WirtschaftsWoche interview with Federal Foreign Minister Westerwelle

13.12.2010 - Interview

Mr Westerwelle, the European Project is at risk. The common currency is endangered.Are you certain of the success of the euro rescue package?

Yes, I am. The euro is a currency of peace – that’s why more has to be considered than just the economic and fiscal issues. It’s a response to European history, which has had more times of strife and war than of peace and cooperation. But the euro is also much more than that. Along with the European Union it’s a guarantee of our future prosperity. Around the world there are about two dozen good reasons why we should protect the European Union – this is how many competitors are now playing in the same league as we are.

So we save the euro, whatever the price?

I’m a firm believer in Europe, but my legal education has trained me to take a rational view. There are two aims here: We have to protect Europe and the euro. And we have to ensure that we Germans keep hold of our own purse strings.

The German public adjusted to the euro drudgingly enough.Do you understand their now rapidly declining trust in the euro?

After the past three years it’s no wonder the Germans are feeling uncertain! First the bank crisis, then two years of recession, the rescue package for Greece, the euro rescue package, and now Ireland. Nonetheless it’s the duty of those who govern not to give way to popular sentiments, but rather to do what’s right for our country. For years the FDP has been criticizing excessive governmental activity and spending. The other political parties, which believe in a much stronger role for the state, have not responded to this development, rather following the line that if it’s an issue at all, it’s a matter for the next generation to deal with. This remains the principle behind the scandalous debt policy of the red-red-green coalition in North Rhine-Westphalia. It is now becoming apparent that it’s not only future generations who will suffer for today’s excessive debt, it’s us, now.

But aren’t citizens also becoming increasingly fearful because although the Federal Government heads to Brussels with rather reasonable stability goals, it ultimately can’t get its goals through?

One can’t expect a European member state – even one as strong as Germany – to be able to bend all the others to its will. That also isn’t our approach to European policy-making. We need to be careful not to cross the line, to make good compromises, not bad ones. Our coordination with France is vital here, as Germany and France together generate more than half of the economic output of the eurozone.

Germany insisted on the bailout ban in the Maastricht Treaty – but in the end bailed out Greece.Germany failed in its call for automatic sanctions against countries that run up large deficits.And Germany wanted private creditors to have to take a role in resolving future debt crises – that too came to nothing.

The sanction mechanism under current debate, while not 100 percent, is virtually automatic. In practical terms it makes a very significant difference whether sanctions must be enacted with a qualified majority and whether sanctions can only be prevented with a qualified majority. Though 22 excessive deficit procedures have been introduced in the eurozone, not a single one of them has led to any sanctions whatsoever. That’s changing now. And we’ve established the option of including private creditors beginning in 2013.

Well,private creditors are only liable when a state becomes insolvent.And European heads of state and government roll out a safety net before things can get that far. Even the Federal Finance Minister says creditors would get away unscathed in future cases like Greece and Ireland.

The European Finance Ministers have mapped out a path that makes it possible to include private creditors in a sensible manner in future. In the private sector, too, the course of action in cases of payment difficulties is adaptable and proceeds in steps.

Where does the Federal Government draw the line on eurobonds?European bonds would be charged higher interest and would bring Germany higher refinancing costs.

We don’t find the eurobonds proposal very convincing. Communitarization of debt is highly risky – including for countries that seemingly would profit from the low interest rates. The pressure to consolidate would let up if it occurred to these countries to refinance cheaply thanks to German creditworthiness. In this regard our position takes into account not only the interests of the German taxpayer but also the interests of the European taxpayer.

Can you assure the German public that there will be no eurobonds?

I’ve set out our position for them. We will defend this position. You can’t earn the trust of international investors by weakening the criteria for borrowing or by postponing solutions. There’s no way around sound budgetary policy. Every country has got to do its homework as thoroughly as possible.

The euro coin looks the same as it did when it was introduced in 2002. But on the inside is its value the same?Is the euro as strong as the old Deutschmark? Will it remain so?

It has certainly fulfilled its promises impeccably so far. The euro was launched at USD 1.17, dropped below par for a time, and is now above USD 1.30. So our currency is very strong – in fact, some small and medium-sized business would even prefer it a bit weaker for the sake of export prices. But I would also say that Europe and the euro are undergoing a period of testing.

Are we on the road to a “transfer union”?

So far we aren’t. That’s why it remains so important that decisions against Germany’s will can’t be made.

In the language of the Chancellor private creditors have stopped living in a dream world but are still living in a land of milk and honey.Doesn’t this give the FDP as the party of the market economy something of a credibility problem?

Far from it. If we’d had a different Federal Government without the FDP, Greece would have got a blank cheque this spring. The SPD and the Greens wanted to pay without demanding structural reform. We were accused of holding back for too long. Without the Federal Government’s unwavering position, the IMF wouldn’t have taken part in the rescue package and there wouldn’t have been any structural reform. We achieved a change of course in European policy towards consolidation.

But your voters are disgruntled!

It wouldn’t be fair to project unease about the situation in Europe onto the actions of the government. We’re not the ones who have to answer for this situation – the ones who do are those who allowed this development to occur or introduced it, such as the red-green coalition that watered down the Stability Pact in 2004. Only under the new Government was a new path chosen. The return to budget consolidation, which was still being demonized at the beginning of the year, is now underway. Germany was the opinion leader in European consolidation policy.

The German Federal Government seems to stand alone in Europe with its position. Is this appearance deceptive?

Definitely. There are other countries standing with us. But some of them are currently taking the attitude, hey, why don’t you go first, we’ll follow after. But one thing is clear: The fact that too much debt was run up in Europe for too long is behind the problems Europe is currently experiencing. To overcome the crisis we need better coordination of economic and budgetary policy within the EU. We’ve taken the first steps in this direction, such as the submitting of budget drafts to Brussels. We need to follow this path unwaveringly.

Germany is not only number one when it comes to footing the bill for Europe, we’re also Europe’s champion of discipline and restraint.How does this affect our relations with our partners, especially with France?

I get the impression that some of the criticism of Germany serves as a lightning rod to deflect internal pressures. Reform processes are more painful in some other European countries than here because the needed reforms started too late – and now they have to rush to catch up. This isn’t really damaging to Germany’s reputation. Underlying some of the criticism is unspoken praise for the many things we Germans have done right.

Straight-A students aren’t liked, they’re envied.French Finance Minister Christine Lagarde even believes that the strength of German exports is harmful to the European economy as a whole.

I sometimes suggest that my esteemed colleagues refer to their statistics on how much their countries export to Germany. At the beginning of the year the opinion was held that the German economy would have to shift into a lower gear for the sake of balancing trade, but now everyone seems pleased as punch that there’s so much steam in the German economic engine. By the way, every European country should have the ambition of directing its economic performance to the top, not to the bottom.

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