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CNBC Transcript: Interview with Jeroen Dijsselbloem, President of the Eurogroup

Interviewed by Geoff Cutmore at the World bank Group/IMF Meetings, Lima, Peru, October 9-11

Geoff Cutmore (GC): Minister one of the issues that has come up in these IMF / World Bank meetings is clearly the risk of a credit event in the emerging markets which would have some global impact. How does Europe protect itself from contagion from this kind of event?

Jeroen Dijsselbloem (JD): I think Europe is in a completely different phase than some of the risks that are now in the emerging markets. Europe is coming out of a crisis. Growth has returned to all but one Euro Zone countries and it's picking up, it's also become broader, and I think we should use this current stage to become more shock proof. In order to do that we need to make, to extend and complete the banking union and build a capital markets union to diversify the way finance comes through our economies, we need to push through some structural, to become more, even more competitive. So I think for Europe, in this circumstance and even independent of this circumstance, it's more about more growth, increasing potential growth and making sure that we become more shock proof.

(GC): Peter Praet recently said one of the problems that Europe has is this to quote, 'seeping pessimism' about long term growth. Is there an issue with the attitude that we have in Europe to the growth opportunity that is actually out there at the moment?

(JD): I think the growth rates in a number of countries at the moment are defying the pessimists. Growth rates in countries like Ireland, Spain close to four. In the Baltics close to three,three-and-a-half. In the Netherlands two to two-and-a-half. A number of countries have picked up and are far above what is considered to be potential growth. And in order to increase that long-term potential growth we need to deal with some of the hindrances in our economies; cut red tape, open up markets, make sure it become easy for people to start businesses and easy to get financed. If we can deal with all these small structural issues within our economy I am sure we can increase that potential growth with full percentage points and that is the key issue on our agenda.

(GC): How does Europe get back its growth momentum though? It almost feels like we've lost something over the years as a result of battling crisis after crisis.

(JD): Yeah, but I think the growth momentum has already returned. And as always, if you don't, you know…if you use the crisis you come out stronger and that is exactly what I think has happened. Our institutions are now better organised, we've put up new instruments to battle crises but also to deal with policy challenges. We've done a lot of work, especially in program countries on structural reforms and I think all this shows that we've come out of the crisis in a stronger way. And the key lesson is don't waste a good crisis and I don't think we have. I think we've used it and used it well and now the key issues are to make the growth more broad and deepen the growth throughout the Euro Zone.

(GC): Do you think we need to demonstrate a little bit more swagger at this point?

(JD): Ahh a little bit more self-confidence. I think there has been a lot of criticism over how the European Union works, how the monetary union works and over time since we started the monetary union we've built it up, we've strengthened it, we've built more institutions to support it, so I think we're coming into a new phase now. A phase which is about stability, about broadening the economic perspectives and of course as always key, I think, is political stability. I think Greece is very much proven what the importance of what political stability is. And I think even for Greece coming out of the elections, Prime Minister Tsipras very much now committed to the program, I think Greece can also return to growth quite quickly.

(GC): The [Greek] government has just won a very key confidence vote, how likely is it do you think in the wake of that that they can now trigger the €15bn payment for bank recapitalisation?

(JD): A lot of work has to bedone in the coming weeks. We can't underestimate that. The ECB has to go through the banks to see what is needed, in terms of capital needs. The government has to put on the table their plans for pension reform which is one of the key problems, also in the budgetary terms, one of the key problems in Greece still. And of course we to come to the issue of debt sustainability. And all of those three will come together in October, November, but before the end of the year and if we deal with that then the whole process of bank recapitalisation can take place quite quickly before the end of the year.

(GC): How you say the mood is within the Council towards some form of debt support or forgiveness at this stage?

(JD): I think there is general agreement that having a debt haircut is off the table. It's more of a matter of principle in countries that if they borrow between each other they get repaid. But as always you can look at interest levels maturity periods etc. The approach we will take is to take a look if Greece can service its own debt, can carry the debt burden on an annual basis. If you look at that it has been flattened out very much. The interest rates have been reduced on different occasions, maturities are now thirty two and a half years, so the annual sort of debt burden for Greece is very low. There are a couple of hikes we may have to deal with and I think we need to agree with the IMF on how to smoothen it out, if necessary, even more and that's it and then the crucial thing is whether Greece can deliver on stability. Stability on managing the fiscal side, stability in getting the economy back in shape and political stability, and I think that can be done, I am optimistic at the moment, I see the commitment from the Greek government so let's do that.

(GC): But what I want from you is an emotional gauge of the temperature at the moment within the council as to whether they are inclined to help Greece at this point. Has Greece done enough to demonstrate that it is now helping itself for ministers to feel that we can give them the benefit of the doubt here a little bit?

