Interview with Dominique Strauss-Kahn by Stern
November 18, 2010Published in Stern Magazine on November 18, 2010
Stern: Mr. Strauss-Kahn, actually we could simply conduct this interview in German ...
Strauss-Kahn: (In fluent German)... it was so long ago. As a child I used to speak German at home with my nanny.
Stern: So you discuss the world situation with Mrs. Merkel in German?
Strauss-Kahn: Don’t worry, we get along quite well in English.
Stern: Three years ago, when you took over as the Managing Director of the International Monetary Fund, nobody wanted to hear much about the IMF. Yet today you are considered one of the most powerful men in the world - feels good, doesn’t it?
Strauss-Kahn: That's not quite fair. We've been carrying out our task for more than 60 years. Naturally, the crisis moved us more into the focus of attention.
Stern: People seem to regard the IMF and its Managing Director as having benefited from the crisis. Your war chest is now almost $900 billion, more than three times compared to before the financial crisis. And you are involved everywhere, even in Europe, where you are rescuing Greece – and soon probably Ireland as well.
Strauss-Kahn: Yes, we’re currently in the headlines now and then. Yes, our assistance programs and our financial support helped millions of people keep their jobs. Millions of people have been spared the fate of poverty. That was our biggest achievement. And as to fame – it's like the situation with a doctor. When you're healthy you don't need him. When you're sick, you cannot wait for him to come. The global economy was very sick, and it still is.
Stern: What lessons did the world learn? Did it listen to the doctor and his diagnosis?
Strauss-Kahn: At first it did. Everybody was scared stiff then, nobody wanted to be the black sheep or make a blunder. So everybody pulled together, looking for common interests. And the most important lesson learned is cooperation.
Stern: But we don’t see much left now. The times when heads of state made a pledge to cooperate are already gone.
Strauss-Kahn: Why are you so pessimistic?
Stern: The U.S. Federal Reserve, for example, just announced that it's going to print $600 billion to boost the American economy. We are at risk of being inundated with cheap dollars, and the rest of the world is hopping mad.
Strauss-Kahn: It's not that easy. The U.S. economy still accounts for about a quarter of the world's gross domestic product after all. When America is doing badly, the rest of the world is really doing badly. The economy is in such a state that we have to take all conceivable measures to boost demand in the United States.
Stern: But all those dollars are pushing the U.S. currency down artificially. This way other currencies become more expensive, including the euro. That's bad for exports. Are we now facing a currency war?
Strauss-Kahn: I don't like the expression…currency war.
Stern: You could put it another way: the Brazilian Finance Minister complained that it's like throwing money from a helicopter. His colleague Wolfgang Schäuble thinks the United States have been living on credit for too long. And Chancellor Merkel read President Obama the riot act.
Strauss-Kahn: The truth is that many countries use currencies as a political weapon. That's a real danger, as it threatens the recovery of the global economy.
Stern: Does the rest of the world have to pay for the fact that the United States have been living on credit for so many years?
Strauss-Kahn: That’s right. But the United States were the dominant economy for decades. They also used the dollar as a political instrument. We all know the expression, "the dollar is our currency and your problem".
Stern: Nixon’s Treasury Secretary John Connally made that statement when he tried to get other countries to share the cost of the Vietnam War.
Strauss-Kahn: Yes, and that has not changed in the past three years of the crisis. The United States have a dominant position, still.
Stern: And can thus use the money-printing press as the ultimate weapon?
Strauss-Kahn: Well, after all, even in the crisis, which as we know started in the United States, the dollar has remained strong. Why? Apparently the dollar still is the most important reserve currency, and the currency people trust in the end. We would be better off, of course, if we developed a system with several reserve currencies: the euro, the yen, perhaps even the Chinese yuan or the IMF’s Special Drawing Rights...
Stern:... which are considered the IMF's currency...
Strauss-Kahn: Such a system would be better. But reality looks rather different.
Stern: The economy in Germany is booming. People even start talking about an economic miracle. Is the major crisis over now?
Strauss-Kahn: Although some politicians want to declare an early end to the crisis, my answer is no. A clear No. The economic recovery is unfolding very unevenly. It's going well in Asia and South America, and surprisingly well even in Africa. The problems are in the United States, and in Europe. Germany may be doing well for the moment. But Germany is not going to achieve a high economic growth rate if other EU countries are doing poorly. More than 75 percent of German exports go to other countries in the euro zone. The German economy depends on the purchasing power of people in other EU countries. And as long as the economic recovery there is dragging, you can be sure the German economic miracle will not last all that long. Europe has to recover as a whole. And so far I don't see such a recovery for the coming year.
Stern: Is Ireland at the brink of bankruptcy?
Strauss-Kahn: Ireland is in a difficult situation. Of course we are always ready to help any member country looking for assistance by the IMF. But there are still a lot of other unresolved problems. The great crisis began in the U.S. financial sector, as we all know. Why? Because there were too few rules, but above all, because of lacking supervision. Many new regulations have been issued in the meantime. But enforcement is still poor. We are still miles away from the goal. Unfortunately the political will to persevere here is dwindling now.
Stern: But the G-20 leaders are constantly telling us they want to keep a tighter rein on the banks and tame Wall Street.
