Rede in Harvard: Germany's Economic Role and Prospects in an Integrated Europe”

Ladies and Gentlemen,
Europe is growing together. To speak of this heartwarming fact is a pleasure to any convinced European, but in some respects it isn’t easy.

That I can speak to you here about Germany's economic role and prospects in an integrated Europe in my capacity as Mayor of the Free and Hanseatic City of Hamburg is no mere chance and makes things a bit easier. Hamburg’s geographic position and history have made it an international and European city for centuries. Long before Germany came into being as a new state in 1871, the city of Hamburg had set up diplomatic and consular missions around the globe, and to this day it ranks among the big consular locations.

Initially, the reason was to be found in the big harbor that gave the city its character. Although the still important harbor is no longer the mainstay of Hamburg’s economy, it has shaped the mentality and culture of this cosmopolitan city. Hamburg is both a city and a state; through the Bundesrat it influences Germany’s national policy, and it maintains a representative office in Brussels as well as in Berlin. Perhaps the best way for US citizens to understand the constitutional status of the city is to imagine the functions of the Mayor of Boston, the Governor of Massachussets and the Senator in Congress united institutionally in one person and responsible for a single community.

So it’s only natural that we in Hamburg have a direct interest in German and European politics. One recent, practical example: Hamburg led the negotiations with the Federal Government in the Bundesrat on ratification of the European Fiscal Compact.

Europe is growing together, and that is chiefly a result of the increasingly close European Union. It now has a population of over 500 million. In 2012, the Gross Domestic Product of the European Union was 12.9 trillion euros or 17.6 trillion dollars.

Although our topic today is Germany’s economic role and prospects in Europe, we should not forget that European integration is first and foremost a successful peace project that has brought together states that were still waging war against each other in the first half of the 20th century.
And we have succeeded in overcoming the division of Europe in the post-war years and sweeping away the Iron Curtain that separated East from West. Although Warsaw, Prague and Budapest are so close to Germany geographically, many Germans found it more convenient to fly to the beaches of the Dominican Republic for their holiday, and somehow these seemed nearer than the traditional European cities only a short journey away by car or train. All that has changed radically in just a few years.

The European Economic Community, the EEC, consisted of six states when it was established in 1957, and the Federal Republic of Germany was allowed to join. That meant more than we realized at the time. It marked the beginning of an integration project that wise people had initiated and that only appeared to be restricted to economic cooperation. Even if nobody and I maintain and repeat: nobody could imagine until 1989 that a European Union as a deliberate political alliance would soon include the first countries of Eastern Europe. Not in the same century, it’s true, but soon after the beginning of the next our present century.

Ladies and Gentlemen,
I have put this in a wider context because Germany would be unable to play a leading economic role in an integrated Europe with far-reaching prospects for the future without the enormous and vastly important qualitative progress, made up of countless small steps, that Europe has made so far: from the joint production of steel in a group of six to living together in a common European House.
Europe is an indispensable political project. I was recently able to listen to a speech given by the internationally renowned German philosopher Jürgen Habermas, who put it this way: Problems (...) arise out of the increasing disparity between a global society that is growing together systemically and the fragmented nature of the world of nation states that still exists unchanged. The states integrated with the will and awareness of their citizens are still the only collectives that can act effectively on the basis of democratic decision-making processes and influence their societies intentionally. But they are becoming more and more deeply entangled in the functional relationships that extend beyond national boundaries.”

Habermas sees an alternative. I quote: in the formation of supranational communities which, even if they do not have the format of states on a large scale, may basically meet democratic standards of legitimacy. Since only this road, on which we have set out with the European Union, can lead to a transnationalization of democracy.”

Ladies and Gentlemen,
Let’s leave it at that for now and return to Germany’s role in Europe in more concrete terms.

In the long run, living together that way means being a team player. That is Germany’s role: that of a team player, and hopefully one that is strong and reliable. And I am glad to know that such a large majority believes us when we say this: that we don’t want to be manager, coach and referee all in one and run off with the win bonuses at half time. What do we want to be then? A good quarterback!

And so it was good to read something like this in British newspapers recently: There are features unique to the German Mittelstand” (SME) model that I believe everyone should learn from and imitate if they can. The first is that business is a constructive enterprise that aims to be socially useful. Making a profit is not an end in itself: job creation, client satisfaction and product excellence are just as fundamental.” That was in The Guardian, published in Manchester.
 
The London Daily Mail reminds its readers of several words borrowed from German, for example Kindergarten” and Rucksack”, and again there is Mittelstand”.

Mittelstand means different but related things. It describes a medium-sized company, but it also means doing business in a very German way.”

