June 4, 2012

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The Atlantic Council of the United States

The Euro: A Dim and Dismal Future?

Former Senator Chuck Hagel

Frederick Kempe,
President and CEO,
The Atlantic Council

Dr. Josef Ackermann,
Zurich Insurance Group

Washington, D.C.

Date: Monday, June 04, 2012 

Transcript by
Federal News Service
Washington, D.C.

FREDERICK KEMPE: Hello, everybody. I’m Fred Kempe; I’m president and CEO of the Atlantic Council. I’m not sure that everyone in Europe and the world can be happy about how good the timing is to have Dr. Ackermann with us today. But clearly, with the eurozone crisis and the slowing pace of the U.S. economic recovery continuing to dominate headlines, we’re glad to have Dr. Josef Ackermann, newly named chairman of Zurich Insurance Group, on hand to let us know what’s going to happen and how he sees the crisis unfolding on the ground in Europe.

Joe Ackermann is an old friend of the Atlantic Council, of mine from my days at The Wall Street Journal in Europe. And his advice – I’ve relied on it a great deal. But more importantly, European leaders and business leaders around the world have relied on it. He launched our series here, as Deutsche Bank chief, on mapping the global and financial future. And we’re just delighted to have him back after he’s stepped down from Deutsche Bank, has now joined Zurich, to pick up that thread.

We’re at a place where last week European Central Bank president Mario Draghi – and I’ll remind everyone here how incredibly careful Central Bank presidents are with their words – used – issued a stark warning to Europe’s leaders, saying that the structure of the eurozone is now, quote, “unsustainable unless further steps are undertaken.” He also said that Europe’s handling of the crisis, where here feels leaders have basically got the fundamental size of the problem wrong at many points along the way, has been, quote, “the worst possible way of doing things, because everybody ends up doing the right thing, but at the highest possible cost and price,” unquote. So that’s from the Central Bank president in Europe.

Obviously we at the Atlantic Council believe that in order for the U.S. economy to return to a path of sustained growth, and for the U.S. and Europe to work well together on the world stage, we need Europe to regain its financial and economic footing as well – and its political confidence. That’s why our Global Business and Economics Program has been so intensively focused on the European debt crisis over the course of the past few months and years. And we put it together with ideas about the political future.

With that, I’d like to turn the podium over to Atlantic Council chairman Senator Chuck Hagel, who will say a few words and introduce Dr. Ackermann. I’m not going to give you his entire résumé, but I think it is important to note that, aside from being a decorated soldier and seasoned statesman, he is also an accomplished entrepreneur and businessman.

This week – if you don’t mind me saying so, Senator Hagel – we’re particularly proud of the role you played on Memorial Day remembering the Vietnam War, when you introduced President Barack Obama in a ceremony that highlighted the tremendous heroism of Vietnam veterans, including yourself and your brother, and this country’s continuing obligation to honor their service.

On the entrepreneur side, before representing Nebraska for two terms in the U.S. Senate, Senator Hagel worked in the private sector as president of McCarthy & Company, an investment banking firm in Omaha. He also served as chairman of the board of American Information Systems. And before joining McCarthy, he was president and chief executive officer of the Private Sector Council in Washington.

He’s been a steady and moderate voice on all the council’s core issues, from dealing with Iran’s nuclear ambitions to trans-Atlantic financial regulation to the future role of the West. And he’s a welcome and valued partner as we bring together leading experts and policymakers to address the challenges of debt, deficits and the future strategic and economic competitiveness of the trans-Atlantic alliance, which really underlies all of this for us.

Senator Hagel, the floor is yours.

CHUCK HAGEL: Thank you. (Applause.)

Fred, thank you. I add my welcome on behalf of the board of directors of the Atlantic Council. We are very pleased that you’re here. And certainly we are proud to have Joe Ackermann with us today, because not only has Fred explained part of that reason. It was noted as I walked across the street about a half-hour ago with an individual – he turned and said, it will be very enlightening to have an individual come explain what the hell’s going on in the world. (Laughter.) And not that, Fred, you can’t, or the Atlantic Council; but Joe Ackermann has not only an interesting and important perspective, but it is one grounded in the realities of responsible global leadership. And it goes far beyond just financial services in Europe.

As Fred noted, at a time when the world is undergoing a fundamental change of order in every way – and certainly it’s manifested by our politics, not just here in the United States, but I think in all countries – you can take any region of the world and identify the probably unprecedented historic shift in geopolitics. And I think the last 15 months in North Africa and the Middle East and what’s still going on there is some reflection of that; and certainly what Dr. Ackermann is going to talk about today, Europe. But it is bigger than just those two regions. It is bigger than just the United States. And Joe Ackermann is as well-positioned to talk about the global dynamic of this as anyone.

When the world is experiencing a centrifugal force of a global economy engaging the nation-state realities of sovereignty something’s going to happen. And I think what’s going on when we look at the eurozone and start trying to analyze it – it is much – as much about that as it is the currency itself and all the factors that play into monetary policy and fiscal policy. And Joe will talk about that.

I think, as was noted earlier, you know – all who are here – something about Joe Ackermann’s background. This is one of the premier financial service leaders in the world today. But it goes well beyond just financial services. It is business, it’s civics, it’s government. He advises – continues to advise many world leaders. He sits on a number of boards. This is a individual global leader, and I say global leader not without appreciating the significance of that statement. But he is a global leader. This is a global leader with considerable range. And we are very proud of his association with the Atlantic Council over the years, as Fred said.

So ladies and gentlemen, it is my privilege to introduce you to our guest today, Joe Ackermann. Joe, welcome. Thank you. (Applause.)

MR. KEMPE: In typical Joe Ackermann style, he said, let’s just do Q and A. (Laughter.) And so that’s what we’re going to do. And I’ll go back and forth to the audience. I’ll ask them questions. I’ll go to you to ask some questions, and we’ll go to the audience pretty quickly.

Let me – let me start by going back to Mario Draghi’s statement of last week. And The Washington Post said, describing his statement: In words that may echo the pages of history, he declared the common currency was unsustainable until further steps are being undertaken. Is it time to start worrying about the end of the euro? And if so, what does that – what should that make us be thinking about Europe right now?

JOSEF ACKERMANN: Well, first of all, I’m delighted to be here – or back here, I have to say. Yes, we tried to organize quite a interesting environment for this meeting, I have to say. (Laughter.)

But let me start with a more political response. We cannot say yes to this question. We have to do everything that it will never happen, because it is – from a political point of view, but also from an economic point of view – absolutely key that the eurozone is maintained in the current status. But it also has given us tremendous signals that things have to be changed.