Strauss-Kahn: That's exactly what was promised. The fact is that this is not just an economic or a financial problem. Indeed, it's a potential threat to democracy. For the next crisis is sure to come. And then, when the banks have to be bailed out again, will the citizens, the taxpayers, be ready to fork over the money once more? I have my doubts.
Stern: Why should they? The banks are making fat profits again, paying out billions in bonuses to their employees.
Strauss-Kahn: Yes, and that’s the problem. This way another crisis may happen any time. The system is still far too unstable.
Stern: Banks are dealing mainly in other people's debts, in fact with some €120 trillion. Should the financial sector shrink and be made smaller?
Strauss-Kahn: I share that view. Because of the crisis trillions have been written off already. But overall the finance sector – banks, hedge funds and so on – should be doing much more to serve the real economy and not just exist for its own sake. What we need is a kind of reinsurance against crises. Banks should pay a tax, and the proceeds should go to a fund...
Stern:... yet all attempts in that direction have been utter failures. And we heard Josef Ackermann, the President of the IIF and CEO of Deutsche Bank, just a few days ago, warning politicians against heaping further burdens on the banks.
Strauss-Kahn: With all due respect for Mr. Ackermann, I can well imagine that, as an affected party, he is not crying out for more taxes and more supervision. Nevertheless, we do need such a contribution, a tax.
Stern: How should this work around the world?
Strauss-Kahn: The financial sector has to make a fair and substantial contribution toward the cost of crises. This levy could be a contribution to financial stability based on banks’ balance sheets, and there could also be a financial activities tax.
Stern: Last week's G-20 Summit showed how the world is at loggerheads once again. The talk is about protectionism and a clash of the giants, the United States versus China.
Strauss-Kahn: The G-20 discuss the tricky issues, which is a good thing. On the other hand the fear of the crisis is fading, cooperation has become more difficult. This reminds me of the early days of the European Union - countries understanding that they need to cooperate for the common good, but worrying about their own immediate interests when it comes to putting this into practice.
Stern: Criticism does not only focus on the United States but on China as well. Experts say the Chinese currency is undervalued by 30 percent and kept artificially low. So cheap Chinese goods are swamping the world without any competition.
Strauss-Kahn: We have been warning for some years that China cannot base its growth on exports alone. There are limits to how far that model can work. You have to promote the domestic economy. China is now trying to boost internal consumption through massive economic stimulus programs. I am sure the Chinese leadership understands that something has to change. But it takes time. It’s about the exchange rate, but not exclusively about the exchange rate.
Stern: At the same time you are warning against a “new colonialism”, a colonialism of the emerging countries, imposed mainly on Africa. Whom do you have in mind here, if not China?
Strauss-Kahn: There is a danger of domination by new powers which can create unfair trade advantages for themselves by their sheer size. China can no longer hide behind its status as an emerging country. China must change its growth strategy. But that's true for the United States and Europe, too, where we must say goodbye to the traditional growth model.
Stern: So your criticism applies to Germany as a leading world exporter as well. U.S. Treasury Secretary Timothy Geithner is calling for limits on trade surpluses, and he was sent packing by Mrs. Merkel and the German government.
Strauss-Kahn: But the principle is right. Trade balances should be evened out somewhat – that is something Mrs. Merkel and Mr. Schäuble could think about.
Stern: Why? The German economic model has been considered a success for decades.
Strauss-Kahn: Of course. And no one is reproaching the Germans for that. But you can't just defend your own surpluses while condemning others' deficits. Business as usual – that doesn't work anymore.
Stern: What do you see, then, as a new growth model for Germany, for example, or for Europe?
Strauss-Kahn: Europe needs strong, dynamic growth. Europe must break the shackles of slow growth, and stop settling for second best. We need a comprehensive change across all areas and in every country. This is the only way to save the social model. Europe must return to success.
Stern: What role should the IMF and its Managing Director play?
Strauss-Kahn: The IMF could commit itself to monitor the implementation of the G-20 resolutions. Otherwise, the same thing will happen as always – commissions are set up with weighty titles in the hope of problems vanishing.
Stern: The IMF is regarded as an early warning system, one that nobody listens to until it is too late.
Strauss-Kahn: Yes, everybody wants an alarm bell. Chancellor Merkel, President Obama, or President Hu Jintao, they're all the same in that regard. But when the alarm goes off in front of your own door, then woe to you! You'd rather shut your ears. Or you'll try to muzzle us. But our greatest strength is still that we tell the unvarnished truth, no matter to whom. That was the idea of the IMF, from the very beginning. And for that, the IMF needs more teeth.
Stern: You mean, more money still?
Strauss-Kahn: Not necessarily more money. We need to have the clear mandate to carry out the research and analysis that may expose developments, practices, and policies that some members may not want to hear in public.
Stern: For many people, your influence already goes too far. Take the participation in the rescue package for Greece, for example. In Europe, the IMF is now playing a bigger role than many would like to see, just to mention the head of Deutsche Bundesbank.
Strauss-Kahn: We know this is not appreciated by everyone in Germany. But there is no such thing as a homemade solution for a global crisis.
Stern: Speaking of the unvarnished truth: you are deemed one of the most popular politicians in France. And we must ask you the same question everyone is asking you: are you going to run against Sarkozy in the next presidential election?
Strauss-Kahn: And I will tell you what I tell everyone: I'm going to see my term as IMF Managing Director through to the end. And the term ends in 2012.