jens weidmann : “ there is light at the end of the tunnel ” interview by dr jens weidmann, president of the deutsche bundesbank, with the newspaper wirtschaftswoche, published on 22 december 2012. * * * mr weidmann, germany ’ s chancellor, angela merkel, is promulgating cautious optimism that the worst is behind us in the euro crisis. do you share this view? we have come a long way, but at the same time we must not underestimate the distance we still have to travel. the adjustment process in the countries affected by the crisis is a long way from being complete, and the work on the institutional framework of monetary union must be rigorously advanced. above all, we first need to see whether new agreements like the fiscal compact will be turned into practical reality. do you see a recovery in the stressed economies? there is certainly light at the end of the tunnel. the approach of providing assistance with conditions attached is bearing fruit : competitiveness has improved in many countries, and current account and government budget deficits are shrinking. though this is being achieved in a recessionary environment, structural improvements are also playing their part. obviously, there are major differences between the individual countries. ireland is without doubt at one end of the spectrum, while greece is at the other. and, with a long way still to go, we must not further weaken the incentives to adhere to the agreed conditions. further weaken? the financial assistance measures have become ever more generous as time has gone by. this reduces the pressure to tackle government debt and competitiveness problems in a resolute fashion. do you have a solution for restoring greece ’ s competitiveness and putting the country ’ s economy back on its feet? that is just what the adjustment programme is intended to achieve. at the end of the day, every economy has to be able to stand on its own two feet financially without needing transfers from outside. an economy cannot consume more than it produces indefinitely. if european politicians should decide to disregard this principle and to permanently prop up member states, then they need to be clear about the consequences. that may be correct from a technocratic point of view, but what about the political reality? the outbursts in the berlusconi camp about germany waging a third world war show that the community is more divided than united by its common currency. those who make scapegoats of others are merely seeking to deflect attention from

normal interest - rate setting. another sign of this is that, despite debt levels already being high to begin with, some euro - area countries recently took advantage of the easing of pressure on government coffers resulting from 3 / 8 bis central bankers'speeches the favourable financing terms to even accelerate their spending. however, higher interest rates will then expose the burden of high government debt, and the markets, too, could be more sceptical of the sustainability of government budgets. i would not be at all surprised if, under circumstances like these, monetary policy makers were to come under mounting pressure to keep the monetary policy stance accommodative for some time to come out of consideration for government funding costs or to avoid risks to financial stability. the so - called “ greenspan put ” illustrates the moral hazard that can come of such an asymmetrical approach. in extremis, monetary policy can even be held hostage by fiscal policy or the markets. yet it is only permitted to have one objective : price stability. in addition, a central bank should not be stretched beyond the breaking point in order to accomplish additional objectives. examples include the expectation that monetary policy makers pay attention to the redistributive effects of their measures – this is something we discussed critically and at great length in the september 2016 issue of our monthly report – or that it ensure more growth in the long run. monetary policy can ’ t do that! it can quick - start the economy, or brake it somewhat, if necessary in order to ensure price stability. however, only politicians and governments can lead the economy back to a path of sustained, higher growth. by setting the proper gears in motion in labour market, economic, social and tax policy. let me give you an idea of just what could be achieved by effecting the appropriate reforms : the international monetary fund ( imf ) conducted a study to determine which oecd countries have the most growth - friendly tax regimes, labour markets and social insurance systems. imf economists then calculated what would happen if euro - area member states closed half of the gap to the leaders. the result is : annual euro - area growth in subsequent years would be just under one percentage point higher. 1 and since, after all, the long - term interest rate across the cycle is largely composed of trend growth and inflation expectations, this would also contribute in key measure to pushing interest rates back up more strongly. with that in mind, it is all the more dishearten