Photo Gallery: Peer Steinbrück on the Financial Crisis
Former German Finance Minister Peer Steinbrück The Global Economy 'Still Has Deep-Seated Structural Problems'
SPIEGEL: Mr. Steinbrück, why is it that the financial markets haven't collapsed yet, even though you are no longer finance minister?
Steinbrück: You flatter my vanity with your question, which is why I prefer not to answer it.
SPIEGEL: But it must have been gratifying to you that you are seen as the man who saved the German economy from collapse.
Steinbrück: That's a bit too much for me. I played a part in overcoming, as far as that was possible, the financial crisis. Characteristics were attributed to me that flatter me, nothing more than that.
SPIEGEL: It's been almost two years since the financial crisis reached its climax. Has the worst been overcome?
Steinbrück: No one knows. There are still deep-seated structural problems that threaten the economic balance in the world: Between the United States and China, for example, but also within Europe. We have taken a few steps toward taming the financial markets, but we haven't come nearly far enough to rule out a repetition of the crisis. The most important question hasn't been answered yet: Who's in charge, politicians or the financial industry?
SPIEGEL: In your new book "Unterm Strich" ("The Bottom Line"), you clearly have no doubt that the politicians were not in control, at least not in those dramatic fall days in 2008. How close did the world come to a total crash?
Steinbrück: The investment bank Lehman Brothers collapsed on Sept. 15, 2008, and the world's largest insurance company, AIG, was threatened with the same fate. I'm convinced that if AIG had gone under, the financial sector would have reached a melting point. The world was indeed at the brink of disaster.
SPIEGEL: Were you alone in your assessment?
Steinbrück: No, my European counterparts agreed with me: Christine Lagarde from France, Alistair Darling from Great Britain, Wouter Bos from the Netherlands and, not least, the central bank governors from (Bundesbank President) Axel Weber to European Central Bank President Jean-Claude Trichet. Then, in a coordinated telephone campaign, we implored then-US Treasury Secretary Henry Paulson not to risk a second case like Lehman Brothers under any circumstances.
SPIEGEL: Are you saying that without European intervention there would have been a crash?
Steinbrück: We had a frank talk with Paulson in any case. The Lehman decision had triggered an earthquake worldwide. We wanted to know: What on earth are you trying to do? Does it have something to do with the presidential election campaign, or are you trying to set an example? We tried to make it clear to our US counterpart, disregarding all diplomatic conventions, that it would be a disaster if AIG failed.
SPIEGEL: Did Paulson know that the Lehman bankruptcy was a huge mistake?
Steinbrück: He never admitted it to me -- or to anyone else, I believe. But there have been signs from the Americans that make me think they completely underestimated the consequences of the Lehman crash. They didn't think it possible that its bankruptcy would trigger such an unimaginable shock wave.
SPIEGEL: How often did you speak with Paulson on the phone during that week?
Steinbrück: Twice.
SPIEGEL: For how long?
Steinbrück: Not long. Paulson himself was under enormous stress at the time. He was constantly going from one meeting to the next, so you don't waste time with chitchat. The conversations might have lasted five or 10 minutes -- no more.
SPIEGEL: Did you raise your voice?
Steinbrück: Never.
SPIEGEL: The credit business came to a standstill after the Lehman bankruptcy, and confidence in banks evaporated, even in Germany. Were you worried that the system of monetary transactions could collapse?
Steinbrück: There was palpable uncertainty, and people began withdrawing their money from the banks. This reduced the lenders' liquidity, which in turn undermined confidence in banks. A vicious circle threatened to develop, which is why Chancellor (Angela) Merkel and I finally decided to make our now-famous statement that all savings deposits would be guaranteed by the state. It worked. Don't ask me what would have happened if it hadn't worked.
SPIEGEL: But we are asking you. What would you have done if the guarantee had come due?
Steinbrück: We would have paid up, of course. We would have had to ask the parliament to approve the necessary funds. If we hadn't lived up to our commitment in such a situation, Germany would have been plunged into chaos.
SPIEGEL: But the amount guaranteed would have come to hundreds of billions of euros.
