Derek Scally’s Interview with Wolfgang Schäuble

In today’s Irish Times Derek Scally reports on an interesting interview with German Finance Minister, Wolgang Schäuble.   (Edited transcript available here.)     Overall, Mr. Schäuble comes across as thoughtful and strongly committed to finding a way through the crisis that preserves the euro zone.    But the claim that further official assistance in the form of relieving some of the burden of banking-related debt could worsen Irish prospects is not convincing.  

Put yourself in the shoes of a potential investor in Irish debt.   On hearing of a reduced burden on official debt, would you: (a) upgrade your view on the ability of the Irish State to avoid default on private debt based on its improved financial position; or (b) panic because the situation must be worse than previously believed, or else the increased official support would not be forthcoming?   I would think that potential investors are well aware of the objective facts of Ireland’s situation.  One of these facts is the extent of available official assistance.  

Of course, the German government can choose not to support actions aimed at “further improving the sustainability of the well-performing adjustment programme” (July 29th communiqué).   But this argument for withholding such support should be strongly challenged.  

(It is noteworthy that Jörg Asmussen, a member of the Executive Board of the ECB, made a similar argument in his IIEA speech in April – see here.) 

39 thoughts on “Derek Scally’s Interview with Wolfgang Schäuble”

  1. Herr Schäuble: “… I am not yet convinced …”

    Blind Biddy:” Now Wolfgang, let’s have another cup of tea, and I’ll explain The ConFlationist Fallacy to you. How many sugars? …” tbc

  2. Mr. Schaubles comments that investors in California or Shanghai would only read the headline ‘Ireland needs more assistance’ and therefore sell Irelands bonds are quite bizarre and worrying. He seems to be assuming that the people who buy government bonds are both a little simple and incompetent at their jobs. PIMCO one of the worlds largest goverment bond buyer is based in California, I wonder what their European desk would make of Mr. Schaubles comments.

  3. That said, Herr Schäuble sounds much optimistic than Msr Glucksmann

    08/23/2012

    Philosopher André Glucksmann
    A Dark Vision of the Future of Europe

    French philosopher André Glucksmann finds the situation in Europe “extremely unsettling.” In a SPIEGEL interview, he discusses the failure of European intellectuals, how divisions could lead to an EU breakup or even hostilities, and why pursuing a United States of Europe is “the wrong goal.”

    http://www.spiegel.de/international/europe/philosopher-andre-glucksmann-a-dark-vision-of-the-future-of-europe-a-851266.html

    In France, André Glucksmann is one of the so-called New Philosophers, who turned away from their Marxist beginnings after 1968 and, motivated by Solzhenitsyn’s “The Gulag Archipelago,” wrote off Soviet-style totalitarianism. He is particularly well known in Germany for his two books “The Cook and the Cannibal” and “The Master Thinkers.” His parents were Eastern European Jews and lived in Palestine and Germany before fleeing in 1937 to France, where Glucksmann was born in the same year. He published his autobiography, “A Child’s Rage,” in 2006. As someone who is deeply familiar with German philosophy and has taken a critical look at Heidegger since his university days, Glucksmann has sought to engage in intellectual dialogue with Germany. In his many papers and essays, the 75-year-old has defended the right to intervene in armed conflicts to protect civilians, has championed the Chechens and Georgians in the Caucasus, and has doggedly criticized the West for its tendency to close its eyes to the persistent presence of evil in the world.

  4. I’ll just note this:

    “If governments start criticising independent institutions it is a breach of this independence. Thus we do not comment on independent institutions.”

    Which is nonsense of a very European sort, of course. In the US the Federal Reserve and Supreme Court are both completely independent without any requirement for political actors to avoid loud and raucous pluralistic public debate about their decisions and policies.

  5. @ JMh

    “One of these facts is the extent of available official assistance.”

    What does this mean?

    There is no such thing as “official assistance” other than in the capacity of commentators to invent euphemisms. The reality is that an inter-governmental organisation – based on Luxembourg law – is raising funds in the markets, a function that it is able to fulfill because of the backing of the German government and using the facilities of the German Debt Office to do so.

    cf. re Greek banks.

    http://www.efsf.europa.eu/attachments/201207-efsf-newsflash-n04.pdf

    What the markets are interested in is the capacity of the Irish government to take the necessary political decisions to fund itself. An odd couple of a coalition with one side saying no increase in income tax and the other no cuts in public expenditure is not one which inspires confidence. The irony is that, despite this, some of the tough decisions are being taken but not because of any voluntarism on the part of the politicians rather the inherent competence and integrity of the public service responding to what are unavoidable commitments in the MOU.

