Meet The Influential German Professor Who Wants To Get Rid Of The Euro In Order To Save Europe

REUTERS/Kai Pfaffenbach

Meet Dr. Bernd Lucke, the University of Hamburg economics professor who just formed a new, anti-euro political party to unseat Angela Merkel in this September's German elections.

Lucke, the leader of Alternative für Deutschland, is on board with the "new approach" the euro zone appears to be taking with bank bailouts in the wake of this week's Cyprus deal that has sent bank stocks in Italy and Spain tumbling.

Depositors in the two largest Cypriot banks will take a substantial haircut on bank account balances in excess of 100,000 euros in order to help pay for the bailout. This shifts the burden of footing the bill away from the taxpayers and onto those involved directly with the banks.

Germany, the kingmaker in the euro zone, pushed hard for the EU to take a hard line with Cyprus, ensuring that depositors would be involved in the restructuring. After all, with elections looming in September, the last thing German Chancellor Angela Merkel and her party needs is to look like they are willing to write blank checks to Cypriot banks, which are viewed by the international community as an offshore tax haven for moneyed Russian interests.

Lucke says the reason Germany had to take such a hard line toward depositors – a stance that has set in motion a whole new disruptive chain of events in the euro zone in recent weeks – was because of the new dynamic his party has brought to the German political scene.

"My sentiment is that this is a response to the fact that our party has gone public and that Angela Merkel feels threatened and now fights back for her popular support," Lucke told Business Insider.

So, what exactly is Alternative's plan for Germany and the euro?

For Germany, it's severing the fiscal transfers to struggling peripheral euro zone countries in southern Europe that have fallen into recession.

"While it currently seems to be the case that we do benefit from the euro crisis, there are tremendous risks in the wings, and we would like to end these policies of disguising fiscal risk, and discharging banks of their risk to the detriment of taxpayers," says Lucke. "This heavy burden we just do not want to bear, and this is why we have formed our party to oppose it."

For the rest of Europe, in which Germany remains dominant, it's dissolving the euro altogether.

Lucke says the economic division the euro is creating between North and South "certainly is the cause for envious sentiment and angry sentiment in the southern European countries, so that the political tensions within the European Union actually rise."

Alternative für Deutschland fears that these tensions could jeopardize the principles of a "common market" that make the EU so great for German trade. Lucke suggests, for example, that peripheral nations could perhaps impose customs duties if they can find no other way to become competitive.

"We use the completely wrong incentives for the crisis countries," says Lucke. "We do not help them solve their problems, but pile up more debt for them and force them into a recession, which makes the situation simply unsustainable."

Thus, it's about sacrificing the euro to save the European Project.

We also spoke to Lucke about AfD's chances in September's elections, what an AfD opposition would look like in the German Bundestag, his thoughts on the rise of Beppe Grillo and the anti-euro Five Star Movement in Italy, and the economics Germany's relationship with the euro.

The full transcript is included below.

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BUSINESS INSIDER: What is your opinion of how Angela Merkel has handled the Cypriot bank bailout?

APBERND LUCKE: I think it was a stupid idea of hers to try to use the savings of smaller savers with credits in the bank of less than 100,000 euros for bailing out the Cypriot banks.

This was against European law, as everybody knows, so by doing that, she has caused a very aggressive climate in Cyprus, which made it much more difficult to find public support for the one step which was right, which was correct, which is to use some of the wealth of the big creditors of Cypriot banks to stabilize the banking system there.

So, I do approve of the decision the Cypriot parliament has taken with respect to wealth beyond 100,000 euros. I think this is a good and necessary step. I do not approve, however, of the fact that the bailout clause of the Maastricht Treaty has again been violated by the promise of another 10 billion euros for the Cypriot government.

BI: Do you think the rise of Alternative für Deutschland pressured the Merkel government to take a harder line with Cyprus?

BL: It seems that the German government has been rather tough in recent weeks on the government of Cyprus, and my sentiment is that this is a response to the fact that our party has gone public and that Angela Merkel feels threatened and now fights back for her popular support.

BI: Eurogroup President Jeroen Dijsselbloem this week sparked some controversy by suggesting that the Cypriot bank bailout deal could be a template for future bank restructurings in the euro area. How would a Germany led by your party seek to guide the restructuring process?

BL: I think that the restructuring of banks is necessary in many circumstances. I am very much in favor of having an orderly sovereign default in those countries which are overly indebted. An orderly default means that while the government does default, it is necessary to stabilize banks, and if banks are being recapitalized, then I think the prime resource for recapitalizing banks are the owners and the large creditors of those banks.

So, I am very much in favor, actually, of the policy that has already been outlined this week.

BI: Germany has managed to avoid recession, and unemployment continues to fall. Why would you want to endanger that status quo by leaving the euro?

BL: There is a huge build-up of fiscal risk in Germany by the obligations which we have agreed to under the European Stabilization Mechanism. So, while it currently seems to be the case that we do benefit from the euro crisis, there are tremendous risks in the wings, and we would like to end these policies of disguising fiscal risk, and discharging banks of their risk to the detriment of taxpayers.

