Interview in Handelsblatt with German Finance Minister Wolfgang Schäuble:
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The EFSF has 440 bio. EUR loan capacity, where we [Germany] guarantee 210 bio. EUR. We always agreed that this short term “parachute” should be replaced as quickly as possible should be replaced by a permanent financial institution. Recall that the German Finance Minister has early on said that we need something like a European Monetary Fund. At the time everybody reacted with horror. The ESM is now very close to that.
We always knew that a common currency is difficult as currency is basically identical with states. What lacks is the coupling between monetary and financial policy. But had we said that we only take the next step when everything is 100 percent secured, then the European understanding after WW2 would have fallen apart – as happened with the idealistic European movements after WW1; but at the time the entrenchments could not be surpassed – which unleashed Hitler and WW2. We are doing it better this time.
The Euro is not the cause of the crisis. Most people have forgotten that we [Germany] in 2009 had a loss of 5% GDP. Up to know we have managed this crisis due to the European Union and the Euro. When the Chancellor [Merkel] by the start of this term said that by the end of term we will be back at the level before the crisis everybody sighed “That would be nice!” We are now at mid-term – and better than before the crisis.
But it is also true: We are still in this crisis; but it is not the fault of the Euro.
The Spanish government is making the right decision, though there is no “Wonderdrug” for a crisis of this size. But we are better prepared than two years ago. In Greece we have to deal with a failure of the elite over decades. The Greek population suffers – no doubt about it – but any way you act in such a heavy crisis: There are no easy solutions and it will not always be fair.
To broaden the liability to the whole Community with the associated lower interest for the debtor countries would reduce the pressure to solve the problems and would be a wrong motivation. This would cost Europe dearly at some point in time. We must now bring the structures in place, that weren’t build into the treaty. The first step is the Financial Pact.
The German government has always said that before we embark on a common debt management, we need a real Financial Union. On the conference last Wednesday the Euro heads of governments asked the Presidents Barroso (Commision), Van Rompuy (European Council), Draghi (ECB), Junker (Euro-group) to develop a concept for a European Fiscal Union as the next step after the ESM and Finance Pact, but that is a slightly longer term project.
Nobody contests that we need stable growth. That is how the programs for Ireland, Portugal (and Greece too) are designed. But you don’t generate stable growth if you fight high debt with even higher deficits. Stable growth is a result of making your economy competitive.
Cutbacks and growth are not contradictory. That is why the programs do not take purchasing power out of the countries – though it is often claimed.
There is an adjustment crisis in Southern Europe: A failed fiscal policy and lack of overdue structural reforms – that why the GDP shrinks there. You could take the Baltic States, there were even tougher measures taken. They have also made difficult reforms, and they worked.
If we want changes to the structures in Europe then it will be step by step, example the Banking Union:
- European Bank Inspection.
- Guarantee for the depositors.
- If we can integrate the national restructuring institutions into a European network.
We must recognize that a common European taxation of the stock markets isn’t in the immediate future. That would demand unanimity and Great Britain has clearly declined a European legislation in this area. This means we will have to what we can agree on: Starting with the stamp duty in Great Britain and France [on shares] and later include derivatives. That is what we will do. And we will also regulate the high frequency trading and fence in their excesses. I would –anytime- sign a European Tobin-tax, but that is not realistic, but what we can do, will be done.