    It is time the debate in Ireland came down out of the clouds and the need to abandon what have been well described as “bubble era” levels of income recognised. The Greeks are finally getting around to it.

  6. If only the Irish Fiscal Advisory Council could be so forthright in its commentary, as opposed to falling itself to not offend the Department of Finance

  7. Can Schauble and Asmussen really believe their own BS? What kind of group think must exist in Berlin and Frankfurt to allow such prominant figures spout such nonsense.

    This kind of willful ignorance puts the future of the EZ in doubt and, as JMcH says, should be challenged at every opportunity. Cue a convincing put-down worthy of Michael D from the Government? No? Didn’t think so.

  8. DOD
    Now Biddy, My people have benn looking at how you spend your money. I am somewhat surprised by the results.Can it be true that
    *your public servants earn 45% more on average than your private sector and your teachers, nurses, police and firemen earn more than ours?
    *a lot of your retired public servants earn more than they did before they retired 10 years ago.
    *tell me about these medical cards. you have 1.8million of them, that is 125k more than last year. You get a virtually free healthcare system free at point of access? That is a better rewards system than my AMEX gold card
    *is it true that only 20% of your households pay more in direct tax than the receive in direct transfers? Is it true you have no property tax?
    *your SW rates seem to be above ours?
    *I am a big fan of the GAH as you know but I thought Dublin was one of your counties? Why does it have four county managers? They earn 160k each? Rajoy was in here complaining he was underpaid last week-has a point. There are two Tipperarys-go way.

    Now what was that confalatshunist BS thingy again. If you want me to go to my voters and explain to them that they are not going to get all the money that the lent to you back, then there has to be what Silvio calls a scrathcy back. How do you like your humble pie?

  9. So : despite being as has been said :best in class: we are to get no sticker in our homework. Whats plan b?

  10. @anewdawn
    you are particularly ungrateful.

    Schäuble is from Suebia, and they have a proverb:
    “net g’schimpft is g’lobt g’nug”
    no scolding is enough of praise

    take a look what the nasty boy gets:
    http://www.athensnews.gr/portal/8/57855
    “We expect Greece to deliver all that has been promised,” Merkel declared.

    “Moreover, Merkel noted the tremendous sacrifices that the Greek people have made over the last years, underlining that the weaker classes have borne the brunt of austerity and that those who profited during previous years of prosperity have not done their part.”

    Folks like me do remember that we jacked up the marginal tax rate to 60 %, when the fatherland needed the money, before we asked the poor to chip in too. How much is the marginal tax rate in Greece ?

  11. what reminds me of ,

    what is the marginal tax rate in Ireland,

    @David O’Donnell `?

    You were earlier this week so much in favor of US 60ties style tax rates.

    What is your proposal for present day Irish taxes? Like Germany, which has a budget surplus, as of today, 10 % more across the board, since this still might not cover your expenses, or ……. ?

    Curious

  12. Genauer,
    Scolding from a ethically challenged politician is particularly hard to take.
    Even more so, if that politician is from a country with the record it has.
    Greece needs a Marshall plan and debt foregiveness not a Morgenthau plan.

  13. tull,
    where do you see scolding in the IT Schäuble thing.

    And whom do you mean with ethically challenged ?

  14. @ tullmacadoo

    +1

    I can imagine Schauble thinking “What will the Irish be like when they do experience austerity?”

  15. I agree that the reason offerred by Schäuble on a debt deal isn’t convincing.

    I assume that the Anglo notes issue is where there will be changes.

    Wise politicians underplay expectations until delivery is in sight.

    The Irish success in getting a clause on debt inserted in the summit communiqué during the witching hour of the June summit, was overspun by Kenny, Gilmore and Noonan.

    The ESM firewall was simply inadequate to cover purchases of several countries’ bank debt.

    On debt sustainability, ideally, it would be better to stress GNP rather than GDP — but then the fiscal adjustment would need to be bigger.

