--No Strong Currency Without Strong Economy
--Hopes US Economy Is Correcting Softly
--Jan. Fed Rate Cuts "Very Useful" Given Circumstances
--US Tax Cuts Needed Soon
--Not Sure US Rebound Signs Coming Soon
--May Face "Some Time" With Growth Close To Zero
--Markets Getting Better At Factoring Future Into Evaluations
--$5.6 Trillion In Surpluses In Next 10 Years "Conservative Forecast"
--Should Be No Intervention In Markets, But There Are Exceptions

FRANKFURT (MktNews) - The following is the full text of U.S. Treasury Secretary Paul O'Neill's interview in the Friday edition of the Frankfurter Allgemeine Zeitung. The interview was translated from German by Market News International.

Q: Secretary O'Neill, the American economy has clearly weakened in recent months. What must happen to revitalize the economy?
O'Neill: It's true that growth is currently much weaker than in the past five, six years. I hope that we are in a soft correction phase of the economic cycle. Alan Greenspan, the governor of the Federal Reserve Bank, has already cut interest rates twice, each time by 50 basis points. Under the current circumstances I believe this was very useful. I have told the members of Congress, that we must now quickly pass the tax reform, so that citizens can keep more money in their pockets and payback their credit card debts. I'm not quite clear on whether we will soon see the first signs of an economic recovery or whether we will have to accept growth rates close to zero for some time.

Q: Are monetary and fiscal policy suitable for fine-tuning the economy?
O'Neill: It takes a while before monetary and fiscal policy impulses show up in the real economy. But the markets keep getting better at including the future in their daily evaluation (of the situation). The market's reaction to the Fed's rate cuts was impressive proof of this ability: The interest rate cut also showed up in forwards for bonds. At the moment, data even show that market participants are expecting further interest rate cuts. That's good for the economy.

Q: The tax cuts planned by President George Bush and yourself are based on the assumption that there will be a surpluses totalling $5.6 trillion in the next 10 years. How reliable are such long-term forecasts?
O'Neill: The forecasts are conservative and as good as they can be given all the uncertainty. The tax cuts of about $1.6 billion can be financed without threatening that part of the surplus that is earmarked for social security pension payments. And then we will still have about $1.5 trillion left over. I cannot remember every having been in such a comfortable position. One thing, however, is true: We have to maintain discipline and cannot launch into huge new spending programs.

Q: You want to reduce government debt further at the same time. What happens when there is no more debt, but the surpluses continue. Will the government then start investing in private assets, for example in shares?
O'Neill: That's a terrible thing to imagine. In a capitalist system like ours it is not the government's job to own companies? Should we buy an aluminum forge or a chain of food stores? That doesn't make sense.
Q: Some economists are advising you to stimulate the economy through exports. Would a weaker dollar be useful for America?
O'Neill: That's a crazy idea that could only be conceived by nationalist economists. Such thoughts come from the past, they are no good for the future. We also do not follow, as has often been said, a policy of a strong dollar. In my opinion, a strong dollar is the result of a strong economy. But I have not yet found anyone who did not want high growth rates, low inflation and low unemployment. When these three things come together, that's often reflected in the exchange rate. Without a strong economy there is no strong currency, this is true for the dollar as much as for the yen or the D-mark.

Q: Does this mean the economy in the euro area is weak?
O'Neill: I don't understand all this talk about the weak euro. Who can maintain with certainty what the 'right' euro-dollar exchange rate is? What's the yardstick? At what level would the euro be strong? A long time ago, I once thought that the price of a certain good should be different to what it actually was. At the time, a smart, older friend of mine gave me the following advice: 'If you want to know what the right price is, just go over to the (trading) screen and look at the price.

Q: Does this mean that intervention on the foreign exchange market, like that carried out by the European Central Bank in the autumn -- once even supported by the Treasury and the Fed -- is pointless?
O'Neill: On intervention I want to say only this: In principle, there should be no intervention in market processes. But there can be exceptions. There is no point in talking about it too much.

Q: The most recent financial crises in Asia and Latin American and the International Monetary Fund's (IMF) intervention with large loans have fanned a debate about reforming the Bretton Woods Institutions IMF and World Bank. What is the view of the U.S. administration in this matter?
O'Neill: A number of studies have been carried out on the IMF and World Bank. My observation is, that both institutions are moving. In future however one thing must be clear -- particularly in view of the rescue packages: It is a principle of capitalism that people take hold of their money and decide freely where they will invest it. For this, they receive a certain sum, depending on the risk involved, that is greater than their capital costs. If someone removes the risk of suffering losses, then that has nothing to do with capitalism. Everyone who makes their own free investment decision has the right to fail. In future it will also be important to make clear to countries that threaten to run into difficulties that the rest of the world will not be prepared to help them. But my impression is that the IMF has understood this.