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Social cohesion

Social cohesion

Quo vadis, Europe?

Dangerous cracks in the monetary union, waves of refugees, Western values under threat: a conversation with historian Heinrich August Winkler on how the EU can pass these hard endurance tests and reinforce the bridges between its member states.

About Mr Zeuner
Dr. Jörg Zeuner

Jörg Zeuner was Chief Economist of KfW from September 2012 until April 2019. He regularly contributes to current debates in Germany and Europe with his commentaries on economic policy.

In 1990, Richard von Weizsäcker demanded that all of Germany’s borders should become bridges to its neighbours. Today, some of those bridges appear to have cracks.

PROF DR HEINRICH AUGUST WINKLER: My impression is that since 1989, particularly precarious relations have ceased to be precarious. German-Polish relations, for example, have never been better. Compared with the period between the two world wars, we have reached a period of very close cooperation with our other direct neighbours as well.

DR JÖRG ZEUNER: But the bridges are still not long and wide enough. Does that worry me? No. Europe is and will continue to be our mission for a very long time and for very good reasons that go far beyond economics. But that does not mean that the architecture of the monetary union is a minor matter, on the contrary. The 20th century has taught us that Europe must have a successful economy and an open society in order to survive. That is why the monetary union must continue evolving.

Germany and France often recommend different treatments for the sovereign debt crisis.

WINKLER: The relationship between Germany and France urgently requires more consensus on issues pertaining to the monetary union. Paris and Berlin disagree on the issue of economic growth vs. budgetary consolidation.

ZEUNER: As economists, we must provide more enlightenment here instead of putting up smokescreens. After all, we have faith in the market economy and competition. We all agree that long-term growth is generated by ideas and the willingness to try out new things – in other words, education, research and innovation. And we agree that good investments enhance economic power, and that borrowing to achieve it is therefore justified. The commonalities are therefore greater than one generally assumes.

About Mr Winkler
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Prof Dr Heinrich August Winkler is one of Germany’s most renowned historians. Winkler conducts research on the ‘history of the West’. He has published a series of books in four volumes under this title which has become a standard reference work. He contributes to political debates with enthusiasm. It was Winkler who held a commemorative speech in the German Bundestag on the occasion of the 70th anniversary of the end of World War II.

What do the divergences mean for Europe’s future if Mr Zeuner is wrong?

WINKLER: European integration will not advance unless there is fundamental agreement between France and Germany.

Our relations with southern European countries, especially Greece, are not the best either.

WINKLER: Germany should have taken steps early to counteract the impression that it was exclusively about austerity. What is also correct, however, is that budgetary consolidation is crucial to the further development of monetary union and that, all too often, other states blame Germany for their own failures in the area of structural reforms. There is plenty of compensatory rhetoric at play here.

ZEUNER: I agree. Remarkably, convergence worked better before the country entered the monetary union than afterwards. It was the only way to achieve the goal of a common currency. What is our common goal now?

WINKLER: Contrary to what its architects had expected, the euro has rather divided the peoples of Europe so far because some countries perceive the criteria of monetary union as an imposition, saying that they are incompatible with national traditions of budget management. Some things were easier while it was still possible for countries to raise or lower the price of their own currency. There was less pressure on them.

Do you want the euro to be abolished?

WINKLER: No. We must not forget that multiple depreciations of the franc and corresponding appreciations of the Deutschmark prompted French president François Mitterrand to push for the introduction of a European currency. After all, depreciations were always bad for the national image.

ZEUNER: I agree completely! Because in the end, depreciations do not automatically generate growth – and this is also important in the debate over a Grexit. It is not what the French and Italians experienced in the days of the Deutschmark. The depreciations brushed monetary policy mistakes under the carpet and reduced the purchasing power of the domestic currency. Wage earners and savers in particular could suddenly no longer afford to buy as many imported products. This redistribution was significant, and it was also deeply undemocratic. That is why most want the euro until this day. The critics of reform programmes should not forget that.

“We cannot run economic and fiscal policy on autopilot for long.”

Dr Jörg Zeuner

What was the foundational error of the euro?

WINKLER: Abandoning the aim of simultaneously achieving monetary and political union. The Maastricht Treaty of 1993 outlined a clear profile only for the monetary union but remained vague where the political union was concerned. In the course of the 1990s, Helmut Kohl then came to see monetary union more and more as something achievable while he became more sceptical about political union. That became the great liability of the euro after the global debt and financial crisis from 2008. That is the legacy from the foundation phase that we are working off today.

What needs to be done?