And one of the complacency which comes in the European setup is actually that when we started the monetary union, we knew that this is not sufficient for very long. But the first 10 years were so successful that we forgot a little bit to really push for the next steps, namely much more integration, much more coordination, and probably finally some sort of fiscal union or political union. And then when the financial crisis started and people were focusing more on the quality of countries or of companies, then of course credit spreads widened. And we have seen that many countries on the periphery just couldn’t fund themselves any more, or at levels which made it very difficult to maintain their fiscal deficit target.

And now we are in a position a little bit back where we were at the end of last year. I said many, many times at the time that we need several hundred billions euros of bank funding and we need 700 billion euros of country funding at the beginning of 2012. And you could go wherever you wanted to – to the Middle East, to Asia, to the United States – and ask people whether they would be willing to buy sovereign risk or bank debt. And the answer was normally no, why should we? And we felt that we could see some sort of a major dislocation in financial markets, and beyond that in economic markets in Europe, in the first few months of this year.

Then the European Central Bank stepped in with roughly 1 trillion euro of fresh money. And that calmed markets, and people felt now – yes, people could fund banks, borrow the money. Some of them bought sovereign risk again, which is a big problem in my – in my view. But anyhow, people felt that we can now maintain some sort of a stable development for the next few months.

Then came the Greek election, which was not necessary; in my view was a big mistake, because the outcome was pretty unclear and added to the fragility of the situation. And since then, we are back to square one. We are talking about everything which has always been mentioned in the United States and in other countries as well. And I come quickly back to that.

Traveling to see major investors and government officials for the last three years, you always heard the following five elements. And it’s actually quite interesting to compare what has been achieved in the meantime in relation to these five requests or demands. The first one was: Improve the debt sustainability of Greece. That was number one, absolutely key, absolutely important. And I’ll come back to that where we are.

The second: Put the house in order in Italy, Spain, Ireland and Portugal, primarily. The third one: Because there is a transition from one to the other phase, from a imbalanced situation to a new equilibrium, you need to stop the contagion, the spillover effect. And therefore you need a firewall of something around 1 (trillion euros) to 2 trillion euros. That was always the ballpark number you heard. You have to recapitalize the banks. You have to make the funding of the banking system more certain. And you have to start working on a better governance in Europe.

Now where are we, about six or seven months later? We have reduced the debt burden of Greece via the private-sector involvement. So we reduced about 107 billion euros of debt. But it’s still a big number, and debt-to-GDP is still around 160 percent. And whether the goal of reducing that to the required 120 percent until 2020 – is still a big challenge. I’m still optimistic and confident they can achieve that. But we are seeing a contraction of the Greek economy, about 17 percent contraction in the last three years. So this is, I think, a step in the right direction, but by no means certain that we achieve a more stable debt sustainability in Greece.

The second one is in terms of the different countries. I think Ireland is by far the outperformer. It’s doing very well. It’s back on the growth pattern. Portugal, I think, is not that important but has done some the right steps. The same is true for Spain and the – and Italy. But as we see, it is difficult. Each country is different. The banking system needs more capital in Spain, and of course, in the – in Italy, where the debt-to-GDP ratio is always about 120 percent, this has to be brought down to a lower level. A hundred twenty percent is twice as high as the Massey (ph) criteria.

In the sense of the firewall, that’s the big discussion which is going on right now. What is necessary? And there – and I think we will get deeper into that – there is some disagreement between the German view and the U.S. view. And that is something very important and also very challenging. And I give you later on a bit the German perspective, why we – the German think that just doubling it right now might be a step too far at this time of the development.

The bank capitalization has made good progress, and we should not forget with the 9 percent quarter one ratio, which is required even under the Basel III phasing-in assumption, we will be twice as high as Basel III requires as a minimum. So in that sense, a lot has been done. It’s not true for all the banks, but I think the major banks will be at around this level.

The liquidity is much better now because of the ECB ejecting this 1 trillion (euros). And on the governance side, we have made good progress. We have this fiscal compact, which puts more pressure on countries; we are talking about more integration. In that sense, yes, all has been done, tried, but the key question is should we be ahead of the curve?
And let me give something, which reminds me always of – I think it was 2008 we had the World Bank-IMF meeting here in Washington when the 400 largest banks and insurance companies met at the Institute of International Finance, where I am – I have been chairman now for eight years, and we were very concerned, and we felt that the U.S. is just not responding fast enough. And we called, I remember very well, Hank Paulson, the secretary of Treasury at the time, and undersecretary of Treasury, who then came to the meeting, and said, you have to move faster. And they felt, no, we have still a few weeks to go. And then we called the Europeans, and Christine Lagarde came to our dinner and said on Sunday evening, we will not disappoint you; we will have a big program in place in Europe. And we were very relieved. So sometimes from the outside, you are less patient than for those who are operating in the inside. And I am actually very grateful that the U.S. is pushing Europe very much in acting faster.

Now, where are we? Out of this 1 (trillion euros) to 2 trillion euros, which everybody expects, we have a program of place of – in theory, of $1 trillion if you run the two funds, the EFSF, the Stability Facility, and the EMS, the a new one, the Stability Mechanism, in parallel. But the fact is that the EMS is not yet fully in place. It’s not ratified and there are not approvals in all the different parliaments, not even in the German. So of course, if you needed it today, it is not available. But we have enough funds, about 250 billion available under the first fund, which will be used to recapitalize banks or to refinance certain countries, at least for a few months. So we think, the German, that this is, for a time being, sufficient. We know that maybe we have to do more, but we should maintain the pressure on the countries to do the necessary structural reforms and the necessary financial reforms and to reduce the debt burden. That is the big debate between austerity first and then growth, or growth and a little bit austerity.

My personal view is, it’s we need both. We have to make the fiscal deficits reduced, and we have to reduce the debt burden. But of course at the same time, we also need nonmonetary stimuli like the increased internal market, the innovation, many other things, which we have to work on in order to create growth, but also to reduce unemployment, because unemployment is shockingly high in some countries, among the young people below 25 years old, roughly 50 percent in Spain. This is one of the big social problems we have in Europe right now.

So I think the impatience that I hear every minute in the United States and in some countries in Europe as well is positive. It’s constructive. But I think you also have to understand that the commitments of the different countries are already very high, and I give you two numbers.

The Mexican aid, where the U.S. was very proud of the amount of $20 billion at the time – that was 1.3 percent of the federal budget, 1.3 percent. The commitments to all these different mechanisms Germany has already done represent 70 percent of the federal budget. These are huge numbers, 211 billion euros. And to explain to the people – and you need the buying-in of your own people in each country – that we should do even more without seeing the immediate necessity is very difficult. And on top of that, we have a bit the feeling that countries may not push enough if they know that the Germany and France, but primarily Germany, is guaranteeing everything or is transferring even more funds. And that is the big debate about eurobonds, about other burden-sharing measures, that Germany just thinks we have to see more.

