prospect of something like that happening should lend the Greeks strength where they are currently showing signs of paralysis.
SPIEGEL: But the problem is that the Greeks are in a hopeless situation even if they make such great efforts. After all, Greece's debts continue to pile up, and its economy is contracting.
Juncker: It's true that the Greek economy has had to deal with a contraction of 12 percent over the last three years and that unemployment has increased dramatically.
SPIEGEL: Exactly. The euro zone agrees on one austerity package after the next, but it doesn't have a plan for how the country can get back on track for growth.
Juncker: We Europeans got ourselves so deeply in debt in our efforts to combat the financial crisis following 2008 that there's no longer any leeway for massive economic stimulus programs. Consequently, one has to use the available tools wisely. We need to have a discussion about how we can more intensively use the European structural funds to combat the crisis. (Ed's note: The EU's structural funds are used to finance development in the poorer regions of the bloc.)
SPIEGEL: But the commissioner who oversees the funds says there's hardly any money in them that hasn't already been earmarked.
Juncker: I'm not talking about unused funds; I'm talking about genuine reallocations. If we say we want to simultaneously consolidate and grow, then we simply have to put the means at our disposal to better use. My proposal is to make reductions in (the funds allocated to) economically healthy regions and deploy them where they're urgently needed.
SPIEGEL: But it takes years for something like to have any effect. On the other hand, there are those who say that the situation in Greece won't get any better unless the country gets even larger debt relief that also involves public-sector creditors as well as the private sector. Don't you think they're right?
Juncker: It's too early to deal with this issue. Once we've been able to identify, as part of a new program for Greece, the path that will lead the country to a lasting recovery, we'll also be able to contemplate additional debt relief. But as long as the program has not been approved, these kinds of considerations are premature.
SPIEGEL: How certain are you that the euro zone will still have all the same members next year?
Juncker: One hundred percent certain.
SPIEGEL: We're more skeptical on this issue. The crisis is currently spilling over into Portugal, where the risk premiums on the country's sovereign bonds are rising dramatically. Doesn't that worry you?
Juncker: Yes, but I view it as an isolated event. I'm convinced that the risks of contagion from the Greek crisis are lower than they were one or two years ago. The markets have taken note of the fact that we're on the right path.
SPIEGEL: Portugal's mountain of debt is also growing, and its economy isn't picking up. Doesn't it need a debt haircut, too?
Juncker: There will be no debt haircut for Portugal. We have always said that Greece was a special case. There, it was necessary to have a certain participation of the private sector (in debt relief). But, that is definitely out of the question for other countries.
SPIEGEL: Italy and Spain are also by no means out of the danger zone. Does the EU's backstop fund need to be boosted?
Juncker: I don't want to talk about figures, but about the principle instead. The firewall needs to be high enough to stop the fire that is burning in Greece from setting other European houses ablaze. We have of course the current EFSF (European Financial Stability Facility) bailout fund, which still has €250 billion in unused funds. I'm in favor of combining the EFSF with the ESM. (Ed's note: The €500 billion permanent European Stability Mechanism will replace the temporary EFSF as the euro backstop on July 1, 2012.)
SPIEGEL: The Maastricht Treaty will turn 20 this week. Its major weakness was that it established a currency union without creating a political union at the same time. Will the fiscal pact that the leaders of 25 EU countries agreed to at their recent summit make up for this shortcoming?
Juncker: There was a very intensive debate when the Maastricht Treaty was being negotiated. Some -- including Germany -- thought it was enough merely to concentrate monetary policies in one central place and to otherwise leave economic policies largely up to the individual countries. Others -- including Jacques Delors, then-president of the European Commission, (former) French Finance Minister Pierre Bérégovoy and yours truly -- argued for creating a European economic government in parallel to the European Central Bank.
SPIEGEL: Will the fiscal pact be the economic government you were looking for back then?
Juncker: A pact still doesn't replace policies. An economic government doesn't arise through the ratification of a pact but, rather, through political action. I understand the fiscal pact in the following way: In the future, whenever a country wants to launch economic reforms, it will first have to be discussed within the Euro Group. (Ed's note: The Euro Group is made up of the finance ministers of the 17 euro-zone country and is currently chaired by Juncker.) The obligation to jointly coordinate (decisions) applies even more to large countries since their policies have enormous effects on neighboring economic areas. Countries can no longer be allowed to go it alone. Still, I'm not sure if all the people who signed the fiscal pact share my interpretation.
SPIEGEL: That is apparently not the case. For example, French President Nicolas Sarkozy just announced an increase in the country's value-added tax.
Juncker: That caught us in the Euro Group just as off guard as the 2005 announcement by the grand coalition in Berlin (ed's note: made up of Chancellor Angela Merkel's center-right Christian Democratic Union, its Bavarian sister party, the Christian Social Union, and the center-left Social Democratic Party) that it would raise the rate of value-added tax from 16 to 19 percent. Did you know that this caused inflation in the whole euro zone to go up by 0.3 percentage points in the following two years?
SPIEGEL: Do you intend to forbid euro-zone members from these kinds of unilateral measures?
Juncker: I assume that, in the future, each country will raise the subject of a planned reform for discussion within the Euro Group. Otherwise, the chairman of the Euro Group will do so. Incidentally, we had already resolved to do this once before, in a European Council resolution from December 1997.
SPIEGEL: That only goes to show that you can pretty much decide whatever you want on paper without it actually happening -- and that the fiscal pact could also turn out to be a paper tiger. Should the Euro Group merely discuss planned reforms, or should the finance ministers also have a veto?
Juncker: In the end, a country will always be able to have sovereignty over its own decisions. But an economic government would mean that no one can do something without, first, having discussed it with its partners and, second, having demonstrated that it benefits the entire euro-zone.
SPIEGEL: And if it isn't beneficial, will the country have to refrain from implementing the measure in question?
Juncker: Yes. I consider that to be the only logical conclusion.
SPIEGEL: But the problem is that states always invoke exceptional circumstances as an excuse for piling up more and more debts. In fact, this loophole can once again be found in the new fiscal pact.
Juncker: That's not a loophole. Rather, it's contractually binding common sense. If this kind of possibility didn't exist, we wouldn't be able to react appropriately to crises. In that case, we would be forced to impose financial penalties in the middle of an emergency and make countries' budgetary difficulties even worse.
SPIEGEL: Still, the fiscal pact has been watered down. Germany failed to push through its demand to allow the European Commission to bring infringement proceedings before the European Court of Justice against countries that break budgetary rules. According to the most recent agreement, the countries themselves will assume responsibility for this task. Do you seriously think it conceivable that Germany would take France to court?
Juncker: Even though it sounds weird, both countries have fought so hard for the debt brake that their credibility would be at stake if they failed to implement it.
SPIEGEL: But the Socialist presidential candidate in France, François Hollande, says he won't back the fiscal pact.
Juncker: Ms Merkel has stated that she finds that inconceivable. And I also expect that France will introduce the debt brake. Even newly elected presidents must abide by European agreements that were made by their predecessors before they entered office.
SPIEGEL: Mr. Prime Minister, thank you for this interview.