Mittelstand companies are family owned, in 95 percent of cases, and 85 percent are owner managed. They are oriented towards customers, employees and communities rather than just obsessed with shareholder value”. End of the quote.

To read that is a comfort, considering the suspicion sometimes expressed in certain countries that German industry wants to gear Europe to its own requirements. On the contrary, its example might spur Europe’s industrious world of work on to greater productivity again.

Industrious”: for that concept the German language has another word that doesn’t necessarily suggest industry” in the economic sense. But industry is just what I want to talk about now, because it’s what springs to mind at once when I think of the challenges of modern economic policy.

For years it was preached to us all, in Germany too, that our economic future lay in the Third Sector of the economy, namely services, so that we might safely forget about the industrial cores. But that is precisely what we should not do.

There are examples to show what has become of these misleading forecasts. Germany followed a different course and kept its industry still welcoming the many new software developers as well, of course, the on-line service providers and young start-ups in Germany and especially in Hamburg. The industrial Mittelstand”, above all machinery and plant engineering firms, are one of the main stability anchors of real value-added that have brought us through the crisis with comparatively little damage.

And the concept of the short term allowance has helped a great deal, too. It has enabled the business community to hold on to their employees. Jobs were maintained, and the workers were still around when the economy picked up again.

Services and trade need a base in industry. It is the interplay between these sectors that generates the power of the real economy.

Germany’s strength has always been its exports. After 1945 we needed, and were given, a new boost out of solidarity, and we made use of its momentum. Made in Germany” was a hallmark of German production before our grandfathers were born, and it achieved this status again. That applied and still applies especially to machinery and plant engineering. With an export share of over 70 percent it stands for innovation and quality workmanship. And it helps our customers to produce useful things in their own countries.

That is what we have to do: produce useful things that are still in demand in other countries and will continue to be needed. I am speaking of machines and high-class consumer goods, and the services associated with these exported goods, and the possibility of processing the goods further in other countries. And all these products are far from being the result of cheap labor, of exporting as much as possible as cheaply” as possible in all senses of the word. On the contrary: they are the result of skilled and well paid work by craftsmen and qualified employees.

But imports are part of the package too. Germany has two strong legs to stand on, and that is a good thing. Imports and exports go hand in hand. For that we need Europe; for that we need world trade and better developed free trade; I shall come to that point later.

I was talking about industry. Can and should Europe be re-industrialized more vigorously than is happening at present? My spontaneous answer is: yes, it certainly should. And a number of countries and the EU Commission see it that way too. On a wide and stable industrial base Europe could emerge from the crisis without massive destruction of jobs and social unrest and show its citizens, especially the young people, the silver line on the horizon.

My more considered answer: it’s likely to be the proverbial long and winding road. But what is the alternative?

What I’m saying as you have noticed shows that I’m in favor of Germany’s export strength. We are aware that not everyone thinks we are right. In macroeconomic circles there is discussion of overall economic imbalance that can result when a country like Germany exports more than it imports.

Ladies and Gentlemen,
But being a country with few natural resources, Germany has nearly always exported more than it imported. And in recent years, especially after the economic and financial crisis of 2008/2009, Germany served as a locomotive in Europe and set economic development moving again. There is a connection between the two.

And I have to repeat: both our export figures and our import figures are high. It’s no mere chance that our trade-to-GDP ratio is much higher than that of the USA, for example, or of Japan.

Ladies and Gentlemen,
Not everyone, not even in Germany, believes at present that the European unification project is traveling on a well-laid track. Some of our citizens have doubts about the monetary union and the European project.

But our economies are interlinked, and so are our societies. We need the Euro as our common currency in order to build a strong Europe. The Euro is a milestone in European integration, and it is gradually becoming stable again.

In any case the Euro crisis was not a crisis of the currency itself: it reflects a temporary lack of confidence on the part of investors and financial markets in some of the states of the Euro zone, especially as a result of excessive national debts and inadequate reforms.

Although there is usually no specific limit beyond which debts are excessive”; they are excessive if a low level of competitiveness or a lack of enterprises operating internationally combined with inefficient public administration make the states concerned seem unable to pay these debts back. That almost inevitably results in a vicious circle: ever-increasing surcharges which are not always rationally explicable make it more and more difficult to service the debt at all; recession and decreasing demand make it necessary to cut down public spending, and that in turn aggravates the recession.
Our prime task is to restore such confidence and that of our citizens. Consolidation of the national finances, supported by bilateral loans and solidary rescue packages, have put us on the right course. Although it is the crisis states themselves that were and are still chiefly responsible for changing their policy. Some of them have done so and are making progress. Ireland and Spain were already able to exit the EU bailout last year.

