Der Parlamentarischen Staatssekretär beim Bundesminister der Finanzen und Bayreuther Bundestagsabgeordneten, Hartmut Koschyk, verfasste nachfolgenden Namensartikel mit dem Titel „Die Europäische Union in einer globalisierten Welt – die Schuldenkrise wird gelöst werden!“ für das „Shanghai Chunqiu Institute For Strategic Studies and Social Outlook” in der Volksrepublik China. Der Namensartikel wurde auf der Webseite guancha.cn veröffentlicht. Es handelt sich hierbei um eine Webseite, die Zeitgeschehen, Politik und Meinungen fokussiert. Die Webseite wird von mehreren Forschungsinstituten (u.a. Shanghai Chunqiu Institute For Strategic Studies and Social Outlook) mit Inhalten gefüllt.
The European Union in the global world – the debt crisis will be solved !
Why do we need Europe? We need Europe, because of Europe’s contribution to global stability and prosperity, its emphasis on long-term, stable and sustainable growth, its mix of freedom and social equity and its capacity to provide public goods on a global scale.
Some might disagree given the current economic crisis. Some might argue: Mainly Asian emerging market economies are leading the way out of the most severe financial and economic crisis in the post-war period. In contrast, contribution to global growth on both sides of the Northern Atlantic has been limited. I do not want to deny that the European Union´s share of the global Gross National Product has been declining and so has its share of the world population. In addition, demographic trends in developed European economies point to declining workforces which have an impact on our economies’ growth potential. All this considered plus stubbornly high unemployment in parts of Europe and the euro zone crisis seem to support the view of doomsayers, who foresee an unavoidable decline of Europe.
Of course, Europe as a whole cannot keep up with current Asian growth rates, as in China or in India. But I think it does not have to. Our approach is sustainable development and growth, which needs to be long-term and stable. Europe’s contribution to global prosperity is providing its share of political and economic stability in an uncertain world.
We have to remind ourselves that during the 20th century, global challenges were mainly of military nature. Never again should there be war in Europe – after the destruction and immeasurable suffering caused by two world wars. These were the historical reasons for the steps towards the European unification in the second half of 20th century.
The challenges of the 21st century – a century of globalization – do add to that. The balance of global economic and political power is changing. That is the main motivation for European unification in the 21st century. Europeans can only act effectively in their own interest, live up to their responsibilities and pursue our ideas about how the world should or should not develop, if Europe grows ever closer; if it becomes a unit capable for action in the world and for the world. To quote Jean-Claude Juncker, Head of the eurogroup: “In Europe, we lose together and we win together”.
For European policymakers the question is therefore not if we need a more united Europe. The question is rather how European integration should look like for Europe to strengthen global governance. Instead of petty narrow-minded rivalries, we need to create new supranational governance structures – new ways to allocate political rights and responsibilities at different levels. This is a quite difficult task, but must nevertheless be the next step towards more European unity.
With respect to the current debt crises in Europe, I think a sharp analysis of the shortcomings of the European Economic and Monetary Union (EMU) is important. In the 1990s, we agreed that we would have to make further progress in advancing European economic and monetary integration. We established a monetary union. While policy-makers were aware that we would eventually need a political union, it was impossible to agree on it at the time. So, for the time being we agreed on a stability pact with fiscal rules for the member countries of the EMU, which would enable the monetary union to function. If the stability pact did not work as intended, it was widely believed that countries neglecting the pact would have to pay higher interest rates.
Unfortunately, certain member states enjoyed benefits of low interest rates for years while they failed to improve their competitiveness and allowed public deficits to balloon. Apparently financial markets had no problem with increasing debt levels and decreasing competitiveness. This was true from the joining of the monetary union by Greece until Lehman Brothers went bankrupt in 2008.
In the year 1996 – before the Euro was introduced – the risk premium for Greek bonds in comparison to German bonds (Bund) was over 800 basis points. Italy had to pay 300 basis points more than Germany.
Since 2008, as a result of the financial crisis, we are seeing a situation in which financial markets are increasingly uncertain as to whether higher and higher deficits and the accumulation of more and more debt will ultimately be sustainable. What we are seeing is a kind of structural shift in the willingness of investors to accept sovereign bonds of many advanced economies as safe assets given the high levels of public indebtedness. For specific reasons, this uncertainty has not yet impacted the United States, but has hit some eurozone countries with full force.
The problem is that the public debt crisis in the eurozone makes people and investors lose confidence in Europe. They do not understand why decisions in Europe take so long. But this is a unique constitutional element of Europe: Europe is complicated, and if decisions are supposed to be made on the basis of democratic legitimacy, they take time. The public also sometimes questions whether the Euro is worth all the effort – in terms of painful reform programs conducted by countries in trouble and credit which is guaranteed by taxpayers living in “solid” countries.