But I can assure you if it comes to the worst, before the eurozone collapses, everything will be done to bail the eurozone out because destruction – and that is a phrase I can’t repeat often enough – destruction is much more expensive than further construction. And therefore, a destruction, a demolition of the eurozone, would create chaos in Europe and probably also in many parts of the world. Even in Asia or in the United States you would feel that, because this would not go unnoticed in the global economy for a long, long time.

The numbers of a Greek exit or a Greek default, which so many people say will be much easier and everybody supports that from an economic point of view, would cost about $500 billion: about $80 billion for Germany, $50 billion for France and then, of course, quite some money for those countries which are much weaker. It’s not so much a private sector problem, by the way, because the private sector has already marked that down by about 75 percent.

But to start with the Greek exit and then to think about spillover effects into Italy or Spain, Portugal or even other countries, that would be a very, very dangerous hypothesis. And that’s why I’m saying we have to do everything to maintain the eurozone as it is. The only question is should we have a big program ahead of the curve and then calm the market, or is it right to do it in steps, as we did it in the last few years? That’s a different approach. Chancellor Merkel – and it’s always important to remember that she is not a person who likes to be the frontrunner; she thinks you have to decide when you really have to decide because it’s getting close to an emergency case. And she just feels we are not yet – (inaudible) –

MR. KEMPE: Is that – is that where we are now?

MR. ACKERMANN: I’m not sure, actually. The – I mean, the euro is still relatively strong. The currency as a whole – we are above where we started. We started 1.18 (euros) against the dollar, then we were down to the .80s, then up to 1.55, then we have it for a long time around 1.30, and now in the last few days we were at around 1.24 to 1.25. So the euro is still OK. Europe as an entity is, by the way, quite OK. The debt to GDP is lower than here in the United States. We have reduced fiscal deficits from 6 (percent) to 3 percent, which is a good achievement for the Europe as a whole. The problem are a few countries.

And as I said, in each country, we are doing the right things. We need, probably, a capital injection now in the Spanish banking system. The only question is should we do that directly with the mechanism which is in place, or should we do it via governments? The German view is more we should do it via governments; others are saying we should have direct capitalization, But here we are talking about maybe 50 billion euros. That’s not a big number compared to what is at stake if the whole thing collapses.

So I don’t think – I know in the U.S. you complain a bit or criticize that Europe doesn’t feel the sense of urgency. We may feel that, but we also see the necessity that we have to continue – we start the reforms, and we have to continue with the making our countries less debt-burdened and of course to increase efficiency, though in that sense we are a little bit in a – a little bit further away from this impatient U.S. and maybe Asian behavior right now.

MR. KEMPE: Roger Altman, writing in The Washington Post, quote: “Europe is on the verge of financial chaos. Global capital markets, now the most powerful force on earth, are rapidly losing confidence in the financial coherence of the 17-nation eurozone. A market implosion there like that triggered by Lehman Brothers in 2008 may not be far off. Not only would that dismantle the eurozone, but it could also usher in another global slump, in effect, a second leg of the Great Recession, analogous to that of 1937.”

Roger Altman isn’t a person who deals in this kind of hyperbola, very serious investment banker. I know politically, you’re saying this is what should happen. Politically, you’re saying this is what people should do, and the importance of Europe can’t just let us go in this direction. But is there – are there a set of events – as the ECB person said, it’s unsustainable as is – that could lead us into this direction Roger Altman has outlined, so speaking more as a banker and more as a person who’s dealt with markets than, as you said earlier, with the political view to what you would like to be the outcome?

MR. ACKERMANN: Well, Roger Altman must moderate in a panel where I was two days ago in Chantilly, not very far from here. But obviously, I didn’t convince him with my argument, I have to admit. (Laughter.)

There’s two things. The first one is is his analysis of potential results right? And I would say yes. If you have a collapse of the eurozone, it would have a tremendous impact on the global economy. No doubt about that. And it would also lead to a very difficult political situation in Europe. The question is will it happen?

What is really needed in short term? We have the Greek election. Yes, the worst outcome would be a government which says, we don’t want to continue the austerity programs. They would come back to the EU and to the IMF, to the ECB and say, we are not doing what you asked us to do, but we still want your money. Well, I would say that Europe probably will say, that’s not possible because our people will not support that; you have to continue with your program.

Now, would we give them a little bit more time? In a worse case, maybe, but certainly not say that the austerity program is no longer required. Now, if they then said, we don’t want to do that; we are leaving the eurozone, then we would have a very difficult situation in Greece, but manageable, absolutely manageable from a European point of view. Losses would be quite big, but as I said, less so in the private sector, more so in the public sector; ECB would be affected, and others.

Now, of course we would have a very difficult situation in Greece. That’s why I think at the end, Greece will be very much of the view that we have to stay in the euro and hopefully are also giving that message very clear and loud. And then they have to continue with the programs which they started. It’s of course always a bit difficult to have elections just after the austerity program has been announced. We should have given a bit more time so people also see the benefits of these programs in many ways: better exports, higher productivity, more employment and so on so on. But that was not the case by having this kind of election at such an early stage in the process.

Then of course comes the big question: Would that have now a contagion on other countries? Now, if there is a contagion, we have 250 billion available, which I think is sufficient for a few months in terms of funding the sovereigns and in recapitalizing the Spanish bank, which is primarily in the – in the focus here. And we would have another 500 billion available, not immediately have to go through this process within a relatively short period of time. And that’s the next stability mechanism. Then we would have the IMF, which – at least if the especially conditionalities is fulfilled, they would be willing, I assume, to contribute some funds. So all in all, we have a trillion dollars plus available, which in my view is by far sufficient.

Now, some people say, if you had a bank run. Now, I have to say, a bank run – you cannot do anything against a bank run, neither by having a firewall of 2 trillion, 3 trillion. Deutsche Bank had a balance sheet which is bigger than the GDP of Germany. So in that sense to talk about bank runs is a different question.

If there is a bank run, there’s no other option than to guarantee and to – and to give a full guarantee, as France and Germany and other countries did in the – after the Lehman collapse, and said all the deposits, all the savings are guaranteed. No one actually asked whether this is, from a size point of view, realistic. But it gave reassurance that no one will lose money. And that was a very important message. So that, of course, should be done then, if it comes to this kind of risk – which I don’t see, by the way; by no means.

The other thing is, of course, the ECB could still double the program which they had, anytime, and that would give enough –

MR. KEMPE: To buy sovereign debt, or to –

MR. ACKERMANN: Well, either buying sovereign debt – which they did some time ago, but then they stopped it – or to lend more to banks at very low rates against collateral. And banks would then use it for credit, for lending. Or banks could also buy sovereign risk, although I have to say, this correlation between the stability of the banking system and the quality of the sovereign risk is a very problematic one.

