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Speech by Foreign Minister Guido Westerwelle to the National Confederation of Brazilian Industry, 13 February 2012: The euro and the future of Europe

13.02.2012

-- Translation of advance text --

Ladies and gentlemen,

Thank you very much for your warm words of welcome. Muito obrigado!

I am very much aware that the debt crisis in Europe has triggered debate, questions and concerns here in Brazil too. I know that your country has had its own experience of debt crises and crisis management measures.

Some people are talking in simplified terms of a “euro crisis”. But the term “euro crisis” is misleading. The euro itself is not in crisis. Quite the opposite in fact: our common European currency is a remarkable success story. Whether we look at the exchange rate or the inflation rate, the euro is as stable as the Deutschmark was. And it has become the world’s number two reserve currency.

In the wake of the financial crisis, governments had to shore up the international banking system with sums in the billions. To stimulate the economy, huge fiscal stimulus packages were put together. In Germany alone, measures amounting to more than 50 billion euro, or 1.6 per cent of our gross domestic product, were put in place to strengthen the economy.

Sovereign debt, already high before the crisis, increased steeply. In the end the financial markets questioned whether some euro countries would ever be able to repay their massive debts. The sovereign debt crisis turned into a crisis of confidence.

Ladies and gentlemen,

In your country too some prominent voices are calling for a big “bazooka”.

And indeed it has already been decided to introduce a permanent European Stability Mechanism, which will enter into force this summer. This will enable us to give huge financial assistance and guarantees to euro countries with liquidity problems in the future. Germany is responsible for the biggest share of these financial guarantees, over a quarter. We are providing 22 billion euro in authorized capital stock and financial guarantees totalling over 200 billion euro. This is a clear signal of political and economic solidarity with our partners in the eurozone. It is a strong message to the financial markets and will play an important role in providing against short-term escalations of the crisis.

However, the provision of short-term liquidity alone will clearly not suffice to overcome the crisis of confidence. What we need to do is convince the markets that in future the euro area will be an area of enduring financial stability. There are three key points:

Firstly, all euro countries will introduce a new constitution-level budget rule or “debt brake” setting legally binding limits on expenditure. Germany, Poland and Spain have already done so.

Secondly, if EU member states violate the budget parameters set out in the Maastricht Treaty, sanctions will be imposed automatically. So everything possible has been done to prevent the sanctioning of those running excessive deficits being interfered with by considerations of what’s politically opportune.

Thirdly, we will expand economic policy coordination within the eurozone. We’re now taking the steps towards the creation of a political union which weren’t yet possible before. Major structural reforms will be coordinated at European level.

Our fiscal compact is not a technical agreement. With it, we are laying the foundation for a new culture of stability in Europe. We are rectifying the flaw in the design of monetary union by agreeing on closer coordination of budget policy to complement it. We’re starting a paradigm shift. Piling up debts has reached its limits.

Ladies and gentlemen,

Brazil itself is a good example of how combining budgetary reforms and an active growth policy can lead to success. Brazilian federal states and municipalities are not allowed to become overly indebted, and superordinate institutions have oversight and intervention rights in budget policy. The structural reforms of the Plano Real are to some extent the cornerstones for your country’s tremendous economic successes over the past ten years.

President Rouseff is among those who, in recent weeks, have repeatedly – and rightly – pointed out that impressive bailouts and a new culture of budget discipline will not in themselves be enough to remedy the situation in Europe.

The key to increased growth is competitiveness. And growth is the prerequisite for solid public finances.

It’s up to member states themselves to create a growth-friendly environment – by introducing ambitious reforms in the area of old age pensions, infrastructure and the employment market as well.

In some EU countries youth unemployment is over 40%.

So at European level, too, we must move fast to launch an agenda delivering more growth through increased competitiveness.

The internal market: this is where the greatest potential for growth lies. Extending the scope of the internal market to new sectors offers tremendous opportunities.

Budgeting for the future: “more competitiveness” must be our watchword in the negotiations on the new EU budget.

Free trade: in today’s world, free trade is becoming more and more important. The European Union and the Federal Government are extremely keen to conclude further free trade agreements. Germany and the European Union are resolutely opposed to protectionist tendencies. Protectionism may bring some brief popularity at home. But in the long term it is free trade that will bring greater prosperity for our citizens.

In our opinion, it is extremely important that a free trade agreement is concluded between the EU and MERCOSUL.

There is also potential for growth in bilateral German-Brazilian economic relations. I’m just thinking here of the barriers to investment that still have to be removed. I very much hope that we will have a double taxation agreement again soon.

Ladies and gentlemen,

Germany’s role in overcoming the European debt crisis is under close watch. There are some who think we are doing too little to resolve the crisis. Others think we’re being too dominant and forcing our approaches onto our partners. We take both these views seriously. But we also think that neither of them is accurate.

There can be no bright future for Germanywithout a united Europe. There is broad consensus in Germany that the answer to this crisis can only be “more Europe, not less”. We don’t want a German Europe, but a European Germany.

European integration is the foundation for the peaceful coexistence of the peoples of Europe over more than sixty years.

We are not rejecting old friends when we form new strategic partnerships. The opposite is true: we Germans want to embed our partnerships, including that with Brazil, in a European framework. This aim also lies at the heart of the new global players concept which the Federal Government presented just last week. We are making the new global players a clear offer of increased cooperation. The concept is not merely a Federal Foreign Office one; it is, very emphatically, a concept of the entire German Government.

Ladies and gentlemen,

This is my second visit to Brazil as German Foreign Minister. Once again, I have been greatly impressed by your country’s dynamism, not only of its economy, but also within society and in the cultural sphere. Your country is a player with a valuable word to say about the future global order. Brazil’s crucial significance can no longer be ignored. We Germans are full of admiration for this development and regard it as a tremendous opportunity to step up cooperation. We see possibilities both for increased mutually beneficial bilateral cooperation, in the economic, scientific and cultural fields, and for increased multilateral cooperation, in an awareness of our shared responsibility for the whole.

Brazil is a natural partner for us when it comes to shaping globalization. Because our relations have a long tradition and are founded on a solid basis of shared values. Democracy, the rule of law, respect for freedom of the individual and the ideas of the social market economy – these are the guiding principles which form the bond between us.

We both know how attractive these values are. Brazil and Germany should in future continue to work together as allies to ensure that these values become more firmly established worldwide.