The following article was published on December 10, 2010, in the International Herald Tribune.
Germany Vows to Defend Euro as Political Project
By JUDY DEMPSEY
BERLIN — Germany is determined to defend the euro as a political project that glues Europe together, its foreign minister said Thursday, dismissing euro bonds or other devices as a way to shore up the common currency. Europeans, and not just Germans, understand that only solid economies can serve that goal, he said.
“Anybody who wants to destroy the euro will realize that he cannot succeed against us and our partners,” Foreign Minister Guido Westerwelle said in an interview.
The euro, he added, “is more than just a currency made of paper and metal. It is a currency of peace, a political project that also strengthens us in a time of globalization in comparison with many of our competitors.”
That said, Mr. Westerwelle, 48, who is leader of the pro-business Free Democrats in the governing coalition, said Germany wished “to keep its sovereignty over its public finances” — which is why Berlin opposed euro bonds.
Another more fundamental reason for Germany to be against euro bonds is that they would give governments few incentives to save, he added.
“We cannot accept a transfer union in which everybody would collectively be liable for all of the debt in Europe,” he said. “That would end any incentive for countries to exert budgetary discipline if it’s clear that a handful of countries guarantee everything and are liable.” Indeed, he implied, this would damage Germany by raising borrowing costs, which at the moment are the lowest in the euro area.
The foreign minister, who has been in office a little over a year, was most recently in the headlines over leaked diplomatic cables in which the U.S. ambassador, Philip Murphy, described Mr. Westerwelle as “incompetent, vain and critical of the United States.”
On Thursday, the minister, whose office summoned reporters from the International Herald Tribune and four other European newspapers at short notice, exuded confidence. He eschewed his trademark rambling answers for short, concise replies to a barrage of questions and briefly addressed the leaked cables only at the end of a 50-minute meeting.
“Trust is the handwork of diplomacy,” he said. “The leaks crossed the threshold.”
Most questions centered on the euro, whose very existence has come under increasing question this year as first Greece, and then Ireland, came under fierce market pressure to deal with mounting government debt.
With Chancellor Angela Merkel’s government of conservatives and Free Democrats apparently determined to reduce Germany’s own budget deficit, Mr. Westerwelle made clear that Berlin was in no mood for conciliatory or soft gestures to profligate spenders as a way out of the financial crisis.
“There have to be incentives for every country to keep the discipline in its own public finances,” Mr. Westerwelle said. “That incentive is gone the second that somebody else takes responsibility for your own debt — just as it is for private individuals.”
He acknowledged that some European governments and other political parties — inside and outside Germany — might not like Germany’s reasoning.
Prime Minister Jean-Claude Juncker of Luxembourg, who is also chairman of the euro-zone group, this week criticized Mrs. Merkel for dismissing outright his suggestion for eurobonds in order to deter speculation against euro-zone countries.
Other critics say Germany is simply acting selfishly at a time when its economy, the most buoyant in the 27-nation European Union, is booming. Exports are rising and unemployment has fallen to under three million, the lowest since German reunification. Mr. Westerwelle denied any German selfishness.
“We Germans are not just defending the interests of our own German taxpayers,” he said. “Our call for budgetary discipline and structural reforms serves the interests of all taxpayers in all of Europe. The policy of running up debts cannot be continued as it was.”
Other countries, including the United States, say Germany should support a much bigger rescue package beyond the €720 billion agreed last May by the European Union and the International Monetary Fund in order to protect euro-zone countries.
Acknowledging that there are at least two schools of thought about how to stimulate growth, Mr. Westerwelle indirectly criticized U.S. monetary policy.
“There are two philosophies in Europe and regrettably in the whole world as well,” he said. “One thinks that it is possible to keep the bubble from bursting by injecting more air through more debt. We say it is only possible to keep one bubble from bursting by taking out air in a controlled way and returning to a consolidated budget.”
Germany’s conviction that its policies are the right ones have already been vindicated by events in Greece, Mr. Westerwelle argued.
Germany was criticized by other E.U countries for reacting too slowly to the prospect that Greece might actually default, then eventually agreeing to a rescue for Greece in May. Athens — followed this week by Dublin — had to introduce radical cuts and savings in order to bring deficits under control.
Indeed, Mr. Westerwelle said, tires were burned and shop windows were smashed in Athens when George Papandreou, the Greek prime minister, pushed through the austerity package. But last month, his Pasok party made big gains in local government elections.
“The success that Prime Minister Papandreou just had in local elections shows that Europe’s peoples have completely understood that one cannot live on too much borrowed money for too long,” Mr. Westerwelle said. “Believe me, there is nothing that we propose for Europe that we don’t do ourselves in Germany.”
Germany, for example, increased the pension age to 67 years — “not really popular,” noted Mr. Westerwelle — and introduced spending cuts of €80 billion to 2013, when the next national elections are due.
The government in Ireland, a country of just over four million people against Germany’s 80 million, this week pushed through €18 billion in savings in order to get access to the €85 billion rescue guaranteed by the European Union and the International Monetary Fund. Mr. Westerwelle said such measures would pay off for Europe.
“People used to think that it would be the next generation that would some day have to deal with the issue of public debts,” he said. “And now everybody is surprised that it doesn’t take that long, that it hits us now in the shape of the ever increasing price of credits.”