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Social cohesion

Social cohesion

“Europe needs more joint investment”

How can a divided Europe pool its strengths and design the future together? KfW’s Chief Executive Officer Günther Bräunig in conversation with political scientist Ulrike Guérot about the potentials of our continent – and the failings of the past.

About Ulrike Guérot
Ulrike Guérot

A political scientist, she experienced her European moment in her early 30s as a staff member of then EU Commission President Jacques Delors. When they parted ways in 1998, he told her: ‘You will have to carry on the European torch.’ This imperative has been driving her ever since. Today the lecturer and journalist is a professor of European policy and democracy research at the Danube University Krems. She is also the founder of the European Democracy Lab, a Berlin-based think tank.

Ms Guérot, how would you describe the current state of health of the EU?

ULRIKE GUÉROT: I would describe it as multiple organ failure with the possibility of collapse. Just one example: After the next European elections, populist forces might have around 30 per cent of the seats and acquire a blocking position in the European Parliament. That would probably have massive consequences for negotiations on the next European budget for 2021 to 2027. Although the so-called populist parties do not share the same views, they have a common goal of always voting down proposals for spending more money on anything in Europe.

That sounds quite gloomy. Mr Bräunig, do you have a similar view?

GÜNTHER BRÄUNIG: My view is that if you don’t invest a little in your health every day, sooner or later you will be forced to spend a lot on your illnesses. Europe has proven time and time again that it has good health and has overcome many illnesses, but we have long neglected Europe and must now deal with its illnesses.

Who do you mean when you say ‘we’?

BRÄUNIG: All of us, from the individual citizen to the politicians in the member states, who are in the habit of blaming everything on Europe.

About Günther Bräunig
Portrait Dr Bräunig

His European biography began at the age of 13, when he spent a language holiday in England for the first time. Günther Bräunig has been on the path of Europe since he studied law in Mainz and Dijon, while he was Finance Manager at Airbus, and since joining KfW in 1989. He has been the Chief Executive Officer of KfW Group since 2018. Its European Clean Oceans Initiative is a matter that is close to his heart.

GUÉROT: We have taken Europe much too much for granted. No one ever believed that the basic consensus on Europe could ever be called into question again in society. Now we are witnessing parties who are doing just that. So I agree with Mr Bräunig that all forces of society have failed to support this basic consensus. Now we are paying a high price for this omission.

BRÄUNIG: But it is not just Europe. In fact, our representative democracy as a whole is beginning to shake – in all EU member states equally.

GUÉROT: Absolutely. We have Macron vs. Le Pen, Brexit vs. Bremain, Pulse of Europe vs. Pegida, PiS vs. the liberal sections of Polish society. We are witnessing a disruption of the political systems in all EU member states. This is leading to structural ingovernability. Belgium was without a government for a year, Spain and Sweden for six months, and Germany had four months of coalition negotiations. That means it is not so much the EU as such that is failing, but all EU member states are becoming structurally ingovernable.

Yet many surveys confirm that 70 per cent of the EU population is pro-European. Is the remaining 30 per cent enough to tip political systems over?

GUÉROT: Yes, that’s the mathematics of political science. In this situation – one third vs. two thirds – systems always tip over. That is when the two thirds begin to respond to the one third. The loud minority has a goal, and the silent majority somehow wants Europe but does not have an eye-catching slogan for what they want or where they want to go. That is the populists’ strategic advantage: They want to get rid of the European Parliament, no EU budget; they can clearly specify what they want. And this way you can always be more efficient.

“We need many more joint projects in the field of digitalisation.”

Dr Günther Bräunig

BRÄUNIG: But at first, these are just election slogans. We have seen often enough in European countries that parties win elections with populist slogans, but the picture can also change quickly once they are in office.

GUÉROT: Agree. Then, when they are in power or have majorities, it is usually quite chaotic. Nowhere is this clearer than with Brexit.

Dr Bräunig and Dr Guérot in the Ahornzimmer in Berlin
In the heart of Berlin

Ulrike Guérot and Günther Bräunig discussing about Europe in the ‘Ahornzimmer’ of KfW’s Berlin Branch.

In the face of resurging nationalism – not just in the United Kingdom: From an economic perspective, is there any theoretical chance at all that a country such as the United Kingdom can be economically successful without Europe in the long term?

BRÄUNIG: Without free-trade agreements, in the globalised world a country does not stand a chance economically. A United Kingdom that enters into free-trade agreements with the whole world could continue to play its economic role to a reasonable extent. Specifically in the case of Brexit, I’m convinced that there will be impacts on London’s role in the finance industry. London will lose its key position in the finance industry at least in part to continental Europe.

GUÉROT: My take on that is: the city will survive! The finance industry in the City of London will survive that somehow. For me, the question is more about what will become of the workers in the industrialised northwest of England, where most people voted for Brexit.

Don’t the nation states need Europe for the simple reason that they are in fierce technological competition with China and the US?

BRÄUNIG: If Europe fails to jointly master the challenges of digitalisation, cloud technologies and platform economies, individual states will not stand a chance. Everyone who knows China is witnessing how hard it is working for the future. By comparison, our highly advanced manufacturers have rested on the laurels of past decades. Yet with digitalisation, the economy is at the threshold of transformation processes being triggered at increasingly faster rates. All experts agree that this challenge can be mastered only within a European dimension. We must invest now to avoid falling behind. If we don’t, we will only be left with a choice between Amazon, Tencent and Alibaba.