    In respect of sovereign debt, an interesting development in recent years is that 55% or more of the sovereign debt of Germany and France is owned by non-residents while domestic investors own more than 60% of the sovereign debt of Italy and Spain – – so the majority of the servicing costs go to locals with some at least subject to tax (including banks).

  16. I would have thought the simple answer to the question on Ireland’s investment prospects as posed by John McHale has to be: “We don’t know”.

    I’m open to correction, but my view is premised on a belief that we’re part of the EU crisis, not separate from, nor within, it. So long as the crisis rumbles on the confidence of investors in Ireland cannot be fully restored since Ireland’s recovery prospects cannot be viewed in isolation from events within the EU, and the overall state of the EU economy, irrespective of whether or not the much anticipated deal on debt separation is completed in October. Even in relation to that, who is to say how its outcome would be judged by potential investors: adequate, or inadequate, or a pale imitation of what it really needs to be, and so on?

    It seems to me from the transcript of the interview that Herr Schauble’s hesitation on any proposed solution to Ireland’s debt difficulty is formed around an appreciation of this point. He’s looking to a bigger picture of the future of the EU that will be based on modification of the existing institutions rather than some revolutionary change which he presumably fears might inevitably lead to the break-up of the EU. So in his view the solution for Ireland, or Greece, or any other member state in particular kinds of trouble, must lie within the resolution of the eurozone crisis as a whole and not as a result of any special pleadings on the part of any one state. Hence: “It’s not a question of a yes or no from Germany, but what is the right solution.”

    The approach of the current government, with the support of many commentators, is that Ireland is a ‘special case’ in that, as the first entrant to the bailout programme, we’ve been unfairly burdened by the ECB with banking debt we shouldn’t have been asked to bear and which is unsustainable. Colm McCarthy has even suggested that Ireland should seek a review in the ECJ of the ECB’s actions in forcing Ireland to pay out on unsecured senior bank debt. Others have advocated straightforward default.

    In contrast to the way in which Herr Schauble views the eurozone crisis, however, our approach is more reminiscent of a horrifying scene in a novel about the American Civil War in which soldiers convicted of desertion are required to dig their own graves prior to being shot. The youngest amongst the so-damned digs harder and faster than the others, in the belief that the perfection and earnestness of his efforts will persuade his would-be executioners that he is a good soldier who deserves to be saved. No such luck.

    Incidentally, I think the Irish Times deserves congratulation for its initiative in taking an in-depth and multifaceted look at Ireland’s relations with Germany. It’s a unique capacity of the so-called ‘traditional media’ that we should treasure.

  17. @ Veronica

    I agree with your view regarding the IT. Derek Scally provides excellent coverage from Berlin.

    As for the rest, I think that the situation is much less complex than you suggest. Ireland’s bailout has been provided subject to conditionality, that conditionality causes major political headaches fo the politicians holding the reins of power and the process of ensuring that they do not abscond from their commitments is a constant one.

    Dan O’Brien sums up the situation well in today’s IT.

    http://www.irishtimes.com/newspaper/finance/2012/0825/1224322963051.html

    What are German politicians, dealing with their own restless electorate, to make of such behaviour? Schaeuble is not a fool and the argument that he advanced is at least as persuasive as the alternative one regarding the impact of some further “official financial assistance”, the source of which remains unclear. If Ireland does not pay, someone else has to. The Germans do not seem to be in the mood.

    The immediate problem is the front-loading of the PNs. One could imagine an arrangement for some form of back-loading which would probably be more costly in the end but which could be sold as the breakthrough which would get the issue out of the way. But clarity on the next budget – which we are told will be the toughest of this government – would appear to be a sine qua non as far as not just Germany, but the rest of the Troika, are concerned.

    Incidentally, I cannot find any reference to the assistance in question in the documentation released by the Department of Finance although there is reference to it in the limited media coverage this morning.

    On the “good soldier” image, this is rather a reflection of the widespread, and faulty, paradigm of our involvement with Europe. It seems that only events will correct it.

  18. @J Mc

    Are you giving Mr Shauble’s too much credit?

    You seem to assume that he holds teh view on Irish debt for the reasons that he offers – but given the plainly bogus nature of these arguments – and given that it is probably safe to assume that he is pretty well informed on these issues – it seems more likely than not that he doesn’t actually hold these views for the reasons he states.