It was right of the EU, and especially the Euro states, to step up integration in the direction of a coordinated financial policy, specific limits, possibilities of intervention by the other member states and the Commission underpinned by sanctions and interstate transfers. Europe must continue to take one step at a time; it must act prudently, help the states on their way and give them enough time for consolidation.  
At the same time there must be consensus that political problems can no longer be solved by running up more and more debts. We have learned a lesson from the past weaknesses of the monetary union. With the European Stability and Growth Pact reformed at the end of 2011, the Fiscal Compact and the European Stability Mechanism we already have important instruments for ensuring efficient control of the national budgets while granting aid, if necessary, to member states that are finding themselves in difficulties.

Ladies and Gentlemen,
In the meantime major progress has also been made towards stricter control of the financial sector, known under the heading of the Banking Union”. From the fall of 2014, the European Central Bank will take on supervision of all the major banks in the EU.
And not before time, because the financial crisis demonstrated very plainly that both our economies and our national budgets depend to a disquieting extent on a few system-relevant banks in most cases very large banks. Some states Germany, Spain, the UK, Ireland, Cyprus and Greece had to grant assistance loans from government budgets to support struggling banks. Some states themselves were then in a financial predicament as a result, in spite of good overall economic data, as in the case of Spain and Ireland.

We hope to prevent new casualties with a three-pillar strategy. First: The European banks 124 in number  which are acknowledged to be system-relevant will in future be supervised by the SSM, the Single Supervisory Mechanism. As I have said, the ECB will be entrusted with the operational side of this. The European Parliament and the national parliaments will have control rights.

Secondly: a quick means of winding up banks that are no longer viable will be developed and guaranteed. This will not automatically be done at the taxpayer’s expense. According to current plans, the mechanism will be operational at the beginning of next year.

Thirdly: This Single Resolution Mechanism”, SRM, needs a resolution fund from which a struggling bank can be granted the extra equity it needs for restructuring.

Even if there is still controversy over certain details, which I will spare you at this point, I’m confident that the crisis can be overcome and that the European Union will come out of it stronger.

The process of European integration will continue out of sheer necessity, if nothing else. And since the European Union is not a state but an entity sui generis, further steps towards integration will have to be achieved by effort, and in many cases new paths will have to be trodden.

As we have seen, the heavy debts of some European states have created the necessity for a fiscal strategy; this has been agreed in the Fiscal Compact. The fact that Europe’s banks have long been operating in a global market has made it necessary to establish a Banking Union. This is gradually being created. A laborious process, but there is no stopping it.

In the long term, this process of economic integration will have to be accompanied by further steps towards democratization. Most of the recent progress has been achieved on the inter-governmental level. That will have to change. Precisely because Germany, which has special responsibility because of its economic importance, might soon find this role too much for it.

Here in the USA, especially, we have to ask what integration challenges still have to be met in Europe in order to create an economic zone that functions as well as that of the USA. The answer is not as obvious as it might seem. To discover whether there is a lower level of legal integration in Europe than in the States would be a good topic for scientific research. I’ll give you a fairly recent example: in the USA, California surged ahead and prescribed catalytic converters for automobiles. Germany was unable to do so at the time because EU law had priority.

Once fiscal governance in the EU has been harmonized, the Banking Union established and the Euro has replaced the existing national currency in further EU states, there will not be much left to do. One task remains, though: Taxation must be harmonized. A second task: Where the USA and the EU differ is currently the labor market. But not in the legal sense, as many people think.

In fact, we are witnessing the development of a European job market. 220 million Europeans have the legal right to look for work anywhere between Limassol and John o’ Groats. Because of the different traditions, Europe has not yet become fully aware of this, so less use is being made of this opportunity than in countries like the United States, for instance. But the trans-border job market is slowly evolving in European minds and changing our culture. This protects our economy and, incidentally, our currency too.

What will stay with us for a long time to come is the difference between the social security systems; these have evolved out of different historical traditions and can probably not be harmonized at all only made more compatible.

Ladies and Gentlemen,
back to imports and exports, to world trade in a globalized market. In this connection, too, it makes sense to think beyond national boundaries more readily and more systematically than in the past and authorize the European Union to conduct direct negotiations for example with the country that is currently my host. Of course I am thinking of the proposed Transatlantic Trade and Investment Partnership”,TTIP.

I support the opinion of the European Parliament that it is crucial for the EU and the US to realize the untapped potential of a truly integrated transatlantic market, in order to maximize the creation of decent jobs and stimulate a smart, strong, sustainable and balanced growth potential
(From the resolution of the European Parliament on May 23, 2013)

That is a challenging demand, and if I were a pessimist I would probably warn that it’s expecting too much. But I prefer to be an optimist. What time would be more appropriate than the present for linking our continents together more closely?

