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Stefan Homburg
Image: picture-alliance/dpa

It's not about the euro anymore!

July 19, 2012

The German Parliament is meeting Thursday for a special session to vote on aid for Spain's banks. A leading German economist is critical of it all, claiming that the issue is not really about saving the euro.


Stefan Homburg is a professor at Leibnitz University in Hanover and director of the Institute for Public Finance. He joined 250 other well-known economists and financial experts to write an open letter to the public, warning of the risks of more and more bailouts. The euro cannot be rescued through aid to Spain's banks, he maintains. DW spoke with Stefan Homburg in an exclusive interview.

DW: Mr. Homburg, which disasters do you anticipate?

Stefan Homburg: Well, disaster is perhaps a bit of a strong word, but the rescue measures have become riskier and riskier. There's no end in sight. The recipient nations will need support over a long period of time. And now, with regard to Spain, it's about the country's smaller banks, which are definitely not essential to the system. So this expansion to the bailout is completely incomprehensible. There is no reason to give European tax money to these small Spanish banks. The problem will only get worse and that's why I think, in the long-term, the euro will not be sustainable.

German parliamentarians will therefore be acting completely irresponsibly if they vote for the bailout plan for Spanish banks?

That's what I think. I have received a 140-page document from a member of the German parliament - he had been given it himself just today, yet he is supposed to vote based on this material. Gigantic sums are being handled here in a completely hasty and irresponsible manner, and there is no reasonable justification whatsoever for these subsidies for the banks.

Members of the German Parliament are normally advised by experts. Are the representatives of the people running into the vote without any sort of guidance in this case?

They are running into it completely unprepared - that's the case now with regard to aid for Spain. That was the case with the European Stability Mechanism contract, and with the previous bailout measures. It more or less began in May 2010. Things are always decided at these government summits, and then the members of parliament are pressured by their parliamentary parties to vote quickly in favor of an issue, otherwise something horrible will supposedly happen.

Euro coins
It's not about saving the euro anymore, says HomburgImage: dapd

German Finance Minister Wolfgang Schäuble has been very annoyed by the objections raised by experts, and has called it "irresponsible behavior." Where have you and your colleagues been too alarmist?

Well, I don't believe that our appeal was alarmist. We've expressed our concern that risks that have developed due to the increasing numbers of contract breaches in the past years and that taking on more and more liability will just not work. 

Just how accurate is the impression that the euro should be rescued at absolutely any price?

I really do not believe that the issue is the euro. After all, a currency is not put at risk when individual borrowers cannot pay back their debts. In my opinion, it's about the banks and their prosperity. We unfortunately are well on our way to a plutocracy. That will get worse when the ESM goes into effect because it works in complete nondisclosure. In other words, government leaders can give hundreds of billions to banks without the public hearing one word about it.

There is also a counter-movement of experts that says that these measures are what's needed to save the euro currency. Are these experts irresponsible optimists?

A counter-movement does not really exist that says everything has been done correctly up to now. There's the one group that wrote the concerned appeal, and there's another group that believes that things can be made right through new, so-called strict rules. I think the latter group is non-political. It has not learned that rules have been broken during the past twenty years and that rules will continue to be broken in the future. That will happen even more easily when, such as with the ESM, everything happens in secret.

German Finance Minister Wolfgang Schäuble
German Finance Minister Schäuble is disgruntled with Spain bailout skepticsImage: Reuters

What is your vision of the future? Will inflation increase or will there be just a small core group once several countries exit the euro zone? 

I think most scientists and experts agree that there will only be two solutions in the end. The one coherent solution is abandoning the currency union, but maintaining the EU. That means that every country would have its own currency again, just like we did up until ten years ago. The other coherent solution would be a European federal state in Brussels which would create taxation laws, social legislation and other important financial legislation. That kind of federal state with a uniform legislation could work. Just how democratic it would be is a different question.

Will people in some countries lose their assets?

What many economics laymen do not understand is that a big portion of those assets is already lost. Now, it's just about keeping that under cover. For instance, many loans were given for Spanish real estate - sometimes up to 130 percent. Now, due to the crisis, prices for real estate in Spain have fallen dramatically. So depositors and bank owners have simply lost their money. One can try to cover up this loss of wealth by making bankruptcies impossible through bailout measures. But it's not about new decisions destroying assets. The wealth is already lost.

Interview: Wolfgang Dick / als
Editor: Joanna Impey

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