Browse content similar to Otmar Issing - European Central Bank Board, 1998 - 2006. Check below for episodes and series from the same categories and more!
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called upon Hugo Chavez to remedy a long list of broken promises. | :00:04. | :00:14. | |
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Now it is time for HARDtalk. European leaders fear they could | :00:28. | :00:33. | |
damage the currency, and Europe itself. My guest helped bring the | :00:33. | :00:38. | |
euro to life. Back then, Otmar Issing believed political union was | :00:38. | :00:42. | |
essential. Now he fears that greater centralisation of powers in | :00:42. | :00:46. | |
Brussels will cause a public backlash that will wreck not just | :00:46. | :00:56. | |
:00:56. | :01:11. | ||
the currency, but the continent as well. | :01:11. | :01:20. | |
Otmar Issing, welcome to HARDtalk. When you were first nominated for a | :01:20. | :01:24. | |
position on the board of the newly- created European Central Thank you | :01:24. | :01:28. | |
appeared before the European Parliament and at the time you said | :01:28. | :01:32. | |
"I don't think I'm under any illusion as to how difficult this | :01:32. | :01:41. | |
job will be". What made it so? There is an anecdote which is true. | :01:41. | :01:46. | |
A former president of the Bundesbank once came to the office. | :01:46. | :01:51. | |
I was a member of the Board of the Bundesbank. He suggested that I | :01:51. | :01:56. | |
should be the German candidate for the first executive board of the | :01:56. | :02:03. | |
ECB. He tried to convince the Chancellor. One day he came back to | :02:03. | :02:12. | |
me and he said that the idea had been rejected. He was asked if I | :02:12. | :02:17. | |
ever said anything friendly about the euro. I asked him - what did | :02:17. | :02:25. | |
you say? He said "probably not". I was not sceptical, but I was aware | :02:26. | :02:32. | |
of all the problems. Problems which stem from the fact that the 11 | :02:32. | :02:40. | |
countries which would form the first group of the Union were | :02:40. | :02:45. | |
anything but a homogenous group. Economic theorists have developed | :02:45. | :02:49. | |
the idea of an optimal currency and that countries have to fulfil | :02:49. | :02:55. | |
certain criteria or - that they are fit for the union. This certainly | :02:55. | :03:01. | |
did not apply for these 11 countries. On top of that, from the | :03:01. | :03:06. | |
beginning, or even before there was a weak spot which was fiscal policy. | :03:06. | :03:12. | |
The Germans had insisted on introducing the stability and | :03:12. | :03:16. | |
growth bank to have a European control on public finance in | :03:16. | :03:24. | |
national sovereign states. But in a publication from the Institute of | :03:24. | :03:30. | |
economic Affairs, I said that was putting the cart before the horse. | :03:30. | :03:37. | |
Having this stability and Growth Pact implies that you have a jury | :03:37. | :03:45. | |
consisting of politicians, finance ministers - a jury consisting of | :03:45. | :03:50. | |
potential sinners judging actual sinners. Can this work? And the | :03:50. | :03:54. | |
question was answered very early on, because it was in fact Germany and | :03:54. | :04:00. | |
France that breached the growth and stability pact themselves. Let me | :04:00. | :04:04. | |
put something to you that Henning Christiansen, one of the European | :04:04. | :04:11. | |
Commissioners, said to me. He said it was the then prime ministers of | :04:12. | :04:15. | |
Germany and France who took the decision to suspend the stability | :04:15. | :04:21. | |
pact. He said that that was, in his view, a major disaster. Was that | :04:21. | :04:27. | |
where it started to go wrong? started going wrong before and in | :04:27. | :04:32. | |
different fields. Also in fiscal policies, because monitoring, | :04:32. | :04:35. | |
surveillance by the commission, it was too lax. What is mostly | :04:35. | :04:40. | |
forgotten is that the main message of the stability and Growth Pact | :04:40. | :04:45. | |
was not that the country should not exceed the 3% deficit limit, the | :04:45. | :04:51. | |
main message was that a country, in normal times, economic normal times, | :04:51. | :04:56. | |