Steinbrück: Possibly. That's why we concentrated our pledge on savings deposits. Although we did, on the Sunday in question, prudently leave it somewhat unclear as to what exactly was meant by the term savings deposits.
SPIEGEL: It's been said that Merkel wanted to issue the guarantee on her own at first, without your support. Is that correct?
Steinbrück: There was a little back-and-forth on that day. It is true that Merkel wanted to appear before the cameras alone at first. But then, I believe, the then-cabinet spokesman Ulrich Wilhelm made it clear to her that she had to appear with the finance minister in that sort of situation. The overall impact would have been lost if we had turned the statement into a coalition issue. (Editor's note: Steinbrück and Merkel belong to the center-left Social Democrats and the conservative Christian Democrats respectively, which ruled together in a "grand coalition" government at the time.) Ms Merkel was certainly receptive to such arguments. It took about five minutes, but then it was clear that we were going to do it together.
'We Knew We Were Skating on Thin Ice'
SPIEGEL: In that moment, were you actually aware of all the consequences of the statement?
Steinbrück: We knew that we were skating on thin ice. To be frank, we lacked the authority to make such a statement. There was no legal basis or parliamentary support. To this day, I'm surprised that the lawmakers never asked, after the fact: For God's sake, what exactly have you done?
SPIEGEL: The state guarantees saved many banks from failure. Did the banks ever thank you during that period?
Steinbrück: There was no gratitude, just recognition, if anything. That was mainly directed at our Financial Market Stabilization Act, which the bank executives welcomed in what was a kind of act of self-denial in terms of the question of where the limits of regulation should lie. After all, it was the same bank chairmen who would have preferred to keep the government as far away as possible before the crisis. Now they literally had to borrow confidence from it, because they no longer had any confidence in one another.
SPIEGEL: Deutsche Bank CEO Josef Ackermann was one of your most important partners in the process. What role did he play?
Steinbrück: He was a highly competent negotiating partner and one of the fathers of the Financial Market Stabilization Act, even if that seemed somewhat absurd later on.
SPIEGEL: What do you mean?
Steinbrück: A short time later, Ackermann made a point of saying that he would be ashamed if Deutsche Bank were to take advantage of the law. Merkel and I were somewhat unnerved by that statement.
SPIEGEL: How did he manage to do that?
Steinbrück: By constructing a sort of two-tier system within the German banking sector comprising those who needed help from the government and those who could get by without support. But we had wanted to make sure that precisely those banks that weren't doing so well would take advantage of the government's stabilization assistance.
SPIEGEL: Countries like Britain and the United States indirectly forced their banks to make use of their bailout programs. After Ackermann's statement, didn't you think to yourself that perhaps this would have been the better approach?
Steinbrück: We considered that for a long time. I felt at the time that this forced solution was the wrong way to go, because there would have been some banks that would have benefited without truly needing the money. It is true, however, that Ackermann damaged solidarity within the industry with his statement.
SPIEGEL: To this day, Ackermann hasn't admitted that he, as a banker, bore some of the responsibility for the financial crisis.
Steinbrück: Why should he? His initial response would be to ask you what exactly you were accusing him of.
SPIEGEL: A careless approach to risk, speculating in credit insurance, off-balance-sheet transactions.
Steinbrück: I'm not Ackermann's attorney, but I would point out that Deutsche Bank came through the crisis far more successfully than other financial institutions. Of course, Deutsche Bank is always a lightning rod for criticism.
SPIEGEL: Without good reason?
Steinbrück: When I look at how the banking world has changed and at the role Chinese banks, for example, play today, Germany, as an export-oriented economy, should be pleased to have a major global player in its camp. That's why I never heeded the advice to break up the banks. The truth is that Germany doesn't just need one global player in the banking industry, but preferably two or three.
SPIEGEL: That was also your view during the financial crisis, which is why you championed the merger of Dresdner Bank and Commerzbank. But the real beneficiary of the deal was Dresdner Bank's former parent, the insurance company Allianz, because it enabled Allianz to get rid of a subsidiary that was fraught with risk.
Steinbrück: One could put it that way. On the other hand, an argument that speaks in favor of the merger is that we had to be very careful not to allow the insurance market to be infected by new crises in the banking sector. That would have been the last thing we needed. However, I would have liked to have seen Frankfurt change the name of its soccer stadium afterwards, from Commerzbank Arena to the "Steinbrück Arena."
