DISCURS Gerhard Schröder -ISSD-15 oct.2010

Speech by former Chancellor Gerhard Schröder at the launch of Romania Global Development Initiative „Current Situation and Challenges for European Politics in the 21st Century“ on Friday, 15th October 2010, Bukarest Dear Ion Iliescu, Dear Adrian Nastase, Dear Victor Ponta, Ambassador von Mettenheim, Ladies and Gentlemen, Thank you very much for your invitation. It’s a pleasure for me to participate in the Launching Ceremony of this new part of your Institute. I have been asked to provide some thoughts on the current situation and challenges for European politics in the 21st Century. As you kow, this meeting takes place during a difficult economic period. We are presently experiencing the third wave of the global financial crisis, that started in 2008. The first wave hit the financial institutions, after the US-government made a mistake of historic dimension by letting Lehman Brothers go insolvent. The second wave was the effect on the real economy, with a global recession. Now we are experiencing the third wave, triggered by the excessive debt positions of some industrial nations of Western Europe, that brought the European monetary system to waver. The crisis shows that we have to reroute our course in all developed industrialised countries. For this purpose, we need a program of reforms within the national economies in Europe and the USA, a modernisation directing inwardly – similar to the reforms of the Agenda 2010 in Germany. The European crisis also offers an opportunity. When discussing if reforms in developed industrialised societies still are at all possible, then the following applies: Especially in times of crises, reforms are possible. Firstly, the crisis offers the political justification for an inevitable, even tough program of reforms. On the other hand, the necessity of reforms is greatly appreciated in society. And this is essential for any politics, that is democratically authorised. The need for consolidation is daunting – after the public budgets have been overburdened by the impacts of the economic crisis. The international competitiveness of the developed industrialised states must be further strengthened, as emerging countries such as the BRIC-states are catching up. In addition, the impact of demographic ageing on the social security systems but will rather increase. We therefore need an ongoing re-adjustment of these systems. The reforms of the Agenda 2010 in Germany not only meant short- or mid-term savings. It was rather a comprehensive program to modernise Germany, having two large goals that are causally inter-related. Firstly, the adjustment of the social security systems – in order to keep the welfare state affordable and make it fit for the future. On the other hand a clear orientation towards investment in innovation, research and education. The individual reforms of the Agenda 2010 mainly affected the labour market, the pension, the health-care system, the education system, child care and the system of taxation. The essential reform, however, was the introduction of a system of tax subsidies for low wages, which already existed in the USA and Great Britain. Seven years after agreeing on the Agenda 2010, a positive balance can be drawn. The degree of employment of the first economic recovery following the Agenda 2010 was higher than before. And we could also see – for the first time in 30 years – a decrease of the structural unemployment in Germany. This is also widely acknowledged internationally. At the beginning of the last decade, Germany was the „sick man of Europe“ for the international press. The March issue of the »Economist« now calls Germany “Europe‘s Engine“. Today, we are being admired for our labour market performance and our efficient, effective and competitive industries. The achievements of the Agenda 2010 are openly recognised and referred to as an ideal model for the other European economies. The years between 2000 and 2005 were years of modernising Germany, laying the foundations for the economic upswing from 2006 to the beginning of 2008. Allow me to outline how this was achieved: Firstly, by streamlining corporate structures and strengthening their equity capital base. In global comparison, the large German industrial concerns, but also the small and medium-sized enterprises today, have a sound financial basis. Secondly, those involved in the collective agreement have shown a high degree of responsibility by settling on flexible and moderate wage agreements. And finally, politics created an excellent framework by installing a comprehensive policy of reforms, for instance in the field of income and corporate taxation. Surely, these reforms were not the only factors causing the economic upswing in Germany – but they were indispensable for it. Ladies and Gentlemen, On-the-other-hand, we also need a program of reforms for the international financial architecture. Stabilising the Euro has been in the European, and also in the global interests. Therefore, the 750 billion-Euros-safeguarding of the European Union was absolutely right and necessary. This decision was not without alternatives. An alternative solution would have been the insolvency of one or more European states. However, a decision with unpredictable and possibly even uncontrollable consequences for the entire financial and economic world. The enormous credit lines and generous debt guarantees in contrast aimed at strengthening and stabilising the common single currency and at keeping the monetary union together. By these measures, the Euro has not developed – and will not develop – into a weak currency. For one, I can well recall the times when the Euro stood at 0.82 Dollars, without the European economy facing the edge of a precipice. On the other hand, the low level of the Euro constitutes an advantage for the exporting sectors of the Euro-states, since their products become more competitive and affordable beyond the Euro zone. Moreover, I am confident that the ECB will meet its clear mandate to preserve price stability. Ladies and Gentlemen, Creating the European Monetary Union was a decision of historic proportions – but one that was and is flawed. The European Monetary Union was not the last point