(JD): I don't think it's a matter of benefit of the doubt. It has to do with confidence, we need to have the confidence that Greece stays committed, not just for now but for the coming years, they will have to keep their budget in order for longer period of time and then we are good for our promise. And our promise has always been, if necessary we will do more to flatten out, to smoothen out the debt burden and we stand ready to do that.

(GC): The latest data out of Germany is indicating a slow-down in exports. That would appear to be connected to what is going on in China and emerging markets, but does it worry you that we are now seeing Europe's largest economy showing a loss of growth momentum?

(JD): Emm yes, it depends of course on how sustainable that is. I think that China still has strong potential. I think that the strategic choices that the Chinese government has made; the structural reforms that they have outlined are the right ones. So there may be a correction, there may be some problems in the process of restructuring in China, but for the longer term I would be rather optimistic. And that is important to Germany which is a very strong exporting nation to Asia. And as I said before growth in Europe is now no longer dependent on just Germany, it has returned in eighteen out of nineteen countries and it has become much stronger in more and more countries and if you look at the kind of growth that we now see in Europe it is also becoming more broad. It is also coming from domestic demand, it's also coming from investments, and it's coming from exports. Just being dependent on exports would make us vulnerable. If we broaden the growth base, also to domestic issues then we have a much stronger position.

(GC): Do you think the Volkswagen debacle, it is currently unfolding, has the potential to damage both Germany's growth trajectory, but also damage the image of European goods overseas?

(JD): I don't think that would be a fair point to, you know, I think what Volkswagen has done has been very damaging to Volkswagen and they need to sort that out. The Germans have always had the quality mark of Gütezeichen and if it's German it has a high quality standard and that is such a valuable asset to have. So I think Volkswagen has to sort this out very, very quickly. I think it's also an issue of consumer protection, I think that any company, whether they are European, or American or wherever they are from have to realise that consumers are perhaps much more critical now than they were perhaps in the past. They will change very quickly if you let them down so don't play with this asset of consumer trust. I think that's the clear lesson to learn here. So no I don't think it isa European problem, it is very much a Volkswagen problem and they should sort it out. And if other companies do the same they should bloody well sort it out also. But let's not make it a sort of very broad issue.

(GC): Is it all the more galling though because Europe has taken such a strong leadership position on climate change over the last few decades and this just seems to fly in the face of every endeavour that Europe has pursued in putting a climate agenda down that leads the rest of the world.

(JD): I think it just shows that given the tough competition there is in the auto industry that you need public surveillance. You cannot leave it up to a company to say this is my quality standard and you can trust me. I'm sorry to have to draw that conclusion, but that is my conclusion. So underneath all of this we need public supervisors to give off that guarantee and to say, 'fine, you also deliver on your promise'. And for Europe that's important, I would say internationally it is important, if we want to deliver on our climate ambition we have to be good for our promises. And that's a promise to consumers that buy the cars and it's a promise to the public at large. We have to deal with these issues. So there is a great public role still to play.

(GC): Given that the size of fines that are now being talked about could have implications for the viability of the Volkswagen business going forward. Do you think that there is a need to appeal to the US regulator for leniency? I mean no one's died, this is not the General Motors, this is not the Toyota situation, the fines that are now being discussed are way out of proportion to the one that was levied on those two companies. Is there a, do you think any need or desire to appeal to the American regulator at this point for leniency?

(JD):I Think that is, a fine needs to be effective in the sense that it hurts the person who has broken the rules but also effective in making sure it doesn't happen in the future. The worst way to do that is to kill the company. So let's not exaggerate the use of having higher fines all the time. We had the same thing in the banking industry, higher fines all the time. I think there is a strong case to make for international coordination here,so let's talk between the European and the US on what a reasonable and effective fine will be, let's not go over the top here.

(GC): Is the climate for a discussion with the Americans worsening? And I ask because we've recently had some court decisions around data transfers that will effect American companies we've seen a TPP deal done, but at the moment Europe's trade agreement with the US is not going anywhere fast. On a number of levels we seem to be struggling to speak the same language as our American friends.

(JD): Yeah, well that just. The only way to deal with that is to intensify the talks.That's my approach. I think that in Europe there is a strong belief in defending public interest, whether that is privacy of consumers; whether that is public interest in the environment; or the protection of welfare of animals; or… all of these issues are considered important in Europe. They are important and I think there needs to be a bit more understanding on both sides. Also on the American side that these public interests need to be, need to be guarded to be put, embedded in the treaties, international treaties, rather than ignoring them. So if we can do that, intensify our talks also on these public issues I'm sure there is still a common interest out there which is opening up markets, make sure that trade flows as easy as possible and there is more potential growth in there.

