The Stability of Europe and the Euro
Mr Chairman, ladies and gentlemen, good afternoon. Thank you for the invitation to participate in this European channel. Congratulations to you and colleagues of the IISS. This is good timing; it could not have been better. Thank you very much to the Kingdom of Bahrain for their hospitality and the warm welcome that you are giving not only to this conference but to everybody too. The meeting here is warm in different ways, and we very much appreciate being here.
I will take my 15 minutes to give a pro‑European pro‑euro impulse to the conference, which would not be a surprise. The rise of the modern state and the resulting international system of states happened along the question of fiscal monopolies – of who was allowed to tax whom, and how these taxes were being distributed between guns and butter. Economic policy decisions have enormous consequences for political systems and can bring about consequences for national and international security matters. The scenes in the streets of Athens have reminded us forcefully of this fact. I am therefore especially grateful to be here today, as I am one of the few European speakers at this Summit, and this is a demanding and challenging time for Europe, the euro and our community as a whole. This is not just a single visit; as some of you might know, Chancellor Merkel will visit the area at the end of this month, which shows respect not only to the Kingdom of Bahrain but also to the GCC in general.
Last weekend was one of the toughest and most important political weekends in Brussels in the last decade. I have a different problem: Professor Cooper had no speech; I had one that was useless on Monday this week. As we have to defend our common currency against growing turbulence and turmoil in the financial markets, things have changed over the last days in every hour. What is more, this situation, if not addressed as a matter of urgency, could have presented a serious threat to the financial stability of the European Union as a whole and, therefore, to the financial market in general. Jean‑Claude Trichet, the independent president of the ECB, stated that this is the most serious situation in Europe since the Second World War and, therefore, all his decisions have taken into consideration the need for the stability of the euro and not political purpose.
However, Europe acted and demonstrated determination with this situation. We witnessed a unique and unprecedented act of unity between the European Union and the European Monetary Union. The recent decision to provide a comprehensive package of measures, including a financial stabilisation mechanism with a total volume of €750 billion including the IMF share was indispensable in terms of solidarity, and financial and economic stability in Europe. To be quite frank, my main message to you today is: politicians all over Europe in all member states, the ECB and the European Commission will undertake all necessary steps to strengthen and stabilise the euro and the financial stability of our currencies.
The euro is of utmost importance for Europe. It was a motor of the internal market, an anchor of stability in times of crisis and, last but not least, it is a unique symbol of European integration. Europe is not based just on wealth. It is not based on military supremacy or nationalism. The European idea is not based on ideology. The truth is Europe is driven and based on the idea of freedom, on respect for the individual, on a strong belief in justice, the rule of law and the acceptance of solidarity. Therefore, I quite clearly state that those driving forces should not be underestimated in a weak European currency, and we will take further action in the fight to regain strength in the fiscal and economic matter of the euro area and of Europe in general.
However, it is quite clear that the crisis has revealed weaknesses in the governance mechanism of the EU and the euro area. Sparked by the crisis in Greece and the developments in several countries, we have seen that fiscal and economic surveillance in Europe does not work effectively enough to prevent undesirable trends and macroeconomic imbalances. The current system is not capable of dealing with the extreme situation we have these days. We are thus working intensively together in order to find a solution to the economic and, of course, evident fiscal problems, and to ensure necessary reforms that safeguard and strengthen the foundation for future growth, and economic and social stability and security in Europe. Last weekend proved that Europe and the EU are still in the game and will remain strong players in the international political and economic areas. Europe will promote within the G20 framework that we regulate financial markets, including the players and some of their instruments, in a manner that prevents private players from acting so irresponsibly that the consequences, therefore, are a danger to public finances and the stability of societies.
Looking beyond the solution of the immediate crisis, we now have further key challenges in the medium‑term political perspective. Firstly, in light of the rapidly increasing public deficit, it is of paramount importance to increase confidence in the credibility and the long‑term stability of public finances. Therefore, fiscal consolidation must be a top priority from 2011 onwards at the latest. What does ‘fiscal consolidation’ mean concretely? It means that governments have to regain room to manoeuvre in their budgets; they have to regain the fiscal means to act politically and exert what politics is all about: democratically enacted executive powers.
