Former German Finance Minister Peer Steinbrück The Global Economy 'Still Has Deep-Seated Structural Problems'

In a SPIEGEL interview, former German Finance Minister Peer Steinbrück talks about his role in fighting the financial crisis, how he pressured America to stop a second Lehman Brothers and why Greece is not out of the woods yet.

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SPIEGEL: Mr. Steinbrück, why is it that the financial markets haven't collapsed yet, even though you are no longer finance minister?

Steinbrück: You flatter my vanity with your question, which is why I prefer not to answer it.

SPIEGEL: But it must have been gratifying to you that you are seen as the man who saved the German economy from collapse.

Steinbrück: That's a bit too much for me. I played a part in overcoming, as far as that was possible, the financial crisis. Characteristics were attributed to me that flatter me, nothing more than that.

SPIEGEL: It's been almost two years since the financial crisis reached its climax. Has the worst been overcome?

Steinbrück: No one knows. There are still deep-seated structural problems that threaten the economic balance in the world: Between the United States and China, for example, but also within Europe. We have taken a few steps toward taming the financial markets, but we haven't come nearly far enough to rule out a repetition of the crisis. The most important question hasn't been answered yet: Who's in charge, politicians or the financial industry?

SPIEGEL: In your new book "Unterm Strich" ("The Bottom Line"), you clearly have no doubt that the politicians were not in control, at least not in those dramatic fall days in 2008. How close did the world come to a total crash?

Steinbrück: The investment bank Lehman Brothers collapsed on Sept. 15, 2008, and the world's largest insurance company, AIG, was threatened with the same fate. I'm convinced that if AIG had gone under, the financial sector would have reached a melting point. The world was indeed at the brink of disaster.

SPIEGEL: Were you alone in your assessment?

Steinbrück: No, my European counterparts agreed with me: Christine Lagarde from France, Alistair Darling from Great Britain, Wouter Bos from the Netherlands and, not least, the central bank governors from (Bundesbank President) Axel Weber to European Central Bank President Jean-Claude Trichet. Then, in a coordinated telephone campaign, we implored then-US Treasury Secretary Henry Paulson not to risk a second case like Lehman Brothers under any circumstances.

SPIEGEL: Are you saying that without European intervention there would have been a crash?

Steinbrück: We had a frank talk with Paulson in any case. The Lehman decision had triggered an earthquake worldwide. We wanted to know: What on earth are you trying to do? Does it have something to do with the presidential election campaign, or are you trying to set an example? We tried to make it clear to our US counterpart, disregarding all diplomatic conventions, that it would be a disaster if AIG failed.

SPIEGEL: Did Paulson know that the Lehman bankruptcy was a huge mistake?

Steinbrück: He never admitted it to me -- or to anyone else, I believe. But there have been signs from the Americans that make me think they completely underestimated the consequences of the Lehman crash. They didn't think it possible that its bankruptcy would trigger such an unimaginable shock wave.

SPIEGEL: How often did you speak with Paulson on the phone during that week?

Steinbrück: Twice.

SPIEGEL: For how long?

Steinbrück: Not long. Paulson himself was under enormous stress at the time. He was constantly going from one meeting to the next, so you don't waste time with chitchat. The conversations might have lasted five or 10 minutes -- no more.

SPIEGEL: Did you raise your voice?

Steinbrück: Never.

SPIEGEL: The credit business came to a standstill after the Lehman bankruptcy, and confidence in banks evaporated, even in Germany. Were you worried that the system of monetary transactions could collapse?

Steinbrück: There was palpable uncertainty, and people began withdrawing their money from the banks. This reduced the lenders' liquidity, which in turn undermined confidence in banks. A vicious circle threatened to develop, which is why Chancellor (Angela) Merkel and I finally decided to make our now-famous statement that all savings deposits would be guaranteed by the state. It worked. Don't ask me what would have happened if it hadn't worked.

SPIEGEL: But we are asking you. What would you have done if the guarantee had come due?

Steinbrück: We would have paid up, of course. We would have had to ask the parliament to approve the necessary funds. If we hadn't lived up to our commitment in such a situation, Germany would have been plunged into chaos.

SPIEGEL: But the amount guaranteed would have come to hundreds of billions of euros.

Steinbrück: Possibly. That's why we concentrated our pledge on savings deposits. Although we did, on the Sunday in question, prudently leave it somewhat unclear as to what exactly was meant by the term savings deposits.

SPIEGEL: It's been said that Merkel wanted to issue the guarantee on her own at first, without your support. Is that correct?

Steinbrück: There was a little back-and-forth on that day. It is true that Merkel wanted to appear before the cameras alone at first. But then, I believe, the then-cabinet spokesman Ulrich Wilhelm made it clear to her that she had to appear with the finance minister in that sort of situation. The overall impact would have been lost if we had turned the statement into a coalition issue. (Editor's note: Steinbrück and Merkel belong to the center-left Social Democrats and the conservative Christian Democrats respectively, which ruled together in a "grand coalition" government at the time.) Ms Merkel was certainly receptive to such arguments. It took about five minutes, but then it was clear that we were going to do it together.


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