Europe is debilitated with the effects of two years of desperate crisis management. The prescribed treatment resembles the old practice of bloodletting on ailing patients. Growing debts are paid with more loans, and new loans are made dependent on increasingly severe austerity measures. The results are a greater risk of recession, higher interest rates on refinancing loans, and the need for runaway financial aid to the southern eurozone countries. Greece is a dramatic portent of the direction things could take. Record-breaking unemployment of over 22 percent in Spain, and record interest rates on Portuguese bonds show that the crisis fever is far from abating. Portugal, Spain and even Italy have still not managed to extricate themselves from the downward spiral of recession and debt. It is a vicious circle that increases the risk of a split in the eurozone – something that would have been unthinkable in 2009.
It has taken two years of futile efforts for governments to finally start talking about growth and employment as European aims again. This change in attitude is prompted by shock. The credit-rating downgrades for France, eight other eurozone countries and the EFSF bailout fund at the start of the year all show that the capital markets are predicting a downward spiral. It was particularly insightful to see how Standard & Poor’s justified the downgrades: “We believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues.”
We need to set a new course now and implement a far more consistent and precise strategy. First and most importantly: the current situation requires us to create the right conditions to ensure private capital flows into the real economies of crisis countries. For this to happen, there needs to be a guarantee that these crisis countries and their banks can pay their debts – from a robust European Stability Mechanism (ESM), which can provide itself with liquidity from the ECB, and a common debt-reduction pact as suggested by the German Council of Economic Experts. Growth needs private investment and these investments need security!
Secondly, we need to remove any obstacles to investing in Europe and give hope for an upturn in the economy in order to bring back hesitant private investors who have lost confidence. Our most important task is therefore to create a comprehensive European investment programme, which will increase the competitiveness of crisis countries, expand Europe’s industrial infrastructure – particularly its energy networks – and promote research and development. In order to ensure that the momentum of change is not lost in excessive red tape, the European Investment Bank must play a central role. A crucial aspect of the project is that it will not be financed by new debts, but by a European financial transaction tax, which could bring in up to €50 billion if Europe – or at least the eurozone – is united on the issue. For European solidarity has two meanings and it is time to show we are committed to both.
Taxing financial markets, promoting research and development, and mobilising investments: that means learning our lessons from the financial market crisis and changing our focus. “It’s the real economy, stupid!” is a call now even heard from Anglo-Saxon nations. For a decade, “industrial policy” was one of the most unfashionable terms in politics. But we are now done with bowing to the demands of the financial industry. Germany’s strength – the strength that has made us the anchor of Europe – is the result of many years of hard work to maintain and modernise industrial production. It is also the fruit of our refusal to follow the trendy yet mistaken teachings of London and Davos, which accelerated the flywheel of the financial markets by a few rotations each year. We want less subjugation to a system of mere value absorption and more respect for the laborious process of value creation – this demand does not come from Occupy Wall Street, but from the management boards of German industrial companies.
We must recognise the larger global challenge that lies beneath the European financial market and debt crisis. China will have overtaken the US in terms of gross domestic product by 2020. Europe’s demography is developing towards a smaller working population in an aging society. Resources are becoming scarcer. If we want to promote new growth, we should focus on the quality of the value we are creating. GDP growth at any cost and quick financial market profits at the price of bad working conditions and a wasted environment is not a solution, as recent news like that of Schlecker’s bankruptcy has shown us once again.
Europe has the potential to pioneer and supply a sustainable worldwide economy. Achieving this means addressing the major global challenges: keeping healthy well into old age, using energy efficiently and from renewable sources and ensuring mobility while fossil fuels become scarcer and more expensive. These problems require real solutions. To find them, we need excellent researchers, developers, engineers and specialists. The economy of the future needs an industry of the future. In the global division of labour, Europe’s role must be to conceive, develop and provide new products for a sustainable economic model built to ensure the prosperity of almost 9 billion people. That is the current state of the European dream.
The original German version of this column was published by the Frankfurter Allgemeine Zeitung (FAZ)