Dirk Müller is a German stockbroker and best-selling author. Also known as Mr Dax, he is one of the most familiar faces on Frankfurt's stock exchange.
He spoke with EurActiv Germany's Daniel Tost.
After France and Austria were stripped of their AAA ratings, S&P also cut the European Financial Stability Facility's rating by one notch to AA+. EFSF Chief Executive Officer Klaus Regling and Eurogroup head Jean-Claude Juncker immediately issued statements saying the decision would not reduce the EFSF’s €440 billion lending capacity. Does the EFSF have enough firepower?
The fund is ready for the very urgent payments. Should something larger become necessary – we are talking about Spain and Italy – the fund would of course not be prepared.
It was said that one had to get money from somewhere in order to leverage the thing and in order to motivate others to throw in money - a lot of money.
This has not been successful in the past. This move now is not particularly helpful in improving that.
The fund received solid demand at its six-month debt sale on Tuesday. Is there a need for an increase in guarantees to the EFSF?
The question is: How much money will one need and what's awaiting us in the next 12 or 24 months? The ESM is going to replace the fund, then we will be talking about different structures.
At the moment the fund should be able to deal with things. But either it needs higher liabilities from the AAA states or one has to accept slightly higher interest rates. Although I think that this will be a lesser problem.
S&P's downgrade of nine euro countries has caused widespread criticism. There is talk of a targeted attack on Europe and of a sort of self-promotion of the agency. Is it time for a European rating agency?
I think this is absolutely sensible and long overdue. But such a neutral institution that facilitates assessments is actually only useful for private investors or the bulk of investors.
We have to be clear about this: the ratings agencies we are now talking about are private American companies. On what grounds banks, even central banks, trust these companies with their own decisions is not comprehensible for me. It is the very own task of banks to assess risks.
If you take out a loan as a private person today, banks will X-ray you down to your underwear and assess the risk for themselves. But when it comes to investing billions in bonds, banks just put this inspection into the hands of American companies that have both economically questionable and certainly politically dubious interests, if you look at the structures and the ownerships.
Thomas Mayer, chief economist of Deutsche Bank, says that it would actually be better if one would get away from the agencies as a whole and more investors would rely on their own analyses...
That I can only underline.
Are the downgrades comprehensible in light of the far-reaching reforms in many of the struggling countries in the eurozone?
I would agree to the extent that the rating agencies are right in their sceptical view considering national debts. What I am absolutely not pleased about and what raises many questions is the application of double standards.
The UK, the US and Japan are seen with completely different eyes than the European states. This is reprehensible.
Then there is the timing. One to two years ago the rating agencies themselves called upon the European countries for exactly these reforms.
They have taken these steps and the consequence is the agencies saying: What you are doing is really bad and we need to punish this. This is really crossing the Rubicon and one should not surrender to these rating agencies.
According to ECB board member Ewald Nowotny, the downgrading came at an inopportune time: the tensions surrounding the debt crisis had recently eased somewhat. Will they be rekindled now?
Interestingly, the markets seem to be going numb towards the downgrades. A year ago this move would have caused turmoil. Today it is accepted with a shrug. It is expected and not taken particularly seriously.
Immediately afterwards, we saw yields on French bonds even decrease because this sword of Damocles was gone. It is increasingly missing its intended effect.
It was a reassuring signal for the markets when the bond auctions of Italy and Spain, which started amidst great fear, went through painlessly – also due to the support of the ECB and the pressure of the Italian and Spanish governments on their own banks to buy these bonds.
But we have been seeing these downgrades happening at exactly the right moment again and again. One might no longer believe in a coincidence.
Does the ECB need a stronger role to resolve the euro debt crisis?
The ECB already is playing the "master role". Without the support of the ECB, we would have vanished into the underworld long ago. It made 500 billion available to the banks, which they immediately parked back at the ECB.
