Rede anlässlich der Teilnahme an der Veranstaltung des „Debating Europe“-Programms 2012 – „Europe – Economic and Institutional Perspectives“

Rede in Florenz

Ladies and gentlemen,

When the French national assembly voted against ratifying the treaty on the European Defence Community on 30 June 1954, it seemed that Europe’s efforts at integration had been brought to a halt. It appeared that a relapse into the narrow-minded pursuit of national interest was inevitable. Yet just a few months later, here in Italy, those fears were proved wrong. The Messina Conference held in July 1955 laid the foundations for the Treaties of Rome, and thus for the establishment of the European Economic Community. Messina was the place where the need to work towards Europe’s true aim, a fully-fledged political community, was acknowledged for the first time. And the spirit shown in Messina became synonymous with the will to overcome crises in the European Union.

And some of that proverbial Messina Spirit is exactly what we need again today, in the face of the euro crisis. European unification is the right response and a valuable lesson from history. There’s no need to explain that to the older generation. But it is an argument that fails to resonate with most young Europeans.

I can no longer hope to persuade most young people in Germany – or France, or England, or Italy, for that matter – of the need for European integration by arguing that it will prevent us from going to war against each other. Most Europeans do not believe that there will ever be another war in Europe. And that is one of greatest achievements of European politics over the last 60 years.

Never again should there be war in Europe – after the destruction and immeasurable suffering caused by two world wars, that was the reason for European unification in the second half of the 20th century. But now we are in the 21st century – the century of globalisation, which is changing the balance of global economic and political power. And that is why we need a different reason, a new reason, for European unification.

What, then, is the point of European unification in the 21st century? The answer, I believe, is this: We Europeans can only act effectively in our own interest, and perhaps only live up to our responsibilities – our ideas about how the world should or should not develop – if Europe grows ever closer together; if Europe becomes a unit capable of action in the world and for the world.

I also believe that many people – whether they are involved in politics or not – don’t really understand that by fostering Europe’s political unity we are creating a genuinely new framework for governing a polity. It is new because it attempts to find a replacement for the failed system under which sovereign nation-states had a monopoly on rule-making. This monopoly reached its limits in the first half of the last century after two disastrous world wars. I am firmly convinced that here in Europe, the nation-state alone is no longer up to the task of framing and exercising political power.

We need to aim higher. Instead of getting caught up in petty rivalries that date back centuries, we need to create new supranational and international governance structures – in other words, a new way to allocate political rights and responsibilities at different levels.

This does not mean scrapping the nation-state. Particularly in this age of globalisation and the World Wide Web it is vital that people can develop a sense of identity and cohesion. We need to  feel that we belong to our local communities, our regions, and our countries. But at the same time, we must be willing to think and to take responsibility at the European and global levels. The upshot of this is a challenge: the tasks for which the nation-state previously had sole responsibility now have to be assigned to rule-making bodies at various levels. And the guiding principle of subsidiarity is more important than ever before.

This adds a new twist to the question of how political decision-making derives legitimacy, from a legal and democratic point of view. That is one of the core institutional problems dealt with in both the Lisbon Treaty and, for example, the case law of Germany’s Federal Constitutional Court.

Our efforts to create a European-level entity that is capable of action are subject to tight constraints. And the tightest of these, I am firmly convinced, is to be found in the populations of the Member States. Today, in 2012, Europe lacks the approval of its peoples – approval that is required if we are to reallocate political powers and responsibilities on a large scale. If we want Europe to grow together and become an effective unit, we need more than just the support of the political, economic and academic elites. We need the backing of the wider population in the Member States.

Public support for Europe has certainly been greater in the past. At times of existential crisis, particularly in the aftermath of war, there was always great enthusiasm for Europe. But as we became accustomed to peace and prosperity, the law of diminishing marginal returns took hold. We attach less value to the things we already have – we take them for granted.

As a result, one of the crucial questions to be answered is this: How can we gain, or avoid losing, the support of the sovereign people in the Member States for Europe’s necessary institutional reforms? How can we create a European public sphere, which is key to putting European institutions and their decisions on a legitimate democratic basis? The reality is that there is no such thing as the single European public. And even if we all spoke the same language, the problem remains: Most Germans are not overly interested in Portuguese current affairs. And by the same token, the Portuguese don’t care all that much about what the Danish or the Finns think. That is not a criticism. It is simply a fact.

