Blankfein Tells Welt Euro Breakup Risk Is Lower Than a Year Ago

Goldman Sachs Group Inc. Chief Executive Officer Lloyd C. Blankfein told a German newspaper the risk of a euro-region breakup or member country bankruptcy is lower than a year ago as the political will behind the common currency remains intact.

Blankfein told the Berlin-based Welt am Sonntag newspaper in an interview published today that economically stronger European nations will need to prop up their weaker neighbors. The New York-based bank chief drew comparisons with the U.S. economy, citing the American South’s transition from an agrarian economy to a site for industry.

“Americans have a history of underestimating the political will of the Europeans to see through the successful creation of a united Europe,” Blankfein said, according to an e-mailed transcript of the interview in English. “I’m not going to make the same mistake.”

The sovereign debt crisis is set to cause a second consecutive year of recession in the euro region, with France slipping into recession and the German economy expanding less than expected in the first quarter. Debate among member countries is shifting from cost-cutting to pro-growth policies.

“It would be extremely bad for Europe and the rest of the world if the European experiment were to fail,” Blankfein, 58, was quoted as saying.

In the interview, he defended the role of large, global banks, saying that size allows for a more diversified business and that “a big bank doesn’t go bankrupt if it loses $1 billion.”

Proprietary Trading

The European Union is weighing how far to go in forcing a breakup of large lenders by shifting some of their trading activities into separately capitalized units, according to a copy of the plans published on the European Commission website on May 17. One version of the plan would funnel higher-risk activities such as private-equity investments into a trading entity that is legally separate from other parts of the bank.

Meanwhile, in Germany, Chancellor Angela Merkel’s government plans to force banks to separate proprietary trading from commercial banking units starting in 2017.

Segregating proprietary trading in a way similar to that envisioned in the Dodd-Frank Act’s Volcker rule doesn’t solve banks’ risks either, Blankfein was quoted as saying.

“It creates new problems of its own,” Welt quoted him as saying. “I cannot recommend the Volcker rule to Europe.”

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