The European Union reached agreement last week on the way forward in the euro crisis. But will it be enough? SPIEGEL spoke with German Finance Minister Wolfgang Schäuble about the deal to cut Greek debt, the dangers posed by Italy and Germany's newly strengthened leadership role in the European Union.
SPIEGEL: Mr. Schäuble, politicians and economists around the world are hailing the recent European Union summit as a success. Has the euro now been saved?
Schäuble: The summit last week moved us forward considerably. But it won't be the last meeting on this issue. It was another important step. This incidentally also appears to be the initial assessment made by the markets.
SPIEGEL: Using market reactions as a guide, one could easily arrive at the conclusion that all problems have been solved.
Schäuble: To repeat what the chancellor has said on this topic on several occasions: There will be no single solution during this process. We are building a new institutional architecture for the euro zone, which will result in more Europe and more stability. We still have a long way to go before all problems are solved, but our chances of success have increased since last week.
SPIEGEL: We are not so sure. If the resolutions are implemented as planned, Greece's debt ratio will only drop to 120 percent of gross domestic product (GDP), which is precisely as high as financially troubled Italy. Do you really believe that this will allow the Greek economy to get back on its feet?
Schäuble: Yes. Debt sustainability is achieved when you have access to the market -- and Italy has that. The troika (eds. note: made up of the International Monetary Fund, the European Central Bank and the European Commission) tells us that this will also be the case for Greece when it has reached this level of debt and improved its competitiveness.
SPIEGEL: Can you explain that in a bit more detail?
Schäuble: If Greece achieves a 120 percent debt-to-GDP ratio by the end of the decade, then this will be the result of extensive debt reduction -- through consolidation, growth and reforms. This engenders trust. However, 120 percent is merely an interim result, and Greece can't allow itself to stop there.
SPIEGEL: That is European summit-speak, but not an answer to our question. Do you seriously believe that Greece can become competitive again with this package?
Schäuble: Yes, because the new program will also contain comprehensive structural reforms to enhance competitiveness.
SPIEGEL: But the summit resolutions neither ensure that Athens will bring its budgetary problems under control nor will they stimulate the labor market.
Schäuble: Wait and see! You are forgetting the sweeping measures that are being taken for and with Greece, which range from support for the implementation of the programs by the European Commission's Greece task force and the troika -- which will now be continually on location -- to EU funds that are available for Greece. It is also clear, however, that the problems have to be solved in Greece -- not in Europe, but with Europe's help.
SPIEGEL: The summit resolutions may even create new problems. Countries like Portugal and Ireland could be tempted to put an end to their problems with a debt haircut similar to the one just agreed on for Greece.
Schäuble: The heads of state and government of the euro zone, including those from Portugal and Ireland, have unanimously emphasized once again that Greece is a unique, exceptional case that calls for a special solution. In exchange for continued and more long-term assistance from the members of the euro zone, Greece will have to take tough measures and accept much closer supervision. You could also say that it will temporarily relinquish some of its sovereignty. I don't think that any country would willingly submit to such severe measures, unless driven by the direst of circumstances.
SPIEGEL: According to the summit resolutions, Greece's private creditors will have to waive 50 percent of their claims -- and do so voluntarily. Do you really believe that will work?
Schäuble: It's true that the details have yet to be finalized. But we have staked out the terrain. Now, private creditors will have to take into consideration that the only alternative to an agreement is no agreement, with all the consequences that this would entail, also for the private creditors themselves.
SPIEGEL: The success of the package now depends on the banks playing along. What will you do if they refuse?
Schäuble: We have always said that we prefer a voluntary debt haircut. In addition, we have a firm commitment from the Institute of International Finance (IIF) (eds. note: The IIF negotiated on behalf of European banks at the Wednesday EU summit). But we have also stated that we have not ruled out a less consensual approach.
SPIEGEL: A few weeks ago, you promised the public that Germany would be liable for a maximum of 211 billion ($298 billion) of the euro backstop fund, the European Financial Stability Facility (EFSF). Now, EU leaders have agreed to "leverage" the fund, to increase its impact to 1 trillion. What is the real story?
Schäuble: What I said is true. First, Germany's liability is limited to 211 billion -- or, to be more precise, 211.0459 billion. Second, we are boosting the effectiveness of the EFSF to achieve a greater stabilization effect with these funds.
SPIEGEL: That sounds like magic.
Schäuble: If we decide to make 100 billion available to Greece, for instance, then the euro states guarantee 20 billion via the EFSF. The rest is contributed by private creditors who can then fall back on these 20 billion as a kind of insurance should Greece default. This allows us to provide more assistance without increasing the liability of the EFSF.
SPIEGEL: But what you are not telling people is that this increases the risks for taxpayers. The EFSF will always have to pay first if something goes wrong.
Schäuble: The risk doesn't necessarily increase. In fact, it may even decrease.
SPIEGEL: Now, that really sounds like magic...
Schäuble: ...but it's economics. By enlisting the help of other creditors to increase the amount that we can cover with the EFSF to 1 trillion, we also bolster the EFSF's defenses against possible attacks from speculators. This reduces the likelihood that we would be liable for losses in the first place.
