′Reforms, investment ... and shrewd decisions′ | Europe| News and current affairs from around the continent | DW | 01.03.2012
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'Reforms, investment ... and shrewd decisions'

EU leaders are meeting in Brussels to examine policies to boost growth, and to sign a treaty on budget discipline. DW spoke to Norbert Walter, the former chief economist at Deutsche Bank.

DW: EU leaders are planing to sign a new fiscal pact. What is this agreement expected to do above and beyond the already existing - and more or less ignored - stability pact?

Norbert Walter: I'm comfortable with it. It's a good sign that Germany, a country that has laid down debt limits in its constitution, was the country to propose the fiscal pact. Of course there's no guarantee that the pact will work. But the conditions are better than they were before. Sinners will no longer judge sinners - instead, sanctions will automatically be put in place once certain indicators are reached. That's why it's important to support the fiscal pact. Sometimes, you have to be shrewd.

What do you mean by that?

Sometimes, you have to hold back funds until the states in debt have changed their policies. It's absurd to demand penalties from a state that has no funds. It would be smarter to put the pledged money in a frozen account. I believe the fiscal pact is stronger than the stability treaty.

The summit was expected to decide on expanding the permanent European Stability Mechanism (ESM), but that plan has been postponed also because Germany was reluctant. How far does the donor countries' solidarity go?

Countries like Greece need structural reforms. The funds available now are earmarked for the next two years. It is not very likely that reforms that have just been launched will have an effect in two years' time and will have convinced capital markets. German Finance Minister Wolfgang Schäuble is aware of that, so he indicated, even before the Bundestag's decision on Monday, that a third program would most likely be necessary before the crisis-ridden countries are ready to participate in the capital markets again.

So far, we've only been talking about austerity measures. Now, calls are getting louder for new investment plans to revive the weakened economy, mainly in Greece. Where is this money expected to come from?

An investment is a decision taken by a business. Take, for instance, the privatization of state-owned enterprises, where cost-efficient investments could be initiated. But countries like Greece can't take advantage of this kind of European aid because evidently, communal administration in Greece has proven incapable of creating the conditions necessary for investments. Reforms are needed, not just funds. Infrastructure is needed, but that can't always be provided locally. That reminds me of German unification, where West German banks realized that East German banks would only function quickly if West German managers went to East Germany for five to 10 years to help build up the banking sector. East German bank trainees came to the west to learn their trade in West German banks. Those are the kinds of steps Greece needs at this point. And if they're clever, they'll welcome this kind of aid for their country. The donor countries would be well-advised to provide such aid, for instance to support better tax efficiency or the creation of land registers.

The bailout packages are aimed at helping countries in financial need - but they're also meant to protect donor states from what is called the domino effect. How big of an effect are we talking about?

Speculators worldwide have been wondering who is next after Greece. We've seen how Portugal was treated on the markets. So any line of argument on a potential domino effect should be taken seriously. People who say, just exclude Greece and that'll take care of the problem, are probably wrong. We must consider how to deal more systematically with the voluntary debt conversion of private creditors in order to create orderly conditions for possible future debt writedowns. Anyone claiming high interest rates from a country for a longer period of time would receive a partial default risk reimbursement. But that means the investor must really bear the risk of a default should it happen. At the moment it appears that those pocketing 10 to 12 percent interest on loans think this is an eternal right, if need be via other nations' taxpayers. This expectation should not be fostered.

Interviewer: Daphne Grathwohl / db
Editor: Joanna Impey

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