Wolfgang Schäuble on German Priorities and Eurozone Myths
BERLIN
— The annual spring meetings of the International Monetary Fund and the
World Bank begin on Friday in Washington. I’m looking forward to them,
even if the discussion in recent years has seemed, to some commentators,
a bit too well-rehearsed to provoke much discussion or thought outside
of the usual comfort zones.
The
fact that the immediate sting of the global financial crisis has faded
in much of the world has probably contributed to this complacency.
Unfortunately, however, the world economy is not yet out of the woods.
It still faces very concrete challenges. We are as badly as ever in need
of a common understanding of what needs to be done.
The
financial crisis broke out seven years ago and led many countries into
an economic and debt crisis. A pervasive set of myths — that the
European response to the crisis has been ineffective at best, or even
counterproductive — is simply not accurate. There is strong evidence
that Europe is indeed on the right track in addressing the impact, and,
most importantly, the causes of the crisis. Let me run through some of
these myths.
First,
it has often been said that German insistence on fiscal austerity meant
that Germany, the largest economy in the European Union, has “punched
below its weight” — and thereby pushed the eurozone more deeply into
crisis — by not stimulating more demand. This misses the point. As in
medicine, to prescribe the right treatment it is essential to have the
correct diagnosis.
My
diagnosis of the crisis in Europe is that it was first and foremost a
crisis of confidence, rooted in structural shortcomings. Investors
started to realize that the member countries of the eurozone were not as
economically competitive or financially reliable as the uniform bond
yields of the pre-crisis years had suggested. These investors began to
treat the bonds of certain countries with much more caution, causing
interest rates for those bonds to rise. The cure is targeted reforms to
rebuild trust — in member states’ finances, in their economies and in
the architecture of the European Union. Simply spending more public
money would not have done the trick — nor can it now.
To
this end, Germany has consistently advocated an approach of structural
reforms and reducing public debt without throttling growth. This is not
blind “austerity.” It is about setting a reliable framework for
private-sector activity, preparing aging societies for the future and
improving the quality of public budgets.
In
Germany, this approach has shown tangible success: The economic
recovery since 2009 has been broad-based, with domestic demand as the
main driver of growth. Investment — both public and private — is
increasing. We are speeding up debt reduction, in line with the I.M.F.’s
recent call for “symmetric stabilization” (reducing deficits in good
times, to offset deficits in bad times).
More
importantly, many European countries are reaping the rewards of reform
and consolidation efforts. Countries like Ireland and Spain, which put
far-reaching reforms into effect when they hit financial trouble a few
years ago, now boast some of the highest growth rates in Europe.
A
second myth is the absurd claim by some commentators that Germany —
being a creditor nation— was actually profiting from the crisis. I don’t
see how any member country can benefit from a European crisis. It is
true that the German government now enjoys historically low borrowing
costs. But so do almost all other eurozone members. Unconventional
monetary policies pursued by the independent European Central Bank seem
to have fulfilled their part there. Low interest rates help all
borrowers — but they come at ever-increasing costs to savers and pension
funds. We should work hard to overcome this extraordinary situation and
find our way back to a well-functioning market economy, in which
interest rates serve to allocate savings to the most profitable
investments.
This
leads to my third point: For many vocal commentators the answer to the
crisis in Europe has been ever-greater liquidity and ever-lower interest
rates. Now that we have both, we are finding that these policy tools
are no panacea, but create problems of their own. More and more experts
on both sides of the Atlantic warn of dangerous bubbles in asset prices
and risks to financial stability from ever-increasing leverage
(financing by borrowing). And it is clear that the debt burden in many
countries cannot be solved by incentives to take on even more debt.
On
the fiscal side, we need to prepare government budgets for an eventual
normalization of monetary policy and capital markets. The ongoing debate
over “tapering” in the United States — the end of the extraordinary
period of “quantitative easing” by the Federal Reserve to stimulate
economic growth by purchasing huge quantities of bonds — shows how
difficult it is to withdraw a stimulus once governments and markets get
used to it.
The
European Central Bank has warned many times that monetary policy cannot
substitute for fiscal and structural reforms in member countries.
Christine Lagarde, the managing director of the I.M.F., has also called
for further structural reforms. Such reforms include, for example, more
flexible labor markets; lowering barriers to competition in services;
more robust tax collection; and similar measures. I fully share this
view. Monetary policy can only buy time. Our job is to make sure that
this time is well used to put finances in order and economies on
sustainable growth paths.
The
priorities for Germany, as the current president of the Group of 7
nations, are modernization and regulatory improvements. Stimulus — both
in fiscal and monetary policy — is not part of the plan. When my fellow
finance ministers and the central bank governors of the G-7 countries
gather in Dresden at the end of next month we will have an opportunity
to discuss these questions in depth, joined — for the first time in the
G-7’s history — by some of the world’s leading economists. I am
confident that we can reach some common ground in Washington in advance
of that meeting.
Wolfgang Schäuble is the finance minister of Germany
... Así es si así os parece (Luigi Pirandello, parábola en tres actos)
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