Online Extra: Q&A with Karl-Heinz Paqué

Saxony-Anhalt's reform-minded finance minister went from academia to politics. Now, the challenge is turning theory into policy

In Germany, politics isn't so much a calling as a profession. Typically, top officials, including Chancellor Gerhard Schröder and his predecessor Helmut Kohl, have spent nearly their entire working lives slowly rising through the party ranks. Few have lengthy experience in the private sector or much understanding how the real economy works.

That's why Karl-Heinz Paqué, finance minister in the state government of Saxony Anhalt, stands out. Paqué was an economics professor at Otto von Guericke University in Magdeburg before winning election last year as a member of the market-oriented Free Democratic Party, which governs in a coalition with the center-right Christian Democratic Union.

As an economist, Paqué was a leading voice for reforms, including measures to cut subsidies and taxes and free the labor market. Now, though, he's trying to turn talk into action, which isn't always easy, especially in the midst of a tax shortfall equal to almost 5% of the state's budget. Paqué spoke recently with BusinessWeek Frankurt Bureau Chief Jack Ewing about the challenging transition from theory to practice, and the prospects for real reform. Following are edited excerpts of their conversation:

Q: You have been in office less about a year, and already you have to deal with a major budget crisis. Do you regret giving up academics?


I'm absolutely content. I don't have a desire to go back to academics right now. I do have a very challenging task. The fiscal situation is challenging indeed. It's a tough job but also an important one. I find politics fascinating, and I'm not at all frustrated by my experience.

Q: Is politics different than you expected?


Not really. It is completely different from academics. I may have been an odd kind of professor in that I never lost a practical sense. The political [negotiations are] not particularly challenging intellectually. But the general strategic background of politics in the eastern German states is very interesting and challenging. We have a situation of stagnation or near-stagnation, and we have to readjust our fiscal aims. That is a creative process.

Q: What is an example of a reform you are trying to achieve?


We are working on public banking reform. The regulatory framework has changed considerably due to the European Union. Public banks have to adjust to the competitive environment. That requires that we adjust our regulatory framework. You have to find a balance between local interests and making banks fit for globalization. We have too many public banks. That's an area where I have been able to make use of economic theory.

Q: Why don't more German academics go into government?


We have a tradition of academics which insulates itself from the rest of society. But times are changing. I received a lot of support from my academic colleagues in attempting to trespass the boundaries. In politics, people find it refreshing if someone comes from a different field. But one must not be naïve. Politics is a rough game, you have to play the game. You cannot just say you're an academic, you're different. That's not the way it works. I take politics very seriously. I feel like a politician.

Q: Are you interested in higher office such as federal Finance Minister, assuming your party is one day part of the government?


My task is and remains in Saxony Anhalt. On the other hand, the future is open. One never knows.

Q: How do you rate the chance of serious economic reforms at the national level?


I think we are at the threshold of big reforms. I hope! I think the public now knows that we are in very bad shape, and we have to go for more courageous reforms. There is starting to be a consensus across party lines. I'm a notorious optimist, but I think there's a feeling of urgency which we didn't have before. So far, however, the federal government has delivered no more than nice words. We need more. We need action.

    Before it's here, it's on the Bloomberg Terminal.