    Therefore, trying to refute these arguments may well be pretty pointless – a more fruitful approach may be to figure out the real reasons why he opposes this course of action and address those arguments.

  19. @ Christy

    Good point!

    Simples! Herr Schaeuble does not want to raise any more money for Ireland on the back of Germany’s credit card; at least until the impossible contradictions in the policy positions of the governing coalition – in Ireland that is – are resolved.

  20. DOCM,
    Everybody with a brain has figured out the two possible endings. It either ends in a mixture of restructuring, mutualisation and monetisation followed by integration and a ban on current budget defcits at the member state level. The Hard Core does not want to pay and the soft periphery +France does not want to sacrifice local control. So you get a circling round the gordian knot. As time goes on this gives rise to the increased risk of default, break up of the union, disputes and possibly war, something Europeans are good at.

    The Germans and their satellites do not want to pay to sort out the mess but I presume they have figured out that the consequences of not paying will be even more costly. There could even be a huge political price to pay for being associated with wrecking the continent for the third time in a century and triggering a global depression.

  21. Tullmacadoo
    Your last point there is deeply politically incorrect, but sadly deeply historically correct. Three generations on the memories of 1945 have faded. Sadly also so have the memories of 1947 et seq.

  22. @ tullmcadoo

    It’s quite an insult to call Finland a satellite given its survival as a country after Swedish and Russian domination.

    Finland reformed in response to its economic crisis in the early 1990s. Ireland has introduced no significant reforms.

    Finland is facing economic problems today but it should help to maintain Ireland’s bubbletime costs?

    What would the Irish reaction be if the boot was on the other foot?

    Teachers’ pay in Finland is on a par with that of medical doctors and lawyers.

    In 2009, the rate for a primary teacher after 15 years was €50k in Finland and €68k in Ireland according to the OECD. It was €61k at upper secondary level and €68k in Ireland.

    In Finland in 2009, a Finnish GP’s pay was 1.8 times the average wage and 3.5 times in Ireland; a salaried specialist earned 2.6 times the average wage in Finland and 4.5 times in Ireland.

    There is no public pay premium.

    The Irish penny will drop in time — at quite a cost.

  23. @ TMcD

    There is a middle way i.e. restoration of a functioning banking system – the banking union – in the EA. Indeed, this is the core element being negotiated at present, apart from the steps being taken by the ECB to hold the system together in the meantime.

    There is a reference in the letter from the MOF to the agreement to “breaking the pernicious link between sovereigns and banks” (the phrase agreed in the summit communiqué). But this phrase is utterly meaningless other than in terms of politicians trying to disassociate themselves from the “banksters”. The truth is that both sovereigns and banks – hopefully reformed – are in the banking business in the sense that banking is essentially a process of maturity transformation. Whatever about the need to run balanced budgets, governments will simply have to continue to issue bonds in order make the financial system work. It is the shortage of the capacity to issue such bonds that are considered safe – and carry a reasonable rate of interest – that is at the centre of the crisis. This where the ECB comes in. It is a racing certainty, in my view, that it will intervene at the short end of the market.

    The politicians and their negotiators who know what is going on are doing one thing while appearing to be doing another e.g. the kite being flown by Merkel on a new treaty. (All her moves are as obvious as they are successful; which does not say much fo her opponents).

    @ MH

    Marc Coleman has a very relevant contribution in today’s Sindo (which is more than can be said for most of the rest).

    http://www.independent.ie/opinion/analysis/welfare-and-prsi-make-easy-targets-3210079.html

  24. Michael H
    those OECD figures are in dollars, not euro according to the OECD education site. The same site shows that irish upper secondary teachers gettign 60k dollars while german austerians get 68k, and the luxembourgous get 110k. The finns have it seems less contact hours and get 10% more per contact hour than the irish, same grade. The same pattern continues across the other grades, more or less.
    Maybe the finnish teachers could get irish pay if they worked irish hours, my reading of the data?