And this was really violated when this private-sector involvement was introduced. It was clear to everyone – also for regulators, because we didn’t have to allocate capital to sovereign risk – that sovereign risk is risk-free. And this was re-emphasized at two G-20 meetings, in Pittsburgh and in Seoul – at least until 2013, before we have collective action clauses in the – in the contracts.

Now, when Greeks – Greece developed worse than anticipated, then governments and everybody felt we have to transfer more funds. The German government, the Finnish government and the Dutch government felt that this is not realistic without private-sector involvement. And we negotiated that. We were willing to contribute.

Many were completely against that, including the European Central Bank, because to violate this principle means that, going forward, investors always have doubts about whether this asset class is risk-free. And although it has been said many times in the meantime that Greece is an exception to the rule and it will not happen in any other country, people will think it could happen, in a worse case, that you have some sort of restructuring of sovereign risk in other countries.

And of course, if this happens – and now banks have hundreds of billions invested in sovereign risk – and you are assuming a net present value of 10 (percent) or 20 percent, you see that the capital base of the banks is melting away pretty rapidly. And that gives just uncertainty in the whole system. That’s why I think buying sovereign risk via the banking system is not a very good option, which is – but unfortunately has been used by many banks but also in some countries.

But this is something which the ECB can do in order to help. So we have the unlimited firepower of the ECB, and we have the two funds available, which add up to this roughly $1 trillion. So in that sense, there is no immediate concern about the collapse of the euro system. Of course, this is gaining or buying time. And we have to use it to improve our setup, including our governments. It’s – it cannot be that the situation in which we are in now is a permanent solution. We all knew there is room for improvement. And a lot has started.

And let me just give you a few example. We had a 60 percent debt-to-GDP requirement. Some countries were twice as high or even three times as high. I mean, if he hadn’t done that – if he hadn’t violated this criteria in such a dramatic way – we wouldn’t have the problem which we are talking about. And from a financial point of view, you have to ask yourself why was it possible that Greece got 370 billion euro of a capital market – of long-term debt at levels comparable to Germany and France?

So I think you can only explain it with a few factors. One is people felt that these countries are benefiting from a more restrictive or a more conservative monetary policy which brings inflation rates and interest rates down. And that has happened, absolutely. Secondly, we felt that as part of the eurozone, you get a growth push. And it’s true. Greece almost doubled the GDP growth in these – in these years. And thirdly, people felt this is a relatively small country, only 2 percent of European GDP. So there will always be some sort of bailout or solidarity.

What we underestimated, in my view, was the contagion – that suddenly we had not only the 370 billion (euros) from Greece; we had 600 billion (euros) from Spain, and we had 1.9 trillion (euros) from Italy under the increased focus. And that actually led to the European crisis and debt crisis. And this is really a problem of these three or four countries and not as – not of Europe as a whole.

MR. KEMPE: One more question from me; then I’ll go to the audience. What would be your advice right now to Chancellor Merkel, who you know well and who you described earlier as someone who doesn’t necessarily want to be at the forefront? I was in Spain and Germany in the last two weeks, and I felt this urgency that you were saying is wanted here and not so much felt elsewhere. The Spanish certainly feel this urgency. They’re calling for a banking union; they’re calling for federally insured funds; they’re – you know, certainly they’d be in favor of eurobonds.

Would you say to Chancellor Merkel now, steady as she goes; you’re on the right path? Or would you say, you know, it may just be time to signal what you want in the long term, in terms of austerity in prices and everything, but somehow carry this a little bit further? What would be your advice to her?

MR. ACKERMANN: Well, I think to focus more on the short term and not to focus too much on the long term. It’s good to talk about a fiscal comeback. It’s good to talk about more integration. That’s all very important, and we should continue with this work. But right now we have to give more compelling answers to how we deal with a crisis if it starts tomorrow.

And there are the following things which we have to do. We have to speed up the process in the eurozone about the new mechanism, so – which adds another 500 billion euros. We have to allow them to recapitalize banks in Spain directly. I think that’s of highest urgency –

MR. KEMPE: Instead of through the sovereign, (instead of to ?) Spain? Yeah.

MR. ACKERMANN: Instead of going through the sovereign, because the sovereign is – as we see in Spain – it’s a bitter problem for governments to admit that they have to go under this umbrella. And then the troika comes in and monitors what they are doing. So I think it’s easier to have direct access to these funds by the banks. And –

MR. KEMPE: And thus far Chancellor Merkel has been against that because it takes some of the pressure off the sovereign by going to – directly to the – yeah.

MR. ACKERMANN: Exactly. The – Germany’s against that, but I think that would be something which would make it easier for – to recapitalize the Spanish banks, which are right now – the banks most in the focus; and then of course to change the wording – which they are doing already a little bit – from emphasizing too much the austerity and opening up to more growth measures. And I think that’s happening. We will give more capital to the European investment banks so they can lend more.

I think we should also be careful with the regulatory requirements for banks in terms of more capital, because as you see, around the world banks are recusing their lending in – across borders. So that is something which is not very helpful in a time where we need the support from the financial sector for the real economy. I think we have done enough. We should not go far beyond what we are discussing. We don’t make it more stable; we just taking away the ammunition from banks to finance the real economy.

So these are some of the things which we have to do – and then to continue the discussion about more integration, more consolidation in the European context. And then the whole political question comes up, what is the raison d’être of Europe? What is the vision? What can we do more? But these are really long-term topics, and now we should focus on putting everything in place, that it can deal with a crisis if it really happens. But so far we are not yet there.

MR. KEMPE: The European-wide system of deposit guarantees, recapitalization, regulation – you’re a banker. Would you – would you back that idea of the European Commission, the ECB, Hollande, Spain? Or would you side with Merkel at this point, saying no, not yet?

MR. ACKERMANN: No, I must say – well, it depends on how it – the – we were in favor of a European supervision for a long time. I think I (earlier ?) said that 10 years ago. We need that, and we have to give them authority. That’s – no question about that. Also to have the same standards everywhere in the – in the eurozone. Secondly, I think the deposited insurance – deposit insurance – that is something which has been done on a national level. We are working on that. That’s not that important yet, or certainly not that urgent. But over time I think we should have a Europe-wide insurance scheme. I support that.

The recapitalization – I would of course be against a TARP program just across the board. We have to differentiate between different banks. But those banks which are in need of more capital should get it. And I’m primarily talking now about some of the Spanish banks – not all of the Spanish banks, by the way; some of the Spanish banks. And that would calm the markets quite substantially. So these are a few things where I would say we have to move fast now. But the most important thing is that we increase the firewall and we get the ratification of that as quickly as possible.

