December 20, 2011
How to save the euro? Some believe that the European Central Bank is the key to any solution. Others think that the euro zone should be contracted and the weak members squeezed out. SPIEGEL spoke with two leading German economists about the currency's future. Their one area of agreement? Something must be done quickly.
SPIEGEL: Mr. Starbatty, Mr. Bofinger, can the euro still be saved?
Starbatty: All of the measures that are currently planned take effect in the long term. But rescue measures are needed now. That's why many politicians want to pull out the so-called bazooka and inject money into the market through the European Central Bank (ECB) or introduce euro bonds. Both are deadly sins. It would be better to shrink the monetary union to a hard core that can sustain the euro.
Bofinger: That would be a disaster. But I agree with you that time is of the essence. The highly indebted countries must be able to borrow at moderate interest rates so they don't go bankrupt. This could be achieved with euro bonds. And if they can't be implemented that quickly, the ECB has to stabilize the system. In doing so, it would not create inflation but would in fact avoid deflation.
SPIEGEL: Aren't you worried that the pressure to push through austerity and reforms would subside as soon as the ECB unpacked the bazooka?
Bofinger: German politicians have not acknowledged that these countries have already reduced their deficits significantly. Compared to 2009, deficits have declined in all of the crisis-ridden countries. And Italy is the second-most solid G-7 member state, just behind Germany. The markets haven't even noticed this.
Starbatty: Politicians want to buy time for the debtor countries by lending them money, hoping to get it back when these countries recover. But this strategy doesn't work. The markets know that and are driving up yields.
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