SPIEGEL: Mr. Köhler, what does September 11 mean for the International Monetary Fund?

Köhler: A shock, of course, and a challenge. I even believe that the terrorist attacks have created potential for improved international cooperation.

SPIEGEL: Do you mean that the U.S. Administration will take note of the merits of international organizations?

Köhler: I assume that September 11 will lead to a review of positions in the USA. Instead of discussing the abolition of the IMF and the World Bank, the Bush Administration is likely to rediscover the advantages of multilateralism and see that the IMF is an institution in which 183 countries cooperate above and beyond cultural and religious barriers. There is fairly broad consensus in this multicultural community that international trade and the integration of national economies into the global economy is beneficial.

SPIEGEL: US Treasury Secretary Paul O'Neill is not regarded as a particularly strong IMF supporter. How are your working relations with him?

Köhler: I have breakfast with him every four to six weeks. We have a good personal relationship. Paul O'Neill knows how important the IMF is to the stability of the global financial system and consequently also to the USA. He endorsed the loans to Turkey and Argentina this spring and summer. However, the USA is understandably very much involved with its own affairs at present. In order to maintain sound cooperation it is vital that the largest IMF member knows what it wants.

SPIEGEL: You have earned praise for the reforms you have implemented since coming to office. Lending reform, for example. However, in time of war, political considerations could begin to determine economic decisions. For instance, a few days ago, Pakistan received the last tranche of a 600 million dollar loan. Are you under political pressure?

Köhler: No. Nor is it true that we brought this last tranche to Pakistan forward because of the war in Afghanistan. This disbursement had long been scheduled and has now been made because Pakistan has fulfilled the terms for this loan.

SPIEGEL: New negotiations are now planned.

Köhler: Yes, we are talking about a new medium-term program that had also been scheduled prior to September 11. I support the current acceleration of the relevant negotiation process, as the fact of the matter is that Pakistan's financial problems have simply grown.

SPIEGEL: Is political stability in such times of crisis not an important factor per se?

Köhler: There is no economic stability without political stability. However, the IMF must give top priority to economic stability. Political consolidation is the responsibility of others.

SPIEGEL: But surely the one is scarcely separable from the other.

Köhler: This is and always will remain a balancing act. The temptation to use the IMF for political purposes has certainly always been there. Whoever sits in this chair has to have strong nerves.

SPIEGEL: The events of September 11 have thrown the global economy into crisis. What can you do to combat this crisis?

Köhler: We have contemplated two scenarios. The first assumes economic recovery in the first six months of 2002, and we regard this as the more probable development. The second prepares us for a more difficult situation, namely, recovery in the second half of 2002. A lengthier pause in economic growth in the industrialized countries could increase the difficulties currently being experienced by the emerging economies of South-East Asia and Latin America. However, we regard this eventuality as distinctly less likely.

SPIEGEL: Although you receive fully comprehensive data on the most important national economies, the IMF has nevertheless ultimately had to undertake a downward revision of its economic forecasts on repeated occasions. Is the interpretation process so difficult?

Köhler: It is a difficult process, in that air simultaneously escapes from the twin bubbles of the financial and information technology sectors. Moreover, the September 11 attack dealt a direct blow to the very core of U.S. self-confidence. No expert in the world knows what the impact will be. We will experience extreme uncertainty for some months to come. However, the global economy was already weak prior to September 11. In early April I warned the German Federal Parliament of the danger of underestimating the consequences the weakening of the U.S. economy would have on Europe.

SPIEGEL: It would appear that your words fell on deaf ears.

Köhler: It is remarkable that even today the Europeans still bank on relief via a speedy recovery in the USA.

SPIEGEL: What do you find lacking in German economic policy? Is the Chancellor's hand too "steady"?

Köhler: Frantic actionism does not help. The core element is confidence, and this requires the Chancellor's steady hand. However, this does not imply that we should sit out the crisis.

SPIEGEL: What do you have in mind?

Köhler: The crisis should provide new impetus to the political and economic integration of Europe. For instance, we still lack a comprehensive single market in the energy and financial sectors, and there is even a feeling that things are once again going their separate ways. It is more or less accepted as a matter of course that political reforms remain on ice in deference to elections in France or Germany.

SPIEGEL: As State Secretary you were involved in the negotiation of the Maastricht Treaty, and have acted as President of the European Bank for Reconstruction and Development in London. Why is Europe viewed so sternly from Washington?

Köhler: Europe would like to be different from the USA but is not in a position to define this differentness and produce concrete results via political cohesion.

SPIEGEL: You are very familiar with conditions in European Union committees. Whence the impatience?

Köhler: Leadership must above all stand the test in times of crisis. I am convinced that it would benefit the world if Europe succeeded in speaking more with one voice at international level. Furthermore, Europe also has a global economic responsibility. The Americans have done everything possible to stimulate their economy. It is to be hoped that the Japanese crisis does not become even more severe. In view of this situation, the world rightly expects something of Europe.

SPIEGEL: Europe should save the global economy?

Köhler: Every region, every country must do what is right for its respective situation. For Europe, this means that it is now high time for action, primarily in terms of accelerating structural reforms. This would be the signal to investors and consumers that Europe is not content with a modest two percent potential growth. In addition, a potential growth path of three percent is possible if Europe's strengths, the high level of education of its population, and its fundamental investment potential are employed, and this must also involve removing excessive regulations.

SPIEGEL: Are you thinking of more U.S.-style hiring and firing for Rhineland capitalism?

