Made in Germany: The Business Magazine

Our studio guest is Michael Heise, Allianz Group Chief EconomistDW-TV: Michael Heise, please tell us, how much of a "Bad Bank" is the ECB in your opinion? Michael Heise: I don't think it is a Bad bank and I don't think it will become one. I think the criticism is a little bit overstated. We do have a crisis of confidence in the eurozone: there is a current lack of trust in the currency and I think it is the obligation of the ECB to do something about it and these purchases of government bonds are a means to calm down nerves on the markets. How else would the ECB do its job and keep inflation under control without the bond buying programme? I think it's something that should be temporary. The criticism is warranted in the sense that this cannot be a long-term strategy for the ECB to buy bonds in huge amounts like the US Fed did. It's a temporary relief in this crisis until we've upgraded European the financial fund which should be coping with the job of managing the debt crisis in Europe. It's not really the ECB's job. But as yet it's helpful to have the ECB. DW-TV: Critics say the ECB is no longer independent - do you agree? Michael Heise: No I don't really agree with that. It's part of the mandate of the ECB to preserve financial stability in the eurozone. This is more with a view towards transactions but nonethless, the crisis we have here is a threat to the stability of financial markets. So I think it is warranted for the ECB to intervene. DW-TV: Stability is something we haven't seen in quite a while. Reforms take time - does the Eurozone have enough time? Michael Heise: We're taking too much time. Especially given the difficult political constellation in Europe with many independent voices and differing views. It takes too much time to get clear reforms going. The countries themselves have enacted neccessary refoms so I think that has improved. But on the European level, I think we need to speed up. DW-TV: And given the daily barrage of bad news, who can blame anyone for being insecure these days? How do you cope? Have you got an emergency plan ready for when the big crash happens, or do you have nerves of steel? Michael Heise: I also try to prepare for some heavy times on the financial markets. Human beings are not rational and neither are financial markets. So you always have to expect sudden unexpected falls of the market that have great momentum. That's something we have experienced without a lot of economic indication that this is warranted, so you always have to be prepared for these times. DW-TV: How big a role do rumours and anxiety play in this scenario? Michael Heise: Rumours can have a very strong impact. Financial markets are scenarios for the future, about expectations, what might happen in the future, and rumours or small news can sometimes change the view of many market participants and then you have herding behaviour. The markets go in one direction with a lot of force. DW-TV: The markets have been volatile almost without a break since the start of the global financial crisis Shares of European Banks plummeted at the end of 2008 following the bankruptcy of Lehman Brothers. And in recent months, shares tumbled further amid fears the Eurozone debt crisis could spread and the US economy fall back into recession. How should investors deal with "bad" news? Sit and wait, or react? Michael Heise: I think the banking problems that we see presently on stock markets and other markets are different from the ones that we saw when we had Lehmann. There is more transparency. What the real problem is mainly is the sovereign debt crisis. Many banks are quite loaded with sovereign debt. There is a lot of intertwinement in the banking markets, as we know, so there is some lack of confidence in the banking market. But this is not as severe as it was with Lehmann. So I think investors should not flee out of these stocks. DW-TV: What will it take for the markets to fully recover and calm down again? Michael Heise: We need a solution for the sovereign debt issues. We need to recreate confidence that this is under control. Governments in individual countries have been enacting reforms. That is quite favourable but on the European level, things are not going as fast as they should. Interview: Marion Jones