By Vassilis Kostoulas
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@VasKostoulas
The president of the German Institute for Economic Research (DIW Berlin), Marcel Fratzscher, says reforms in Greece are “proceeding but at a very slow pace”, while he also warned that the Greek government’s unwillingness generates a “huge cost for Greek citizens”.
In comments to “Naftemporiki”, Fratzscher added that this slow pace merely delays any possible debt reduction.
The distinguished German economist also said speculation over a “temporary Grexit” is nonsense, a proposal linked in the past to German FinMin Wolfgang Schauble.
Moroever, he said the “enemy” of the current leftist government in Athens is not its European partners but the “lost faith of Greek citizens and businesses towards Greek institutions.”
Turning to issues on the home front, he downplayed concerns over the financial state of Deutsche Bank, while at the same time predicting that “more bank failures and a huge consolidation of the European banking system”.
How serious is the case of Deutsche Bank and what are practically the risks for the German and the European financial system?
The problems of Deutsche Bank should not be overstated and I expect the bank to take the right steps to solve his difficulties. But the European banking system is very vulnerable and we will see more bank failures and a massive consolidation of the banking system in Europe in the coming years. This includes not only the vulnerable countries, like Greece and Italy, but also Germany.
Some analysts worry that we are in front of a new global recession cycle which will refer to the crisis of 2008. What is your estimation?
The European economy today is much stronger and more resilient than it was in 2008. While a mild recession cannot be ruled out for the next two years, the much more likely scenario is one of secular stagnation with low growth and persistently high unemployment for several more years. Hence we need to be patient and politicians need to continue their reforms.
Would you say that the policy of the ECB, and particularly the quantitative easing program, is effective?
The ECB is doing the right thing, on monetary policy as well as on Greece. The ECB is facing harsh criticism from those who want it to do more and those who want it to do much less. Its policies so far have been successful, although it probably will need to do more to achieve its mandate of price stability.
How is the German economy proceeding and what is the influence of parameters such as the refugees’ issue or China’s deceleration?
Germany’s economy is doing fairly well, with unemployment having reached record low levels. The spending on refugees, as unpopular as it may be among some German citizens, benefits many German companies and stimulates the economy by raising economic growth this year probably by around 0.3%.
How do you see things developing in Greece? Would you say that the Greek program is on track or we are moving to a new deadlock? Where do you detect the problem at this stage?
Reforms in Greece are progressing, but at a much too slow pace. The Greek government needs to understand that the reforms are in its own best interest and that the enemy are not its European neighbors, but the lack of trust and confidence in the government within the country. Only if Greek citizens and companies regain that trust will they invest and accomplish an economic recovery.
The German Finance Minister Wolfgang Schaeuble has expressed the view that it would work in the benefit of Greece a time-out from the Eurozone. What is your opinion and how likely is for the Grexit scenario to come back on the table?
A temporary Grexit is nonsense – one cannot exit a currency “temporarily” just as one cannot be “a little pregnant.” Greece keeping the euro is in the best interest of the country and of all its European neighbors. A Grexit would almost certainly lead to an even much larger economic disaster in Greece for many more years.
Is the Greek debt manageable? Are you in a position to predict if and when there will be a development on this issue? In your opinion, what needs to be done?
Greek public debt is clearly too large and unsustainable. But Europe will not grant the Greek government debt relief as long as the government shows so little willingness to help its citizens and its economy by implementing the greed and essential reforms. The trust between the Greek government and the governments of all its European neighbors has been destroyed and it is first and foremost the duty of the Greek government to act in order to regain that trust.
What is the picture in the other southern economies of the Eurozone? Would you say that Greece is a special case? How did we get to this point?
Greece is a special case and different from all other European countries, because it has poor institutions and a government that is not willing to acknowledge that and make fundamental changes. Ultimately the cost for Greek citizens is huge as a result of this unwillingness and inability to act.
Britain claims interventions that according to the country’s reasoning will make the EU more competitive. Are Britain’s demands moving in the right direction? How many odds does the scenario of Brexit collect and what will that mean for the European economy?
I consider a Brexit still unlikely because it would hurt the British economy and its citizens. But the British government is right that Europe needs to improve its competitiveness by deepening the common market.