Dr Bräunig and Dr Guérot walking in Berlin
In dialogue

In their conversation, Ulrike Guérot and Günther Bräunig also mentioned Europe's ability to shape its future.

How do you see Europe’s chances in competition with China?

GUÉROT: We have put ourselves at their mercy and were very naive. Now we see how China is investing strategically in Europe. They are building motorways through the Balkans, buying up the port of Piraeus and much more. We need to ask ourselves: What position does Europe actually want to take in the face of this existing dominance? Basically, there are only two options: Either we agree on an independent model and develop unique competitive advantages from it, or we bow to the dominance and dock on to the Chinese. It seems to me that right now, we have most likely chosen the latter and will be sucked in as if by a vacuum cleaner.

But there are also good examples that show how Europe has successfully positioned itself in the past.

BRÄUNIG: I worked for Airbus 30 years ago and have followed the company’s development ever since. Airbus is a good example of the success story of European business. It broke the dominance of the US aircraft industry at the time and created a European challenger. China has been trying in vain to gain a foothold in the aircraft industry for the past 40 years, but the barriers to accessing the aircraft industry are very high. No amount of copying will help either. In this case, Europe can defend its technological leadership alongside the Americans. We need many more joint projects of this kind – only now they should be in the field of digitalisation as a key to the future. If we agree on this in Europe, we will also be able to raise the money. And that is where German and European promotional banks could make a big contribution.

“We can no longer negotiate Europe like we used to.”

Prof. Dr Ulrike Guérot

In which areas could Germany further develop the unique competitive advantages you mentioned?

BRÄUNIG: I would think that, for Germany in particular, restructuring the automotive industry as a key sector would be important, especially in terms of e-mobility. That would also include developing a European battery industry.

GUÉROT: But please let’s think of the climate too, and include the railways. Why aren’t we saying, we don’t want any more intra-European air travel from the year 2040! Instead let’s build high-speed train links from Oslo to Turin, from Warsaw to Paris, from Lisbon to Frankfurt. An artist friend of mine has designed a European metro ticket, a visualisation of such a high-speed train network through Europe. That shows you right away the many advantages a tight-knit Europe actually has. Or, from then on, let’s certify electric-powered aircraft only, like the ones currently being developed in Norway. That would be triggers to kickstart innovation.

Dr. Guérot talking with Dr Bräunig
Pleas full of verve

Ulrike Guérot likes to fight for the European idea.

But will we get labourers in Slovakia or farmers in Bulgaria to go to the polls with such visions? Many EU countries had a voter turnout of just 20 per cent in 2014.

GUÉROT: If we were to pursue such a unique competitive advantage consistently, making it attractive also for those who have been left behind in rural regions, then we would get the voters there even more easily because we would open up opportunities for them.

Is Europe’s support landscape sufficient for such plans?

GUÉROT: Europe needs more money for this, it would need more than, for example, the EUR 300 billion which Commission President Jean-Claude Juncker proposed in his latest investment plan. I would like to see banks such as KfW step up to the plate here in a completely different way.

BRÄUNIG: In our defence, I believe it was very important that we set a growth target after overcoming the financial crisis, the banking crisis and the European crisis. In my opinion, that is what the investment initiative for Europe known as the Juncker Plan, which was adopted in 2014, has done. We delivered and co-financed many projects. And the past years were economically successful for Europe. Unemployment fell from eleven per cent in 2013 to seven per cent in 2018. The Juncker Plan provided a psychological boost for this.

Dr Günther Bräunig
Aims for the future

“KfW will work to further deepen collaboration within Europe in the future”, says Günther Bräunig.

More money for Europe, would that be feasible? To many, Germany is already the eternal paymaster of the EU.

BRÄUNIG: Where that is concerned, we have to explain to the public time and time again how much the German economy has benefited from the euro, the low interest rates, the internal market and even the euro crisis. Our economists once added it up and found that German businesses have reaped financial advantages worth USD 60 billion from Europe, the euro and low interest rates every year.

GUÉROT: That phrase should be written three times in bold letters, because Germans can’t get to see it often enough. A McKinsey study has found out that the euro generated a cumulative return of 300 billion within the first ten years through increased trade within the community and other integration effects such as interest rate reductions. Of this EUR 300 billion, half went to Germany, one fourth to northern Italy and the remaining one fourth to the rest of Europe. We have a disproportionately high share in the collective return from the euro.

Let’s look beyond the European elections: How do you see Europe’s future?

GUÉROT: In the past ten years we experienced a massive social and socio-economic shock. And in Europe we did not set out to kill each other, which is an important statement in itself. Now I would hazard the proposition that we are seeing a historic turning point. We can no longer negotiate the European project like Helmut Kohl and François Mitterrand were able to, who said: now let’s make an internal market. Today, the citizens want to be heard and have a say in shaping Europe. The European system has to respond to this. And it must clearly state who is Europe and which Europe is now getting into gear!

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This article was published in the spring/summer 2019 issue of CHANCEN magazine “Wir sind Europa”.

To German edition

BRÄUNIG: Unless the citizens participate more strongly, especially in elections, they can’t expect this parliament to be given more rights and powers to intervene. KfW will work to further deepen collaboration within Europe in the future, for example in the expansion of broadband networks and in development cooperation. I am particularly proud of a two-billion euro financing programme for the protection of the oceans. We launched this Clean Oceans Initiative together with the European Investment Bank and the French development agency AFD. Here lies European potential which I will work to harness even more effectively.