Made in Germany: The Business Magazine

Michael Heise, Chief Economist at Allianz, talks with us about inflation.DW-TV: Michael Heise is the Chief Economist at Allianz Group. First, let's get this right out of the way: how big is the risk will I soon hold a worthless one Million euro note in my hands that's worthless? Michael Heise: I think this risk is rather small. We in Germany have this deep-rooted fear that we have a big inflation like twice in the past century. But I think we have things under better control now. DW-TV: But the euro has lost a lot of its value, and the situation is still not stable, so what do you tell people who worry about their savings now? Michael Heise: Well the internal value of the euro is very stable, actually, the inflation in the euro era than it was in the previous d-mark era. So the internal value is high. The external value the exchange rate has lost some value, but at 1.23 versus the US dollar this is quite a fair valuation. DW-TV: Well, let's take a look at some inflation rates in Europe right now to get a better idea how dangerous it is or isn't: Now in 2009, Germany's inflation rate was at 0.2 percent compared to 2008... troubled Greece had an inflation rate of 1.3 percent... the average inflation rate in the Eurozone was at 0.3 percent...and in the US there's even a minus of 0.4 percent. That doesn't really seem that dramatic - do we really need to worry about an inflation or is it just panic? Michael Heise: Well for this year and the next year I would say we do not need to worry. This very savage recession we have had in the past one-and-a-half years has of course dampened any inflationary pressure. There's big excess capacity in the world economy. There's hardly any wage pressure. So we don't fear inflation for this and next year. Over the long run of course we will have to take out of lot of this liquidity that central banks have injected into the system to avoid inflation popping up in the very long run. And I think we will be able to do that. DW-TV: You just mentioned one of the problems because there's a lot of reason to worry. Europe has massive debts, it still needs to spend billions to bail out other countries. You mentioned already the European Central Bank is going to buy some dubious government bonds to help push down borrowing costs for countries like Greece, Spain, Portugal... How can the euro survive all this? Michael Heise: Well it's a justified question, because the pressure is on the central banks to stick to this accomodative policy right now because of the problem with Greece or the other southern countries. It's hard to imagine the European Central Bank turning course very soon. But eventually this has to place in order to stabilize the euro and I think once we go into the year 2011, I think the situation will have calmed down somewhat so that we can get back to more normal policies. DW-TV: And what's your worst case scenario then for us? Michael Heise: I don't really have a worst-case scenario for the euro, because I think the wake-up call here was a lot earlier than it has been in other areas. The United States and the United Kingdom have pretty big debt problems. And in a way are not tackling them as quickly as some euro countries now have to. So in the end I think the euro will a little lead even. DW-TV: So you're an optimist. Michael Heise thank you very much.