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