CNBC Interview with Olaf Scholz, Germany's Finance Minister and Vice Chancellor

Below are excerpts from a CNBC interview with Germany's Finance Minister and Vice Chancellor, Olaf Scholz, and CNBC's Annette Weisbach.

AW: Thank you very much for agreeing to speak to us today. Let us preview the IMF meeting and your topics in Washington. What's on top of the agenda there?


OS: We will discuss about the slower growth which we see all over the world and we have to understand what is the necessities we should do for getting into a better situation. Anyone knows that one of the main questions is to avoid that there is a political impact that is increasing uncertainty and if we would be successful with this, especially in trade questions, that will help a lot. It's also a question that anyone is waiting how Brexit will, will happen and anyone is hoping that this will be an agreed alternative with the outcome, with an outcome that is better for the people and for the economy. On the other hand there are a lot of questions that should be solved in the future. One is how we tackle the question of tax avoidance and what we can do to get a better situation. Many corporates use the opportunities they have from the digitalization of of the economy and the more virtual world which is linked to that and use the opportunity to pay no taxes or nearly no tax anywhere and it is necessary that we get some agreement so we can avoid this and we get something which is minimum taxation. There is a good discussion among the IMF and the OECD, the G7 and the G20, and I think it's necessary that we get great progress this year.

AW: Let me pick on your comments about the cooling of the economy. It's also called synchronised downturn – what would you suggest is a good countermeasure against that downturn we are seeing?

OS: We have slower growth, this is something different to a downturn. So we have not a situation which could be called a recession and some of the perspectives we have for the second half of this year and the next year are quite optimistic about further development. But it's obvious that the biggest problem for the world economy today is the uncertainty coming from political difficulties which are on the table. One of the questions is the trade tensions between the United States and China, another one is the possible trade difficulties or debates between the United States and Europe. Though I hope we will have a very good and consensus oriented way to deal with the questions which are to be solved. And there is the question which is linked to the Brexit and some other problems we have in the world. And so it is up to us as the leaders in all the different governments of the world to produce a situation where the economy and the citizens can do their things without being bothered by all the things that are coming from the political scenery.

AW: Let us talk about the potential trade tensions between Europe and the United States. We just heard that the U.S. is threatening tariffs on various products coming from Europe. What should the European response be?

OS: I'm confident that we'll have a chance for a good debate between the United States and Europe and that we won't have difficulties coming from tariffs and things like that. So it is necessary to find an agenda where we could start talks about all the different questions that would be solved. And as I already said I'm confident that this is feasible. What anyone is to understand is that there is a European economy. It is more and more difficult to differentiate between the German and the French and the Spanish and the Portuguese and the Czech or the Polish economy. We are combined in a single market and this has a lot of outcomes. For instance, many of the corporates active in Europe are producing at several places and that they build new plants all over Europe. So it is really a European economy, it is becoming more and more important to understand this and this is why it's very good that the discussion about the further relations between the United States and the European Union are on this level between the European Commission and the American government. And my view is that we should find a solution because we have a lot of things in common, especially being a democratic state and this is something which always should be in mind when we discuss questions which are just economic ones.

AW: You are referring also to the technology companies, some of which are not paying taxes, or not enough taxes in the European Union. Are you alluding to the fact that we should get a bit tougher on them in Europe so that they also have to pay their taxes properly here?

OS: My biggest concern with the tech companies is that they tend to pay taxes nowhere. So it is a global question and I see very much that there is a common approach between the United States for instance and Germany and Europe discussing about minimum taxation. If you look at the details of the corporate tax reform the American Congress passed the last time it is about fighting against tax avoidance as well and implementing something which is a system of minimum taxation. And I think we should find a global agreement on that question. This will help a lot. On the other hand we should find a solution for the question how to deal with the fact that many of the tech companies are not really producing at many places in the world and that our system of tax, and taxing, is really very much related to the place of production and how we can get an outcome that they are also paying taxes somewhere and possibly that all the countries where they have profits are participating in that. But the main question still is in the end that they pay their, that they pay their fair tax which anyone else is doing. The citizens, the smaller, bigger corporates which are in the traditional fields.

AW: There's also a kind of a change of thinking when it comes to competition policy when we're talking about these big technology firms -- the tech firms -- do you think there is, or would you support a case to sort of break them up eventually? If they are getting too big or too powerful like Amazon and Facebook?

