German Finance Minister Wolfgang Schäuble 'There Is No Unlimited Support'

In a SPIEGEL interview, German Finance Minister Wolfgang Schäuble talked about his opposition to euro bonds, the limits to European solidarity and the need for governments to reduce their debt burdens.

SPIEGEL: Mr. Schäuble, have you bought any gold yet?

Schäuble: My private financial situation is such that I don't need to worry about my investments. I don't have much to invest.

SPIEGEL: Many people are worried about their savings. They're losing their trust in their currencies and in their governments' crisis management, in the US as well as in Europe. The price of gold is rising as a result. Can you understand this mistrust?

Schäuble: I can understand that the abundance of less than positive news scares people. But there's currently no inflationary trend, and the euro is stable, both internally and externally. What we do have are disruptions on the financial markets, and we need to make sure that these don't have a detrimental effect on the real economy. So far, that hasn't been the case. Despite all the excitement, we're able to tell people: Our currency is secure.


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SPIEGEL: Why, then, have governments been unable to calm the situation?

Schäuble: What we've been experiencing these past weeks is uncertainty. The debt crisis in the United States and the debt problems in certain euro-zone countries are not entirely without blame in that respect. On top of that, there's the fact that while we in Europe have a common currency and thus collective monetary policies, we still have national financial policies. We were counting on the fact that our national financial policies would converge as a result of the Stability and Growth Pact, as well as the necessities that come of having a common currency. This was only partially successful, so we're now going to make the Stability Pact significantly stricter. Still, it's going to be a step-by-step process to make EU institutions as strong as we might wish them to be right away, here and now. We need to make sure that the citizens (of Europe) are involved in that process.

SPIEGEL: The euro-zone governments' style of crisis management, with summit after summit, is hardly conducive to dispelling people's mistrust. Is it possible these problems are, in fact, bigger than the government is willing to admit to itself or to the people?

Schäuble: The whole thing is a constant process, we've always stressed that. But it's also true that all the measures we took that allowed Greece to be able to avoid drawing on the financial markets for a number of years, and to work on fixing its economy, haven't cost German taxpayers anything. We provided guarantees and took on certain risks -- that's true. But we also strengthened those forces within Greece that are truly tackling the problems, and we're working to further improve crisis management and euro-zone governance. The euro-zone leaders themselves made that their task at their summit on July 21, and the meeting between Chancellor Angela Merkel and French President Nicolas Sarkozy this week  is sure to address this topic as well.

SPIEGEL: There's no proof yet that Greece really has been saved, and that it won't ultimately be necessary to carry out serious debt restructuring far beyond the scope of the current measures.

Schäuble: At this summit, we successfully asserted our position that the private sector needs to participate in improving Greece's debt situation, and that this can't be borne by taxpayers alone. That made it possible for us to improve the terms of Greek loans. Greece is able to handle its debt burden, provided the government implements all the measures that were agreed upon. Greece needs to become economically productive.

SPIEGEL: Do you really believe these measures will be enough?

Schäuble: That is in any case the opinion of independent institutions that certainly have the expertise to know what they're talking about, including the International Monetary Fund, the European Commission and the European Central Bank.

SPIEGEL: This is no longer just about Greece. Now even Italy is in danger, with speculation about France as well. ECB President Jean-Claude Trichet is calling it the biggest crisis since World War II.

Schäuble: There are good reasons why governments and the central bank never comment on each other's statements. I assume the ECB president wanted to explain why his organization made the decision to purchase government bonds  once again.

SPIEGEL: Such comments are hardly likely to help calm the markets.

Schäuble: That's something you'd need to discuss with the president of the European Central Bank -- which is doing a terrific job, by the way. The ECB is charged with guaranteeing price stability, and prices have been more stable since the introduction of the euro than they were when we had the deutsche mark. Even amid all these other concerns, we shouldn't forget that. We have a stable currency, and no one has to worry about their savings …

SPIEGEL: … provided the governments actually manage to get the situation under control.

Schäuble: Even when one is doing well, one still worries that things might go badly again in the future. This is an old observation based on human experience. There were also some skeptics when the euro was introduced. But it's working! And it's stable! We shouldn't forget that we're living in an unusually stable economic situation. We are in a position to overcome this crisis.

SPIEGEL: It's true that many economists warned against introducing the euro, believing a monetary union without a political union couldn't work, and that the member countries were too diverse economically. Those critics see current developments as confirming their fears.

Schäuble: It may be that people who think that way feel themselves vindicated. I see things differently. This much is true: When we created the euro, it wasn't possible to create a political union along with it. People weren't ready for that. But since then, they've grown more willing to go in that direction. It's a process, one that is sometimes laborious and sometimes slow. But it's important to keep the populations involved.

SPIEGEL: Aren't you trivializing the dangerous situation we're in?

Schäuble: No, I'm simply asking that we don't allow the current turbulence to let us lose sight of the positive economic trends that also exist. I don't believe this is irresponsible -- instead, it is founded in reality. If we chose not to continue pursuing the European project, our prospects would look much, much worse.

SPIEGEL: Still, the question remains whether the monetary union as it was created can last, or whether having a common currency isn't driving the member countries even further apart economically.

Schäuble: The monetary union intensifies pressure on the competitiveness of its members, which means that countries experiencing difficulties have to improve their economic competitiveness …

SPIEGEL: … which they've failed to do. And now it may be too late.

Schäuble: As a child, when I had an essay assigned as homework, I waited to write it until the last evening, when there was enough pressure. That's just how people are, and that's the situation in Greece, and in Portugal and Spain. All these countries are making massive efforts that would have seemed unthinkable just a short time ago. That's something we should respect, too.

