Interview with German Opposition Leader 'Commercial Banking Should Be Split From Investment Banking'

In an interview with SPIEGEL, Sigmar Gabriel, the leader of the opposition center-left Social Democrats, outlines his plans to tame financial capitalism, warns that the supposed supremacy of banks and markets is eroding faith in politics and says the SPD would do a better job containing the crisis.

SPD Chairman Sigmar Gabriel.

SPD Chairman Sigmar Gabriel.

SPIEGEL: Criticising capitalism seems to be all the rage -- even Frank Schirrmacher, Editor in Chief of the conservative daily Frankfurter Allegmeine Zeitung, has joined capitalism's critics. Why is the SPD remaining true to the existing system?

Gabriel: We have long criticized financial capitalism for trying to evade almost any form of democratic influence. We, the Social Democrats, are convinced that capitalism needs to be tamed a second time. The first time we achieved that in Germany for many decades with the social market economy. That is no longer enough. Now we need to do it in Europe and even globally.

SPIEGEL: Why are you being so restrained?

Gabriel: This is not about reviving the pseudo-alternative of communism but about re-conquering the social market economy. In the current climate I know that it sounds modern and left-wing to say that we should do away with capitalism. But we simply don't want that.

SPIEGEL: So you think the current finance system can be reformed?

Gabriel: Yes. The new social question is: democracy or the rule of the financial markets. We are currently witnessing the end of an era. The neoliberal ideology has failed worldwide. The US movement Occupy Wall Street is a good example of this. In Germany it is good if as many people as possible join initiatives and peaceful demonstrations against the rule of the financial markets. Worshipping the unfettered freedom of global markets has brought the world to the brink of ruin. We now need social and ecological rules for the market economy.

SPIEGEL: You promised those three years ago, during the first financial crisis.

Gabriel: But it wasn't our fault that it didn't happen. Almost everything developed by Social Democrats like (former German Finance Minister) Peer Steinbrück during the financial crisis was halted by the change of government to the conservatives and (pro-business) FDP. It is like what happened with the Elbe River floods: When there is water in people's cellars then everyone agrees never to build on flood plains again. But once the water has receded, it doesn't take long before the first houses are planned. As soon as the crisis appears to be overcome, all effective suggestions are put on ice.

SPIEGEL: The SPD had long enough in power, from 1998 to 2009. During that time you could have prevented some of this.

Gabriel: Of course we have also made mistakes, for example, we shied away from implementing systems to restrain markets on an international level. We allowed ourselves to be intimidated by the assertion that Germany would be left behind if we failed to deregulate financial markets. But we have to learn from our mistakes, something that distinguishes us from the conservatives and the FDP. The 27 members of the European Union include some 20 liberal conservative governments. So Social Democrats can't be blamed for the fact that things stayed the same after the financial crisis three years ago.

SPIEGEL: Do you really believe that there wouldn't have been a second crisis if Europe had been ruled by Social Democrats?

Gabriel: We would have tackled the two most pressing issues. The first is repairing the currency union's birth defect and finally unifying finance, tax and economic policy. Secondly, we have to force the banks back into their role as servants to the real economy. The correct move would be to split investment banking off from commercial banking. Every mid-sized company which needs a loan will run into difficulties if a bank is threatened with bankruptcy because of bad bets made in its investment banking business.

SPIEGEL: So you want to break apart Deutsche Bank, which makes up to 70 percent of its earnings through investment banking?

Gabriel: I want to hang a big sign on the door of the investment banking sector reading "State guarantees end here." I don't have anything against people who want to speculate with their money. Nor do I forbid anyone from going to the casino. But when gambling goes awry, speculators should be liable, and not innocent third parties. What we have at present is a system of loss socialism. Whatever goes wrong is shouldered by the general public and anything that works is privatised. Worshippers of market freedom have suspended the most important economic principle: Risk and liability go hand in hand.

SPIEGEL: Why didn't the SPD implement such a division during the so-called grand coalition when you ruled with the CDU?

Gabriel: We intensively debated this issue during the grand coalition. Unfortunately it wasn't continued after 2009 (the start of Merkel's rule with the FDP party). Thankfully discussions have now been continued, even by the OECD.

SPIEGEL: Sahra Wagenknecht from the Left Party called for the nationalisation of banks long before the crisis. Was she right in the end?

Gabriel: Certainly not. Many state-owned banks didn't behave any better during the financial crisis. Whether a bank is private or public has little effect on how it operates. In the current crisis banks are simultaneously culprits and victims: Culprits because countries had to run up massive debt piles to avert the catastrophic consequences of the banks' gambling. Victims because they believed promises that no country would go bankrupt. Now they are experiencing the opposite and haven't prepared for such a scenario.

SPIEGEL: So is Sigmar Gabriel the bankers' friend?

Gabriel: Banks and financial markets have massively impinged on public welfare. But that was only possible because governments allowed it.

SPIEGEL: Can you understand why German taxpayers don't think they should pay for others' mistakes?

Gabriel: More than that. I think it is justifiable that many are angry that they have to cough up when others are greedy or politics fails. However, I have to tell people in Germany: If we don't get involved then we will be putting your jobs in Germany at risk. Germany's wealth depends on the prosperity of other nations -- which enables them to buy our cars and machines. My big criticism of Frau Merkel is that she hasn't explained that to people. Instead, she played with anti-European resentment. She stirred up anger and now has trouble calming people down again.

SPIEGEL: It is also a problem that markets can speculate on states going bankrupt. Should some gambles be outlawed?

Gabriel: Of course.

SPIEGEL: Back when the SPD was in government, the party cowed to the argument that it didn't make sense to forbid certain forms of speculation because people would then simply speculate in London, New York or on the Bahamas. Has that changed?

Gabriel: I used to be Germany's environment minister. Whenever there was talk of laws to protect the environment I heard comments like: If we implement that in Germany, business will move elsewhere in Europe. And when there was talk about a Europe-wide regulation then people would warn that business would relocate to China. At the end of the day the opposite was the case. Constraints protected the environment and made companies more productive.


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