Made in Germany: The Business Magazine

Our studio guest this week is Ansgar Belke from the DIW economic institute.DW-TV: Every coin has two sides, and so does the Euro. For more, we're joined by Ansgar Belke from the DIW, that's the German Institute for Economic Research in Berlin. So please tell us, what does the weaker euro mean for the German economy as a whole? Is it primarily good or bad? Ansgar Belke: In the first place, it's a stimulus program for the economy because exports become cheaper and imports become more expensive. This is a negative side of the coin. But on the other hand, it's also a huge stimulus program for the weaker European countries which are supported now by the big rescue package and this is the good news. DW-TV: So it's a big help for us as well. Now, I remember a time when the exchange rate against the dollar was one euro at 88.89 US cents. That was in about 2001, 2002 and since then, of-course, the euro has been rising and falling again until it peaked in about 2008, when it was at 1.60. In early 2010, the euro then took a nose dive and since then it's been hovering at around 1.22, 1.24, 1.25, so actually not that low compared to where it once started off. So why are we actually talking about a eurozone crisis? Ansgar Belke: Yes, it's kind of psychological framing, I would like to argue, because, please remember at the time the euro reached its all time high everyone spoke about the threshold of the euro. This happened three or four times, when the chief of Airbus argued that the euro is skyrocketing and the ECB should intervene for this purpose, and nowadays it's nearly the same. We find ourselves at the equilibrium level of the exchange rate, which is estimated by scientists at about 1.20 or so. The only problem is if the euro slides down even further, there would be a huge degree of exchange rate volatility which by itself hampers trade. This is well known. DW-TV: And this is what everybody's trying to prevent. There are these belt-tightening measures, these huge bail-out packages, but will all that be enough to get the eurozone back on track? Ansgar Belke: I think the reaction of the financial markets is intriguing on this aspect. The euro has been tumbling down due to that fact and also financial markets have not been calmed completely. They are still in doubt about the effectiveness of the program. They do not trust into the credibility and sustainability of the program because it does not tackle structural divergences which are permanent within the euro area, I guess. DW-TV: And what happens if all these measures actually won't stop other EU members asking for help as well: Spain, Portugal - are we looking at a bottomless pit? Ansgar Belke: Yes, that's true. In fact, because what the ECB does at the moment - the European Central Bank - it buys bonds and this is transferring wealth from richer countries, Germany, to poorer countries like Greece or Portugal and gives no incentive for these countries to save more because the main reason for the crisis isn't that they saved too less. DW-TV: Now, just briefly then, given all of this, would you recommend other countries to join the eurozone now? Ansgar Belke: I think the option is valuable for them to wait because in these times of crisis the surroundings are so variable that they should stick to their own exchange rate and their own monetary policy to cope with these kind of shocks. And moreover, they should think about whether they are really ripe for entering the currency union because you have to be flexible to stay successfully inside each kind of euro area. This at least is the example which is conveyed by Greece or Portugal. They have proven not to be flexible and competitive enough, so it would be better in some regions to stay out of the euro area for these countries. DW-TV: We've seen the results. Anske Belke, thank you very much for joining us. Interview: Monika Jones