Interview with EU Commissioner Günter Verheugen 'Obama Is Fearless' on the Economy
SPIEGEL ONLINE: Mr. Verheugen, the new US president, Barack Obama, has been given a euphoric welcome. Now he is supposed to save the biggest economy in the world. Is he actually in a position to do so?
European Commissioner Günter Verheugen says Europe is doing what it can to prop up the EU economy.Foto: DPA
Günter Verheugen: We should get used to a new way of thinking -- we can do anything if we really want to. Obama is planning a gigantic stimulus package that no other country could afford without going bankrupt. It will only be possible to judge it once all the details are on the table. One thing is clear: Obama is fearless and gives everything his all. And he is burdened with a great responsibility. However, he is also just a person, and we in Europe should not believe that this new US president can fix everything by himself.
SPIEGEL ONLINE: Chancellor Angela Merkel urged Obama to work more closely with Europe. Do you think there is a danger that, in this crisis, the US might shut itself off from the outside world?
Verheugen: No. The US is not going to build any high walls around the country. Obama has offered close cooperation to all those who have goodwill.
SPIEGEL ONLINE: What if Obama does not succeed in turning things around? Won't the US bring Europe down with it?
Verheugen: Enough of all these doomsday scenarios! It will be difficult, no question; but we are not on the edge of some kind of abyss. The upward force of the world economy did not just disappear from one day to the next. There are still millions of people in emerging economies, such as India and China, that are striving toward more prosperity. They won't be stopped by this crisis. There is power in technological progress.
SPIEGEL ONLINE: For now. But the destructive forces in the global economy seem to have the upper hand. The situation is '"brutal," as you yourself said in reference to the automotive industry in Europe. Do things look better in other sectors of the economy?
Verheugen: No, there is crisis everywhere. That is also true for the crown jewels of European industry -- in chemicals and mechanical engineering, for example. Economic indicators point to production dropping by 12 percent in comparison with last year. The latest EU growth forecasts predict that the economy will shrink by 1.9 percent in 2009. However, in comparison with, say, the Great Depression of the 1930s, governments are taking active measures to tackle the crisis.
SPIEGEL ONLINE: The EU member states are coming up with stimulus packages worth hundreds of billions of euros. They are giving credit guarantees, cutting taxes, pumping huge sums into faltering banks. It often seems that they don't know what they are doing.
Verheugen: First of all, there are good reasons why everyone is concentrating on the banking system. It has to be made to function again. Furthermore, this is about limiting the effects on the wider economy. At the moment, no one can reliably say if all of these measures will have a beneficial effect. But that is no excuse for doing nothing. Politicians have to act when the market fails -- and one cannot underestimate the effect of these very important actions, including the psychological effect. Otherwise, there is a risk that people will start to lose their trust in the market economy's ability to function and to carry on into the future. This is what politicians have to combat.
SPIEGEL ONLINE: The states have now taken on the role of the banks and are giving companies credit guarantees. Is the credit crunch really that bad?
Verheugen: Yes. That is the main problem. The big companies, in particular, are not getting any more money because the big banks are obviously waiting for the next wave of writedowns and are, therefore, holding back their capital. We still don't know the extent of the risks that are contained in the toxic securities.
SPIEGEL ONLINE: Many EU countries are getting themselves into a level of debt that would have been unthinkable a year ago. Are you not concerned about this? You yourself warned recently that high national debt would be the germ of the next big crisis.
Verheugen: That is not true. I spoke about excessive national debt. Our position is very clear: We don't want to see pro-cyclical policies in the crisis.
SPIEGEL ONLINE: And what about what we are seeing now with spending programs and new debts? Is that not excessive? Many EU states are going to far exceed the Maastricht criteria, which foresee national deficits of below 3 percent of GDP for those countries belonging to the euro common-currency zone.
Verheugen: But not because of the money they are spending to boost the economy. These expenditures are necessary. The EU Stability Pact was designed to be flexible for this reason, and it gives countries a lot of leeway in times like these. Furthermore, this differs from country to country. Not every member state has as much room for maneuver as Germany.
SPIEGEL ONLINE: The European Commission was already pretty generous in the past. From the very beginning, Italy and Greece have been seen as special cases and, to this day, they still have not brought their budget deficits into line with the euro-zone limits. In the current crisis, that creates a huge burden for the rest of the bloc.
