Business

Germany digs deep for indebted nations

JOSEF BECK

Wednesday, October 10, 2012    

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I read with great interest the Observer's "editorial" "Debt crisis will continue for the foreseeable future" in the September 27 issue of the paper. Although I agree with many of the assessments made in the editorial I have to reject as totally unfounded and false the statement that Germany is one of "the least empathetic to countries in debt as is clearly evident in the attitude of Germany to assisting countries like Greece".

Corresponding to its 27 per cent share of the eurozone economy Germany has already committed guarantees of ¤168 billion ($19.5 trillion) and paid-in capital of ¤22 billion alone for the different rescue instruments, the European Stability Mechanism (ESM) and the European Financial Stability Facility (EFSF), for a total amount of ¤190 billion.

This corresponds to 2/3 of Germany's annual budget and about 16 times Jamaica's GDP and it is by far the biggest amount and biggest share of any EU country. Imagine Jamaica putting up 2/3 of its annual budget backed by taxpayer money to help their CARICOM neighbours in economic difficulties and being accused of a lack of empathy.

These German contributions don't even include our annual ¤12-billion net contribution to the EU budget, mostly benefiting the countries in crises, our 20 per cent share of budget support from the EU budget for non-eurozone members and our contribution to assistance given via the European Central Bank.

There are many citizens in Germany who are worried that we are risking our economic future by taking up such big financial obligations to help the countries in crisis. Some even appealed to the constitutional court. Fortunately, the constitutional court gave the green light to our policy of support in September.

The issue is not at all whether Germany is prepared to help the countries in crisis and to save the euro but how to fix a fiscal, competitiveness and banking crisis that has developed over decades.

In the medium and long term, we will not solve it by providing cheap money but by remedying the root causes like reckless government spending over many years, careless lending by banks and — very importantly — falling competitiveness in our countries.

This will require the solidarity of those giving the support and those who have to carry out the reforms. In an economic space with one single currency our actions and also our mistakes have an impact on all our partners. Europe must be able to compete globally to preserve its very high standard of living. Our competitors in developed and emerging economies are certainly not sleeping.

The crisis is not over yet and there is no quick fix to it. The European Central Bank has made an important contribution but short-term liquidity and rescue packages are only buying us time to address the root causes.

There is, however, a silver lining. The reform efforts we are already seeing in some eurozone countries are impressive and beginning to bear fruit. They bring great hardship to many people but they are indispensable for solving the crisis.

Germany, too, has gone through a similar process of reforms (though in a more favourable economic environment) over the past decade including tax reforms, pension reforms, cuts in public salaries, reforms of our social security systems and labour market reforms in order to bring our economy back on a sustainable growth track.

The last few months have clearly shown that Germany and our eurozone partners are prepared to do whatever it takes to save the euro and that the markets have finally understood that in the end they will loose if they bet against the currency. The progress already made is generally underestimated. There is a good chance to see, in a few years, a eurozone economy that is stronger than it was before the crisis.

Germany will bend over backwards to do its share to save the euro for economic and political reasons. The euro has been a remarkably successful currency. Its exchange rate and inflation rate are as stable as that of the deutschmark before. It has become the second global reserve currency. The euro is in the economic interest of all of us in Europe and the world economy.

The euro is also a centrepiece of the European Union, which is possibly the biggest peace project ever. Next January 22, we will celebrate 50 years of German-French reconciliation and friendship. The Elysee Treaty formed the basis of the European Union and brought us the longest period of peace, stability and wealth in Europe.

The voice of the European countries, including Germany, and their contributions to answering global challenges will only be really strong through the EU as the biggest economic space in the world.

In the words of the German Foreign minister, Guido Westerwelle: "There is no good future for Germany without a good future for a united Europe." That is why Germany and its partners in the eurozone will do whatever it takes for Europe to overcome the crisis and emerge stronger from it.

The author is the Ambassador from the Federal Republic of Germany.

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