MR. KEMPE: OK. I think we’ll start with questions here with Boyden Gray, and I’ll look for other questions as well. If you could identify yourself, even though I did. (Inaudible.)

Q: Boyden Gray; I used to be ambassador to the EU several years ago. One of the things that I don’t understand, because I’m not a banker, is when you say we need to – we need to recapitalize the banks in Europe, especially in Spain. But at the same time you shouldn’t tighten the capital standard requirements for the banks. I don’t understand how you square one with –

MR. ACKERMANN: Well, one is the current status, and one is the target. And then if I say you need 10 billion capital but you have only 6 (billion), then it doesn’t make sense to increase the 10 (billion) to 12 (billion). But you should give them enough capital that they get from 6 (billion) to 10 (billion) – (inaudible).

Q: Because there is a – the British want to go higher.

MR. ACKERMANN: Yeah, and I mean, you know, we have different approaches now. Unfortunately we have Basel III, which will be implemented globally but in a consistent way. That’s very important to create a level playing field. But if you have different countries going beyond that, it will put all the other banks under pressure. It is naïve to assume that a major bank will have a capital requirement of over 10 percent, from a regulatory point of view, and that others can go around in the world and say, we are operating at 7 percent level. The minimum – the maximum will become the minimum for the others.

And therefore I am saying we should be a little bit reluctant to go too far. Now, I know that if you talk about the stability of individual banks, more capital is desirable – although capital is not sufficient. You need liquidity, and you need profitability. But more importantly right now is also that banks are in a position to finance the real economy, because otherwise we get into situation where we have the instability from the financial markets, but on top of that we don’t have banks being capable of lending enough to the real economy.

And therefore I would say, let’s now stop where we are, which is already very, very challenging. I mean, under Basel III we should have – at the end of the first quarter 2013, banks are required to have 4.5 percent core capital. But now the European standard is at 9 percent, so twice as high in a very short period of time – and on top of that, taking into account, to some extent, the marking down of the sovereign risk, which, of course, adds another burden to this capital calculation. There I say we should not go beyond that; we should now stop. Some people, as you said, would like to go even further, but that will be counterproductive – (inaudible) – in a situation where we need banks to support the real economy.

MR. KEMPE: Thank you.

Question here.

Q: Ed Kitch at the University of Virginia. I would very much appreciate it if you could improve my understanding of the TARGET2 balance asset held by the Bundesbank which, I’ve recently read, has now reached a level of 800 billion euro and is created by unilateral action of the periphery central banks. From my distance, this appears to be a fundamental structural flaw in the ECB system, but I have not heard of any effort to reform or change or address this.

And to further clarify my understanding, do I correctly understand that the Bundesbank would not have to assume this asset if it was – would refuse to attempt to neutralize the monetary creating actions of the peripheral national central banks?

MR. KEMPE: Now, one thing – that’s a very good question, but to the extent possible, we’re trying to keep this discussion also in the English language. (Laughter.) So just – so if you could translate that a little bit for the layman. And I think one of the questions here is the level of – and maybe I’m on a different question, so forgive me if I am, but it’s the level of Bundesbank exposure to the –


MR. KEMPE: Right. And the amount that German taxpayers could fundamentally lose if we – if we have a further meltdown in other parts –

MR. ACKERMANN: Well, the TARGET2 is the – is the payment mechanism between different central banks. And it is true that if there is a lot of capital outflow from Greece, for instance, this increases and the claims go up. And of course, it’s also a reflection of the – of the trades export and imports and many other things – services.

And it’s true that the German Bundesbank claim against – primarily they’re talking about the Greek central bank now – is about a hundred billion (euros), I think, is the most recent number. This is in – undergoing concern considerational or problem. But of course, if you had a collapse of Greece or a default, then some of these claims could be lost, there is no doubt about that.

So that’s what I’m saying. Those who are talking about Greece exiting the euro are not making the full calculation. The full calculation is a much bigger one. It’s not only the sovereign risk; it’s on top of that the TARGET2 claims, but also, of course, the investments in Greece, the bank lending to Greece, the collateral repo lending of the central – European Central Bank to Greek banks and so on and so on. So it adds all up in our estimate to about 500 billion problem. And that’s only for Greece. Then on top of that –

MR. KEMPE: $500 billion of losses –

MR. ACKERMANN: No, euro, euros.

MR. KEMPE: Yeah. Yeah. Euros, sorry.

MR. ACKERMANN: And then, you have on top of that a potential contagion which could easily add another 500 billion (euros) or so in other – in the – in the worst-case scenario. So in that sense, you are talking about very big numbers.

And then the question is, what is – what is happening in Greece? I mean, for those who are a bitless familiar with the euro concept, the euro is, by many American academics, considered to be flawed for the following reason. It is not an optimal currency space. Secondly, all those countries have now the same single currency, one monetary policy, but no really integrated fiscal and economic policies, but they have a – the so-called Maastricht criteria where you have to comply with certain standards.

Now, if you are a country which is less productive, has higher cost structures and not very attractive products, and you have to compete with the stronger ones, you have no chance to do a devaluation of your currency, and many of these countries have constantly devalued their currencies and have always caught up. Now, if you take the union – the unit labor costs, from 1999 to today Germany is still hovering around the 100 starting point; Greece is at 143 – now, in real terms, a bit less, about 130, but they have 30 percent higher unit costs than Germany. And Italy is also much higher. So the question is if they devalue their currency, of course, they could catch up, but now they have to bring the labor costs, the unit labor costs down or increase productivity, which is very a difficult thing to achieve.

Now, can you overcome that by lending more money, by increasing that and by generate more growth, or does it need a restructuring of the economy, structural reforms and so on and so on in order to increase the competitiveness? The German voice, they have to do that first before they can have a real stimuli program. Some others are saying this is too tough; contraction will lead to a worsening situation that the GDP is rather going up instead of down, if the debt stays where it is and output goes down by, as I said, by 17 percent in the last three years, debt-to-GDP gets worse. So that is mathematically correct, but it makes you more competitive over time and, I have to say, exports and other numbers are showing in the right direction in Greece. And therefore, you can say if they continue like this, they are on the right track.

But that – it is very a painful and very expensive program to go from a – such an unbalanced situation to a new equilibrium in the future. And this will take quite some time, this transition phase, that goes without saying. And this is also aligned with very difficult socioeconomic problems – unbelievable unemployment numbers, social tensions.

But even that – and that is also a very important message – no serious party, neither in Germany nor in other countries, is now against staying in the euro. If we had major political movements saying we should get out of it – but no one. Seventy percent of the Greek people are saying they should stay in the euro. The unfortunate thing is that also 70 percent feel we should not go through the austerity programs to do that. (Laughter.) And that is a bit the contradiction – (inaudible).