OS: At this stage we are discussing about regulation and we have a lot of regulation about how to use the street, about insurances, about all the fields of life. And it is necessary because otherwise good business competition cannot happen. And if you look at the fields of the new technologies and tech companies we see that there is not always really a regulation which is done by Democratic states and parliaments. And I think this should be the next step that we understand how, for instance, we can do something about privacy. How we can make sure that there is enough competition -- that new companies have a chance to be real competitors to those that are already in the market. And there are a lot of problems and we should start to solve them.

AW: Let's talk about Brexit. In your opinion, what's the scenario, how will the Brexit saga eventually end?

OS: I'm still confident that there will be majority in the Parliament for agreeing to the treaty between the European Union and the United Kingdom. I'm really happy that now they're started a debate between majority and minority between Tories and Labour and the British Parliament. Coming from a tradition of having a bipartisan agreement, tradition in Germany I'd say this should happen in questions of national importance. And so it would be very good for the United Kingdom, it would be good for the citizens of the United Kingdom, and for all of us in Europe if we could get an agreement with the European Union and the UK.

AW: Would you support any reopening of that deal which Theresa May has with the European Union? Because there are MPs in Parliament calling for a reopening.

OS: The main question now is to get an agreement within the parliament. And we are all following this debate. I'm still a big fan of the tradition of pragmatism in Great Britain -- this works for centuries, something which was relevant for the parliament as well. And I'm sure that this tradition will be the basis for a solution.

AW: Do you think Brexit uncertainty is already weighing on economic activity on the continent?

OS: So far we cannot see that there is a big impact on the economic development in Europe are coming from the ongoing debate about Brexit. We are well prepared for both, an agreement and a Brexit without an agreement, but anyone knows that it would be better to have something which is a deal. And so we are still hoping for an outcome that makes this feasible.

AW: Let's move onto the European elections. It's quite likely that populist parties will be represented quite a bit more than before. Do you think that it could actually hamper any progress on European reforms like the European banking union? Is that a concern to you?

OS: Looking at the European elections I hope that many people are aware of the need for progress in Europe. And since this is now a question which is top one in the TV broadcasting and all the newspapers and the radio stations and in the internet I'm sure that there will be a bigger participation in European elections than we had in the years before. And this really will help the Democratic parties and the different competitors of this field to be successful. And I think it's also a very good development that like in the last election there will be candidates for running for being the president of the European Union because this is a way of democratization -- all the citizens know that with their vote they influence who will be the next president. This is a chance for democracy. I'm quite optimistic about banking union. We made a lot of progress especially in the last year. We prepared a lot of decisions which will make it more easy to get the last steps. My view is that this is already a fixed built house. We are just working on the roof.

AW: Good luck with that. I think the common deposit scheme will be an interesting one, especially the German side didn't really want to agree to it. Is there movement on it?

OS: We have decided about a lot of progress in the last year as I already said. For instance we decided that there should be more eligible capital and all the banks. That we have a common aim of reducing non-performing loans. That we are getting better and tougher supervision how to deal with new non-performing loans and that we will have a backstop after the SSM which will give us the opportunity to deal with even the crisis of a big bank which gives a lot of stability to the banking system in Europe. And what people do now is to discuss about the further developments, the roof of the house. And I think it will take some time. There will be progress in the next one or two years and the needs for that are very clear. We must understand the whole scenario and we should look to other countries who have a big banking union, like for instance the United States and we should try to learn from them. Possibly this will give us new solutions to our minds, and we will find a solution which is not right at the special topics which were on the agenda in the last years but it might help us to be more successful than in the past.

AW: A lot of people are also talking about who is going to head up the new Commission, because that kind of also determines who might be the next ECB President. So there is reportedly interest from France to head up the Commission. Is that something also that you are hearing?

OS: We now have democratic elections and there are frontrunners and they are running for becoming the President. As you might understand being from the Social Democratic Party I'm very much in favor of Frans Timmermans.

AW: If it's Frans Timmermans, then there is room for say Weidmann being the frontrunner for the ECB -- would you support that?

OS: I think about the question who will follow Mr Draghi we will start to debate in summer this year, not earlier.

AW: OK, let us move on to the difficult topic of banks in Germany. We currently are undergoing a potential revolution of the banking industry with merger talks between Deutsche Bank and Commerzbank. In Frankfurt, the narrative is very much so that Berlin has triggered these talks. Why? Is that also your perception?

OS: There are debates between banks and it is their case to find a solution.

AW: But given the potential amount of job cuts which could emerge, which could be triggered by the merger, is that not difficult?

