“At the end of the day, we have to decide what the biggest risks are.”


Looking at political developments these days, it seems like we are going from one crisis to another. Is there a development in particular that keeps you up at night?

Obviously, the most serious crisis facing the world today is the Russian invasion of Ukraine. Everyone is worried about the threat of Putin and his irrationality – it’s especially worrying because you’re dealing with an authoritarian figure who is indeed unrestrained and perhaps not entirely rational.

When it comes to the economic sphere, the US dollar is getting stronger day by day. Are we going to witness a new international debt crisis with repercussions in particular for the countries of the South?

I am very worried about this. Many countries were already over-indebted before the pandemic worsened the situation, then the war in Ukraine made it even worse. Climate change has certainly made the situation worse. Therefore, food prices are up, energy prices are up, and now central banks are making the situation even worse by raising interest rates, which will increase the value of the dollar. Many of these countries have debt denominated in dollars. For many of them, this is a huge problem. I don’t think raising interest rates will have much effect on the rate of inflation because it’s basically shortages. If the war in Ukraine ended, most shortages would disappear – assuming OPEC doesn’t decide to try to take advantage of the current chaos to raise energy prices.

Many central banks around the world are raising their interest rates. Is there a feasible alternative from a progressive political point of view?

Yes there is. The inflation problem is basically caused by mainly temporary supply shortages. The appropriate response is fiscal policies that alleviate supply shortages. Rising interest rates will, however, aggravate supply shortages as it will hamper investment, which will make matters worse. That’s what really worries me. Let me give a few examples. We have an energy price problem. It would be very logical for us to make a massive effort to develop green and renewable energies. It’s not like we’re discovering new oil. However, we know how to produce green energy cheaply and most of the materials are available. We could have an expansion in the scale of our investments in renewable energy.

Germany has decided to let some nuclear reactors operate to deal with the crisis. Do you think at this point it’s the right thing to do?

Waging a war takes precedence over other issues. I understand the aversion to the use of nuclear energy and why after the accident in Japan people would feel nervous. However, most scientists believe that there is no reason for nervousness. At the end of the day, we have to decide which are the most important risks. For me, right now, the first-order risk is that Russia will win this war. It would be a form of appeasement and would violate international law. It would also show that you can get away with aggression. So, for me, it’s a fundamental question that we have to win if we want to have a stable future. This is the priority. Safely extending the life of nuclear power plants is not as threatening as the threat of a Russian victory.

Looking back on previous economic crises, we know that the political repercussions can be complicated, complex and extremely negative. Do you feel that the world, economically speaking, has learned the lessons of 2008, of the previous waves of crises or are we doomed to repeat history or, at least, to echo it?

I think learning is a very gradual process. We should have learned in 2008 that the market economy is not very resilient. It does not take risk into account. We also know that it does not take climate change into account. But we saw in 2008 that financial markets were not resilient. The pandemic has shown us that the lack of resilience is not just the fault of financial markets, but of our entire economy. I sometimes describe it as we build cars without spare tires. It’s fine as long as you don’t have a flat tire. We built a whole economic system that was too myopic and did not take risk into account.

In 2006, I wrote in my book “Making Globalization Work” that it was insane that Germany and Europe were becoming so dependent on Russian gas. I said it didn’t take a genius to figure out that Russia was unreliable. I have to say I’m sorry this turned out to be prescient. In the past, markets did not take risk into account and this is a lesson we did not learn enough after 2008. Hopefully now we will take this into account.

This interview was conducted by Michael Broning.


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