Maryam Nemazee: My next guest says he is confident that Greece's next government will comply with the bail-out terms. Luc Frieden is Luxembourg's Finance Minister. He joins me in the studio now. Mister Frieden, lovely to have you with us. And so, what are your expectations of this upcoming summit? Are they likely to accomplish anything?
Luc Frieden: I think these meetings are very useful, but there is not one single unique solution that will solve from one day to another all the problems.
I think we are on a path of stabilizing the Eurozone. That's a very difficult path. There are a lot of problems that we still have to solve. And there is no easy solution to solve all of them.
I think what is important is that we keep on a path of fiscal consolidation, of course adding measures of growth. But the idea that we can move away from fiscal consolidation would jeopardize the path of stability which is important for the Eurozone.
Maryam Nemazee: You were telling me a little bit earlier that these meetings can be useful, also in terms of the sort of views that are aired, you know, we can get some very frank exchanges, if you like, and this will be François Hollande's first summit. Is he going to stick to the line, to the argument that we’ve heard so far, or is he going to make concessions? Because many analysts are saying, now is the time, you know, his popularity is fairly strong at home, France is relatively stable in the markets right now, that he is to stick to the sort of growth pact, Eurobond, euro project agenda that he’s been espousing.
Luc Frieden: It all depends what he means by growth pact.
I believe we all want growth. I never met anybody who doesn't want growth. The question is, are we going to finance that growth with additional debt? I think that would be wrong.
I think we need structural reforms. I think we need reducing the public debt and I noticed very well that, on the evening of his election, he mentioned also that he wants to reduce debt. Probably we can use some more European funds, which are already there, to better put them into the countries that are in need of infrastructure projects. But I don't think there is room to finance growth with additional deficits spending.
So, tonight I think it will be important for president Hollande to listen also to his colleagues, and to build the future of the Eurozone on the basis of what has already been done. I am not in favour of any zigzag policy, where we change after each general election the path on which we have embarked upon. That is true for France, that is true for Greece, it is true by the way also for countries outside the Eurozone, like the UK.
Maryam Nemazee: When we speak about Eurobonds, I suppose ultimately we are talking about greater fiscal integration, greater fiscal union, just hearing the comments there from Jim O’Neill, chairman of Goldman Sachs Asset Management, saying that this is a structural problem, it is a leadership problem, it is a governments’ problem. They have to make a decision on that at some point, whether or not this is going be coming, you are going to put the institutions in place, that the Eurozone is going to have a sort of architecture it should have had, or if it is going to break apart?
Luc Frieden: I think we knew, as of the beginning of the monetary zone, that this was not a perfect union, because there was no political authority that would, with one fiscal policy, with one economic policy, lead the entire Eurozone.
I think we have improved that a lot, but we still have a long way to go. I think Eurobonds may come, must probably come at some point in time when we have a bigger fiscal integration. Right now, I think we first have to fix the problems that we have in the various countries. Eurobonds can add to stability but they should not be used to allow countries to just increase their public debt. So, Eurobonds, if they are stability bonds and just for a limited amount, are a path into the right direction.
Furthermore I think that project bonds could be useful to finance some cross-border infrastructure. But again I am very assentive of the issue of how can we build again trust, confidence into the Eurozone? And that we can only do if we have one policy of stable public finances, of a medium and long term perspective.
Maryam Nemazee: But if you have a country potentially leaving the Eurozone, because the conditions being imposed on it by other countries, are simply too tough, that's going to hurt confidence even more, isn't it?
Luc Frieden: I am not sure about that, because we put those conditions to Greece, to Portugal and to other countries on the programme for one single reason: that is to allow those countries again to come to a path of sustainable finance, of sustainable growth. And therefore, if Greece would just get money without having to fulfil these conditions, I think they would never achieve that.
Maryam Nemazee: But Mister Frieden, it is not happening they are not on a path of sustainable growth. And right now we have a situation where we are seeing a political and public backlash in Greece. There is a crucial election coming up, which many say, is essentially a referendum on whether or not that country stays in the euro.
