Interview With German President Horst Köhler 'Leading Minds Must Devise New Rules for Globalized World'
SPIEGEL spoke with German President Horst Köhler, 65, about the causes of the international banking crisis, the need to reform the financial sector and efforts to introduce effective rules of conduct for the global economy.
German President Horst Köhler, the former head of the International Monetary Fund, blames "collective blindness" and a get-rich-quick mentality for the financial crisis.
Köhler: No, I have never bought them.
SPIEGEL: Are you a shareholder?
Köhler: Not even that.
SPIEGEL: But you do have a savings account?
Köhler: No, but I have something similar: fixed deposits.
SPIEGEL: Have you also recently started putting money under your mattress?
Köhler: Why in the world should I put money under my mattress?
SPIEGEL: You could put your money there and keep it safe from the crisis.
Köhler: My money is safe where it is. The dramatic nature of the current crisis has been recognized and the authorities are working intensively to find solutions.
SPIEGEL: Do you believe the German chancellor when she says "the bank deposits are safe"?
Köhler: Yes. I trust our government. There is a clear determination to ensure that we avoid a huge market crash.
SPIEGEL: These days many people are making historical comparisons, primarily to the world economic crisis in the late 1920s. Do you also see parallels?
Köhler: The situation is different now. Today, we have an awareness of the dangerous domino effects in the financial system. I am confident that the crisis can be controlled. We have the situation under control.
SPIEGEL: Should the Germans be afraid?
SPIEGEL: Back in late 2005, you warned in a SPIEGEL interview about the monsters of the financial markets. Why does no one listen to you?
Köhler: Apparently, when the general mood is upbeat, when the economy is growing and profits are rising, people would rather not be disturbed. Nobody wants to consider the possibility that we are about to run into a wall. Today, I would say that I should have pursued this issue more energetically.
SPIEGEL: What exactly is this monstrous condition that you diagnosed? How does the monster operate?
Köhler: The lack of transparency in the markets has resulted in a situation where the risks of the financial sector have spread out around the globe and reached customers worldwide. What makes the system so monstrous is that, in the end, nobody knows anymore who has actually purchased these risks. And suddenly something unpredictable crops up, even in places where no one would have expected it.
SPIEGEL: How, in your opinion, did it come to this?
Köhler: The bankers made the risks, for example those stemming from the US real estate market, divisible and tradeable. Many of the buyers of these securities and, unfortunately, the regulatory authorities as well, no longer knew where the risks had been placed. But you can split up the risks all you want, they still add up to the same result, they do not simply disappear.
SPIEGEL: Could it be that the financial sector no longer wanted to act as a service provider to the real economy -- that they wanted to write their own rules to the game?
Köhler: Particularly in the Anglo-Saxon financial sector, there was the belief that you could make gold out of thin air, and that it could be done on a permanent basis. Investment banking and so-called financial innovations increasingly detached themselves from the real economy. The only remaining objective was to maximize profits. They disassociated themselves from the ethical foundations of the business world and turned their backs on the predominant values of our society.
SPIEGEL: Who is to blame for this development? A handful of greedy individuals or the zeitgeist?
Köhler: There is a social development based on the following principle: Everyone wants to get rich and, in principle, everyone wants to get rich with a minimal amount of personal effort. People thought that trading money was the fastest way to achieve this -- that way you dont have to work your fingers to the bone. Unfortunately, this mentality has become far too widespread. If we are to gain a new awareness of the value of money, then we should also develop a new awareness of the value of work.
SPIEGEL: So was the crisis caused by the greed in all of us, or the whims of a small circle of people called the financial sector?
Köhler: Part of the financial sector liked to gamble -- for large and small stakes. The crisis reveals nothing new about human nature. And nothing new about capitalism.
SPIEGEL: Capitalism has not been brought to its knees?
Köhler: Capitalism as the right to privately own the means of production has absolutely not been brought to its knees, and the market economy will prevail. Dont forget Germanys robust small and medium-sized business sector. Especially now, the strong industrial backbone of our economy has proven to be advantageous. This is all merely a harsh reminder that freedom and the market economy require rules and controls imposed by the community, by the state. In the financial sector, the state has been lagging behind, perhaps due to a certain collective blindness.
SPIEGEL: What needs to happen in order to be less blind in the future?
Köhler: We need effective regulation of the financial markets, a return to ethical values among the main players, and an early warning system that makes warnings intelligible not just to experts, but to all of us, including of course the responsible political institutions, both national and international.
SPIEGEL: You were the head of the International Monetary Fund in Washington for four years. Why has the IMF not functioned as an early warning system?
Köhler: I was in the process of instituting this kind of early warning system. The team at the IMF had already conducted excellent and appropriate analyses. However, the representatives of the individual governments on the supervisory board tended to water down these analyses and warnings: After all, their governments could have ended up being criticized in an analysis. There was simply not enough of a sense that national interests are best served over the long term when we realize that we all depend on each other.
SPIEGEL: Arent we capable of agreeing to global rules that could help everyone?
Köhler: The current crisis also presents an opportunity. This crisis was brought about by people, so people can resolve it and learn from it. Until now, all too often the short-term, politically motivated agendas of individual governments have won out over the long-term realities of the situation. Now we are increasingly coming to the realization that pushing for so-called national interests in a globally networked context can no longer produce worthwhile results if, in the end, the whole structure, the shared structure, is destroyed. I hope the crisis will help engender a new approach to competition based on common interests.
- Part 1: 'Leading Minds Must Devise New Rules for Globalized World'
- Part 2: 'The Market Needs Moral Standards'