Köhler: That is beside the point. However, I regard the fact that the law governing industrial relations [Betriebsverfassungsgesetz] in Germany produces even more regulation as a clear retrograde step and this curbs growth.

SPIEGEL: A more active monetary policy could lead the way out of recession. Is the European Central Bank too cautious?

Köhler: The ECB is independent for good reason. Furthermore it cannot compensate for the missed opportunities for policy reform of recent years. However, in my opinion, there is no current risk of inflation but rather a risk of recession. I am convinced that the ECB will use its scope for interest rate cuts.

SPIEGEL: The USA bolsters the economy with government programs including tax reforms, interest rate cuts and airline subsidies. Is this type of Keynesian intervention correct?

Köhler: I believe the U.S. determination to act in the current circumstances to be correct.

SPIEGEL: Determination as an end in itself in times of crisis?

Köhler: No, but cutting interest rates and taxes happens to have a positive effect on the mentality of the American people. However, in this respect I am not overlooking the fact that these decisions may harbor risks for the budget and price stability in the medium term. Nevertheless, I honestly prefer taking some form of action and possibly having to implement countermeasures later than simply awaiting developments.

SPIEGEL: As opposed to the Europeans, the USA had a large budget surplus. Are you using two different measuring sticks?

Köhler: The differences must of course be taken into consideration. For example, it would have been wrong for the ECB to copy the policy adopted by Federal Reserve Board Chairman Alan Greenspan. It is also appropriate for euro-zone fiscal policy to retain the framework laid down in the Maastricht Treaty. However, the stability and growth pact also offers flexibility. Using this flexibility is the order of the day. If that is Keynes, I can live with it.

SPIEGEL: Would you, for instance, advise Germany to now bring forward the tax reform due to come into force in 2003?

Köhler: A German solo initiative would not be very helpful. However, if the Europeans were to be in a position to put together a convincing medium- and long-term growth package, an initiative of this nature would enable Germany to demonstrate its leadership responsibilities.

SPIEGEL: In addition to your role as occasional chastiser of Europe, in your capacity as IMF Managing Director you have been surprisingly vehement in your support for African interests. What is the origin of your enthusiasm for the African continent that others simply give up as a lost cause?

Köhler: I have made two lengthy visits to Africa. The poverty and HIV epidemic are catastrophic. Nevertheless, I also returned from Africa encouraged. This was due to the fact that, on one hand, the African people have not given up. I have never encountered such dignity in need as I witnessed in Africa, and this is primarily true of the women. On the other hand, the New African Initiative shows that there are leaders in Africa who recognize the problems facing their continent, and who do not only put out their hands to receive but also attempt to combat issues such as corruption and armed conflicts that are causing poverty in their own countries. They now need effective and rapid aid in order to bring their own efforts to a successful conclusion. The message for the First World is essentially the following: Open your markets to products from the poor countries and give them what you have been promising for decades: 0.7 percent of GDP in development aid.

SPIEGEL: Since the violent confrontations in Prague and Genoa, the proposed "Tobin-Tax" on foreign exchange transactions and the plans to transfer the revenue from this tax to developing countries have been greeted with approval in Europe.

Köhler: Above all, I see the risk of the discussion on the Tobin Tax detracting from the fact that the wealthy countries are unwilling to pass on 0.7 percent of their budgets to the poor. Development aid comes from the budget, the relevant discussion takes place in parliaments and solidarity--or unwillingness to display solidarity with the poor is recognized in this way. What do we see? For the German Bundestag, solidarity with the Third World is currently worth 0.26 percent of GDP.

SPIEGEL: What is the basic evil in Africa: the wars, corruption or the industrial countries' ignorance of the situation?

Köhler: The worst aspect is that Africa is not taken sufficiently seriously by the wealthy countries. I wish that a Gerhard Schröder, a Tony Blair, a Jacques Chirac or a George Bush would take the time to sit down for two full days with the presidents of the African countries and primarily listen to what they have to say. South Africa's Thabo Mbeki, Senegal's Abdoulaye Wade, Mozambique's President Chissano, Ghana's President Kufuor, and many other African leaders could provide our Western leaders with an insight into the real problems and possible solutions better than anyone else.

SPIEGEL: You advocate relieving the poorest countries of their debt. In this respect, you are close to the position held by the IMF's harshest critics, those opposed to globalization. You met some of them recently in Berlin. Did you learn anything new on that occasion?

Köhler: Yes, of course. However, I learned most from my on-site discussions with NGO representatives in Africa and Honduras. They see at first hand what does and does not function in their countries. Nevertheless, the discussion on globalization and the right strategy to overcome global poverty must definitely also be continued by us in the Western countries-especially on the parliamentary level.

SPIEGEL: What orientation would you most like to give to the criticisms leveled by the opponents of globalization?

Köhler: Above all, we need an honest discussion. Selfishness, hypocrisy and the ownership mentality in developed countries are one of the main problems. Instead of condemning cutthroat capitalism and comforting themselves with a Tobin Tax, opponents of globalization should admit that poverty can be combated via more, not less, but better globalization. Trade is good and markets must be opened. A minimum redistribution component is necessary to help the poor.

SPIEGEL: Is there also internal IMF discussion on the disadvantages of globalization?

Köhler: There is discussion on both the advantages and the disadvantages. We are a learning institution. The world is basically in a process of searching for a new political concept on the structuring of globalization, so that the obstacles separating rich and poor can be overcome. This certainly takes time but I am optimistic that this search will lead to success.

SPIEGEL: Thank you for this interview Mr. Köhler.