In a policy statement before the German Bundestag today on the upcoming European Council meeting, Chancellor Angela Merkel affirmed that she will strive at the meeting for the ad- option of an ambitious and credible timetable and working method to address the questions that have been raised by the sovereign debt crisis.
“There is no incantation or magic bullet by which the sovereign debt crisis can once and for all be overcome. No, if we want to succeed in permanently overcoming this crisis, then the only option we have is to approach this challenge as a process of successive steps and ac- tion that attack the root of the problem.”
The root of the problem lies with the introduction of the euro. The Economic and Monetary Union was not, as originally planned, combined with a political union, Merkel said. That past shortfall must now be overcome. The Economic and Monetary Union must become a union of stability, she said.
The Chancellor again spoke out decisively against the idea of shared liability, in the form of eurobonds, for example. “Control and liability must go hand in hand, and shared liability can- not occur until sufficient control has been assured. Let me recall that neither the Federal Gov- ernment and the Länder in Germany, nor states like America or Canada assume joint and several liability for the bonds they issue.”
She reminded listeners that the stakes are high for future decisions at the European level. “These are highly significant months for Europe’s future, this crisis is about nothing more and nothing less than the question of whether we in the future can also continue to live in a pros- perous Europe [… .] How we answer this question, and how we resolve the sovereign debt crisis at the same time, will decisively determine the life of future generations.”
What follows is an unofficial translation of excerpts of Chancellor Merkel’s speech.
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Angela Merkel, Federal Chancellor and Chairwoman of the CDU June 27, 2012 in Berlin
Policy Statement on the European Council meeting
Tackling the European sovereign debt crisis has for more than two years now topped the agenda of European Council meetings. This also holds true for the summit that is scheduled to begin tomorrow. Because I am aware of the expectations and hopes that are attached to this meeting, I will start off by saying again what cannot be repeated often enough: There are no quick – and there are no simple – solutions. There is no incantation or magic bullet by which the sovereign debt crisis can once and for all be overcome. No, if we want to succeed in permanently overcoming this crisis, then the only option we have is to approach this chal- lenge as a process of successive steps and action that attack the root of the problem. Any- thing else would be destined to fail from the very start; at best, we would be deluding ourselves.
Our only way out of the crisis therefore remains a brutally honest analysis of its causes. There is the lack of competitiveness of some euro countries; there are fundamental structural flaws in the Economic and Monetary Union; and there is of course massive sovereign debt. These problems are homemade, and we must solve these homemade problems – no ifs, ands or buts. It is also essential that we do not make promises we cannot keep, and that we consistently implement the decisions we make.
Such action will result in reliability, and reliability is the prerequisite for trust. This precious commodity of trust has too often been ill-treated since the founding of the Economic and Monetary Union. To win back this trust, or to even create it, the Federal Government has from the outset worked hard to make the Economic and Monetary Union strong and durable.
First: We are working to break out of the vicious circle of debt and rule violations, and to cre- ate a legal framework that obligates euro area Member States to put their national budgets on a permanent solid footing. For this purpose, the Stability and Growth Pact was strengthened, and the fiscal compact was signed this last March.
The day after tomorrow, the German Bundestag will be voting on ratification of this Treaty.
Second: The Federal Government has been working hard to create a permanent mechanism to address such crises, to be able to effectively fend off any future threats to the stability of the euro area. Two days from now, the German Bundestag and Bundesrat will also be voting on the European Stability Mechanism, which is intended to replace the temporary rescue package as soon as possible.
Third: The Federal Government is working to strengthen competitiveness. Strengthening competitiveness is the prerequisite for sustainable growth. The Euro Plus Pact agreed last March already served this purpose, as did the discussions at all European Council meetings this year that addressed the issue of how we achieve growth and, above all, create jobs with- out relying on more borrowing. Consolidation and sustainable growth are mutually depend-
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ent. In the long term, you cannot have one without the other. The issue was not, and is not, cost-cutting for its own sake, but to win back leeway for sustainable budgetary policy – budgetary policy that does not squander the wealth of future generations. The intensive and constructive discussions held in recent weeks have meanwhile shown that there is broad consensus on this issue in this house of parliament, one that spans all parliamentary groups. I thank you for this. Germany is sending a strong signal, both at home and abroad, by dis- cussing this issue in a result-oriented way and thanks to the content of the decisions we just now approved in the cabinet and that we will adopt on Friday in the Bundestag and at Feder- al Government level as well.
It is a signal of decisiveness and unity of purpose, namely that we are determined to over- come the European sovereign debt crisis – permanently. That is the focus: a permanent fix, not a flash in the pan.
The European Council will also address how to further develop the Economic and Monetary Union. The sovereign debt crisis shows us every day that unfavourable developments in one euro area country can create serious problems for the euro area as a whole. It also shows us that national solutions are not sufficient for securing the stability of the euro area. Countries that form a monetary union must be firmly determined to adhere to commonly-agreed rules and to consistently seek gradual alignment of their respective competitiveness. The aim must not be to meet somewhere in the middle, but to be the best in Europe, or on a global scale.
I am firmly convinced that something very fundamental is at stake. These are highly signifi- cant months for Europe’s future, this crisis is about nothing more and nothing less than the question of whether we in the future can also continue to live in a prosperous Europe, consid- ering that competition is undergoing complete transformation around the world. Emerging economies are highly motivated. How we answer this question, and how we resolve the sov- ereign debt crisis at the same time, will decisively determine the life of future generations.
