On Thursday the members of the German Bundestag approved the expanded European rescue fund, EFSF, by a large majority. This is a correct and important step towards overcoming the debt crisis. It also sends a signal of trust to our European partners. However, much remains to be done. The current crisis is the most difficult test Europe has faced in the past sixty years. Many people are deeply concerned. These concerns are entirely understandable, and political leaders must take them seriously.
Despite all the sacrifices that the crisis will demand, however, we must not limit our view to crisis management. This sort of tunnel vision would fail to see Germany’s fundamental interests in the unity of Europe; the European Union is first and foremost a political project. Germany’s vested interests are what make this Europe so valuable to us. Europe remains the foundation of German foreign policy because Germany’s security and peace can only be ensured through inclusion in this community. Likewise, Europe and its internal market remain the foundation of our prosperity. Beyond this, it is only as a united Europe that we can get today’s new, globalized world order to hear our voice and pay attention to our interests and values.
Because Europe will remain indispensable to us in Germany, we must contribute our share to putting our shared European house, the eurozone, in order. In taking on this enormous task, we are entering uncharted territory. Purportedly simple solutions such as eurobonds are of no help because they do not go to the heart of the problem. A debt crisis cannot be solved by making it easier to accumulate debt. The task, rather, is to follow a path towards a genuine stability union.
There are four crucial points:
Firstly, economic and financial policies must be more closely coordinated. A culture of obligatory budgetary discipline must take shape in the euro countries. The pressure of the crisis has opened up many possibilities in this area which would have been inconceivable just a year ago. Fiscal discipline is not merely a German hobby, but rather is in the interest of all of Europe. Many euro countries are now moving forward in enshrining national debt limits in their constitutions. The strengthening of the Stability and Growth Pact which the European Parliament has just approved is also important. The European semester, which will provide Europe with greater rights to monitor national budgets, needs to rapidly bring about greater commitment. In the face of all these things, we must avoid the mistake of viewing policy as the adversary of markets. In terms of both good governance and European policy, the right path is for us to wisely harness the disciplining forces of the market in order to hold eurozone governments to sustainable budgetary policy.
Secondly, we must give Europe the financial constitution that it needs. This includes appropriate incentives for major investors in order to motivate them to demonstrate sounder judgement and avoid harmful excesses. The financial market is not yet sufficiently hedged in: we need sound equity regulations for financial institutions and strong oversight of banks, at minimum at European level. This is the only way to prevent future financial bubbles and debt crises. We must also move forward in continuing to build up an independent European rating agency.
Thirdly, a culture of stability will remain fruitless in the long term unless we have growth. A strategy for greater competitive strength in Europe needs to include appreciable re‑channelling of funds in the upcoming negotiations for the 2014-2020 EU budget: more investment in education, research and infrastructure, and less in subsidies. These negotiations will certainly not be easy, but if we are serious about Europe’s competitive strength, we need to stick faithfully to this path.
Fourthly, the steps we have taken so far are not enough to halt spiralling debt and travel down the road towards a real stability union. We need to further strengthen the stability pact by moving it towards automatic sanctions. Above all, however, we must really give teeth to the principle that solidarity and solidity are mutually dependent. Recommendations and rights of inspection are not enough. Countries that want to take advantage of the solidarity of the EFSF in the future need to now grant Europe binding rights to intervene in their budgetary decisions.
Changing the European treaties would be the clearest way to make budgetary rules more binding and thus to fundamentally ensure the inclusion of EU institutions. We need to remedy the structural deficiencies of the 1991 Maastricht Treaty. This is an enormous task. After our experiences in the past two years, however, it is fundamentally necessary to take it on now.
If, however, despite the crisis not everyone is prepared to take such a step, the euro countries need to take the lead – for example, through an international treaty. In doing so we need to keep our eyes on the goal of later incorporating this treaty into the EU treaties, as was successfully done in the case of the Schengen Agreement on freedom of travel. One thing is certain: we can only succeed in moving forward if we also provide a convincing answer to the question of democratic legitimacy.
This crisis is also an opportunity. Europe has come about step by step, growing with each crisis it has experienced. This history should encourage us. We have a great deal to gain. If we strengthen the euro’s position as a global reserve currency, we will gain major advantages in global competition. Above all, however, we need to look at the big picture beyond the sacrifices which the crisis has brought: we will only be able to hold our own in the 21st century, with its new emerging centres of power, if we get our own European house in order. Now is the time for us to start discussing how we will move towards a stability union and how we will constitute Europe anew, beyond crisis management.