MR. KEMPE: Well, let’s stay on that for a second, because isn’t the domestic politics a problem?

MR. ACKERMANN: But you had – you had a – you have a second – well, maybe we do it – (inaudible).

MR. KEMPE: No, isn’t domestic politics here the problem? Thirty-four percent, a Pew poll just shows, of people in the eurozone think they have not have an economic benefit out of that. You’ve had nine incumbents voted out of power. Let’s talk specifically about the domestic politics of Germany where you have a new bestselling book out that says Europe doesn’t need the euro, you have Chancellor Merkel saying that Europe will fail if the euro fails, and then in polls, it shows half of Germans agree with one and half of Germans agree with the other. So the real question for me is, will domestic politics support what it will take to save the euro, or is domestic politics leading us centrifugally toward the breakup of the euro?

MR. ACKERMANN: So far, no party is operating against the European idea or the European development. Are there different ways to achieve that? Would some say we should be ahead of the curve and do very courageous steps? I mean, one of the social democrats who is one of the leading figure in Germany said we should – we should have guaranteed the Greek debt, which is an amazing statement. No one from the current coalition government would say that. They would clearly say first the necessary reforms have been done before we even think about Eurobonds or other measures and instruments. But if it comes to the worst, if people really see that more is needed from us, I have no doubt that the people in Germany would support it.

We had the same problem when we had the bank rescue operations where it was long time – actually, it was 1:00 in the morning when the final decision to get involved, this government, in bailing out banks was taken. And that is something which not – should not be forgotten.

But if you ask people right now – and it’s also a bit political tactical consideration. I mean, if Germany said now, well, we are opening up our Pandora box and our money for any rescue operations, first of all, it would be very difficult to get parliamentary approval for such behavior or attitude. People would not support it at all. And of course, we also feel that many country would then say, well, why then go on with our austerity programs? Why go on with our reforms? We have what we need. And therefore I think to keep the pressure up until the last minute is probably a – not a bad political solution.

But if it comes to the worst, and we ask ourselves collapse of the eurozone or a rescue operation of the eurozone, and then we compare benefits and costs, I think the answer will be very simple: A destruction or a collapse of the eurozone would be devastating. Not only would the Deutsche Mark go through the roof the same as the Swiss franc is doing without heavy intervention from the central bank, but also from an economic point of view, Germany, yes, is – China is important and emerging markets are important, but the bulk of our exports goes to European neighbors. And if they came onto tremendous difficulties, could not service their debt anymore and they would see a complete collapse of their domestic economies for quite some time, that will be difficult.

Now, people can say, because they cannot devalue their currency, let’s get out of it, and then we are back to the Greek drachma and the Italian lire. That is also – we would see tremendously high inflation rates in these countries, which will probably offset the benefits almost immediately. And we would see a collapse of the banking system, because they have also their euro obligations, and you would see a collapse, in many ways, of the – of the social security system because they are heavily also invested into the domestic sovereign risk, and so instead of having euro, you would suddenly have drachma or any other currency. People, I think, should really think it through if they talk about exit strategies. So the – at the end, the people are absolutely behind the euro and will do whatever is necessary.

But there is another – a little bit more maybe political answer to that. A fragmented Europe has no way for self-determination. We will have to accept what the United States, China, India, Brazil and other countries will finally define for us. And this cannot be the future of our children and grandchildren, simply not. We – only a united Europe can negotiate with all these countries at – (inaudible) – level. And I think that is something which more and more come through, but we need to be more charismatic messages like that, political messages, to explain to people what it – what is finally at stake.

And unfortunately, as we have no president of Europe the same way as you have an American president, it is a bit more difficult. Of course, we have – we have different presidents, but not someone who is really elected by the people and he speaks for the Europeans. That is another thing. Or even in sports, I mean, the United States plays China, but Europe never plays India. There is no European theme. There is no European anthem yet. There is no European – there is a flag, but it’s not as important. We still feel as being Italians, Germans, and so on and so on.

And I think that is a very important next message we have to elaborate on – to – because after the second world war the European idea, which then developed into a single currency, was really to have peace and no war anymore in Europe. Now, for the young generation, that is not a big challenge, because we haven’t seen war for decades. So I think we have to find a new vision, a new raison d’etre, and I think this self-determination for me is one aspect which we should work on, but maybe there are others – other ideas. But we need something that people start more rallying behind Europe and then start working on improving the governance of Europe.

And the crisis, maybe, if – maybe it’s a bit optimistic, what I’m saying – but if we managed it successfully, it may be the first time that Europe jointly solves a problem and can talk about it with some pride later on. And therefore, we should really not miss that opportunity in doing the right things. And what we are seeing a little bit in this debate about what should be done and Germany should do more and Germany thinks others should do more in other areas, we are creating resentments. And resentments are not very constructive, because what we need is more social cohesion in order to create this kind of European spirit. And I think that is one of the major challenges, which goes beyond the – probably, the financial challenges in the European setup.

MR. KEMPE: That’s a powerful statement, and I think is one of the best ways I’ve heard it put: a fragmented Europe has no way for self-determination, what’s finally (at stake ?). The flip side is, if it doesn’t happen, you’ll also have a fragmented union and you’ll have a situation where if Europe doesn’t stand up at this point, people will make a lot of other judgments as well.

But anyway, please. Let me pick up two questions.

Q: Dick McCormick, a former banker, former diplomat. As you know, there is a tremendous amount of pessimism in financial markets here, and they’re massively shorting Europe right across the board. Is – some feel that Germany will simply not accept the contingent liabilities that are inherent in some of the solutions, and others feel that the Southern European countries will simply not be able to bring their people along to accept the reduction in living standards that are inherent in – in their part of the problem. And what I’m just wondering is, is it your view, the possibility that this massive shorting by financial markets could actually be a self-fulfilling prophecy and bring this thing to a head much quicker than people think?

MR. KEMPE: And let me pick up one other question here.

Q: I’m Harlan Ullman. I’d like to broaden the discussion a little bit. One could posit a financial catastrophe looming, not just in Europe – but you look at China, you see a slowdown in their GDP, you see a real estate bubble that some people are really worried about. Come the end of the year in the United States, who knows what’s going to happen with our debt, et cetera, et cetera, et cetera, et cetera, et cetera. So give me some good news. Tell me why we’re not going to see a tsunami and tell me why all these trends that look so desperate may in fact just be trends that look desperate but are not.

MR. KEMPE: And we’re – since we’re running toward the end of our session, I’ve only got time for one more question, I think. We’ll just – we’ll see at the end of this round whether we have more time.