ZEUNER: I would like to see the national states move towards a fiscal union and closely coordinated labour market policy. That is something we should talk about now. That way we would make more progress than by constantly refining a set of rules like the Maastricht Treaty. I don’t think we can run economic and fiscal policy on autopilot for long. We will have to continue making difficult financial and economic policy decisions on a constant basis. In order to have an idea of what is right, of who should move in what direction, we need to understand much better how the European economies work. Both the EU Commission and my own discipline, economics, have failed to do this so far.

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Talking about the crisis

KfW’s Chief Economist Jörg Zeuner, historian Heinrich August Winkler and editor-in-chief Bernd Salzmann (left to right) in the Historic Foyer of KfW’s Berlin Branch.

What do you mean?

ZEUNER: We must know more about how flexible the individual economies are. Italy probably responds differently to the decline in the price of oil than Germany. The French economy with its many large exporting companies is likely to be able to absorb job cuts in the public service much better than the Greek economy, which consists of a large number of sole traders. Only in this way can we assess with fairness in what area and in what direction a European partner needs to move and where it needs what form of solidarity.

Mr Winkler, are we out of the woods yet in Greece?

WINKLER: I hope the third rescue package will lead to the structural reforms that are in Greece’s own best interest. But I have my doubts. Should the desired result fail to materialise, the more economically stable countries will be less willing to provide further assistance. It would be extremely dangerous if the frustration were to grow in the countries that comply with the rules of the monetary union. That would strengthen euro-sceptical and anti-European forces. This political aspect must be clear to all actors in Berlin, Paris, Rome and Brussels, not to mention in Athens. Even a leftist government such as that of Syriza has held on to excessive Greek nationalism. In other words, we are not yet in the clear.

ZEUNER: I couldn’t agree more. If the package fails to have any effect it will be very difficult for the monetary union. But I am very relieved that a Grexit was ultimately not an option. It would have turned into an absolute disaster for Greece. In the future as well, building an exit option into the European architecture will immediately generate two problems for all members. First, it will increase the cost of borrowing because a premium would have to be paid for a possible exit, and second, it will again expose the countries to more instability and speculation in the financial markets.

When we talk about Europe today, we usually talk about debt. The violation of Western values in some member states appears to play a secondary role...

WINKLER: ...and that is scandalous! The rally cries against liberal democracy emanating from the lips of Hungary’s Prime Minister Victor Orbán have not yet met with a response. Or consider former Romanian Prime Minister Victor Ponta, who is under suspicion of corruption and has decried the principles of the rule of law. Those who are not committed to human rights, to the principle of separation of powers, the rule of law, of popular sovereignty and representative democracy, are in breach of European law.

“The refugee problem has led to the EU’s deepest crisis ever.”

Prof Dr Heinrich August Winkler

Hungary’s answer to the numerous refugees who are pouring into the European Union this year is a fence on the border with Serbia.

WINKLER: The refugee problem has led to the European Union’s deepest crisis ever. After all, what is at stake is the moral understanding of the community. Those who believe that the refugee tragedy is none of their business, as some states do, have renounced the claim to being a community of values. A few states are bearing the brunt of the load while others are shunning responsibility. That cannot go on.

What could be the consequences?

WINKLER: It could lead to the failure of the European project. It is truly about the survival of the EU as a community of values. We have an enormous need not only for action, but also for reflection. And this includes thinking about a common European migration and asylum policy. We need to have a very serious debate.

ZEUNER: The freedom of movement within the EU is already under threat and with it a core objective of European integration. I would also like to point out that Germany in particular, with its ageing population, can benefit enormously from systematic immigration. At the same time, we must not be afraid to look at the countries of origin and ask ourselves what could be done there. And the EU must set a better example. Too many member states are still far behind where transparency, corruption and doing-business indicators are concerned.

Source
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This article appeared in the autumn/winter 2015 issue of CHANCEN magazine focusing on bridges.

To German edition

And what would have to be done?

WINKLER: First, the refugees’ countries of origin must receive help to stem the tide of migration on the ground. Some of the countries are quite capable of giving their citizens prospects so that they don’t migrate. Second, we must distinguish between immigration and asylum. Only persons who are truly being persecuted for their political beliefs can claim political asylum. The right to asylum cannot be granted for every form of social discrimination. That would overwhelm every member state of the European Union and the EU as a whole.

ZEUNER: We are a migration destination and should not be afraid of it. Migration has enriched a whole series of states at cultural, economic and political level. Soon we will really be needing many of the people who enter the EU. Nevertheless, the immigration we are witnessing today continues to be a major challenge, but the fact remains that it is also an opportunity.

Published on KfW Stories: Wednesday, 22 March 2017