Today's date:
Fall 2011

A Robust Vision of Europe

Gerhard Schröder is the former chancellor of Germany. He is a member of the Nicolas Berggruen Institute’s 21st Century Council.

Berlin—Economic crisis in the United States and Europe, the rise of the emerging economies led by China and the revolutions in the Arab world—with all their implications for energy security—are shaking the world order. In this context, only a new and expanded vision of Europe can provide a key pillar of stability in the coming decades.

As they seek to cope with the competitive challenges of globalization, Europe and the US must at the same deal with the consequences of unregulated financial markets and excessive national debt. To solve our common problems, we must coordinate both our regulatory approach and to chart a path of economic growth in order get our citizens back to work and to pay down the wall of debt.

Though the American free market and the European welfare states are structurally different systems, there are several experiences from the German modernization process that began eight years ago during my term in office—particularly with respect to reducing unemployment and expanding exports—that are worth sharing.

 In the last few years Germany has managed to reduce the number of unemployed by around 40 percent while at the same time raising exports by around 50 percent despite the mounting global financial crisis.

So what did we do? My reform program, Agenda 2010, saw Germany respond to two challenges: globalization and demographic changes in German society. We changed areas of the welfare system, in particular unemployment security. The state now shares the costs with industry to keep skilled workers on the payroll during economic downturns, thus enabling them to scale up quickly when the economy picks up.

We also made pensions and health insurance more flexible and placed greater emphasis on the responsibility of the individual in keeping costs down.

For the German welfare state, this step marked a paradigm shift that many believed would carve away hard earned benefits. In fact, we were able to strengthen the system by making Germany globally competitive and ensuring that benefits remained affordable for our ageing population. At the same time we raised expenditure in education, research and innovation. This gave a further boost to German industrial base, thus enabling wages to see a moderate increase in the last few years. 

Implementing these reforms was politically challenging—they cost me my job —but the result has shown it was worth it: Germany is now the best situated of all European economies. France, Italy and Great Britain and others now have to catch up with this reform process, but under much more difficult conditions. 

With Germany’s strength however comes a political responsibility for Europe in overcoming the financial crisis and spurring growth in the global economy as a whole. Germany has to contribute its share to stabilizing Europe’s economy and its currency, the euro.

Though it could have acted with greater determination when the crisis first began to unfold, the current German administration is now doing this.

The decisions to bolster the euro stability mechanism, and in particular the further moves toward a common economic government for the currency union, as agreed by France’s President Sarkozy and Chancellor Merkel, are a step in the right direction. What we need now is to move more decisively toward greater coordination of economic, fiscal and social policies in Europe.

This is the precondition for surmounting the currency crisis. To do this we also need a single European bond market with Eurobonds. Eurobonds will at some point become inevitable, but can only be introduced as part of a coordinated European policy that fosters the convergence of economic conditions. Otherwise the ground will merely be laid for the next crisis. In addition we need an agenda for growth and employment across the whole of Europe to overcome the weak competitive position of states like Greece, Ireland and Spain. 

Greater coordination among the 17 Eurozone countries would also reinforce the development of a “two-speed Europe.” The Eurozone as “core Europe” will see more rapid integration than countries, such as Great Britain, which have a more skeptical stance toward further integration. The most important thing is that this “core Europe” remains open to all countries willing to integrate, in particular Eastern European countries, such as Poland, which is not yet a member of the Eurozone.

The end goal of an accelerated process in “core Europe” will be the formation of the United States of Europe, a real political union, to which member states will transfer national power.

This United States of Europe must include the membership of Turkey and an association with Russia. Closer ties with Russia are important for Europe because they guarantee direct access to Russia’s enormous energy resources, thus contributing to global energy security. For this same reason, the cooperation between American and Russian energy companies in the Arctic should be welcomed. Peace and stability on the European continent can only come about with—and not against—Russia.

The second most important country for Europe is Turkey. The current developments in the Arab world have made this clear. There is now a chance for democracy and freedom to emerge from within the societies themselves. Turkey is the template for this in the region because it demonstrates that a non-fundamentalist form of Islam and a free society are compatible. This is also a reason why the European Union must accept Turkey as a member. It will be a bridge between Europe and the Islamic world and will greatly help to ensure security not only for Europe, but also for the US.

Europe has arrived at a cross-roads. Either Europe develops into a political union and becomes a truly global player, or it moves backward as a continent of nation states that have neither political nor economic clout on the global level. We saw a premonition of such a weak and disparate Europe during the UN climate change talks in Copenhagen in 2009. The EU nations states played only a marginal role while the emerging economies led by China made the key decisions.

For me one thing is certain: we need a united, strong Europe. Such a Europe is also in the interests of the US and would strengthen the transatlantic alliance. For we now know that today’s great global challenges, from financial instability to climate protection to the fight against terrorism or peace in the new Middle East, cannot be met by a single state in the world on its own. Germany, firmly embedded within European structures, must do its share and not follow the temptation to retreat into its own national ego.