SPIEGEL: The federal government injected €18 billion ($23 billion) in capital into the bank. But Commerzbank was only valued at €4 billion. Nevertheless, you were satisfied with a 25 percent stake in the bank. Wasn't that a really bad deal?
Steinbrück: We won't find out until the government sells its 25 percent. That won't happen this year or, I suspect, next year either. I have a lot of respect for Commerzbank CEO Martin Blessing, who was one of the bankers most ready to engage in self-criticism.
SPIEGEL: The only problem is that he hasn't had much success yet.
Steinbrück: Admittedly. But given the initial situation at Commerzbank, he can't exactly be expected to come up with fantastic results after only a few months. To my mind, it's a little too soon to accuse him of failure.
SPIEGEL: You also had a lot of praise for Chancellor Merkel during the crisis. Didn't you ever have any disagreements?
Steinbrück: No, never.
SPIEGEL: You agreed on everything?
Steinbrück: Yes.
SPIEGEL: That isn't exactly common in the world of politics.
Steinbrück: It was a partnership of convenience, and it worked. If the government had descended into partisan politics at a time like that, the public's perception of politicians would have gone downhill even faster. In that sort of situation, people don't want to see a brawl between the SPD and the CDU.
'I Was Considering Resigning'
SPIEGEL: The only problem is that you, as one of the key SPD ministers, were also expected to achieve something for your party.
Steinbrück: That's true, and that was the biggest problem with the arrangement. The SPD didn't reap any political rewards for its responsible behavior, at least not on Sept. 27, 2009 (editor's note: the date of the German election, where the SPD got its worst result since World War II).
SPIEGEL: Was your relationship with the other members of the cabinet as harmonious as it was with the chancellor?
Steinbrück: Not with everyone. My biggest disagreement was with then-Interior Minister Wolfgang Schäuble. It was about the legislation to expropriate shareholders of the ailing Hypo Real Estate (HRE) bank. Schäuble had great reservations about converting the share capital into public property. I, on the other hand, felt that it was our only option to secure an absolute controlling majority in the bank.
SPIEGEL: You can't seriously be surprised by the fact that the shareholders were fighting for their assets.
Steinbrück: Of course I can. I never understood all the fuss. It wasn't as if the shareholders had been expropriated by the evil state, but by the market. It was the pure free market at work. You have to realize that the federal government had given the bank about €87 billion in loan guarantees, and that at a market capitalization of about €250 million. Schäuble wanted to deprive my draft bill of its teeth. But what was important for me was that the taxpayers were not expropriated, so to speak.
SPIEGEL: You write in your book that you felt that this was one of the most critical moments of the financial crisis.
Steinbrück: Indeed. If that law hadn't been passed, I would have had to take the appropriate action. I was considering resigning.
SPIEGEL: Was Merkel aware of that?
Steinbrück: No.
SPIEGEL: Was anyone?
Steinbrück: You don't flirt with the idea of resigning. But as finance minister, I could only assume responsibility for a bank that was so system-critical if I was given the appropriate tools. That was a key issue for me.
SPIEGEL: In the end, it was the voters and not the conflict over HRE that cost you your office. The CDU and Free Democratic Party (FDP) coalition captured a majority in last fall's parliamentary election, only to be faced with a sort of continuation of the financial crisis, in the form of the threat of a national bankruptcy in Greece. Was there a risk that the euro would collapse?
Steinbrück: No. Politicians would have had to prevent that from happening at all costs, because it would have set Europe back by 20 years. The euro is a vital issue for Germany. There is no other country that derives as much benefit from the common domestic market and the monetary union as Germany.
SPIEGEL: The only problem is that the passionate enthusiasm for Europe here in Germany has declined.
Steinbrück: That's the biggest complaint I have with the federal government. During the critical phase of the Greek crisis and the euro crisis, it didn't make it sufficiently clear that the euro isn't just a currency, but one of the most successful projects in European integration. The government allowed the debate to be colored by nationalist and chauvinist sentiments. That was extremely dangerous.
