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“The policy of running up vast debts has to be stopped now”

24.01.2011 - Interview

In an interview with the Handelsblatt, Foreign Minister Westerwelle expresses his support for national debt brakes and better coordination of economic policies in the euro area.

Interview given by Foreign Minister Westerwelle to the Handelsblatt, published on 24 January 2011

Foreign Minister, the EU states have announced that they intend to do everything they can to stabilize the euro. Does this pledge mean that Germany will have to dig into its pockets again?

Above all, we have to direct our efforts towards a strategic and forward-looking development of the euro’s future. I don’t think much of short-sighted and hectic reactions which damage confidence in our currency.

So more money isn’t needed to end the debt crisis?

It wasn’t easy for anyone in Europe to pump a total of 750 billion euro into the euro rescue package last year. And yet it was the right thing to do. Given the critical situation on the financial markets, our job was to provide reassurance and boost confidence. We mustn’t forget that Germany itself played a part in the destabilization of the eurozone when the SPD-Green Government contributed to the watering down of the European Stability Pact a few years ago. We now have to rectify this momentous error as quickly as possible and use the pressure created by the crisis to bring about necessary structural changes. What’s the use of a debate on the rescue package if we lose sight of the long-term objectives?

What’s needed?

Every country in Europe has to adopt sound financial and budget policies. Speculators are not the only ones who should be blamed for the current crisis, for prime responsibility lies with those countries which have pursued unsound policies. The lesson to be learned from the crisis is therefore that the policy of running up vast debts we’ve witnessed in past years now has to end. Furthermore, we have to enhance Europe’s competitiveness through greater coordination of our economic policies. The euro can only be as strong as the real economies of its member states.

Can the German Government simply ignore the call from EU Commission President Barroso for an increase in the rescue fund?

If Ludwig Erhard’s theory that the economy is 50 percent psychology is right then such demands aren’t helpful. An investor could assume it reveals unsettling insider knowledge. Only a small percentage of the rescue package has been made use of so far. The Chancellor and I therefore made it clear that there will be no increase for the time being.

It would be virtually impossible to prevent a political debate on the various instruments which could be used to save the euro.

Public debate on such crucial issues is normal. However, it’s different when top officials call almost ex cathedra for an increase in the rescue package.

No matter which crisis mechanism is adopted in the end, it’s very likely that Germany will have to foot the bill again. In the light of that, can you understand people’s frustration?

No country has reaped greater benefits from the introduction of the euro than Germany. I’m a deeply committed European. We shouldn’t forget that we still export more goods to the Netherlands than to China. I regard the discussion in Germany about who has to pay as misguided.

Nevertheless, it was right that this Government insisted that a blank cheque shouldn’t be handed over to Greece but that the assistance should be granted under strict conditions. The crisis has presented us with an opportunity. We have to use the current pressure to find structural solutions.

Luxembourg’s Prime Minister Jean-Claude Juncker has recently accused the FDP of lacking solidarity in Europe and of opting for a populist course.

I find it quite worrying how some people in Europe simply want to return to business as usual after this financial crisis and think they can solve the problem by running up new debts. Solidarity is not a one-way street. Those reliant on the assistance of other EU countries have to bring their public finances and economy into order as quickly as possible. Those who want Europe have to act now and adapt the rules. That’s true European patriotism.

You also reject the introduction of eurobonds. Why?

Communitarizing national debts would remove the pressure to consolidate budgets. While disciplined countries with sound public finances would have to shoulder the burden, the others could continue to pursue their policy of running up debts. For this reason it’s important to uphold the principle of national responsibility for debts.

Federal Finance Minister Schäuble seems to be more open to the idea of eurobonds …

If you have any questions for the Federal Finance Minister I suggest you interview him.

Thank you for pointing that out. But where does the FDP draw the line in the debate on rescuing the euro?

I’ve set out our position for you. Incidentally, I think we should shift the focus of the debate from treating the symptoms to dealing with the causes of the current crisis. This Government is fully committed to a stabile euro.

How do the Liberals want to see the euro crisis resolved?

We have to create the structural prerequisites for self-discipline and sound public finances in Europe. The European Stability and Growth Pact needs effective sanction measures to give it teeth. I also believe it would be helpful for all European countries to consider introducing a national debt brake based on the German model. What’s more, we need better coordination of financial and economic policies in the eurozone in order to enhance Europe’s competitiveness. For instance, we have to talk about increasing investment ratios compared to consumption expenditure and other things.

How confident are you that the coalition will adopt the FDP’s positions?

The Liberals have played a prominent role in the debate about the stabilization of the euro in the past few months. In a grand coalition the Social Democrats would have long since been pressing for a communitarization of debts, as would the Greens. We prevented that. We will continue to live up to our responsibility for our currency and towards taxpayers, just as we will live up to our responsibility for Europe.

Although the euro has lost considerable ground against the US dollar during the last year, you don’t see any long-term dangers for the euro?

We are working to ensure that the euro remains stable on a durable basis. After all, this isn’t a euro crisis, it’s a debt crisis in individual member states. In order to stabilize the euro, we have to tackle the causes of this crisis, which lie in excessive public debt and a lack of competitiveness.

Nevertheless, politicians in Germany and other European countries are always talking about the euro crisis. No-one in the US Administration would talk disparagingly about the dollar.

There’s some truth in that. But it’s much more important to push ahead with the work that has to be done. A durable stability mechanism should not release private creditors from their responsibility either.

[...]

This interview was conducted by Sven Afhüppe and Thomas Sigmund

Copyright: http://www.handelsblatt.com

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