It is also the main reason why I have long argued for the President of the European Commission to be elected directly by all EU citizens. My party, chaired by the German Chancellor, adopted a resolution to that effect at the most recent conference in Leipzig. There is a need for legitimacy at European level, but the European Parliament is not best equipped to provide it.

The issue with the European Parliament is not so much its degressively proportional method of allocating seats. The major problem is that election campaigns, but also voters themselves, are increasingly focussed on the candidates for the top job. If you want to see that trend in action now, you need look no further than France or the USA. The voting public’s awareness of parliamentary activity cannot keep pace with that. I agree with Germany’s Foreign Minister when he says that the direct election of the Commission President would be a quantum leap towards creating a European public sphere.

Ladies and gentlemen,

There is no escaping the need for a political union in Europe today, with clearly defined responsibilities at different levels. That realisation is hardly new:  After the first attempt at political union failed – as I mentioned, the European Defence Community was rejected by the French national assembly in 1954 because the French did not see any urgent need for political union – we took another approach. We decided to press on with economic integration, in the hope that political integration would follow, step by step.

And with conferred powers for its institutions, Europe embarked on the path towards an ever closer union by following the principle of putting things on a more European, harmonised footing wherever possible.

However, one has to concede that this approach created excessive regulation and bureaucracy that was not just alien to EU citizens’ daily lives. This excess of European regulation and bureaucracy has come about because of the European institutions’ intrinsic and instinctive desire to amass tasks and powers without asking which level of governance was the best one to handle the job.

That is why I put forward the need for a European constitution. It is one of the fundamental convictions in the paper I wrote with my party colleague Karl Lamers in 1994 concerning the question of a widening or a deepening of the EU. This constitution needs to set out who decides what in Europe, and which institution should act on what authority.

I am convinced that we won’t take Europe forward without making its institutions stronger and significantly more efficient at the same time. But as long as we are lacking genuine fiscal union as an integral component of a Political Union, we will, out of necessity, have to accept the intergovernmental path as – so to speak – a temporary, second best solution.

As in 1954, we were again unable to create the necessary level of political union in the 1990s, so there were only two alternatives: currency union without political union, or no currency union at all..But back then there were concerns about political unification moving too fast: Concernsheard in Germany as well, , especially with regard to the harmonisation of what were very distinct national social policies.

Today, 10 years after the introduction of the euro and despite the crisis, I still believe that the decision to introduce a currency union without political – without fiscal – union was the right one in the 1990s. This is especially true because back then there was a clear expectation that the pressure created by having a common currency would at some point increase the willingness among member state populations and the responsible political institutions to accomplish the necessary political steps towards unity.

Back then people thought that the time leading up to a real fiscal union could be bridged via the Stability and Growth Pact. This Pact was based on the expectation that the markets would take care of things because they would differentiate their risk premiums according to the soundness of a country’s fiscal policies. Today we know that didn’t happen. For years there was hardly any difference between the spreads on Greek and German bonds.

With the onset of the financial and economic crisis I stopped being a fan of rational market theory – because market participants are human beings, and they don’t always act rationally. Economic realities have disproved rational market theory on more than one occasion. From today’s vantage point, we can see that it was never really clear what would happen when the Stability and Growth Pact was breached – and when Germany and France did just that, the Pact finally lost its bite.

Following the global financial and economic crisis triggered by the Lehman collapse there was a change which I describe as a structural shift in financial markets’ tolerance of (government) debt. This explains why, in 2010, when the Greek issue first came to the fore, we were confronted with extreme risks of contagion for the other euro area countries, while Europe’s ability to respond appropriately was seriously impaired. Against this backdrop, I floated the idea of a European monetary fund at the start of 2010, but back then there was no majority support for such a far-reaching stabilisation tool.

Providing support to crisis-hit euro countries is always about straddling a fine line between encouraging reform and providing incentives that delay reform measures. I am not one of those people who believes that the problems in today’s global economy and in Europe can be solved by having more liquidity and higher government debt.