Now due to pressure from their governments, they have invested the smallest amounts in government bonds of Italy and Spain, because they are sitting in the same boat and Spain is saying: If you are not buying them, then we are going to drown – and you are going to drown with us.
One might say that this is pulling oneself up by the bootstraps. That's about what is happening with the government bond acquisitions of banks. But without the ECB, we would already be somewhere else.
S&P argues that politicians analyse the crisis as a budget crisis or a public debt crisis. The agency believes, however, that a large part of the crisis is due to diverging economic imbalances in the external field, but also to the competitive capabilities of nations. Do you agree?
This is correct. We in Europe have created a huge problem with the euro. Every state needs the currency that suits its own performance. We have seen this, when about half a year ago, the Swiss franc was somewhat increased in value by capital flows.
Immediately Switzerland's strong and stable economy was in difficulties, because export trade came under pressure. Citizens drove across the border in droves and bought in Germany. Imbalances in the currencies immediately lead to big shifts in trade flows.
In the Swiss example, we could immediately see this on the border and in front of the news cameras. Elsewhere this happens via computer and large contracts between companies.
With a currency much too strong for their possibilities, the Greeks cannot build up a business model. Greek exports account for 6% of GNP.
These imbalances have been developing for 10 years now. It is not correct to say: The euro has been a success story for 10 years and suddenly problems are arising from nowhere.
Different currencies act as a buffer between the different states. If I take out of this buffer, I have a rigid system with still different forces pulling against each other.
These build up, and as with an earthquake, what we are seeing now erupts. These tensions have built up for over 10 years and have not arisen only suddenly.
Moritz Krämer from S&P says that the so-called power of his industry is also wanted by politicians, because they have wired ratings into the regulations for banks or investors. Is this correct?
One can agree in part. I find it incomprehensible why, for example, the decisions by insurance companies whether to purchase bonds or not bonds are based on the ratings of S&P and Moody's.
That the ECB itself even makes its own political decisions based on the judgment of US companies is not at all comprehensible. They seem to put off every thought of whom the agencies belong to, what role they play and what interests they may have.
Why these rating agencies are so powerful has another background. The US capital market is the most important and largest capital market in the world. Without this market no big global investor can be active.
Everyone depends on this market. In order to sell bonds there, I must allow for a review of a rating agency licenced in the United States. This is American law.
This means that as long as any company, bank or state wants to sell its bonds in America – and they all want this, because that is the market where you can make the money – you have to let yourself be rated by an American agency.
They decide who gets money and who does not – and if so, at what price. Now the question arises, what sense a European rating agency would make if it were not approved in the US.
The probability of a Greek default seems to be increasing. There is disagreement among the central banks of the eurozone about how the monetary authorities should deal with the Greek government bonds on their balance sheets. Is there any solution?
I am almost at a loss for words. For two years we have been pumping money into Greece. What is happening now was predicted two years ago. At that time I warned about exactly this kind of development: Pushing more money down Greece's throat and at the same time imposing these extreme austerity measures.
Greece is saving itself into a disaster, the Greek economy will completely collapse and the consequence will be that Greece cannot meet its obligations at all. The tax money that we have made available so far, will be eliminated.
What we are doing is bordering on the misappropriation of taxpayers' money. We should have done this hair-cut for Greece two years ago, taken the country completely off of the capital market, externally financed it and slowly rebuilt the Greek system.
Governments allowed the private sector a long time to part with their bonds. The ECB has bought these bonds in a big fashion. But not only the ECB, but also hedge funds. These have also been buying these bonds and have no interest in rescuing Greece.
Hedge funds have bought Greek bonds as well as bad-debt insurance in the form of credit default swaps and tell themselves: Now there are two versions. Either Greece goes bankrupt, then I make big money with my insurance. Or we don't participate in the voluntary debt restructuring, which means we get 100% returned.
Hedge funds were provided this business model because of the long manoeuvring. The consequence is that taxpayers now have to pay. One year ago he would have not been involved. One can only say: Thank you very much.