Q: Thank you. Dana Marshall with American University. Maybe this is a question that kind of weaves together a few of the points that were made, and that is whether all that you’re seeing here and have described puts a greater premium on something that you have not mentioned, which is the desire of the G-20, so often-expressed, to rebalance the world economy, to do something about the massive trade deficit, trade surpluses, those kinds of things. Does this make that go even stronger?

MR. KEMPE: OK, so let me – the shorting question, I think one could pile onto that when Maastricht was created, you didn’t have markets of this size. So partly it’s answering that question, but what is it that markets are looking for that they would actually respond to in – (inaudible)?

And then with Harlan and the last question coming together, I think would be good for you to be here, the way you look at the global economy, to give us an overall assessment. A lot of investors are saying, well, there’s not really a bright spot right now. And our resiliency to something going terribly wrong would not be as good right now for the reasons that you’re talking about.

MR. ACKERMANN: Let me start here with this, because the same is actually true for Europe as well. The different current account deficits and surpluses – that is a not sustainable setup for a long-term. We have it in a – on a global – on the global scale, but we have it in Europe as well. I mean, we have three or four countries with huge surpluses and others with huge deficits. And therefore, of course, over time, Germany has to contribute. And it’s interesting that even in Germany now, some people are saying, maybe a little bit more inflation, maybe a little bit higher salaries will help. And this tremendous push on productivity and costability is probably putting others into a – into a situation where they simply cannot cope with that. So what is true on a global – on a global scale is also true for – for the – for Europe. And we have to help them. I mean, today the product range of some countries just doesn’t allow to be competitive, even on a European scale. And therefore, we have to see that the export and import improves also through the benefit of the weaker – of the deficit countries. That’s absolutely key, and that is something we have to work on. We need more foreign direct investments to achieve that, and we need more infrastructure and other assistance in these countries to create growth and employment. I couldn’t agree more.

To the tsunami – well, I just spent four days in China, and China isn’t as negative on their own future, I must say, then. But they – officially, they are saying 7 1/2 percent; unofficially, they are expecting somewhat more, which is still a relatively good growth number. And the same is true for many emerging markets. I do hope that the U.S. continues to do relatively well, and Europe is not – I mean, we have a slight recession, but it’s not – it’s not a collapse yet, if you take Europe as a whole – and Germany will probably be around 1 point – 0.8 percent, so it will be in positive territory.

I don’t think that we see a tsunami on the global economy, but it is true that global growth this year will be – will be somewhat lower. But it stays on the – on the relatively good level, I would say.

The shorting is, of course, very difficult. I mean, for the last three years or four years, on all the road shows when I wanted to sell our shares, I got 98 percent of the time questions about the euro and the debt crisis and the – and the – whether it’s somewhat sustainable, and whether we have to think that one day we’ll be repaid in lira or in pesetas and so on. And I always said, if you short, you lose a lot of money, because I guarantee you it will not happen. And I think many have said over and over, we were wrong and you were right. I still say that. But I know there is a tremendous impatience about the European response, and there are – as you rightly said, I mean, is Germany willing to do more than the 211 billion (dollars), which it has said, this is absolute the cap, and as I said, this represents 70 percent of the federal budget? I still think if it comes to a question, do we – do we have to do a bit more, or maybe substantially more, or do we see the collapse, which will have a very negative impact on our economy and on our society – I think the answer is pretty obvious.

Will the countries on the periphery do what they – what the austerity programs expect them to do? Well, I must say Greece has done a lot already, and it’s a tough time. I was in Athens when people were on the streets and had a discussion with the – Lucas Papademos the same evening. This is not an easy thing to push through. But so far, we have seen that things are improving. Italy: The program Mario Monti put in place, the first one, is a dramatic one. I mean, it was, if I remember correctly, 8 percent of GDP over three years, so these are – these are big numbers. And Spain has done a lot in the last two years. Is it – is it sufficient? Ireland just had a word with the finance minister. I think they are quite of the view that things are moving in the right direction and relatively fast. The – some other measures have to follow: privatization, structural reforms, labor market reforms. Spain is doing this in a – in a quite a dramatic way now.

So I would say that contrary to what most people felt, even these countries under strong political leadership, and out of the necessity – because no one wants to be the – somewhat the weak and bad guy in the eurozone – we have seen much more positive developments than many of us would have anticipated only a few years ago. And I see no signals that a strong political or ideological movement comes up which says we should get out of the – Europe. I mean, people see the average person, if you ask them whether you want to stay in the eurozone, vast majorities are still supporting that. Not everyone sees the benefits yet, that is true. That is something I think we have to explain better. But there is no resistance in a – in a – in a bigger political way against these measures. The question is only, do we need a little bit more time in order to achieve that? And the question is, will markets be patient enough to give us the time? That is a critical question. But so far, actually, with ups and downs, we have done relatively well. If the Greek election had not triggered this new analysis again, I think we would not have this kind of debate right now.

MR. KEMPE: Let me take a last question.

Q: Hi, my name Urusz Beeper (ph). I’m correspondent of Italian News Agency from Serbia, and my question is on Serbia and austerity measures or growth measures. Recently, we had the parliamentary and presidential elections in Serbia, and from the results, we see that probably the same players from the former government will form the next government. But already we have differences – we can see differences how to deal with economic crisis. And as we know that Serbia is country with a – with a high unemployment rate and with a low GDP, what would be your suggestion for Serbia? Would it be better to go with austerity measures, or with some growth measures without IMF at this moment?

MR. KEMPE: Yeah, and I’m sorry – whenever I see one of our ambassadorial members intervening from the Baltics, let’s take that.

Q: Thanks so much. I’m Ambassador of Latvia, and I have an easy question for you. My government in Latvia, in Riga, is probably the only country in Europe still having a priority joining with euro, and the target date is very ambitious: January 1, 2014. I am not surprised by reaction of Washington –

MR. KEMPE: You could – you could get a very positive exchange rate at this point. (Laughter.)

Q: Just with your comment – from a CB perspective, from your perspective: Is it politically desirable to – (inaudible)? Is it the right time? Thank you.

MR. ACKERMANN: Well, I should never give advice to the government. As the Swiss – I’m Swiss – we stay out of the euro. (Laughter.) I mean, right now, it’s a very difficult situation. I still think that euro is a fantastic achievement – has helped us create a lot of wealth for many years and reducing transaction costs. But of course right now it is not a very stable situation, as we discussed in the last hour or so. So it’s probably not easy to convince people that joining is the best thing to do right now. But I mean, it’s your government’s decision. There may be other considerations.

To Serbia, growth and austerity. Well, austerity is a big word, but I would always go for a disciplined approach, because two imbalances are the worst. The one is imbalances in the real estate sector, which will always last much longer to resolve than people think, maybe in the U.S. as well – but certainly in Japan; it took almost 15 or 20 years; and because this is not a homogenous good. I mean, you cannot just move houses from one place to the other. People have to like it, have to like the design, the architecture and so on so on. So this is a very difficult market to regain equilibrium.

