Karl Otto Pohl On The Eurozone Bailout

A hard-to-notice, easily overlooked section of the Wall Street Journal's editorial page is its "Notable & Quotable" feature.

The other day, the section reprinted this exchange from a Spiegel Online interview with former Bundesbank head Karl Otto Pohl,

"Pohl: The foundation of the euro has fundamentally changed as a result of the decision by euro-zone governments to transform themselves into a transfer union. That is a violation of every rule. In the treaties governing the functioning of the European Union, it explicitly states that no country is liable for the debts of any other. But what we are doing right now, is exactly that. Added to this is the fact that, against all its vows, and against an explicit ban within its own constitution, the European Central Bank (ECB) has become involved in financing states. Obviously, all of that will have an impact. . . .

The European Union should have declared half a year ago—or even earlier—that Greek debt needed restructuring.

Spiegel: But according to Chancellor Angela Merkel, that would have led to a domino effect, with repercussions for other European states facing debt crises of their own.

Pöhl: I do not believe that. I think it was about something altogether different. . . .

It was about protecting German banks, but especially the French banks, from debt write offs. On the day that the rescue package was agreed on, shares of French banks rose by up to 24 percent. Looking at that, you can see what this was really about—namely, rescuing the banks and the rich Greeks."

Given my comments about the Euro in this recent post, I found Pohl's comments very insightful and sensible.

Sad to say, you tend to trust ex-officials to be more candid and honest than the ones in power. Pohl didn't actually judge Merkel, but he did not shrink from explicitly disagreeing with Merkel's alleged reasons for the Greek bailout by Germany.

While the excerpt doesn't cover Pohl's thoughts on the future for the Euro or the EC, I can't help but wonder what responses to those questions would have been.

When Pohl says "obviously, it will have an impact," one senses he may mean economic, financial and political.

Sounds about right to me.