There is a strong commitment among the euro zone governments to stand together and so far the market has understood that they are serious, Lutz Raettig, chairman of the supervisory board of Morgan Stanley Bank AG, tells Mehul Shah and Palak Shah. Edited excerpts:
There is a lot of political uncertainty in Greece and Italy. Are the European leaders in control?
Each crisis is different. But, I think they are in control. Portugal is different from Ireland and Ireland is different from Greece. Italy again is different. The Italian crisis has a feature which nobody really cares for, but it is important because the private investors are the most loyal buyers of the Italian treasury papers. This did not happen in Greece, as they were helped by foreigners. A very high percentage of Italian papers are owned by Italian individuals.
I think the firm intention of the politicians, which would be carried by the population, is to keep the euro intact. There is no incentive to do away (with) either the political or the economic union. The need is to spend energy on what can you do that these programmes, which are necessary and can be implemented in the country. The problem is a lot of things obviously cannot be implemented because the political and administrative processes do not work. So, in spite of a lot of good intentions, nothing happens.
Is the euro zone bailout package, announced last month, sufficient to stem the debt crisis?
Are bailout packages ever enough, if all hell breaks loose? No. But, there is a very clear message to the markets that the governments are standing together and are serious in providing liquidity, financial back up and technical help in order to protect the European union or the euro. Will these good intentions always be firmly understood? Mostly, yes, I think. Sometimes, no, as well. Are markets organised in a way that they may test limits from here and there? Yes, they are. That is the price you pay for forward open markets. I think there is a strong commitment on the part of the governments to stand together and so far the market has understood that they are serious.
Is the euro zone crisis going to be solved in the near future?
Though the crisis will be solved, individual problems will not be solved at the same time. But, if we succeed, and I think we have a good chance of succeeding now that the insecurities are out of the market, then the markets will function in a more normal way. The markets don’t like insecurity. It is easier to deal with news that is bad but firm than with one which is fluid and undefined.
There are expectations in some quarters that the US Federal Reserve may embark on another round of quantitative easing? Is it required at this stage?
The earlier programmes injecting liquidity into the system, apart from the liquidity that was needed to keep the financial services system afloat, did not show any significant results. The consumers, particularly in the US, still have very high debt. So, if you give them a little bit of money, they may spend it. But, very often they just have to use it to repay mortgages. So, a lot of these programmes don’t really work. I think there is a big political process trying to find out what else can be done. I am not a great believer in big state programmes injecting too much money into the system, where people are almost forced to buy. At some point of time, they will not have the money to buy and then the whole thing will be reversed. I think consumer education is more important than money injection.