OS: There is nothing new to add to all the things that are already said. And it is a question between private companies and we are not yet in this situation to comment on that.

AW: OK just one last question on that topic because UniCredit is said to be interested in Commerzbank and there are rumours that actually this could not be backed by Germany because it's an Italian bank. Is that something that would be a concern to you a cross-border merger?

OS: I think I could always repeat what I already said.

AW: Let's move on to Germany. Recent economic data in Germany was poor. Export data is showing us that the weakness we are seeing was not just a soft patch but it's clearly a prolonged weakness. Would you consider any fiscal stimulus to actually spur the economy to boost the economy?

OS: The situation in Germany is very similar to the global development and this is not that surprising since Germany is one of the countries which is very much active on the global market as importer and exporter. And there a lot of companies even Middelstand companies that are active in the global market and the world market. I think it is absolutely clear that if there is a slower growth worldwide we will also see it also in Germany. On the other hand we have a very special situation and the labour market is doing well. We have the highest employment rates and the highest number of people employed since decades. So it's a very good situation. And all the forecasts we have say us that there will be more people employed in this year or the next year. So this is not a bad situation and we should not have a wrong judgment about the situation. It is just slower growth and the expectation is that this will be will change in the end of this year and beginning of next year that we will not just have more people employed but also better growth. And this must also come from some of the decisions that have been done in Germany and in Europe. For instance, the Government's decision to go out of the use of coal for producing electricity and heating within 20 years will have the outcome of big investments in the private sector for full force strength and great electricity and gas and for building new capacities for producing electricity. This will have also an impact on the economic development. And this is the same coming from the decision of the European Union about the CO2 pollution that is allowed coming from the CO2 emissions coming from cars and trucks. My view is that it will be billions that will be now spent by the big corporates and the car industry not just in Germany but especially in Germany for being the leaders in the electromobility and plug in hybrid production which will change the scenario in Europe, absolutely. Which will also have an impact on growth because all these investments will have effects on the economy.

AW: Yes that's completely right I guess. But the other side of the matter is also that the mass market for those electrified cars it's kind of hard to envision that it will work in a short time given the higher price of cars. So if you look for example at Norway they have a lot of incentives in place for electrified cars and this is working. So do you think that is a good idea also for Germany to have much more incentives to buy into it?

OS: We have a lot of incentives for buying electrified cars. I think they will be more important in the future especially because there is the European regulation and the car manufacturers will have to avoid a situation where they have to pay extra penalties because they are not, they are missing the aims which are laid down. And on the other hand we will have some new incentives and I proposed that we will support all those who are buying cars by corporates because the majority of the new bought cars are bought not by private buyers but by companies, corporates. This will change the fleet and this will also help the big car industry players that they are successful with their electrification strategy and so we have a European market which is producing the need for electrified cars and we will have a world market for that. And I think we are now at the stage where the corporates where the companies are deciding that they would meet the challenge.

AW: We live in a very interesting time in industrial policy by nation states is back in full force. So what's your idea – would you support an organized industrial policy for Germany as well?

OS: Discussing about industrial policy is an advantage. I urged the debate in my country to go on that question but to my view it is not just thinking about state aid, it's more thinking about how we understand the development of industries and what we can do to make their business more successful. And this is not just for big corporates it's also for small and medium sized companies and their expectations. We should understand what is the need coming from industrialization. What will be the new technological developments. What can we do that those who are willing to be the front runners could be successful and if we have the right and good understanding we will be more effective without political strategies.

AW: My last question. Are you worried Germany runs the risk of running behind in the global economy?

OS: I think that Germany has a very good mix which will be important in the global economy even in the future. The manufacturers are really successful and they are selling all the things they produce and they are very successful also in remodeling their goods and their production into what is called the Internet of Things. And so this is a combination of digitisation and of industry and so there is a good chance for being successful. I'm really optimistic looking at the future of what is here and understanding the development of the economy of Europe and Germany.

AW: Thank you very much.

ENDS

For more information, contact: Jonathan Millman - jonathan.millman@cnbc.com / +44 (0)7788 307 996

About CNBC

CNBC is the leading global broadcaster of live business and financial news and information, reporting directly from the major financial markets around the globe with regional headquarters Singapore, Abu Dhabi, London, and New York. The TV channel is available in more than 415 million homes worldwide.

CNBC.com is the preeminent financial news source on the web, featuring an unprecedented amount of video, real-time market analysis, web-exclusive live video and analytical financial tools.

CNBC is a division of NBCUniversal. For more information, visit www.cnbc.com.