Europe and the euro are undergoing a period of severe testing. Scarcely had the financial crisis been tackled when Greece needed help. The euro rescue package that followed was as necessary as it was unprecedented. Ireland too needed to be rescued, and now faces elections.
It is a fact that speculation brought nations to the brink of insolvency. But it is also a fact that such speculation was only possible because the foundations had become shaky. Across Europe, too much debt had been accumulating for too long.
The citizens and political leaders of Europe are wondering how things will continue. With differing historical experiences and differing traditions at play, the debate has been lively and at times heated. But there’s one thing we must not lose sight of amidst all the drama: The European Union is the most successful peace project in the history of our continent and it is the guarantee of our prosperity. No European country – not even Germany, the strongest – can withstand the storms of globalization alone.
We face three tasks. We have to protect our currency in both the short and the long term. We have to get the foundations of European budgetary and economic policy into order. And we have to shape the EU much more clearly as a leading actor in our neighbourhood and as a definitive actor worldwide.
Work is currently proceeding full steam ahead on a permanent crisis mechanism to protect the euro beginning in 2013. This mechanism will make it possible to react swiftly and effectively to future instabilities in euro countries. The mechanism must create the conditions for the sensible inclusion of private investors in addressing threats of national insolvency. In the future banks should no longer be a part of the problem, but rather part of the solution. Anyone who takes a risk in the hope of financial gain needs to know that their losses cannot be automatically passed on to taxpayers. This is the necessary foundational principle of a social market economy.
Eurobonds are not a suitable means to solve the debt crises of individual countries. If everyone is held liable for everyone else’s debts, the individual country has no motivation to exercise budgetary discipline. On the contrary, such an approach could undermine efforts to return to sound budgetary policy throughout Europe. Anyone who talks about entering a union of financial transfers is putting support for Europe at risk, especially in the countries that must bear most of the burden. Help for financially struggling member states can only be a method of last resort, applied under strict conditions.
There is no doubt that much like the current rescue package, a permanent crisis mechanism too can only treat the symptoms of the problem. Enduring stability for the euro requires healthy budgetary policy and competitive, coordinated economic policy. It was high time to tighten the rules of the Stability Pact. Despite 22 excessive deficit procedures in the eurozone, no sanctions have ever been imposed. Without strong rules there can be no strong euro. The Van Rompuy Group’s recommendations as adopted by the European Council set out the necessary path: In future countries that fail to maintain the required budgetary discipline will face a more automatic sanction mechanism which is largely free of political influence. At the same time austerity budgets, some of them drastic, have been adopted throughout Europe to reduce excessive levels of debt. Europe has initiated a turn in budgetary policy. We need to ensure that the paradigm shift towards sound budgeting is carried out sustainably to avoid backsliding when the economic climate improves.
What happened in Greece and Ireland must never be repeated. Whatever differences there are between the two cases, the roots of the problems ultimately lie in a structural error in the Maastricht Treaty: communitarized monetary policy on the one hand, lack of coordination of financial and budgetary policy on the other. Substantial economic imbalances have developed in individual member states over the course of many years, going largely unremarked. These have the potential to suddenly threaten the stability of the entire monetary union.
A remedy can only be effective if, along with tightening the Stability Pact, it tackles the causes of the crisis. That’s why we need greater coordination of economic and budgetary policies within the EU. In addition to the submission of national budget drafts to Brussels for review – which has already been adopted – the EU Commission has pointed to the right path with its recommendations for monitoring economic imbalances. The eurozone countries, which are especially closely tied through their shared currency, should set the pace for the entire EU in the coordination of economic and budgetary policy.
What matters most here is that while closer coordination must help weaker countries to catch up, it must not cripple the more successful countries. We need to compete to move forward, not to move backward. We have to aim to build the competitive strength of Europe as a whole.
For all our rightful concern about ourselves, Europe cannot be allowed to fall into a renewed phase of navel-gazing. In view of the breakneck pace at which global power balances are shifting, falling into European self-adulation or renationalization would be fatal. New actors are pushing powerfully and energetically onto the global stage. Either we join in the act or we see European interests relegated to the back room of world politics.
After a decade of at times wearying discussion of ourselves, with the Lisbon Treaty and the European External Action Service we finally have the framework and the tool to position the EU as a leading international actor in keeping with its economic clout. We must provide substance to these instruments as quickly as possible. It would be short-sighted to let these external strategic opportunities go to waste because the need for internal repair work has turned our gaze inward.
European unification is the story of its crises and the lessons gained from them. Time and again, escalation towards crisis has inspired Europeans to muster the political will for greater coordination and cooperation. Europe is being tested. If we learn the right lessons, it will emerge from the test stronger than before.
Frankfurter Allgemeine Zeitung, 14.12.2010 page 10