should have a balanced budget. If it has high debt, it should have a | :04:56. | :05:01. | |
surplus. That is so that in times of economic weakness we had a long | :05:01. | :05:08. | |
way to go from 0 deficit all the way to 3%. This main message was | :05:08. | :05:12. | |
never dominating the discussion. The discussion was all about | :05:12. | :05:20. | |
dominating the -- not violating the 3%. When France and Germany do that | :05:20. | :05:26. | |
in 2003, that was the fatal blow to this idea of European control of | :05:26. | :05:31. | |
fiscal policies of sovereign states. I was an economic and financial | :05:32. | :05:35. | |
committee representative on the European Central Bank - this is the | :05:35. | :05:42. | |
committee which prepared for the finance ministers. It was the | :05:42. | :05:45. | |
deputy finance ministers Commission in the European Central Bank. As a | :05:46. | :05:49. | |
German, I was not the German representative of the ECB, but in | :05:49. | :05:56. | |
this moment, I felt, as a German, this was humiliating. Germany, the | :05:57. | :06:02. | |
country which had insisted on having such a pact, it violated it. | :06:02. | :06:05. | |
They organise their political majority against the application of | :06:05. | :06:13. | |
the rules and sanctions. This was also a bad signal and it gave the | :06:13. | :06:17. | |
impression that rules are for the small countries, the small members | :06:17. | :06:25. | |
of this club. The big guns to what they want to do. How did the | :06:25. | :06:29. | |
smaller members react when they saw the big guys effectively tearing up | :06:29. | :06:36. | |
the rule book? This was another disappointment. It was another | :06:36. | :06:40. | |
disappointment because I waited for the moment in which the rules would | :06:40. | :06:44. | |
not only be applied to the small ones, for example, we applied the | :06:44. | :06:52. | |
rules to Ireland because Ireland had a surplus which was behind to | :06:52. | :06:59. | |
their promise. I argued in favour of the rules, because we have to | :06:59. | :07:04. | |
demonstrate that the rules have to be strictly observed. I expected an | :07:04. | :07:13. | |
outcry by the small members. But this was very muted. The | :07:14. | :07:17. | |
explanation was that there was political pressure behind the | :07:17. | :07:22. | |
scenes, promises, all of that. this what was worrying you in the | :07:22. | :07:25. | |
early days when the preparations were being made for the euro? You | :07:25. | :07:29. | |
were only in place six months before the euro was launched. | :07:29. | :07:32. | |
Admittedly, the notes and coins didn't arrive until the beginning | :07:32. | :07:36. | |
of 2002, but even so, you were a new institution tried to draw up | :07:36. | :07:42. | |
new rules for something that had never existed before. In doing so, | :07:42. | :07:44. | |
it was based on information you receive from other countries. I | :07:44. | :07:49. | |
wonder what the quality of that information was? It was lousy. In | :07:49. | :07:58. | |
one word. This is not blaming anybody, because it was only three | :07:58. | :08:03. | |
weeks before we started with the executive board of the European | :08:03. | :08:10. | |
Central Bank in June 1998. It was then that this union was created. | :08:10. | :08:16. | |
So, statistics were not prepared for ten years or so. Just take one | :08:16. | :08:22. | |
example, when I received a number on, let's say cars sold in the last | :08:22. | :08:27. | |
quarter, say, 5 million - this number doesn't tell you anything. | :08:27. | :08:31. | |
You must know what it should be normally. He need the comparison | :08:31. | :08:40. | |
with past data, etc. All this didn't exist. Data, for example, on | :08:40. | :08:45. | |
unemployment from Italy had a time lag of nine months. Others had six | :08:45. | :08:48. | |
months, three months. They were then aggregated to one figure. We | :08:48. | :08:54. | |
were really sailing through uncharted waters. This was a big | :08:54. | :09:03. | |
problem. In retrospect, the introduction of the euro in 1999 | :09:03. | :09:11. | |
went without any turmoil in the markets. If you would come from | :09:11. | :09:17. | |
Mars and look at monetary statistics from December 1998 | :09:17. | :09:19. | |
