ZEIT ONLINE: The US will run into the next fiscal stand-off in a few weeks. In Europe, none of the crisis countries will manage to keep its budget deficit in check this year. Is Germany surrounded by fools?
Jeffrey Sachs: Well, Germany's Northern neighbors, the Scandinavian countries and the Netherlands, have a sensible economic policy, as has Germany. But the situation in Southern Europe is definitely poor, and in the US it is poor to mediocre.
ZEIT ONLINE: How will things develop?
Sachs: I don't believe it's going to get better any time soon. Neither the US nor most of Europe is taking a long-term policy view. Our politicians live from one election to the next.
ZEIT ONLINE: You started off on such a bright note. Now this.
Sachs: It's not my job as an economist to make the politicians happy. If they want this very difficult job, it's their responsibility to look at real numbers, even if that puts them in a difficult position. We need a lot of political reform. But things are not hopeless.
ZEIT ONLINE: Give us hope for the hardest case: Greece.
Sachs: Greece doesn't deserve all the blame it gets. The approach to its crisis has not been realistic. The state of Greece should not just be blamed only on the Greeks but also on those who purported to help it. Most importantly, reform of the Eurozone banking sector has been too slow, and the Greek economy suffers from a broken and bankrupt banking system.
ZEIT ONLINE: Only 15 years ago, the role of the ill man of Europe was filled by Germany. Then the country went through the Agenda 2010. Does Southern Europa have to suffer through something similar?
Sachs: Yes! Medium-term growth is based on an economy's fundamentals: a healthy budget, market competition, good technologies, a skilled labor force and reasonable wages. Germany has these pieces in place right now. But Greece cannot get there from here on its own power alone. This is the point where it's getting a bit painful for Germany.
ZEIT ONLINE: You want more German money to go to Greece?
Sachs: Look, Greece is really bankrupt. It needs a further write-down of its debt. This will mean losses for the German taxpayer. But Germany just has to get on with it because otherwise Greece's problems won't get fixed.
ZEIT ONLINE: So Germany should forgive some of the money it lent to Greece through the rescue efforts?
Sachs: Yes, out of my experience both creditors and debtors have to give ground. I have spent 30 years of my life on similar problems. For example, in the 1980s, Latin America went through the kind of adjustment programs that Greece is going through right now. They were failing one after another. They were leading to populism, turmoil, economic collapse. Latin America recovered only after the US, as its major creditor, forgave much of the debt. And that's exactly what Germany, as Greeces's major creditor, has to do now. When things get so imbalanced, the creditor has to accept reality: that he won't get fully repaid. There is no sense in asking more money from Greece than it can pay.
ZEIT ONLINE: This doesn't sound like a program on which to become elected German chancellor in September.
Sachs: Of course the German politicians don't want to say this. But it's the unavoidable economic truth. A great creditor nation, one that also has political responsibility, has to get away from harping on the general principle of "Greece has to pay, Greece has to adjust, Greece has to achieve a balanced budget." Instead, Germany also has to look at economic scenarios, at the numbers. When that's done, what you can see over and over is that the agreements that have been reached over the last few years were very unrealistic. Such programs fall apart within three months. And then of course there's mutual blame and unhappiness. A compromise would be better for both sides.
ZEIT ONLINE: Is there a better chance for such a compromise after the German federal elections?
Sachs: I won't get in the middle of the political campaign. I'll just say that, after flirting with the bad idea of pushing Greece out of the Euro zone for over a year, the German government now is rightly dedicated to keeping the currency area intact. I only wished that the steps following from this good decision were also pushed through with more boldness and speed.
ZEIT ONLINE: From your experience, how long will it take until Germany accepts that it should forgive some of Greece's debt?
Sachs: In the case of Latin America in the 1980s, it took the US about 7 years to acknowledge reality, and a few more to implement realistic policies. And it won't be fun for a German chancellor to tell the voter: We'll lose some money in order to allow Greece a realistic fresh start.
ZEIT ONLINE: Still, many Germans would think it unfair to reward Greece for its overspending in the past.
Sachs: The sense of what's fair is probably as important as any other variable in resolving a crisis. In Europe today, this requires Germans to develop a recognition of the pain that the Greeks go through. I'll tell you a story. In 1989 I was advising the Polish government. It had a Soviet-era debt that was unpayable. So I said: this debt has to be forgiven very substantially. Many people were scandalized at the time. In fact, almost all the G7. One by one, I convinced a lot of the G7. About the last to agree was Germany.