Verheugen: No member state is a burden for the bloc. And we were not too generous. The current Finance Commissioner Joaquin Almunia and his predecessor Pedro Solbes were always criticized for being too strict with the countries you mentioned. And we will now also do what the EU treaty asks us to do. The extra debts incurred today will have to be tied in with a credible plan for a return to a policy of balanced budgets.
SPIEGEL ONLINE: Do you not have concerns about the Stability Pact and the euro?
Verheugen: No. The euro has proved to be a blessing during this crisis. Otherwise, if left to themselves, many states would have become victims of currency speculation. Anyone who talks down the euro now is probably not a friend.
SPIEGEL ONLINE: But how long will the currency be able to survive this state of emergency? Why doesn't the EU at least determine regulations as to when the Maastricht criteria will be enforced again?
Verheugen: Because it must be determined on a case by case basis, depending on the economic data of individual states. A deficit of 3.2 percent of GDP means something different in each country. I find it completely inappropriate to conjure up a currency crisis.
SPIEGEL ONLINE: How long will we be paying for the debt we are currently racking up?
Verheugen: A long time, no doubt. And looking at the demographic trends, which we of course know, it will be a heavy burden for the next generation.
SPIEGEL ONLINE: There were times when separating governmental and business matters was seen as mandatory. Now, 20 years after the collapse of state socialism, it seems that government intervention is increasingly accepted. A change of times?
Verheugen: Circumstances have certainly forced a paradigm shift. A new, ruthless form of capitalism evolved when the competition between capitalist and communist systems ended. The end of communism may have led some to think capitalism could suddenly get away with everything. But it may also be that the dangerous tide of events in the financial world today would have come about regardless of this change. It angers me to think about the patronizing attitude of those propagating these ideas -- in science, politics and the media. We are oversimplifying things by disgustedly pointing fingers at Wall Street bankers. There were plenty of warnings.
SPIEGEL ONLINE: Why didn't the Europeans act earlier?
Verheugen: The majority didn't want to. People thought everything was under control. Past attempts to regulated financial markets had been ignored -- especially by states with strong economies.
SPIEGEL ONLINE: Is that why EU finance rules seem so outdated and overburdened right now? Financial market regulators are still very divided.
Verheugen: To be fair, there is some cooperation. And this year will see a new set of far-reaching rules. A group of financial market experts is looking into whether it's best to implement joint regulation in which regulators from the individual member states work together, or whether we need a unique European institution that oversees all of the EU.
SPIEGEL ONLINE: The European Central Bank, for its part, has demanded more authority. Do you consider that to be a realistic option?
Verheugen: For me, at the very least, that is an important consideration. One thing is clear: Something needs to be done.
SPIEGEL ONLINE: The countries don't exactly seem thrilled to give up authority. On the contrary, when it comes to stimulus packages, everyone is going it alone.
Verheugen: That's not entirely true. We had a summit to discuss the stimulus packages.
SPIEGEL ONLINE: at which it was determined how big the cumulative package should be.
Verheugen: The community did exactly what it could and should do during a crisis. We saw to it that there were no conflicts and that there were as few bureaucratic obstacles as possible. We cannot create a life raft big enough to hold all of industry. We simply don't have the authority or the financial means.
SPIEGEL ONLINE: Do you feel powerless?
Verheugen: Not entirely. The member states are waiting for the Commission's support. We will see to it that competition regulations and strategies for the future are not going to be completely disregarded when it comes to the fundamental direction of the economy.
SPIEGEL ONLINE: The EU does not seem well-prepared for the crisis. The Treaty of Lisbon, which aims at further EU integration, seems on the verge of collapse after the Irish "no." A new European Parliament will be voted in this June. The Commission will be newly organized in the fall.
Verheugen: 2009 is a year of transition, but you can't change the democratic ground rules just because there is a crisis. And it doesn't help to complain about it. One thing counts for the Commission: We will work hard until the very last day. This won't be a time of political stagnation.
SPIEGEL ONLINE: A recently released EU forecast predicts that 2010 will see some growth. Do you believe it?
Verheugen: Those are the numbers our data points towards. They give reason for cautious optimism. But no one really knows how long this crisis will last. The business of making predictions has seen better days.