Made in Germany: The Business Magazine

Burghof is banking expert at the University of Hohenheim.DW-TV: Hans-Peter Burghof is a professor of banking at the University of Hohenheim. Let's see what he thinks. Is the worst behind us.. or is it still to come? Hans-Peter Burghof: I'm afraid we are not really across the hill now. We push the problem on and on to higher level. The highest would be eurobonds. And we don't solve the problem so we are still deep in trouble. DW-TV: Investors have been shoveling their money out of equities and into more secure currencies or GOLD. The precious metal had already been gaining in popularity PRIOR to this crisis. But have a look at it now. It's surged over the past year, hitting new records almost every other day over the past couple of weeks. If you haven't invested in gold already, have you missed the boat? Hans-Peter Burghof: I'd say you are too late now, but the point is gold is a very risky investment because you see the gold price is very volatile. Obviously it reacts to the crisis, on the other hand there are large stocks of gold in the earth so some people can manipulate the price. So there is no secure investment. Especially not in gold. DW-TV: The German business has been booming. Is it going to stay that way? Hans-Peter Burghof: Obviously not. The eurozone will throw a shadow on the German business soon and so I am afraid we won't have this growth anymore. I mean we have been free riding on the weak euro and this will come to an end. DW-TV: Economists say the chances of the real economy emerging unscathed are remote. Is it just a matter of time? Hans-Peter Burghof: I think it is just a question of time obviously. In the end we must come to an austerity course which helps us out of the crisis in the long run. But we are still far from that. DW-TV: You mentioned eurobonds. Is that the answer? Hans-Peter Burghof: It's a very wrong answer because it makes irresponsibility an organizing principle of Europe and I think that's a big disaster. It will give merit to the people who made very bad budget policy and let's people pay who made a good budget policy. DW-TV: But why? Hans-Peter Burghof: Why is very easy. Everybody pays the same interest rate independent of what they did in the past. And the only thing that can control European governments is the markets. We see bilateral contracts between the countries they simply do not work. There is nothing like a European state which can enforce contracts on these countries, but if for example the Greeks decide to make a different thing than what they agreed on before they simply do it. There is no force in Europe to bring them to heel. DW-TV: Just briefly, what do you think about politicians attempts to CALM the markets? Are they in vain? Hans-Peter Burghof: I think so. I mean they have got a very strange idea about the market. They don't understand it they mystify what it does. They point is what they have to do is present solid budgets and the markets will calm down by themselves. DW-TV: And how SERIOUS are those concerns? Could France really be downgraded? Hans-Peter Burghof: In the short term I don't think so but in the medium term any European country is in danger of being downgraded because we are just constructing solutions which don't work in the long run. On the other hand, well, France is a great country with great industries, great products but with a real back log of reforms. They have a rather baroque social system and they should really do something about that. DW-TV: What would the consequences be? Hans-Peter Burghof: Obviously this European safety net won't work anymore the very moment France starts to stumble, we see that all these programs we did for Greece and Portugal all these things, they simply don't work. DW-TV: So what have the French done wrong? Hans-Peter Burghof: I think they should have made more reforms and they should have done it more recently. I mean Germany was leading in that even in the time of old chancellor Schröder and now we profit from those reforms. They didn't do that. DW-TV: Is there anything other countries can learn from this? Hans-Peter Burghof: Obviously they can. They can learn to do reforms in time because you really profit in crises from them. And the other point is we need market pressure on these countries because obviously they simply don't move: it's a problem with the electorate. You don't do bad things to the electorate because you want to win elections. That's a problem of politicians still. DW-TV: The head of the World Bank says boosting liquidity and hoping for global growth won't resolve America's and Europe's debt issues. He says they have to get back to the fundamentals. What does that mean? Hans-Peter Burghof: Instead of fussing around with capital markets they should just come back to solid budgetting and state budgets that really work in the long run. DW-TV: How come that hasn't happened? Hans-Peter Burghof: Very easy. Because capital markets allowed countries to debt finance to a degree that was really not healthy, because they believed in all this bailout story. And now we must make them believe there is no bailout story instead, there's solid budgeting. DW-TV: Is that going to happen though? Hans-Peter Burghof: It must happen in the long run, the question is how big will the damage be before it happens. DW-TV: Are we going to have to change out lives because of this? Hans-Peter Burghof: It depends again on the damage. We don't know how politicians will decide. I am afraid it will change our lives to some degree. Europe with this problem of eurobonds is going the wrong way and the damage will be tremendous. DW-TV: Hans-Peter Burghof. Thank you very much for coming in.