On the other hand we are hearing increasing concerns amongst investors about a flight of capital from Greek banks, and what that would mean for contagion. How will all this be weighing on the minds of the leaders that are meeting tonight? What is really going on behind the scenes? Contingency plans for a euro-exit?
Luc Frieden: I think that first of all the Greek people must know that there is no easy way out of this crisis, in the euro or outside the euro.
We prefer them being in the Eurozone, because the EU is much more than a currency, it is a political project.
Greece has benefited a lot of that, prior to the crisis and now. The IMF and the Eurozone gave to Greece 150 billion euros. Of course that is linked to some conditions, again, to put them in full sovereign rights with access to the financial markets. So I think the Greek people have to decide what they want.
We are on the path of stability and if Greece takes wrong decisions, I hope they won't do that, they will find a majority that will support the adjustment programme. But even if they would do, I think we are today in a better situation that we were in a year ago, because the risk of contagion is less big. We have put in place the EFSF, the stability mechanism. We can intervene in Greece and elsewhere if need arises.
So we have a better economic government system. We have a better prospective for the future. But I must say, the problems are still huge and that's why we have the need so often to discuss these problems.
Maryam Nemazee: You have smaller anti bail-out parties within Greece that are saying, we are going to rip up this agreement, we are not going to hold these conditions, because they are simply too difficult. If that happens, you are looking at a euro-exit, if that happens you are looking at a great deal of pressure on the financial system, that could certainly be the optimistic way of putting it. So tell me, what is a solution to this? Should they be looking at closer bank union, for example, regulation of banks and fiscal policy? You know, is that perhaps the first step, you know, loan deposit guarantees?
Luc Frieden: In Greece, I think first of all I can only call upon the responsibility of the Greek leaders and the Greek people to know that this is not an easy way to go. And that they are better in the Eurozone than outside the Eurozone. The former Greek government, the major political parties, agreed to an adjustment programme. I think it is important that the technical government that is now in place continues with the implementation for the next 3 weeks, until the election and thereafter, that we quickly have a new government that hopefully will join in this program. But it is in the hands of the Greek people.
Maryam Nemazee: But it is not just about Greece anymore, is it? We are speaking about the banks, it looks as if European policy-makers are running out of time when it comes to Spain: their banks are undercapitalized as well. What about this proposal for the ESM to be able to directly inject capital into those banks and bypass national governments? Will we get something on that in the next few months, at least at the summit at the end of June?
Luc Frieden: I think that countries that have a problem of this nature, the one that you described, should be able to get European funds, because it is about, again, creating stability and trust.
Therefore we should not lose too much time. This does not mean that these banks have a real problem. Sometimes it is more a perception of problems. And therefore I am of the opinion that we should allow European mechanisms, probably via national governments, in a coordinated manner, to support these banks. A country should not be afraid sometimes to ask for help, if that is necessary to build the confidence.
That could be the case for Spain, that could be the case for others.
What is needed is, again, confidence, because growth is based on two factors: stable public finances and confidence. And confidence you can achieve it if you have a perspective for the future, and that is what we are trying to do, what we have tried, I think with some success to do since the beginning of the crisis. Because don't forget that a few months ago, on your shows, people were asking, will the euro survive
Maryam Nemazee: But they are still asking that question.
Luc Frieden: I think the euro will survive, because it is a political project. It will change, some countries will have to take very tough choices to stay or not to stay, but in general [interrupted]
Maryam Nemazee: Just a quick one, in 5 years’ time, are we looking at fiscal integration, or are we looking at centralization of a public spending and debt issued by all 17 members?
Luc Frieden: It is always difficult in these times to predict the next 5 years, because it is already difficult to predict the next 6 months.
But I do think, that in 5 years from now I will still be able to pay in many European countries with the euro. It is a stable currency with low inflation. And on the other hand I think we will go to a closer European fiscal integration. Economic government is already a first step into that direction, and I think to some extent we have to realize that we are all in this together and we are very interdependent. And so only with more European means we can achieve that. But European means which are [inaudible] in such a way, that stability and prosperity go hand in hand.
Maryam Nemazee: Thank you very much, Luc Frieden, Luxembourg Finance Minister. Good to get your thoughts, your insights and expectations for these upcoming events. Thank you.