07 June 2018

POLITICO: Head of Berlin think tank: Germans too often ‘misinformed’ on eurozone

Marcel Fratzscher is the president of the DIW-Berlin economic think tank, and a professor of macroeconomics and finance at Humboldt-University Berlin.

He has been one of the leaders of the school of German economists defending the idea that Germany should play a more proactive role in reforming the eurozone and engage French President Emmanuel Macron on the matter. But German populists have “built walls of fear,” he said, by presenting Europe as “a transfer union with Germany as its paymaster.” Fratzscher also explained why he thinks that in spite of appearances, eurozone reform is making progress.

The French government seems to have been disappointed by the signals sent by Berlin on the eurozone reform, and the German coalition government’s budget plans seem conservative. Do you think there is cause for concern for France and other European countries?

I consider Chancellor Angela Merkel’s interview on Europe a few days ago a promising first step. Let’s not forget that this is her initial position, and I am convinced that the negotiations with France, Italy and others will make the German government move further. But the other Europeans will also have to accept some compromises, in particular on strengthening market mechanisms for future crisis prevention and on governance.

On the budget, Germany is currently in the luxurious position of having a huge surplus, with revenues rising further in the next few years. But we have to realize that this comfortable position is mainly due to luck, and not good policies. The main reason is the [European Central Bank’s] low interest rates, which generate savings of about €40 billion or more a year for the state budget. Without that, the federal government would be far from having a “Schwarze Null” (black zero) surplus. Then there’s the booming labor market, and the record profits of German companies.

Yet many Germans resent the ECB’s policies?

The criticism against the ECB in Germany has been excessive and often unfair, while these critics have been blind to the massive benefits which Germany has also reaped from the euro and from ECB policy. Without the ECB’s decisive actions, the European crisis would have been much deeper and, ultimately, Germany’s economy would not be experiencing its current boom. [...]

Considering the good state of its finances, why does Germany seem so hesitant to engage with Macron on eurozone reform?

Populists here have been successful in falsely conveying that Europe is all about the creation of a transfer union, with Germany as its paymaster. And some German economists contribute to building these walls of fear. So people are misinformed. Many, for example, think that the [eurozone bailout fund] European Stability Mechanism is a fiscal transfer machine — whereas it in fact loans money.

So with this wrong perception — “Germany has given away a lot of money!” — people wonder: What’s the purpose of all this? Why is it in Germany’s interest?

But wouldn’t something like a banking union be in Germany’s interest? Why does Berlin seem so reluctant?

Part of this is the ignorance I was talking about. It is incredibly hard to make people understand that a successful banking union, including deposit insurance, makes all of Europe safer, including Germany and its banks.

Then of course, there is a serious divergence on what the right reduction of risk should be in the banking sector, the prevailing German view being that putting the right amount of capital in a bank takes care of the problem.

That said, my feeling is that the situation is changing. The German side is opening up. There has been a personnel change, new people are taking over, and there is an emerging consensus that the European deposit insurance scheme is not only inevitable, but even desirable, if done right. Of course, there are many technical questions to solve but on this issue, there is movement. [...]

Full interview on POLITICO

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