in the process of the European unification. Rather, it was introduced parallel to the political process of the unification. This led to an institutional dis-symmetry, since only 16 of the 27 European member states also belong to the monetary union. The acceptance of Greece into the monetary union in 2000 was approved by the Council of Europe – of which I was then a member – based on the proposal of the commission and with the consent of the European Parliament. This admission was put into effect – as we know today – based on false Greek figures. Clearly – this decision was a mistake. This first mistake was followed by a second – with far-reaching consequences. From 2004, the Greek debt situation developed dramatically under the government of Mr. Karamanlis. However, the European Union and the member states did not intervene, even though they had been informed of this development. Now the Pact for Stability and Growth must be further developed. Imposing severe sanctions – as popular as they may appear – are definitely not a magic bullet. However, the pact must re-evaluate the criteria. It is more important to focus on the total amount of indebtedness of the states – relating to their Gross Domestic Product. Only when we come down from these high quotas, can we become fit for the future. A restrictive fiscal policy is already necessary in good economic times. In hard times, however, there must be some leeway for impulses to stimulate the economic recovery. This is what the pact has to consider also in the future. The high degree of integration into the international division of labour brings forth considerable advantages, as it enforces continuous innovations with products and processes. These innovations are the precondition for highly productive jobs, with a high increase in added value and therefore well-paid jobs. Other EU-states should take this strategy as an example. Ladies and Gentlemen, There was another turning point that occurred in the course of the global economic and financial crisis, that I welcome: The time has come to recognize the international importance newly industrialized countries have come to enjoy. Countries, particularly the BRIC states – Brazil, Russia, India and China -, have become economically and politically more powerful in the last years. The emerging markets and developing countries now account for slightly more than half the world economy. Even more importantly, they were growing two to three times as fast as the high-income countries prior to the crisis. They will increasingly dominate the global output totals as they have already come to dominate global growth. Asia is of course central to this dramatic change in the structure of the global economy. China is the second largest national economy. Most projections suggest that India will become the third largest within the next couple of decades. Along with an increase in power comes a greater international responsibility. Demanding this is one side of the coin. The other is putting an end to the two-class politics in the community of states. These countries must be allowed to have more influence in international institutions. This applies to financial institutions such as the IMF in addition to other international committees. The most noteworthy systemic impact of the crisis to date, reflecting this dramatic shift in global economic power, has been the replacement of the G-7 by the G-20 as the chief steering committee for the world economy. Fully half of the G-20 is emerging or developing countries. It includes five Asian countries – China, India, Indonesia, Japan, Korea. This shift in the locus of decision-making power was inevitable, in light of the rapid and dramatic shift in economic weights, but the crisis probably accelerated its realization by 5 to 10 years. The G-7 will now become simply a rich-country caucus within the G-20, perhaps with a focus on security rather than economic issues. The next step is to replicate this fundamental governance change in the standing multilateral institutions. It has already occurred to some extent in the WTO, where the formal voting rules require consensus, but the leadership is exercised in a group of five or six key members. This group includes China and India along with Australia and the traditional United States, European Union, and Japan. The most important remaining reforms are in the IMF: a shift of mainly from overrepresented Europeans to underrepresented Asians. We are witnesses of a historical turning point, the international recognition of the newly industrialized countries. Ladies and Gentlemen, What does that development mean for Europe? During the past decades, the European Economic Community has been deliberately developed into a European Community and then to a political European Union. The European Union is a precondition for us, to persist in international competition, especially with the ascending industrial states in Asia. A single European national economy would be too weak in this competition. An additional important reason for me is: Europe continues to be a community of peace. For some, this may go without saying or even sound banal, as the Second World War ended 65 years ago. However, such a peaceful period cannot be taken for granted for Europe. The war in the Balkans has revealed, that nationalisms are far from being overcome. In Eastern Europe, but also in Western Europe we can see burgeoning nationalistic, and even xenophobic parties, that also form governments. Were they not integrated into the framework of a political European Union, this could lead to confrontations – if not more – in the bilateral relations. Therefore, a return to a European Economic Community or anything similar would not be an alternative for me. Instead, we have to promote two processes that have always interacted: Firstly, the consolidation, that means reforming the institutions, and on the other hand the enlargement of the Union. Both cannot be separated from each other. Preceding the enlargement of the European Union and following my proposal, an European Convention was set up in order to fundamentally reform the European Union. Unfortunately, this process did not result in the Constitution for Europe, but at least in the