German Federal Finance Minister Wolfgang Schaeuble advocates further integration of Europe to resolve the severe crisis, but not to the point of surrendering sovereignty.
“The crisis has shown that we have to strengthen integration in some specific areas – in fiscal policy, in economic policy in general, in banking regulation and supervision... but, clearly, we are not creating the United States of Europe," Schaeuble said in written answers to The Nation's questions.
The answers were sent from Berlin before he headed to Tokyo for the IMF/World Bank annual meetings. Tonight, he will be the keynote speaker at the Second Bank of Thailand Policy Forum, talking on "Asia and Europe – What we can learn from each other: Towards an economic policy model for the future".
His view opposed that of European Commission President Jose Manuel Barroso, who said last month that a “federation of nation states” would tackle common problems in Europe. He called for the sharing of sovereignty and for moving towards full integration. A drive towards a federal Europe, which would then force the 17 countries using the euro and 10 others to come under the power of politicians in Brussels in the way all 50 US states are under the federal government in Washington DC, is feared to lead to more complex divisions across the continent.
Deeper integration is expected, since the European Union became the 24th organisation in Nobel Peace Prize history since 1901 to win the highly-lauded award in 2012 for having "over six decades contributed to advancement of peace and reconciliation, democracy and human rights in Europe”.
"European integration is not about building a federation, a ‘superstate’ or a new empire,” Schaeuble said.
“As I said, you will not find an equivalent for it in the world or in the history books. As a model, it is innovative, flexible and therefore future-proof because it always seeks to address the problems at the level where they can best be solved and it is in constant evolution.
“In certain areas, EU member states retain much more influence and power than in a typical federal model. But in others, such as trade and competition policy, they have been gradually transferring more prerogatives to the European level.”
The finance minister expressed his view that the eurozone crisis should not be seen as an indictment of the European welfare state, as sovereign debt crises can happen anywhere. Yet, the crisis serves as a reminder that “such comprehensive welfare systems must sit on sound financial foundations”.
The origin of the crisis is insufficient financial regulation and supervision, decades of neglect of competitiveness in some member states, excessive reliance on tax income fuelled by speculative developments in the financial and property sectors, and lax fiscal policies leading to excessive sovereign borrowing in an environment of very low interest rates, he said.
Europe has to constantly adjust the various elements of the welfare state to reflect the gradual ageing of its societies. He also supports the G20’s call to promote strong, balanced and sustainable growth. Together with the MF, Europe must be more vigilant about signs of deep
ening imbalances in the world economy or about unsustainable trends, for instance in public finances.
“We must also create a solid regulatory framework to govern all financial markets and all financial actors. We have made a lot of progress in this area within the G20 but there is still a lot to do. Lastly, we must avoid actions that would be detrimental to international trade as it is one of the biggest sources of growth for all of us,” he said.
Despite the crisis, he sees Europe as an example for successful regional integration, which retains flexibility despite complex structures and preserved national competencies in many policy areas. Throughout the crisis, all countries discussed options, indicative of their solidarity.
“In many ways the European model which distributes sovereignty between the local, regional, state and European levels according to where problems and questions are best dealt with, is arguably the most modern in [the] world. The EU may look complex and sometimes slow, but it delivers functioning solutions for its 27 member states, which form the largest economic block in the world,” he said.
The European Stability Mechanism, the regional bailout mechanism, is an expression of the strong solidarity that exists between its members, he said.
Though Germany is likely to absorb much of the bailout cost, from one estimate 4 trillion euros or more, Schaeuble said it is equally wrong to speak of costs.
“Germany’s support for the adjustment programmes in Greece, Portugal and Ireland has meant that we have taken over a certain amount of risk that investors would have assumed in normal times. And again, all members of the eurozone have an existential interest in doing all they can to stabilise it.”
The bailout requires the European Central Bank to purchase government bonds, which in a way will lead to money printing. Coupled with quantitative easing by major economies like the US, Japan and Britain, there are fears that years from now, the world would be threatened with hyperinflation.
Schaeuble noted that right now, what is important is to ensure price stability in the eurozone. Then, it is up to the central banks that inject money into the system to ensure a timely exit, or generous liquidity provision can turn into inflationary pressures.
He refused to comment on the right model for Asia, which consists of large and small economies and a regional grouping like Asean. Asia is a “successful continent ... from which we have much to learn”, he said.