Professor Norbert Walter, the renowned and often outspoken Chief Economist at Deutsche Bank, was in Luxembourg on 17 December to address a conference organised by Déi Gréng on “What will work to tackle the crisis?”

An insightful and entertaining speaker, Professor Norbert Walter has long been a sought-after analyst and even more so since the financial crisis began. His track record in urging investment in sustainability and alternative energy sources goes some way to explaining why Déi Gréng invited him to Luxembourg. But first he looked at the causes of the current financial and economic crisis and laid some myths to rest. The crisis was not caused by a sudden surge in greed, Walter argued. “Humans have always been greedy,” he said. “Sometimes greed has led to terrible events. But because of the greater leverage today, the consequences have been more dramatic.” Walter was, however, critical of bonus systems, saying that rewarding turnover rather than sustainable profit was not in the best interests of the customer. He would like to see the practices of the insurance industry put into place whereby bonuses are not awarded for the initial sale but only if customers are retained after five years. Walter also noted that many Europeans blamed American ratings agencies for being rather too generous in awarding Triple A ratings to companies that were not really up to scratch. While he agreed that it was disturbing that ratings agencies were paid by those very companies they were assessing – which could lead to clear conflicts of interest – Walter dismissed the idea that they should be blamed just because they were American. “Anybody in Europe could have created a ratings agency, so it is just as much our fault as the Americans’,” he said.

Walter is rather unique among German, indeed, European commentators and politicians in hailing UK Prime Minister Gordon Brown as something of a hero in the crisis. His Luxembourg lecture came just days after German Finance Minister Peer Steinbruck had criticised the UK government’s fiscal stimulus package as “crass Keynesianism”. Walter argues that the current crisis is the first time in his life that he has experienced a Keynesian situation. “So Keynesian answers are applicable,” said Walter. “Even if we are taught in our economic studies that Keynesian measures are wrong.” The Deutsche Bank economist hailed Brown’s policies and argued that Chancellor Angela Merkel and what he called the “Spring chicken” in Paris had not mastered the situation. “The British have got it right,” he said. “Gordon Brown has introduced successful policies”.

VAT incentive

Indeed, Walter has been a keen proponent of Brown’s VAT rate cuts and has urged Germany to follow suit by introducing a temporary reduction of VAT by 3% for one year. “It is important that we do not deprive the government from revenue on a sustainable basis,” he said in an interview with paperJam TV. “I have learned the very hard way that German consumers spontaneously, almost in a reflective way, respond to tax incentives. Whenever they can save taxes, they act, almost like Pavlov’s dog.” He firmly believes that German consumers would replace old cars and white goods in particular if they were provided with an incentive, and that could help boost the economy.

However, Walter also warns that if one country in the EU increases domestic demand to support the economy there would be what he calls “huge leakage effects” if others did not follow suit. He cites an example of British consumers buying German cars as a result of the lowering of VAT in the UK, which would benefit the German economy rather than the UK economy (he was speaking before the sterling-euro exchange rate hit new lows).

In his lecture to the Green Party, Walter also issued a warning to Europe that it should not “sleep” while the USA catches up with environmental investment policies. “The USA should be the reference point for Europe, not Germany,” he said. As well as citing the fact that Wal-Mart now has the biggest private contracts for solar panels, Walter also said that new US President Barak Obama’s green credentials were not to be ignored. “Obama is not someone who just talks,” he said.