SPIEGEL: Does your criticism also apply to the chancellor, a person you otherwise hold in such high esteem?
Steinbrück: By all means. Merkel knew that the bailout for Greece wasn't popular with the public. She hoped to capitalize on that sentiment in last May's state parliamentary election in (the western state of) North Rhine-Westphalia. That didn't go unnoticed in Brussels. Germany's reputation suffered greatly as a result.
SPIEGEL: In the end, the euro-zone countries approved a bailout package that required Athens to impose a drastic austerity program and that includes loans worth €110 billion. Are the measures sufficient?
Steinbrück: Just look at the numbers. Despite the package, Greece's national debt will increase next year from 120 percent of its gross domestic product to at least 140 or even 150 percent. That translates into a growing interest burden that will eventually be too much for the country to take.
SPIEGEL: What do you recommend?
Steinbrück: Greece will not manage to get back on its feet without restructuring its debt. There is no way around it. The country's creditors will have to reduce a portion of its debts by extending maturity dates, lowering interest rates or giving them what's called a "haircut" in financial jargon. There are those who will be upset that I'm saying this publicly, but it's just the way one has to deal with heavily indebted countries when they are members of your own club. There are established procedures for doing this.
SPIEGEL: But such a procedure would create substantial losses for the creditors. And those creditors also include many European and German banks, like the ailing HRE.
Steinbrück: Then those banks will have to write off the bad debt. This won't be a problem for many banks. And for those that are not in this position, there's the bank bailout fund. It would be a serious mistake to keep putting off the inevitable out of consideration for a few banks and to the detriment of taxpayers. It would also mean unnecessarily prolonging Greece's problems.
SPIEGEL: Is the euro crisis over?
Steinbrück: That question can't be answered yet. The underlying causes of excessive government debt and declining competitiveness have yet to be eliminated in some countries. It worries me that the European Central Bank is now buying up high-risk European government bonds on a large scale. I want to know when the markets will put the European bailout packages to the test again. Will the European Central Bank, in a roundabout way, become a bad bank for government bonds?
'The Governments Are to Blame for the Greek Crisis'
SPIEGEL: The government has assigned much of the blame for the euro crisis to the international financial industry, and to the same speculators who already triggered the 2008 financial crisis with their gambling activities. Do you agree with this analysis?
Steinbrück: Blaming the speculators always garners public applause, but in this case that's far too superficial. The governments are to blame for the Greek crisis.
SPIEGEL: Are you saying that in this case the politicians were the gamblers?
Steinbrück: Exactly. Some because they were in too much debt and were also fudging the numbers, and others because they turned a blind eye to the dodgy dealings for too long. I specifically include myself in that latter group.
SPIEGEL: You could have taken your Greek counterparts more seriously to task by demanding to know whether what they were saying was true.
Steinbrück: When you're in those sorts of meetings, you don't reach across the table and say: You've been cooking the books. It isn't in keeping with diplomatic conventions. Eurostat (editor's note: the statistical office of the European Union) would have been the most likely candidate to intervene, but it too can only analyze the data it receives from national agencies. The only way to avoid such cases in the future is to reform the European Stability Pact to include drastic sanctions for the offenders.
SPIEGEL: So far Germany has made it through the economic crisis relatively well, partly because the social welfare state has proved to be surprisingly resilient. Is the German model better than its reputation?
Steinbrück: In recent years, as part of a wave of support for radical free market policies, there has been a strong anti-government reflex in Germany that has portrayed the social welfare state as nothing but a burden, rather than something that is part of our culture and that promotes social cohesion. I always felt that that was wrong. In the most recent crisis, the social welfare state helped to ensure that the worst recession of the postwar period didn't propel large segments of the population into poverty.
SPIEGEL: Many SPD officials will find this confession surprising. You haven't exactly been known among your fellow party members for being a staunch defender of Social Democratic ideals. Have you changed your position?
Steinbrück: The social welfare state is under pressure from so-called maximalists and minimalists. The minimalists want to scale it down and expand the scope of market forces to all areas of society instead. In contrast, the maximalists want to keep expanding the social welfare state without considering that the funds which are needed to cover its payouts also have to be generated somehow.