  25. Colm McCarthy addresses Herr Schauble

    Friday’s Irish Times carried an interview with German Finance Minister Wolfgang Schauble, which illustrated the dangers of upbeat spin-doctoring coming out of Ireland. He downplayed the prospects for a debt-reduction deal in the following terms: “We cannot do anything that generates new uncertainty on the financial markets and lose trust, which Ireland is just on the point of winning back. We will have to avoid generating a headline like ‘Aid programme for Ireland topped up’ because then investors in California or Shanghai might not understand that this top-up is a reward for Ireland.”

    Taken at face value, Schauble’s statement is simply absurd. Financial markets dealing with a distressed debtor will become less concerned if their debtor is relieved of some obligations, not more concerned. Schauble knows this perfectly well and so do the folks in California and Shanghai. But his phrase about Ireland winning back trust, and by implication not needing additional support, is part of

    the price to be paid for trying to have it both ways. The Government cannot maintain that Ireland is unable to carry its debt burden without a better deal while simultaneously declaring success on re-entering the bond market. This is an open invitation to our European colleagues to dismiss requests for debt relief on the grounds that Ireland is doing fine without it.

    The rescue deal for Ireland arranged with the EU and IMF in the autumn of 2010 did not include any condition relating to the repayment at 100 per cent of unsecured and unguaranteed bondholders in bust banks.

    http://www.independent.ie/opinion/analysis/colm-mccarthy-reward-isnt-the-word-wolfgang-its-restitution-3210082.html

  26. @ anewdawn

    Look hard enough and you may find Irish doctors are also underpaid or Finnish doctors do little work!

    The comparison with Finland is in respect of another small economy.

    A masters degree is the minimum qualification for teachers in Finland.

    In US PPPs, top of scale for an Irish teacher in lower secondary in 2009 was $68k and $54k in Finland.

    Finland’s renowned educational system focuses on outputs not on hours in the classroom.

    Teachers have significant control in developing the curriculum for their own classes and in interactions with their local communities.

  27. @MH
    Comparing the running of Finland and Ireland is like comparing the running of a railway and a road network. A railway is intricately regulated from the center: a road network has general rules and many independant operators.
    Society generally is more like a loose network: we are attempting to run ours as efficiently as a railway runs. They attempt to match how societies operate in networks.

    “Finland’s renowned educational system focuses on outputs not on hours in the classroom.”

    “Teachers have significant control in developing the curriculum for their own classes and in interactions with their local communities.”

    Finland has a system of local government where this can be done.

    With a population of 5.5million they have 336 municipalities: we have 35. Theirs are largely autonomous and locally responsible; ours are largely subject to central government.
    Their councillors are responsible in their area for the administration of
    Health care, Social services, Education, Infrastrucure and land use and Local development.
    In Finland, “municipalities are independent and not a part of a local state hierarchy”
    We have no practical local control of local government.
    They devolve power to as local a level as possible. They have 90 with populations of 3000 or less.
    We are centalising ours even more.

    http://en.wikipedia.org/wiki/Municipalities_of_Finland
    http://en.wikipedia.org/wiki/Local_government_in_the_Republic_of_Ireland

  28. MH,
    I have no doubt that if the boot was on the other foot there would be a Me Fein party here opposing any aid to struggling fellow member states. They would probably even demand collateral. The obvious riposte to these would be to tell them to get stuffed and see what life would be outside the single Market. In our case, we would be back to selling meat and eggs to John Bull. In the Finns case it would be back into Putin’s near abroad.

    I don’t think it is insulting to call the Finn’s, Austrian or Dutch a satellite of Germany… More a fact really.

  29. @ MH and TMcD

    The history of Finland’s relations with Germany (and Russia) is one into which even angels would fear to tread.

    @ DOD

    What about this bit in the article?

    “The reluctance to release this letter doubtless reflects the sensitivity of the contents. It may not deal with the pay-off to unsecured bondholders at all — the ECB was putting pressure on the Irish government to accept a bailout at the time and encountered some resistance. But the pay-out to bondholders occurred, and it is clear that this was at the insistence of the ECB.”

    As in Some Like it Hot; “You wanna make a federal case of it.” (!)

    As to who knows what with regard to international investors, I would have somewhat more confidence in the views of the man actually charged with getting them to invest in order to provide the “official assistance” on which some commentators continue to insist Ireland will depend.

    http://articles.economictimes.indiatimes.com/2012-08-24/news/33366812_1_eurozone-members-antonis-samaras-greece

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