through to January 1999, you wouldn't see any impact. This is | :09:19. | :09:29. | |
:09:29. | :09:32. | ||
incredible. I was aware of the challenge because people were very | :09:32. | :09:38. | |
suspicious about losing the Deutschmark and having a new | :09:38. | :09:46. | |
currency. Having an experienced more board in front for it in | :09:46. | :09:48. | |
exchange for a well-respected Deutsche a Bundesbank. I was well | :09:48. | :09:54. | |
aware of all that. I was working on confidence and credibility. It was | :09:54. | :09:58. | |
a major challenge and this task was much better solved than anybody | :09:58. | :10:03. | |
could have expected. But Salford, for what you are saying, on the | :10:03. | :10:10. | |
basis of inadequate and incomplete data -- solved. Maybe even | :10:10. | :10:15. | |
falsified data? You're probably referring to Greece. Greece came to | :10:15. | :10:18. | |
matter years later. But talking about them - we had to take the | :10:18. | :10:26. | |
data which came from them. Of course, the data for Greece on | :10:26. | :10:35. | |
public deficit and the deficit in the public expenditure, the decline | :10:35. | :10:42. | |
came surprisingly fast. This raises some suspicion. If you had that | :10:42. | :10:49. | |
suspicion, would you under the obligation to challenge it? -- were | :10:49. | :10:56. | |
you not. If we asked, and they would have said "that is not your | :10:56. | :11:02. | |
responsibility". You could have played euros that, couldn't you? | :11:02. | :11:06. | |
You could have told them to interrogate Greece. They were | :11:06. | :11:09. | |
asking you to make some very important decisions on the basis of | :11:09. | :11:14. | |
data, that you were very unhappy and uncertain about, even if you | :11:14. | :11:19. | |
couldn't pin down what was actually wrong with it. But this is from | :11:19. | :11:26. | |
hindsight. From hindsight. Nobody at the ECB was asking these | :11:26. | :11:30. | |
questions? They were looking at the data and saying "hopefully this is | :11:30. | :11:38. | |
true". Building a new currency on "hopefully"? The other currency was | :11:38. | :11:43. | |
already established. There was some creative accounting in almost all | :11:43. | :11:48. | |
countries. Well, let's move on to what's happening now. I suppose the | :11:48. | :11:51. | |
most pressing question right now is whether to grant Greece more time | :11:51. | :11:58. | |
to meet the terms of the bailout. What is your view? My view very | :11:58. | :12:03. | |
early was that one should make a clear case - if the country doesn't | :12:03. | :12:07. | |
deliver on commitments, one should not continue to give financial aid. | :12:07. | :12:13. | |
The argument against that was always contagion. If Greece would | :12:13. | :12:19. | |
leave, speculators would then attacked other countries - we will | :12:19. | :12:24. | |
not mention names. This is a relevant risk, but there is another | :12:24. | :12:30. | |
kind of contagion, which is the following - if a country gets one | :12:30. | :12:34. | |
rebate after another on commitments, then the pressure for other | :12:34. | :12:39. | |
countries to comply with commitments is declining. I think | :12:39. | :12:44. | |
we have seen that makes difficulties for governments like | :12:44. | :12:51. | |
in Portugal, making difficulties for them to stick to commitment and | :12:51. | :12:59. | |
reforms in the way that when he did over the past decades. The crisis | :12:59. | :13:02. | |
has brought it to the limelight all the deficiencies and structural | :13:02. | :13:06. | |
problems in different countries. But at the same time, the crisis | :13:06. | :13:11. | |
has also worked as a catalyst. is the point of making Greece leave | :13:11. | :13:15. | |
the eurozone, in effect, when the rules have already been broken? | :13:15. | :13:20. | |
It's already been bailed out twice. Isn't it better, in Germany's | :13:20. | :13:24. | |
interest as well, that Greece remains. It's an export market, | :13:24. | :13:29. | |
it's part of the dream of Europe, the European ideal. This is | :13:29. | :13:36. | |
certainly relevant and it is an economic argument. And, as the | :13:36. | :13:41. | |
identity of what is called Europe. This is an aspect that has to be | :13:41. | :13:46. | |