SPIEGEL: Is the new trillion-euro leverage large enough to rescue a country like Italy if it runs into difficulties?
'We Cannot Solve Italy's Problems in Germany'Schäuble: Italy has to do its homework! Italy has to convince the markets that it is willing and determined to rapidly tackle and implement the necessary reforms. The rescue fund doesn't come into question for Italy. The Italian government is also aware of this -- and Italy can rise to the occasion.
SPIEGEL: In other words, rescuing the euro depends on the Italian government doing what is needed?
Schäuble: Rescuing the euro depends on everyone in Europe assuming their responsibilities. This means that we help each other. But it also means that European assistance is there to help countries help themselves. We cannot solve Italy's problems in Germany -- they have to be solved in Italy. But I think you will agree that the crisis throughout Europe has helped raise awareness of the need for a culture of stability.
SPIEGEL: What does Rome have to do?
Schäuble: It has to do what the Italian government has promised its European partners: that it will rapidly and significantly reduce the budget deficit, bring down its debt and strengthen growth in the Italian economy. Italy requires structural reforms on the labor market and in its social security systems. European governments have strongly encouraged their colleagues in Italy to take this path.
SPIEGEL: Do you think they've gotten the message?
Schäuble: Italy has declared its willingness to introduce reforms. Now, they have to be implemented. This is crucial. Announcements alone do not help.
SPIEGEL: What will happen if Italy doesn't keep its promises?
Schäuble: Then the markets will react accordingly. Italy has huge financing needs. So it stands to reason that the country has a vested interest in keeping its interest burden at an acceptable level. To achieve this it needs to implement the reforms. Deeds are what makes Europe work -- not the fact that we all assure each other that we are good people.
SPIEGEL: Perhaps the government in Rome is counting on the fact that, if push comes to shove, the European Central Bank (ECB) will buy its sovereign bonds.
Schäuble: The independent role of the ECB has been clearly defined in the treaties. This is precisely why in their summit communiqué the heads of governments reaffirmed that they are familiar with the treaties.
SPIEGEL: In Italy, such references coming from both you and Chancellor Angela Merkel are often seen as being akin to a Teutonic dictate. Are you not afraid that the rest of Europe will begin to resent Germany?
Schäuble: No. If I am correctly informed, the same references are coming from France's outgoing president of the European Central Bank, Jean-Claude Trichet, European Commission President José Manuel Barroso, who is Portuguese, and European Council President Herman Van Rompuy, who comes from Belgium.
SPIEGEL: But you cannot deny that the decisions of the past week have unmistakably German traits.
Schäuble: It is, of course, gratifying when even SPIEGEL occasionally acknowledges that the German government is doing a good job...
SPIEGEL: ...you're welcome...
Schäuble: ...but we will get nowhere in Europe if we conduct this debate according to national points of view. It is an undisputed fact that high government debt is the main cause of the crisis. So the response to the crisis cannot be that of further increasing the debt level. The response to the crisis can only be that of enhancing stability policies.
SPIEGEL: That sounds about as German as it gets. Is Germany on its way to becoming a hegemonic power in Europe?
Schäuble: Nonsense! The success of European unity is of existential interest to the Germans. What is good for Europe is good for Germany. Europe cannot be constructed according to the principle of hegemony. We of course don't want to rule Europe -- that is just nonsense. As the largest member state, however, we are regularly expected to take a leading role in close cooperation with France. After all, challenging issues can often only be resolved if Germany and France act in concert.
SPIEGEL: One of these issues involves shaping the future economic government that is planned for the euro group. What do you have in mind?
Schäuble: We have had until now a common monetary policy in the euro zone, but no joint fiscal policy. That is the problem, and we have to gradually change that. On a European level we need more commitment and enforceability. To achieve this we will have to adapt the European treaties to a certain extent.
SPIEGEL: Does the euro zone need a finance minister, as outgoing ECB President Trichet has suggested?
Schäuble: No. I tend here to subscribe to the ideas of European Commission President Barroso. In the future, the monetary affairs commissioner should have a position that corresponds to that of the commissioner for competition. According to this scenario, the monetary commissioner would monitor whether the finance policy regulations for the euro-zone members are actually respected. If there are violations, he should be able to impose sanctions unilaterally -- and do so without a majority of the Commission being able to veto his decision. At the same time, the European Court of Justice should be allowed to proceed against budget offenders.
SPIEGEL: Some euro-zone members take a rather skeptical view of the German-French axis. Can you confirm that?
Schäuble: Not at all. Joint signals from Berlin and Paris are often precisely what Europe is expecting. Sometimes even I find that somewhat exaggerated.
SPIEGEL: Can you give us an example?
Schäuble: At some sessions of the Council of Ministers, I ask myself why I am always expected to speak first. The others could start for a change, particularly as my English accent is not the best in the world.
SPIEGEL: You reportedly feel more at home with French.
Schäuble: That perhaps has to do with the fact that my home region of Baden is close to the French border. But seriously, as the largest economy on the continent, Germany has a special responsibility to ensure that we in Europe achieve joint results.
SPIEGEL: Mr. Schäuble, thank you for this interview.
Interview conducted by Christian Reiermann and Michael Sauga
Translated from the German by Paul Cohen
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