The other one is high indebtedness. High indebtedness is terrible because you have to have – to de-lever your balance sheets, de-lever your debt – the sovereign debt and so on so on. And that, as we see, is very difficult, because deleveraging means also that you have, normally, some sort of contraction, and then debt-to-GDP is just not improving as fast as you would like to see. That’s why I think a disciplined approach to – in terms of a conservative budget discipline and a relative, reasonable, affordable debt to GDP ratio, which is certainly below 100 percent – and some people say it’s 90 (percent) – I would rather go with a domestic criteria of below 60 (percent) for most countries. Then, I think, growth comes on top of that. And growth comes, then, without all these obstacles from the not very stable economic environment. That’s why I think these are not – they are not objectives which contradict each other. You need discipline to have a healthy growth, but of course you need growth for employment and prosperity, but based on a sound, healthy, physical situation. That would be my answer.

MR. KEMPE: Last question. This gives you a chance to sort of comment on our mission, in a way, because our mission is renewing the Atlantic community for global challenges. In this case, in this crisis, how would you assess trans-Atlantic cooperation, and most specifically, has the U.S. recognized its strategic stake in Europe getting this right? And given the kind of assistance that might help in this, you – we talked about how Europe helped during our own financial crisis. So far, I’ve mainly heard about advice that one should have done more than what we’ve done – taking a big bazooka at this, the TARP program. And of course, in 2008 the Fed provided an astonishing 13 trillion (dollars) of support. So how would you assess the trans-Atlantic element of this? And to what degree has the U.S. been helpful? To what degree should it be doing more?

MR. ACKERMANN: Well, the U.S. is, on all levels, I think, putting a lot of pressure on European policymakers. Is the U.S. or China in that context, or Russia – (inaudible) – Russia a little bit – willing to invest into sovereign or – you know, sovereign risk primarily in Europe? That’s not really the case. Of course, Chinese would say, if you don’t trust your own risk, why should we do it for you? So I have some sympathy for that – for that argument.

But of course, I think at the end, if you could strengthen the IMF and also give the IMF enough funds to help in a worst-case scenario, to assist Europe in bailing out certain countries which are – not be a bad thing to do. But I think the fact that there is impatience – more impatience on the U.S. side is probably helpful, because it leads to a speeding-up of the process in Europe.

The only thing which people have to understand is that we are somewhat in a different ballgame. I mean, the TARP program was primarily strengthening the banks because of the real estate exposure or the toxic assets exposure. In Europe the problem is not – banks so far have not a major exposure to toxic assets anymore. (Inaudible) – normally marked down or liquidated. Nor in most countries did real estate, because we don’t have real-estate bubble, with one or two exceptions.

But the problem is the exposure to sovereign risk and the correlation between sovereign risk and banks’ balance sheet. And I think that is something which the U.S. didn’t have. So you can now recapitalize banks. But if you have a sovereign risk restructuring, as I said before, the capital is melting away like the snow in the springtime sun.

So in that sense, it’s more important that we stabilize the sovereign risk issue and not so much that we give banks more capital in order to mark down sovereign risk – because sovereign risk is not only a banking problem that people always underestimate. Banks are not the main investors in sovereign risk. It’s insurance companies, but also pension funds, individuals and many others – I mean, even central banks.

So in that sense I think we have to be mindful of the sovereign risk issue. And since we have given up sovereign risk as a risk-free asset class, we have entered a completely new world. And this new world has huge implications – huge implications in the risk premia these countries will have to pay going forward, because they are not risk-free anymore in the perception of investors; and secondly, in the availability.

Now this is a very good thing at the end, because people will be less inclined to give so much money via capital markets to countries which actually have no strengths to service that. But that was different before, because everybody felt this is a risk-free assets. And no one actually asked why is it risk-free; it was the perception of being and the assumption of being risk-free forever.

And that this is now in jeopardy and people say, this is not going to happen, will put a lot of discipline on these countries in the – in the way they fund themselves. And that is a very good thing. If we had not had the financial markets signaling that something is not good, we would probably have gone on for some more years. I mean, why would Greece have stopped the 370 billion? Maybe they would have been at 450 billion, and credit spreads would still be relatively low, still comparable with the German and French terms. And I think that we have changed that. And financial markets have given that signal. We’ve completely changed the discipline of these countries going forward. And that’s a – that’s a very good thing.

MR. KEMPE: So financial markets in that sense have done Europe a favor.

MR. ACKERMANN: Well, if you will see through it and not just talk about nasty speculators, absolutely, yes. Absolutely, yes. They forced Europe to do what has – what they have to do. And from a historic perspective – now, it’s premature to talk about – (inaudible) – and to ask for recognition. But what has happened in the last five years is tremendous in the – in terms of political integration, but also in terms of financial and structural reforms.

And that is – only has been triggered via the financial markets and by no one else. There’s no politician who stood up and said we have to change that. Not one. First they were shocked by the waves and the strengths of the financial markets and felt this is all nasty speculators and hedge funds. And then they started to say, now we have to regain the priority. And we have to dominate financial markets. And this is unfortunately, for a fragmented European country, not realistic to do anything against global financial markets.

In that sense, the thinking that we have to be disciplined, and that we speak with one voice and not the cacophony which we have, is a good thing. Imagine you would have a CEO of a company saying something and the CFO two hours later saying something completely different. Would you buy that share of that company? No. But that’s exactly happening in Europe. The – someone in the euro commission – even very senior people are talking about eurobonds. Two hours later there is a press conference of a government saying, but not with us. I mean, this is how it works all the time. And we have to have a one-voice committee – (chuckles) – going through that process and say, that is what we want to achieve. And then – and then I think we give more clarity and more reassurance to the world what we want to do.

And coming back to your first questions, I think we need a road map what we want to do in Europe. If we could say, in the next five years these are the different steps – like a company which is in a restructuring mode would say, we are doing this in the first year, this in the second year, and so on and so on – I think shareholders would start believing it again, if it’s credible, in the program. And I think European politicians have to do the same, together with the European Central Bank and probably supported in some ways by the IMF.

MR. KEMPE: I think that’s a terrific, terrific closing statement. On behalf of the audience, I want to thank you. And thank you for shedding light on a confusing, and I would say historically important, moment. I think what you said about European self-determination – I think we should pick that up, because that’s ultimately what it’s about. And for the Atlantic Council, that also means it’s about the capability of being coherent trans-Atlantically and effective also across the Atlantic. So thank you very much, Dr. Ackermann, for your time. (Applause.)

MR. ACKERMANN: Thank you.