How to resolve this “confidence crisis”? On the one hand, we have to regain confidence in the EMU through institutional reforms that resolve initial shortcomings. On the other hand, we have to regain confidence in troubled countries by implementing structural reforms that restore competitiveness and lead to sustainable growth.
What is to be done immediately? We have to accomplish what we didn’t manage to do in the 1990s, namely: to create a fiscal union alongside the monetary union. The crisis will never be resolved if we don’t make this happen. Whoever thinks that the crisis can be solved by having the ECB print unlimited amounts of money or by introducing so-called Eurobonds ignores the fact that this would eliminate every incentive for high-deficit countries to make the necessary efforts to reduce these deficits. In other words: it would aggravate moral hazard.
Decision-making power and liability have to be in one hand to prevent moral hazard. That is an important lesson learned from the financial crisis, which is equally valid for the construction of a fiscal union. If we want the eurozone to function properly, it will require more than just fiscal consolidation in all of the euro countries. It will require that countries are economically competitive as well. This is the task of every single country, and therefore at the core of the adjustment programs agreed upon by all participating countries. Long-term structural problems, particularly dysfunctional labor markets, must be addressed to preserve and strengthen the economy of the European Union and its capacity to act globally.
Europe has been less sclerotic than described by some. Recent reforms e.g. in Estonia, but also some years ago in Germany, bear witness. Deep reforms in Portugal, Ireland, Spain and Italy are on track. While writing this article, the Troika, including members of the European Commission, the International Monetary Fund and the European Central Bank, is in Greece to review and to report about the Greek progress. We expect a comprehensive report in October.
We trust that the new Greek government is committed to delivering. Greece needs to rapidly implement the agreed measures on the fiscal side as well as administer the agreed structural reforms. These are important for the development of a competitive Greek economy. Implementation is also very important for restoring confidence and trust. I firmly believe that improved budgetary and structural economic policies are key to contributing towards solving the sovereign debt crisis.
We are not faced with a choice between consolidation and growth. Both are essential. Consolidation of public finances is a necessary condition for sound growth. You do not need to accumulate new debt in order to set the drivers of growth into motion. Take Spain, for example: they are defusing their outdated labor law to give young people a chance again. Greece is opening up closed professions – which brings good news in terms of costs and competition. Structural reforms do not require an economic stimulus program. And pro-growth consolidation has worked in Germany, too. The current government has made more savings than any German government before, and yet Germany remains the motor of growth in Europe.
On the European level, we are working on several measures to complete the EMU. The first to name is the Fiscal Compact signed on March 2nd by all Euro countries as well as 25 of the 27 EU member states. The fiscal compact remedies one of the weaknesses of the monetary union. It provides a foundation for sustainable public finances based on the model of Germany’s “debt brake”. The euro countries have committed themselves to introducing permanent and binding arrangements for balanced budgets. Together with national structural reforms and the European growth package this is in my view a fiscally and economically sustainable financial policy strategy.
The Fiscal compact guides the way out of the debt spiral. Once applied by all member states, the debt ratio will decline in the EU from almost 85 percent of the Gross Domestic Product (GDP) at present to 60 percent of the GDP in the year 2030. There is a much stronger commitment in the eurozone concerning the reduction of debt underpinned by strong rules than in other advanced countries like the United States of America or Japan.
Secondly, the European Stability Mechanism (ESM) signed on February 2nd as a permanent institution (“European Monetary Fund”) to follow the European Financial Stability Facility. We put a mechanism in place that can help euro countries to overcome liquidity shortages under strict conditions in the event of crisis.
Thirdly, there is the decision of the European Council of June 29th to build a single supervisory mechanism for banks in the eurozone and a bank restructuring mechanism.
The single supervisory mechanism, often discussed under the heading “banking union”, is a far-reaching step towards completing the internal market in the EU with regard to the financial sector. When such common supervision is in place and fully operational, only then the ESM could have the possibility to recapitalize banks in the euro area directly without channeling funds via a member state. This sequencing (with a single supervisory mechanism as a precondition) ensures that control and responsibility always go hand-in-hand.
Europe has drawn the lesson from the financial crisis and recognized that it needs to amend certain institutional settings. It is now essential to implement what we have agreed on – at the national as well as at the European level.
Member states facing severe financial and structural challenges need to find back to a path of credibility and sustainability. First and foremost it is up to the affected countries to imple¬ment necessary reforms and adjustments in order to regain competitiveness and market confi¬dence. Fiscal consolidation is an integral part in this context.
Europe and Germany in particular is committed to contribute its share. The German history and its economy are continuous reminders in this regard. Only the good political and economic cooperation has made European integration possible. Germany has always benefited from it. German reunification would otherwise not have been possible. And of course, we have benefited in an economic sense, in particular regarding our traditionally strong export sector. We know about our responsibility in and for Europe and we are happy to assume this responsibility together with our partners in Europe, Asia and around the globe.