We think that the tensions in the euro zone, which are currently just hidden by those transfer payments we make, should be made visible and should be solved by reintroducing national currencies and exchange rate flexibility.

This may, in the short run, put some burden on the German economy as well, but I think in the long run, it will be much more beneficial than the current policy.

BI: What is the real downside to continued wealth transfers from Germany and other northern euro member states to those on the periphery?

BL: Well, I don't really see that those economies are coming back on track. What we see currently is a steep rise in unemployment and youth unemployment in the southern European countries. We do observe some improvement in the terms of current account deficits and measures of productivity, but these are an improvement only because unemployment is rising – because less productive workers have been fired.

So, I do not think that this does indicate any kind of real progress, or at least enough progress to make those countries competitive again.

The problem seems to be that we have started with a transfer union, and there is no way out that we currently see as long as we stay in the euro. Rather, it seems that this policy will linger on for years, and possibly decades, which will put a heavy burden on German taxpayers, households, as well as enterprises.

This heavy burden we just do not want to bear, and this is why we have formed our party to oppose it.

BI: What is your response to the rise of Beppe Grillo and his anti-euro, Five Star Movement in Italy?

BL: I don't really have any response to that – I observe this rise, but we do not have any contact with his party.

I do share some of his views that the euro is not the appropriate currency for Italy. So, I have some sympathy for some of his positions, but certainly not for all of his positions, and certainly not necessarily for the way he is advancing his positions.

So, I think there are also big differences between our party and Grillo's party.

BI: Does Alternative advocate that Germany should leave the euro?

BL: No. We are running on a platform to dissolve the euro in a stepwise fashion, on a platform which proposes to reintroduce national currencies, but not by having Germany leave the euro, but rather by making the southern European countries leave the euro first, and then breaking up the remaining euro zone into other smaller currency areas, or into countries which each have their own national currency.

What we do not propose is that Germany leave the euro either now or in the future in any kind of unilateral sense.

BI: What do you hope to achieve going into the September elections? What sort of ground can you reasonably hope to gain in the government?

BL: Opinion polls currently indicate that about 25 percent of the German population is sympathetic to our anti-euro view, so we hope, of course, to take advantage of this share of the population as much as is possible.

If we do get elected to parliament, then the next question is whether we will be in the opposition there, or whether we will join other forces to form a government. My guess is that we will be an opposition party, because we would be willing to cooperate with any other party only if it changes its view on euro policy, and this is currently not conceivable.

BI: How have relatively calm financial markets in Europe since last summer affected the German perception of the euro and "bailout fatigue" in the German population?

BL: I think that the unrest which the public feels has grown, even though I also believe that there was a big share of the population that was displeased with Angela Merkel's policies already from the start of this policy in May 2010 on.

You may remember that Angela Merkel's party suffered heavy, heavy losses in regional elections which immediately followed the decision of May 2010 to establish the first big rescue facility.

So, there is a large share of the population which is deeply displeased with that, which perhaps has not really had the means to express itself properly, because many people are not so familiar with economics, and don't feel on safe grounds when they speak about that topic.

It is precisely for this reason that we have formed our party now, which is supported by many, many professors of economics, for instance, and many entrepreneurs for whom it is their daily bread to deal with economic issues, and which are quite outspoken in their criticism toward the government's euro policies.

BI: How has your background informed your views on the euro and Alternative's euro policy platform?

BL: I think there are basically two sources. One source is that i do not see much support for the economics behind the rescue policies. We have a big misallocation of capital by the rescue facilities.

We use the completely wrong incentives for the crisis countries. We do not help them solve their problems, but pile up more debt for them and force them into a recession, which makes the situation simply unsustainable.

So, there is a lot of economics which can actually be advanced against current policies.

The second source of my thinking was sort of more democratic or legalistic way of thinking in the sense that I was shocked by the fact that our government does not respective the Treaty of Maastricht. It just acts as it pleases in certain circumstances, completely disregarding all the promises which ever have been made to German voters, completely disregarding the legal framework of the European Union.

This, I think, is something which is really shameful for a democratic society, and is also a major source for my political engagement.

BI: What are your views toward the European Union?

BL: We do think that this is the way to save the European Union from a breakup. Actually, this is a big concern that we have.

We think that the euro currently splits the European Union into two parts – a segment of an economically unsuccessful southern part, and a more northern, or more central, European part, which currently seems to benefit from the misery of the southern European countries, because all of the capital flows back from southern Europe to Germany, and the Netherlands, and other stable countries, where it helps us to do cheap investment, but which is at the expense of those southern European countries, and which certainly is the cause for envious sentiment and angry sentiment in the southern European countries, so that the political tensions within the European Union actually rise.

There is the imminent danger of the disintegration of the European Union and of the common market, possibly even with a return to, say, impediments to trade, like a reintroduction of customs duties if those southern European countries are not able to balance their trade by any other means – in particular, not able to balance their trade by a devaluation of their own currency.

BI: Is Alternative's plan to sacrifice the euro in order to save the European Project?

BL: That would be absolutely correct.