(GC): Do you think Europe should be concerned by TPP and perhaps there is space now for us to work more closely with Beijing as a way of stepping around the trade agreement that has isolated China and effectively ignored Europe?

(JD): For me it is not a choice to either go the transatlantic way or to the East. Europe is the most important trade partner for China already. Trade between China and Europe is very strong and I hope there will be growth in that field as well. For me it is not a matter of not having to make a choice. I don't believe in that and I hope that the US doesn't see it that way either.

(GC): The TTIP though has really become bogged down and it seems to me that there are plenty of European countries are taking a national view that argues that this deal is not good for European business or those countries. Do you see any likelihood of progress in these areas anytime soon? Would it take perhaps a change in administration in the United States for us to get some forward movement?

(JD): I think it is. The criticism is not just in Europe. It's also becoming part of the presidential campaign in the US, so perhaps after that campaign it will be easier to find common ground again. And I also think we have work to do in Europe. Many interest groups the public at large have not really been involved so far and all of a sudden they realise we are about to take a big step in international trade agreements. What does that mean for us? What does it mean for social protection? What does it mean for environmental protectionists etc. So we have to make sure that we take these issues on board that we convince the interest groups and the public that there is also a good side and not just the risks to consider, but we also have to deal with these issues and if we can't convince the public that the social protection that we have in Europe, or the environmental protection that we have in Europe are also protected within the trade agreement, I don't think we'll pull it off. There is still work to do. Let the Americans do their presidential campaign. We'll use that time to convince and discuss these issues in Europe and then we will push it forward.

(GC): But there's been a, I wouldn't say it's been political, but within the media itself, speculation that because Russia has now engaged in active offensive against terrorists and terrorist groups in Syria that somehow Ukraine now becomes a frozen issue for Brussels and that Brussels should somehow support the act of engaging with terrorists in Syria that the Russians are engaged in. It's complicated I know, but in any sense is there any desire within the Council to think about perhaps easing off on sanctions, or not escalating them at least while the Russians are being very active against a common enemy?

(JD): I think there are two different issues. I think we should find ways to work together in Syria and that's in my analysis, not what the Russians are doing in the past couple of weeks. They are going their own way and as far as Ukraine is concerned I don't think we need to look at the escalation of sanctions, but it's too early to downscale sanctions. Some are saying that the new focus on Syria will bring at least more stability in Eastern Ukraine. I think that's too early to see, let's see how that develops. The case in point is still involved in destabilising the whole region of the Ukraine and that is, to my mind, still unacceptable. So perhaps the conflict will be more frozen in the coming weeks and months, let's see and let's work together in Syria rather than each going their own way.

(GC): One of the very unfortunate consequences of this crisis in Syria has been the migrant crisis that Europe is dealing with. We've just had the conservative party conference and no doubt some in Brussels would have been listening to what David Cameron and George Osborne had to say, Brexit is never very far away as a topic in those speeches. Do you think that poor handling of the migrant crisis will be an issue that drives the UK out of the EU ultimately?

(JD): I don't see that could help the UK. Let's say that if the crisis were mishandled in Europe and that would still threaten the UK inside or outside because the migrants would still knock on the door, whether they are still inside or outside the European Union. In other words it's much in the interest of the UK to be part of the European approach, to be part of how Europe handles this crisis, to be part of European cooperation. And I keep saying this to my British colleague, I want Britain to be part of it, I want them to be actively part of it. Not just in a defensive way, just checking whether the UK interests are at stake, but be a part of it in a proactive or a defensive way, try to shape what's happening in Europe, influence it and that is still my ambition and I hope the UK will drive that, really push to have a determined influence on what happens in Europe also on the asylum crisis. Pulling out and thinking it won't hurt us as long as we're not part of it is a big mistake. The UK is economically very intertwined with Europe, the UK is interms of security very intertwined with Europe. In terms of the asylum seekers, asylum crisis, very much intertwined with what is going on in Europe. Pulling out is not going to make these issues go away, so be a part of it that's my plea.

(GC): And just to wrap up with you. A potential prime minister candidate, Theresa May, who is the home secretary in the UK made what many thought was a very hawkish speech about borders and the treatment of both economic migrants and those are just seeking safety from conflicts. I don't whether that came onto your radar screen or whether Brussels was listening to that, but I just wonder if you have any comment for those that pursue that line in the UK?

(JD): I heard about the speech. I was surprised on two levels. First I would have thought that it was part of British values that true refugees seeking security from a conflict situation are welcome for either a short or long period of time, I thought that was a common value we shared. Secondly, I think it was very critical about the economic value of migration in general. I think for at a country like the UK if I look at the metropolitan area of London, the importance of migration in economic terms is a very clear case. So let's say there are a couple of points in her speech that are open for debate.


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