Against this background, we must take a look at what has happened since the introduction of the euro. The gaps in the competitiveness of euro area Member States have in some cases grown larger over the course of many years, and the criteria that we set for ourselves in the Stability and Growth Pact have been repeatedly watered down. Again and again, it has and continues to become evident that there is no way to take action in the Monetary Union to en- sure that nations comply with the criteria we have set for ourselves. These precisely are the mistakes that were made when
the euro was introduced – because the Economic and Monetary Union was not, as originally planned, combined with a political union. This has meanwhile destroyed a great deal of trust, the trust of investors, investors who were supposed to buy European government bonds. Trust that must now be won back through an enormous effort. This can only be done if we correct the past shortfalls, in order to secure the sustainability and functioning of the Monet- ary Union. The Economic and Monetary Union must become a union of stability. At the European Council, we will draw up a programme of work and develop a method for overcom- ing the shortfalls of the past. Our discussions will be based on a report that has been sent to the Heads of State and Government by the President of the European Council, the President
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of the Commission, the Eurogroup Chairman and the Chairman of the European Central Bank. It has been transmitted to the Parliament as well.
Let me clearly state: I share the view laid out in this report that four building blocks are essen- tial for future cooperation within a stabile monetary union:
First: integrated cooperation among systemically relevant financial institutions.
Second: an integrated fiscal policy.
Third: a framework for integrated economic and competition policy.
Forth: democratic legitimacy of such deepened cooperation among the euro area Member States, which, as well known, currently consists of only 17 of the 27 member states
I would also like to say that these four building blocks are closely linked. They are effective only in concert. But I would also just as much like to say that I decisively disagree with the view laid out in the report that top priority must be given to the pooling of debt, and that more control and the legally enforceable commitments are cited as second priorities, and indeed quite imprecisely so. Liability and control thus clearly stand in false relationship in this report. I therefore fear that, again (overall), there will be much too much talk about all the possible ideas of shared liability at the Council meeting and much too little about improved controls and structural measures.
Apart from the fact that instruments such as eurobonds, eurobills, debt redemption funds and many other such proposals are not even constitutionally possible in Germany, I also deem them to be economically wrong and counterproductive.
Control and liability must not be placed in false relationship to each other. Control and liability must go hand in hand, and shared liability cannot occur until sufficient control has been as- sured.
Let me recall that neither the Federal Government and the Länder in Germany, nor states like America or Canada assume joint and several liability for the bonds they issue.
Rather, what we need in order to develop a stability union is more intervention powers at the European level when budgetary rules are violated. To that end, we will, in a first step, adopt the fiscal compact on Friday. But I have already said in the past and will say it again: I would have liked back then for intervention in national budgets to have been possible in cases of non-compliance with the Stability Pact. We also need more binding rules in the areas that have been addressed in the Euro Plus Pact and the Agenda 2020, ranging from the often promised R&D spending by all Member States to harmonization of unit labour costs.
I will therefore explore in Brussels whether other Member States are prepared to take such a course, including the necessary treaty amendments. But I will also make clear that time is short. The world is waiting for our decisions. As I repeatedly said in Los Cabos, the world wants to understand where this European Union, in particular the Eurogroup, is headed and what the structures are in which we can reliably work. There is also no question in my mind, I might add, that more resources, more solidarity is needed to harmonize competitiveness
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within the euro area via the established Structural and Cohesion funds of the 27 member states, certainly also among the 17 euro area countries. I could, for example, imagine reven- ues from the financial transaction tax being used for this very purpose. However, I consider eurobonds – or as stated in the report – the issuance of common debt, to be the wrong course.
Other mechanisms are needed which must be strictly coupled to improving competitiveness. A monetary union will only serve the people of Europe when truly all forces are deployed to improve competitiveness. Only if we produce the best products and offer the best services will we be able to create sustainable jobs for the people. I am deeply convinced of this, ladies and gentlemen.
I have no illusions about this; I anticipate heated discussions in Brussels and, once again, all eyes, or at least many eyes, will be on Germany. Still, let me reiterate here and now what I said in these halls most recently on 14 June: Germany is an economic engine and an anchor of stability in Europe, but not even Germany’s forces are infinite. Not even Germany’s strength is unlimited; we must also not overestimate Germany’s strength. If we take that to heart, then Germany’s forces can be fully effective for the benefit of our country and for the benefit of Europe. If we do not take that to heart, then everything we are planning, agreeing, implementing would ultimately be worthless, because it would be clear that it demanded too much of Germany and that would, in turn, have unforeseeable consequences for Germany and Europe. We will not allow that to happen.
I will therefore strive to ensure that we give the Monetary Union a stable foundation; the mis- takes of the past must in no way be repeated. Politically imposing the same interest rates through eurobonds – after they came to ill effect on the markets – would be to repeat an old mistake and would not be the correct lesson learned from these experiences.
Instead, I will strive at the Council meeting to ensure that we adopt a timetable and a working method for the questions that have been raised. Given the difficult situation,
this effort should be as ambitious as it is credible. Our work must convince those who have lost faith in the euro area – not through window-dressing and pseudo solutions, but by bat- tling the causes of the crisis. That’s what I mean when I speak of more Europe.
I am convinced that more Europe – understood in this way – is absolutely necessary for our European economic and social model to stand up to global competition over the long run for the benefit of our citizens. We must now set ourselves to doing what was not yet possible through the Maastricht Treaty 20 years ago at the founding of the Economic and Monetary Union, that is to complete the Economic and Monetary Union politically. The entire Federal Government and I will work with conviction towards that end at tomorrow’s European Council meeting, and I invite you to join me in that effort.