reflected. At the same time, the question is - what kind of union | :13:46. | :13:55. | |
should survive? I once said that this is a kind of club. If you are | :13:55. | :14:00. | |
a club of non-smokers and a member of the club continues to smoke or | :14:00. | :14:06. | |
starts smoking after entry, what do you do? You have two alternatives. | :14:06. | :14:11. | |
Either you change the rules and the club becomes a club of free will | :14:11. | :14:21. | |
:14:21. | :14:28. | ||
for everybody, or those who want to The Greeks will say that Germany | :14:28. | :14:37. | |
has an historical field of Haifa inflation back from the 1920s. -- | :14:37. | :14:44. | |
hyper inflation. The damage it did to Germany. But there is another | :14:44. | :14:49. | |
lesson that Germany are not learning and that is what happened | :14:49. | :14:54. | |
after the First World War. Germany paid reparations. Even when its | :14:54. | :14:58. | |
economy could not face it because France said it must be punished and | :14:58. | :15:04. | |
it has to learn the lesson. That is the lesson they via the Greeks are | :15:04. | :15:14. | |
:15:14. | :15:20. | ||
being getting. This comparison is a very bad sign. The idea was that | :15:20. | :15:25. | |
Europe would bring us closer to political union but increased | :15:25. | :15:29. | |
identification of people with Europe. I always thought the Soviet | :15:29. | :15:34. | |
to be wrong. Something OP has said he is happening. We had the | :15:34. | :15:42. | |
illusion, and the hope that memories of the past of the Nazi | :15:42. | :15:49. | |
regime, after more than 50 years since the end of the Second World | :15:49. | :15:53. | |
War are something for the history books. This is coming up again and | :15:53. | :16:03. | |
:16:03. | :16:05. | ||
these bad feelings,... This is a sign for me that with the | :16:05. | :16:12. | |
introduction of the euro, a single currency for all members, we have | :16:12. | :16:18. | |
come very far to what is accepted by the people and for me, this is | :16:18. | :16:28. | |
an indication that we need for more Europe, that very cry, is a | :16:28. | :16:36. | |
conclusion which we have gone too far. You have mentioned that Angela | :16:36. | :16:42. | |
Merkel told about the need for a better Europe. We have had some | :16:42. | :16:46. | |
solutions proposed. The European Central Bank is providing the | :16:46. | :16:51. | |
mechanisms that will allow it to buy bonds. Mario Draghi, the | :16:51. | :16:55. | |
President of the central bank, saying this is the way the markets | :16:55. | :16:58. | |
can be reassured that countries will be given breathing space to | :16:58. | :17:05. | |
make the reforms necessary to make the euro were it. The German | :17:05. | :17:10. | |
president in August described the actions as legally questionable. Do | :17:10. | :17:17. | |
you think it is acting beyond its powers? If it is illegal or not | :17:17. | :17:22. | |
will be decided by the European Court of Justice. Leave that aside. | :17:22. | :17:29. | |
For me, these expanse the mandate of the ECB be on what it should do. | :17:29. | :17:39. | |
:17:39. | :17:41. | ||
The ECB you said well start to buy bonds - they are ready 200 billion | :17:41. | :17:47. | |
in its balance and 60 million off covered bombs. So this is something | :17:47. | :17:52. | |
which has already happened. Now it is potentially unlimited. -- thongs. | :17:52. | :17:56. | |
I understand why the notion is there is no limit because otherwise | :17:56. | :18:06. | |
:18:06. | :18:11. | ||
it would be testing the market. Signalling it needed a limited -- a | :18:12. | :18:16. | |
limited that mack of this is something very dangerous. The ECB | :18:16. | :18:24. | |
is doing the business which is not done by governments. The treaty on | :18:24. | :18:28. | |
which the multi- union his face is a simple principle - this is a | :18:28. | :18:34. | |
union of sovereign states and sovereign states in the end are | :18:34. | :18:40. | |
responsible for their policies, good and bad. Financial aid is | :18:40. | :18:50. | |
:18:50. | :18:51. | ||
given, or solidarity is shown in case of for example an earthquake, | :18:51. | :19:00. | |
but these are not problems which are due to shocks, they are due to | :19:00. | :19:07. | |
mistakes of governments in the past. So it governments, European | :19:07. | :19:14. | |