SPIEGEL: Despite your great confidence, don't you ever worry about everything that's still to come?

Schäuble: No, I don't, though I admit it might have been nice to have a more peaceful summer vacation. We're taking all the necessary steps and trying at the same time not to make the markets nervous. At some point, attention will once again return to the economic fundamentals. And at some point, the tough measures that are currently being implemented will bear their first fruits, and they will accordingly receive positive recognition. In the case of Germany, the economic fundamentals are actually very good. All signs point to Germany once again achieving growth of over 3 percent this year. A year ago, no one would have thought that possible.

'The Euro Is Not Going to Fail'

SPIEGEL: A year ago, could you have imagined how dangerous the situation would become?

Schäuble: I've been a politician long enough to know that every year will find us living in a situation that one couldn't have imagined a year previously. Sometimes it's better than we imagined, sometimes it's not as good.

SPIEGEL: In the euro crisis, though, reality has exceeded even the bleakest predictions.

Schäuble: I see it differently. We're experiencing developments that we didn't foresee. But we've always confronted these crisis points and found solutions. Gloomy predictions don't help much in that respect. But we have to bear in mind that it's extremely difficult to push through changes if people aren't convinced that they're really necessary.

SPIEGEL: In other words, if the euro fails, it will be for political, not economic, reasons?

Schäuble: The two are inextricably linked, but let me say it once again, very clearly: The euro is not going to fail.

SPIEGEL: It will fail if the populations of recipient countries are no longer willing to endure drastic reforms, and if people in donor countries refuse to pay an increasingly large share of support to the weaker member states.

Schäuble: It is the job of politicians, as leaders, to get people on board with this. Those in politics must have the courage to take action, but also the power to convince. I'm convinced that the vast majority of people -- and not just within Germany -- support European integration.

SPIEGEL: Do you believe people will go along with further steps, such as euro bonds and a so-called transfer union, in which the stronger members would provide funds to the weaker ones? Will people still be willing to finance the euro rescue fund even if additional countries develop problems and there are fewer and fewer donor countries left to support more and more recipient countries?

Schäuble: It won't come to that. Besides, some of the terms you mentioned only serve to frighten people. I don't think much of the phrase "transfer union," for example. Many use this phrase to mean that other people are going to squander our hard-earned money. That's absurd, of course. A community only makes sense if there's a certain amount of equalization between parties. That's why we have the EU's Structural Funds, which benefit the former East Germany, among other regions. But it's always necessary to ask: How much equalization is necessary? And under what conditions?

SPIEGEL: So you oppose euro bonds?

Schäuble: I'm ruling out euro bonds for as long as member states pursue their own financial policies and we need differing interest rates (on government bonds) as a way to provide incentives and the possibility of sanctions, in order to enforce fiscal solidity. Without this solidity, the foundations for a common currency don't exist.

SPIEGEL: Although you don't like to hear the phrase "transfer union" …

Schäuble: … because it's used to stoke anti-EU sentiment …

SPIEGEL: … there are still only two options: Either the monetary union will fall apart because of its internal tensions, or, if all else fails, we will end up with everything funded via the community, by its strong members, in the form of euro bonds  and a blanket guarantee on all government debt. That might save the euro. But at what cost?

Schäuble: That option is too simple. The following remains true: There is no collectivization of debt, and there is no unlimited support. There are certain support mechanisms that we are continuing to develop, with strict conditions: Member states that need our solidarity must reduce their deficits and reform their economies with measures that are at times very tough.

SPIEGEL: And what happens if they don't carry out sufficient reforms? Will aid be withheld, even if that carries the risk that the monetary union really will collapse?

Schäuble: The governments in question have stated clearly that they will do everything they can so that this question doesn't arise, and that they will comply with the corresponding programs. On the other hand: We're not going to bail out countries at any price.

SPIEGEL: And what will happen then?

Schäuble: There's no need to speculate about that. Still, we would be a strange government if we didn't prepare ourselves for all eventualities, however unlikely they may be. But all of us in the EU aim to avoid and overcome precisely these types of crises. We should be able to achieve this.

SPIEGEL: The euro zone isn't alone in its debt problems. The United States isn't doing any better, nor are Britain or Japan. Never before in history have there been such high levels of public debt. How will the world get out of this situation?

Schäuble: The long-term sustainability of public budgets is indeed the biggest problem facing Western industrialized countries. And the problem only increases when we take into account the burden created by social-security systems and aging populations. Compared to the global population as a whole, our populations are shrinking. At the same time, we want to secure our long-term prosperity. Other parts of the world are watching closely to see if our freedom-based societies with their long-drawn-out democratic processes -- something which is at times unavoidable -- will succeed in solving this problem. After all, democratic majorities tend to spend more money than they take in. That's something many of the traditional industrialized countries, Germany included, can't afford any more. That's one of the reasons that I've been pushing so hard for us to reduce our national debt. If we don't manage that now, we're in danger of leaving future generations with an insurmountable mountain of debt.

SPIEGEL: In historical terms, there have been only two solutions to these kinds of problems: either inflation, which devalues a country's debts more or less by stealth, although it does the same to citizens' assets …

Schäuble: … or, in the past, a war, which is nowadays, thank God, impossible -- precisely because of the process of European unification …

SPIEGEL: … or at least a monetary reform.

Schäuble: You've described exactly the large historic challenge we face: to solve the problem without taking those measures, in light of the catastrophic experiences of past centuries. We must face this challenge, and we should have the self-confidence that we will succeed.

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

Interview conducted by Armin Mahler
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