Tom Keene Talks to UniCredit's Harm Bandholz

Tom talks with Harm Bandholz, UniCredit’s chief U.S. economist, about the European debt crisis and the virtues of austerity

Where did you grow up in Europe?
In Hamburg, Germany.
We talk about Greece and Spain, but much of the crisis revolves around Germany, doesn’t it?
Yes, it does. People are acting like Germany is only benefiting from this euro thing. They say that Germany entered the European monetary union with an undervalued currency. I think that is completely wrong.
Why is that?
Just think back about 10 or 15 years ago. Germany was labeled “the sick man of Europe.” People said that without monetary union, they would have no way to continue exporting their stuff because it was just too expensive. So the government formed a grand coalition that included opposition parties and also companies and labor unions. And they did a lot of reforms to make the labor markets more flexible, etc. The result is that Germans’ unit labor costs basically haven’t risen for more than 10 years.
It’s easy for us to sit here and say, “OK, Italy, Spain, Greece, do what Germany did.”
Well, why not? Frankly, I don’t think even the U.S. is doing what Italy and Greece are doing. You [the U.S.] have to do austerity because the debt levels and the deficit are too high. For the euro zone as a whole, the deficit as a share of gross domestic product is about 3.25 percent this year. It’s more than twice as high here.

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