Already the volume of trade between the EU and the USA is very large. Goods and services to the value of two billion euros are moved every single day. Some 15 million jobs depend on this trade on both sides of the Atlantic.

Of course you have to take forecasts with a pinch of salt where the possible effects of a TTIP are concerned especially in respect of economic growth and increased employment. But these are the decisive factors. And the negotiators still have a lot of work ahead of them: consumer protection and the diversity of cultures and opinions must benefit from the agreement and not suffer as a result of it.

Ladies and Gentlemen,
As I come near the end of what I have to say, let me return to Germany although this subject is really a pan-European task. And opinions about it still differ widely. I mean the Energiewende, the energy turnaround, another of those words that have sailed across the North Sea and the Atlantic with the aid of the wind power installed there.

Germany is in the process of completely transforming its energy sector. At least, this is what we are trying to accomplish, at a pace unmatched by most of our neighbors and other industrialized nations. Nuclear power is being phased out as renewables are gradually taking over.

We will have to keep on pushing, though. Chancellor Angela Merkel once referred to the whole concept as a Herculean task”, and indeed it is the greatest challenge Germany as an industrial nation has faced since it was reunified in 1990.
My own next door neighbors complain about having to shoulder the bulk of energy price rises while energy-intensive industries are hardly hit at all by special feed-in tariffs, since they claim exceptional treatment. Which they must be granted, to my mind, but the equity gap must be bridged, too. New power transmission lines with up to 60 or even 70 m high grasshopper” pylons, as novelist Barbara Vine calls them, will not be greeted cheerfully by everyone.

There is no way of stopping the energy turnaround, though, because in the long run it will reduce security hazards and enable Germany to generate a greater share of its own power in future. Not to mention the effect it will have on reducing greenhouse gases.

On the one hand, eight nuclear plants were shut down immediately in the wake of the Fukushima disaster, with the rest of the power stations to follow in stages up to 2022. On the other hand, the new government has made it clear that it will stick to the objective of reducing greenhouse gas emissions.
Investment in renewables is now the name of the game, with a focus on generating wind and solar energy. Multi-billion euro investments in the required expansion of the current national electricity grid have to be shouldered because transporting wind energy generated offshore” in the north of the country to its southern states touches a sore spot.

Ladies and gentlemen,
There are challenges galore, and indeed the German Energiewende” may be seen by some as a huge political gamble with scope for unforeseen consequences, if anything major goes wrong. On the other hand, the economic prospects are bright and could be even brighter if more European countries, and the EU itself, could opt in, instead of watching from afar and opting out of mutual development goals, as they do at present.

As to the prospects, let me quote just a few figures from my own modest but thriving cosmopolitan city: According to a study commissioned by the Renewable Energies Hamburg” cluster, an increasing number of people work in Hamburg’s renewable energy sector. Most of the companies in the wind power industry already have growing management and research capacities in Hamburg, and many have their international or European headquarters there too.

And the market is developing very dynamically: offshore wind power along the coast of Germany alone is scheduled to generate 6.5 gigawatts by 2020 and 15 gigawatts by 2030.
Conservative estimates predict that more than 12 billion Euros will be spent on offshore wind parks in the coming years. Wind power is a high-tech industry that directly demands the competence to develop and use modern technology.

Ladies and Gentlemen,
Even if the world is looking towards us with a mixture of incomprehension and curiosity to see whether and how we shall cope with the energy turnaround, I’m convinced it will become another German export hit. By 2050 we intend to generate 80 percent of our electric power from renewable sources.

Ladies and Gentlemen,
We need a big, strong, united Europe, perhaps including Turkey too, in the long run.

We have major tasks ahead of us, and timidity will get us nowhere. Solidarity is an important requisite for the continued existence of the European Union.

Solidarity! Because it’s true, too, that the financial and debt crisis has hit those hardest who were not responsible for causing it. I have already mentioned the high unemployment rate among young people in many European countries. This problem may have explosive social consequences. It is our duty to give these young people a perspective and not leave them to their fate.

Ladies and Gentlemen,
In 1961 John F. Kennedy, who was so highly respected in Germany, said before the Canadian parliament in Ottawa that one day, all Europeans should call out to each other at all times:
Geography has made us neighbors. History has made us friends. Economics has made us partners, and necessity has made us allies.”
And to Europeans who may still feel that is too much to expect, Jürgen Habermas says:
For a supranational democracy still anchored in nation states we do not need a European nation; what we need is individuals who have learned that they are national citizens and European citizens all in one.”
Thank you.

Es gilt das gesprochene Wort.