Secondly, economic policy faces the challenge of continuing the stabilisation of the economies in the eurozone in the short term. We are laying the foundation of future growth. Therefore, we need prudent and coherent exit strategies in the field of fiscal, economic and financial market policy, consistent with a forward‑looking structural political agenda to enhance our growth potentials. There seems to be some misunderstanding that this excessive deficit spending we have seen in 2009 and 2010 should go on. 2011 is the starting point for the exit of the excessive deficit spending.
Thirdly, building on the decisions taken, we need to draw lessons from this crisis and strengthen the system of economic governance for the future. We need to improve the coordination of economic and fiscal policies, as this will be the key to identify and prevent undesirable trends and structural weaknesses that also underlie the current macroeconomic imbalance. I want to take the time to focus on some of these challenges, the first of which is enhancing economic governance within the EU.
In order to achieve the common goal of stability, growth and employment, EU member states closely coordinate their economic and fiscal policy within the Stability and Growth Pact. Later we have to succeed with Growth Strategy 2020, which is now being discussed as coming into operation soon. The members of the euro area are committed to even deeper coordination and surveillance of fiscal and economic policies reflecting their more intense interdependency, due to a common currency. The crisis has revealed unsustainable structural weaknesses in some of the countries, which require stringent reforms – reforms including labour markets, product and service markets, and the financial sectors – but more seriously at the moment are fiscal challenges.
Apart from solving the current crisis, we will need to agree to measures to improve policy coordination within the EU and the euro area in the medium term to prevent such undesirable trends in the first place. That does not mean an economic government for Europe, but it means that we have to make better use of existing instruments and have instruments to enforce their implementation. All countries in the euro area must comply with these rules and do their homework to bring their fiscal position back to a sustainable level, and improve productivity, innovation and competitiveness in the world markets. Stronger coordination will also mean that the euro area member states will exert stronger peer pressure on each other. This includes a strong commitment to open markets. It was quite impressive that I heard Doha more often than other instruments to promote growth here in this conference. It was the German Finance Minister who made the first call to action for a new European framework, when he published an article in the Financial Times some weeks ago. Some where saying that we did not need a framework at that time, in early April; but now everybody supports the idea that we have to make an evolutionary process that includes measures like taking into consideration fewer voting rights within the EU, less financial support and that we need a framework for international failure that makes a proper answer to the problems we have now.
Let me make a second point on strengthening growth. The exit strategies I am referring to have to be accompanied by medium‑ and long‑term reforms to bolster potential growth in unemployment. The aim needs to be to strengthen internal and external dynamics through sound fiscal policies and structural reforms. Labour markets, services, research, education and innovation are the main playing fields. The key area of our Growth Strategy 2020 is smart growth – that is developing an economy based on knowledge and innovation. This includes very stringent property rights management. It calls for sustainable growth, promoting more of a resource‑ and energy‑efficient economy. It calls for inclusive growth, leading to a high‑employment economy including the greater participation of youth and older workers, and better integration of legal immigrants. We want to achieve that, incidentally, through headline targets like raising the employment rate to 75% and making a big investment in research and development.
However, the issue of better economic governance and coordination is not only relevant to Europe but also worldwide. In a globalised world, economies become increasingly dependent on each other. Economic and political developments, but also environmental shocks, have transnational effects. We have just seen that in the US with the oil spillage on the southern coast. We have to take these global effects into consideration with our actions, and we need to cooperate in order to ensure stability and security here in economic terms.
One central issue are the global imbalances, which sum up the threat towards stable growth in the world economy. It is quite clear that we have a common responsibility for the maintenance of the open market and free trade around the world. The crisis brought about some ad‑hoc reductions to the global imbalances, but their orderly unwinding remains an important task. Therefore, actually Germany and Europe support and welcome the initiative of the G20 for strong, sustainable and balanced growth, emphasising the positive role of efficient and undistorted competition, as this should be our first aim in order to increase potential growth and wealth at the global level.
Germany and Europe are committed to contribute to this process to sustain growth in the world economy. This includes our exit strategies and the redesign of European economic integration. We are well aware of our responsibilities to the world economy. Europe knows that the world is asking the question: how will it proceed to regain it strength? How will it regain the resources needed to assume responsibility beyond this border? Germany and the EU are ready to take over the leadership in this process, and we see that, yes, the euro will survive and, yes, we will do everything for a strong currency to support the political and economic contribution to this process.