I have had many tough and sometimes strenuous discussions in Europe over the past year with different partners and our American friends in particular. And during those talks I have made it plain that the economic policy approach of constantly securing sustainable growth, if needs be, through ever greater amounts of cheap money and more liquidity have been pushed ad absurdum. It is telling that American economists (Carmen Reinhardt and Kenneth Rogoff) have demonstrated in lengthy studies that there is a threshold in the level of government debt – or in the perception of market participants and the business and financial market community – beyond which a further increase in government debt ceases to promote growth, and actually has the opposite effect. A view the German Government categorically shares!

I therefore believe that we will only solve the European crisis if we approach things in the right order. First of all, those countries responsible for the causes of the crisis have to tackle them credibly. This does not just involve decisions on the budget. It also covers economic and growth-related deficits that have to be rectified through deep structural reforms. That’s why the assistance packages introduced for countries in crisis must not reduce the pressure on countries to tackle their problems in a credible fashion. Otherwise we would be providing the wrong incentives. What we need are stable political structures for the currency union. And until that takes hold, we are buying time by providing assistance in a spirit of solidarity.

As the next institutional step towards a political union in Europe, we must achieve as many of the things as possible that did not get done in the 1990s. Namely supplementing common monetary policy with enhanced European coordination on national budget policies. In other words, by creating a form of fiscal union.

As you know, negotiations did not succeed in establishing such a fiscal union by means of a simple change to the European treaties. They failed because the UK insisted on a return to unanimity for all financial market rules – and that’s a price we couldn’t afford to pay.

Naturally, this is not the outcome the German Government had hoped for. But even with the Fiscal Compact we will still be able to use the European institutions. The current course is not an intergovernmental one bypassing European institutions. It is simply a method of overcoming a blockade of a decision that I hold to be right and proper.

The present solution is not a perfect fiscal union, but it can take us forward in that vein, and I am convinced that we will then be able to gradually restore confidence and stabilise the common European currency. That must be our aim – not least because a permanently stable European currency is a central pillar for us to be able to defend and promote European interests in a globalised world.

And that brings me to the question of Europe’s contribution to the world in the 21st century. While it is too early to tell if we will really succeed this century, I believe this time and age gives us Europeans an opportunity to arrest the development of global divides that are already extensive and are likely to increase rather than decrease.

More than anything else, progress in IT is shaping the 21st century. This necessitates a complete transformation in the political order and the question of how to bring about social cohesion and the formation of political decisions and objectives.

No one really believes that, for example, the Arab Spring will directly lead to a state of eternal contentment for the people in the region – at least not straightaway. We will have to deal with this potential for division and tension. We Europeans have had to abandon the illusion of being able to manage the world alone. But we still have an important contribution to make. And we will be more successful and convincing the less we try to preach.

The most valuable contribution Europe can make lies in its promotion of sustainability. We will not be able to address the big issues without placing greater emphasis on that aspect. And I ask you: If we Europeans won’t do it, who will? If we Europeans won’t promote stability in the financial and economic world, who will? We Europeans must endeavour to play our part in creating a sustainable global order. That is something we can do. I believe we can do so convincingly, and we have to, especially given that the US influence is dwindling – which is not a welcome development, but a likely one. America needs strong European partners.

I am utterly convinced that in order to increase Europe’s capacity, we must work again and again to strengthen the European institutions so that the decisions taken at the European level are taken within European institutions.

With 27 members, Europe will not succeed in reaching decisions unanimously or even via intergovernmental means with parliamentary approval in every case. That approach has its limits. We need stronger institutions that, once stronger, will also have the self-confidence to know when matters are better regulated at another level.

I am sure, there are teething problems. But the core is that we must work to strengthen the institutions – as difficult and laborious as that task may be in democratic societies that do not have a propensity for change.

Reforms always entail political risk. Yet I am optimistic because in the end I believe that the bigger the crisis, the greater the strength to draw the necessary conclusions. That does not mean I’m a supporter of allowing crises to come to a head. That is not politics’ role. But I do permit myself the liberty of staying calm in the light of catastrophes and crisis, and I’d warmly advise you to do the same.

Thank you very much.