SPIEGEL: Is SPD Chairman Sigmar Gabriel a maximalist?
Steinbrück: I haven't seen that side of him yet. I do think, however, that his change of heart over raising the retirement age to 67 is problematic. (Editor's note: In 2007, the SPD, while in coalition with the CDU, passed a law to gradually raise the retirement age to 67 starting in 2012. Gabriel now wants to postpone the introduction of that raise.) It doesn't add up: Germans are taking longer to enter the work force and going into retirement earlier, and at the same time they're living longer. You don't have to be a mathematician to recognize that politicians can't continue to ignore the laws of arithmetic.
SPIEGEL: With his effort, Gabriel is not as interested in pension policy as in the attempt to take advantage of the mood within the party base. Is that so objectionable?
Steinbrück: Gabriel wants to heal the wounds suffered in the SPD after the election defeat. That's an honest motive. But there's a great risk that in the process the SPD will make a mistake it's made a number of times in the past: namely, structural delay. Should the SPD be in government again one day, it will have to suddenly explain to its members that the promises it made while in opposition are unfortunately no longer feasible. The SPD has already had that experience several times.
SPIEGEL: For example?
Steinbrück: In 1998, then-Chancellor Gerhard Schröder, shortly after taking office, eliminated the demographic pension factor introduced by the (Helmut) Kohl administration. Soon afterwards, he had to reintroduce it under a different name. That was a traumatic experience.
SPIEGEL: But it was no less traumatic when the SPD lost the support of the unions and one election after the next as a result of Agenda 2010, a deeply unpopular package of social and labor market reforms introduced under Schröder. Why do you blame Gabriel for correcting a policy that hasn't proven to be successful?
Steinbrück: It was successful. The reform policy played a decisive part in making Germany competitive once again in the last decade. I am convinced that one day Agenda 2010 will go down in history as the one of the greatest political achievements of the postwar era. But the SPD is ashamed of it. Not only is this grotesque, but it's also politically foolish. The SPD can't allow itself to be reduced to a champion of the interests of retirees and welfare recipients. It also has to promote the interests of the productivist class, as (SPD politician and social scientist) Peter Glotz called it.
SPIEGEL: These sorts of statements aren't exactly popular in the SPD at the moment. Former Economy Minister Wolfgang Clement, for example, left the party after making similarly pointed remarks. Do you think that the way the Social Democrats deal with their internal critics is appropriate?
Steinbrück: I have to confess that the tendency of some SPD members to set up revolutionary tribunals gets on my nerves sometimes.
SPIEGEL: The SPD is currently considering whether to kick out former Bundesbank board member Thilo Sarrazin , who has made headlines recently with his controversial new book about immigration. Should the SPD eject him from the party?
Steinbrück: I would keep him. I would never make the kinds of statements Mr Sarrazin has made, and I believe that his approach -- especially his absurd biological theories -- has harmed efforts to finally talk about the undeniable problems of integration without knee-jerk self-censorship. He has done more to poison a necessary debate than promote it. But this country's integration problems won't be solved by ejecting Mr Sarrazin from the SPD. It's a fact that, in recent years, quite a few immigrants have come to Germany and immediately become welfare recipients. That's what we ought to be talking about, instead of muzzling the bearer of this message.
SPIEGEL: In two years, when the next parliamentary election will be fast approaching, you will be 65, an age at which people, in your view, should still be working. Would you be available if the SPD decided to field you as its candidate for the chancellorship?
Steinbrück: A year ago, after the Bundestag election, I said: OK, that's enough. If the SPD asks me, I'll be happy to give it advice. I have absolutely no ambition to return to a leadership position.
SPIEGEL: The SPD has always won elections when its chancellor candidate was able to appeal to voters beyond its core constituency. That was the case with the former German Chancellors Willy Brandt, Helmut Schmidt and Gerhard Schröder.
Steinbrück: You are listing some great names. But the last two, at least, had the same problem, namely that they came into conflict with the mainstream within their own party during their time in office. In my case, that might even happen before an election. For that reason, I think it's extremely unlikely that the question will ever even arise.
SPIEGEL: Mr Steinbrück, thank you for the interview.