Basic Treaty of Lisbon. It is not ideal, but at least it improved the Commission‘s capacity of acting, strengthened the Parliament and made the institutions more democratic. Now the European Union will face another round of enlargement. Accession talks respectively preliminary negotiations have started with the states of the Western Balkan and with Turkey. The Balkan states must enter into the EU, because it improves the chances of living together peacefully. So in a few years – if Kosovo is considered independent – six or seven states will join the union, which will then comprise of 34 members. And also Turkey has the right to acceeding the EU, if it fulfills the criteria. But the European Union must prepare for these accessions – the time really must be used. And at the end of the day, it is a question of the institutional fundamentals of a union, that is becoming increasingly heterogeneous on the one hand, but on the other is not yet adequately equipped for vigorous action inwardly and outwardly. Therefore, a process of consolidation must be initiated now, aiming at downsizing and strengthening the Commission and endowing the Parliament with further rights. Ladies and Gentlemen, I am convinced that the EU-membership of Turkey is of mutual benefit – economically, politically, and culturally. Already, Turkey belongs to the 20 largest economies in the world, and the speed of its economic development is breathtaking. In one generation the country will be the fourth biggest economic power in Europe – on the same level as Italy or France. And I do think, that we must make use of the opportunity, that this economy offers as an integrated member of the European Union. – Politically, Turkey is most important for us Europeans. It is about time we understood that. This country lies at the gateway between Europe and the Middle East – its influence radiates into the entire region. Meeting the criteria for asceding the EU means taking over most of our ethical values and statutory provisions. Once Turkey has achieved that, it will be a modern, democratic and constitutional country. Already now with its cosmopolitanism, it is an example for other Islamic states and societies. Turkey as a member of the European Union will demonstrate that there is no antagonism between democracy and a society characterised by Islam. This development is crucial for the whole world – and we Europeans must support it also in our own interest, since this will lead to more security with us. The accession process will take years, and it is evident that Turkey will only join the EU once it meets all the criteria. A breakdown in negotiations would be irresponsible – this would radicalise the country domestically and alienate Turkey from Europe. This in turn would not only have desastrous political and economic consequences, but would also be dangerous with regard to the security of Europe. Ladies and Gentlemen, If the EU remains unchanged, Europe will turn into a political and economic underdog. If, however, the EU wants to be a power center of world politics and the globalised economy, it needs strong partners. From its foundation, the European Union has never been static. It has redefined itself again and again, altered the institutions and enlarged its area. This has always been an adjustment to global changes. The present disruptions in the global power structure, require an adjustment of structures and of appearance of the European Union. In my view, one country has an outstanding significance for the European Union: Russia. For two reasons, Russia is important for the whole of Europe. Firstly, we Europeans need a direct access to Russia‘s enormous natural resources, in order to secure prosperity and labour in the long run. Secondly, there will only be stability and security on our continent in the context of a closest possible partnership with Russia. We describe the relations between the EU and Russia as „strategic partnership“. However, this partnership lacks genuine strategic profoundness. It is definitely not enough to negotiate a new agreement on partnership and co-operation. What we need is a new quality in international law concerning relations: a Treaty of Association. – It means a treaty according to international law, to continue opening up trade to the point of a free trade area, to realise mutual and shared projects on infrastructure, to conduct a regular and deepened political dialogue, and to establish simplified visa regulations. By this we will achieve a degree of modernisation in Russia, that will approximate our value and legal systems, plus stability for our continent, because common interests lead to concerted action. The general conditions for an association of Russia have improved. Because the policy of the United States towards Russia has changed fundamentally. And the Polish-Russian relations are finally on the right road, so that some blockades within the EU are being dissolved. The short-sighted policy of the former US-President George W. Bush, to contain and isolate Russia, has butterly failed. This view is also widely shared in the Easter European States. Furthermore, the talks on disarmament show that progress is only possible together with Russia, not against it. So the door for an association of Russia to the EU has been opened. Therefore, let me say: It is time for a cooperative signal from Brussels. Ladies and Gentlemen, in times of crises in European politics, opportunities emerge as well. Europe can hold its own between the power centers USA and China. We only have to be prepared to accept that in ten years from now the EU will have a different face than today. If we do not react accordingly, the EU may be a political dwarf in 2020, and economically a sick man. In this sense the current crisis is posing a threat, only if the political leadership in Europe fail to act. We need again the courage to transform, a policy of reforms in Europe, and a new architecture for financial markets. If the European Union additionally continues the integration course internally as well as externally – enlarged by Turkey and associated with Russia – it will remain a successful community. Thank you for your attention!

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