10 March 2015

Der Spiegel: Thomas Piketty on the euro zone: 'We have created a monster'

SPIEGEL: You publicly rejoiced over Alexis Tsipras' election victory in Greece. What do you think the chances are that the European Union and Athens will agree on a path to resolve the crisis?

Piketty: The way Europe behaved in the crisis was nothing short of disastrous. Five years ago, the United States and Europe had approximately the same unemployment rate and level of public debt. But now, five years later, it's a different story: Unemployment has exploded here in Europe, while it has declined in the United States. Our economic output remains below the 2007 level. It has declined by up to 10 percent in Spain and Italy, and by 25 percent in Greece.

SPIEGEL: The new leftist government in Athens hasn't exactly gotten off to an impressive start. Do you seriously believe that Prime Minister Tsipras can revive the Greek economy?

Piketty: Greece alone won't be able to do anything. It has to come from France, Germany and Brussels. The International Monetary Fund (IMF) already admitted three years ago that the austerity policies had been taken too far. The fact that the affected countries were forced to reduce their deficit in much too short a time had a terrible impact on growth. We Europeans, poorly organized as we are, have used our impenetrable political instruments to turn the financial crisis, which began in the United States, into a debt crisis. This has tragically turned into a crisis of confidence across Europe.

SPIEGEL: European governments have tried to avert the crisis by implementing numerous reforms. What do mean when you refer to impenetrable political instruments?

Piketty: We may have a common currency for 19 countries, but each of these countries has a different tax system, and fiscal policy was never harmonized in Europe. It can't work. In creating the euro zone, we have created a monster. Before there was a common currency, the countries could simply devalue their currencies to become more competitive. As a member of the euro zone, Greece was barred from using this established and effective concept.

SPIEGEL: You're sounding a little like Alexis Tsipras, who argues that because others are at fault, Greece doesn't have to pay back its own debts.

Piketty: I am neither a member of Syriza nor do I support the party. I am merely trying to analyze the situation in which we find ourselves. And it has become clear that countries cannot reduce their deficits unless the economy grows. It simply doesn't work. We mustn't forget that neither Germany nor France, which were both deeply in debt in 1945, ever fully repaid those debts. Yet precisely these two countries are now telling the Southern Europeans that they have to repay their debts down to the euro. It's historic amnesia! But with dire consequences.

SPIEGEL: So others should now pay for the decades of mismanagement by governments in Athens?

Piketty: It's time for us to think about the young generation of Europeans. For many of them, it is extremely difficult to find work at all. Should we tell them: "Sorry, but your parents and grandparents are the reason you can't find a job?" Do we really want a European model of cross-generational collective punishment? It is this egotism motivated by nationalism that disconcerts me more than anything else today.

SPIEGEL: It doesn't sound as if you are a fan of the Stability Pact, the agreement implemented to force euro-zone countries to improve fiscal discipline.

Piketty: The pact is a true catastrophe. Setting fixed deficit rules for the future cannot work. You can't solve debt problems with automatic rules that are always applied in the same way, regardless of differences in economic conditions.

SPIEGEL: People in Germany tend to be critical of the fact that countries are not abiding by the pact. France, for example, has rarely stuck to the agreed rules.

Piketty: Everyone is dissatisfied, because this entire system of negotiations between the governments and the Brussels bureaucracy doesn't work. Countries like Germany complain because we are not abiding by the deficit rules. But the French aren't amused by the requirements being imposed by Brussels. We Europeans are in a bad situation, and minor structural reforms, which we hope will provide us with a little growth, won't do anything to change that.

SPIEGEL: What do you propose?

Piketty: We need to invest more money in training our young people, and in innovation and research. That should be the most important goal of an initiative to promote European growth. It isn't normal that 90 percent of the world's top universities are in the United States and our best minds go overseas. The Americans invest 3 percent of their GDP in their universities, while it's more like 1 percent here. That's the main reason why America is growing so much faster than Europe.

Full interview on Der Spiegel

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