governments together, they decide on a no bailout, then it is their | :19:14. | :19:20. | |
business and not the central bank. It those countries like Italy or | :19:20. | :19:26. | |
Spain or Greece were to leave the eurozone, would Germany suffer more | :19:26. | :19:30. | |
than it would gain. It may not see the transfer of resources to prop | :19:30. | :19:40. | |
:19:40. | :19:41. | ||
them up but it may lose export markets? Unit to distinguish | :19:41. | :19:44. | |
between the short-term and the medium to long-term. I'm not | :19:44. | :19:49. | |
arguing that Germany should reintroduce a national currency. | :19:49. | :19:55. | |
This would be a foolish idea. Very dangerous and absorb. Germany | :19:55. | :20:01. | |
should not leave the eurozone? absolutely sure Germany will never | :20:02. | :20:07. | |
leave the eurozone for political and economic reasons. You said, I | :20:07. | :20:13. | |
belong to a group that argues Europe should been preceded by | :20:13. | :20:18. | |
political union. Are they coming to terms with the need for that. There | :20:18. | :20:23. | |
is now much talk for a move towards what they describe his genuine | :20:23. | :20:27. | |
political and monetary union? are talking about two different | :20:27. | :20:35. | |
animals. The political reunion I referred to, which was by the way | :20:35. | :20:40. | |
mention by the Chancellor in 1991 when he presented to the treaty to | :20:40. | :20:49. | |
the back, he said it would be a sort to have a political malty | :20:49. | :20:55. | |
Union without political union. This idea was based arm for a common | :20:55. | :21:01. | |
government and parliament. What the top is now, it is on correcting | :21:01. | :21:07. | |
problems by going in to the direction of a political union. The | :21:07. | :21:13. | |
political union is so far away from being an mechanism for repairing | :21:13. | :21:18. | |
programmes -- problems that I do not see any a readiness in | :21:18. | :21:23. | |
countries to treat you changed to take a risk of referendum etc. I do | :21:23. | :21:31. | |
not see the people are yearning for political union. What is discussed | :21:31. | :21:40. | |
now is for me a kind of fancy idea. It is the kind of idea, to bring it | :21:40. | :21:45. | |
to the point, we promise to go in the direction of malty Union in | :21:45. | :21:55. | |
:21:55. | :21:56. | ||
exchange for that, we neutralise that. Money now and the promise of | :21:56. | :22:01. | |
political union later. This is a dangerous idea. I think it is even | :22:01. | :22:06. | |
fatal for identification of the people of Europe and nations within | :22:06. | :22:11. | |
the euro. Not just for the single company but fatal for the European | :22:11. | :22:19. | |
Union? Take the example of if I were to introduce euro ones which | :22:19. | :22:23. | |
is a popular idea with politicians at the Commission and academics. | :22:23. | :22:30. | |
The consequence would be to have interest rates rise in Germany | :22:30. | :22:34. | |
because Germany would have to shoulder guarantees for much more | :22:34. | :22:40. | |
debt, market would punish that, rates would rise in Germany. This | :22:41. | :22:50. | |
would imply... And in other countries it would decline soaked | :22:50. | :22:53. | |
it require a transfer of money from Germany to other countries without | :22:53. | :23:02. | |
any democratic litigation. This is a violation of the principle of no | :23:02. | :23:07. | |
taxation without representation. You wish you had challenged the | :23:07. | :23:15. | |
politicians more forcefully when the euro was being created? Years. | :23:15. | :23:22. | |
I think I realised very early that these Monetary prices did not | :23:22. | :23:29. | |
really work. One of the aspects... Mario Monti in a conference in | :23:29. | :23:36. | |
Brussels before he became Prime Minister said... He was polite and | :23:36. | :23:42. | |
said, we were too polite to each other. He did not suggest we should | :23:43. | :23:48. | |
shout at one another but, you see, if you're in negotiations and the | :23:48. | :23:53. | |
new government is elected, they come with promises and ideas and | :23:53. | :23:59. | |
then you give them money etc. To make things better. Then you see | :23:59. | :24:03. |