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Germany lead it or leave it?

German Ambassador to India Michael Steiner replies to George Soros on why the idea of Germany taking ever more financial liabilities or leaving the Eurozone is flawed, in an Opinion piece published in The Financial Express on Tuesday, 25 September.

"I admire George Soros. I know him for more than twenty years. He’s a great strategist and philanthropist. He stood always ready to lend support when I was trying to help implement the Dayton Peace Agreement in Bosnia in the 90ies, or later when I was the Special Representative of UN Secretary-General Kofi Annan in Kosovo.

But in his op-ed in the "Financial Express" last Wednesday George Soros was off the mark. In line with similar tainted advice from overseas he requested Germany to "lead or leave" the Eurozone in order to save it. Tertium non datur.

Hélas! things are a bit more complex.

There is no Euro crisis. The Euro is a success story. It is as stable as was the Deutsche Mark. The Euro is the second global reserve currency. It is the backbone of the world’s largest and richest single market. In times of globalization the Euro was the right thing to do. If we did not have it, we would have to invent it now. But yes, there is a worrying debt crisis in Europe. Some Eurozone members arelacking sufficient trust by the financial markets. What we have is a crisis of confidence. The reasons are threefold: a) the world financial crisis originating in the U.S. as the trigger, b) excessive debt by some member countries, and c) macroeconomic imbalances between Eurozone members as a result of lacking competitiveness and flaws in Eurozone governance. All of these factors are interlinked.

Europe and the Euro are our life insurance in times of globalisation. It has generated unknown wealth for European citizens. It’s the best project Europe ever had. Resolving the debt crisis is a must. Therefore, we Europeans have embarked on a sustained reform path which targets not only the symptoms of the debt crisis, but also its roots:

We rectify the mistakes of the past – to achieve financial sustainability. The European Stability Mechanism (ESM) ties assistance to strict conditions under the new Fiscal Compact as it requires the Eurozone members to adopt national debtbrake rules limiting structural debt to 0,5 % of GDP. 

We tackle the necessities of the present – solidarity. The ESM provides financial assistance to Euro countries in need. It has a maximum firepower of 780 Billion Euro - roughly one trillion US-Dollar. To date, Germany alone has already approved financial solidarity amounts and guarantees of more than 300 billion Euro. As Europe’s anchor of stability, Germany shoulders by far the biggest share.

And we lay the ground for a good future – growth. Eurozone members are actually going through major structural reforms in order to become even more competitive. Europe has decided not to go for more spending, but for better spending and fiscal restraint.

Financial sustainability, solidarity and growth. All fruits of the same tree, no cherry picking allowed. Put into practice by a true “Elephant’s tool box”: First, ESM’s firepower, second, the Fiscal Compact as the nucleus for economic governance in the Eurozone, and, third, the far-reaching decision of the independent European Central Bank to buy – if necessary – unlimited sovereign bonds of Eurozone countries in need, of course provided they apply for assistance under the strict rules of the ESM.

A powerful triad. And the ESM approved by Germany’s Constitutional Court just days ago. This was good news for Europe and the global financial markets. Germany is one hundred percent committed to the Euro. Germany wants more Europe, not less. This is an overwhelming cross-party consensus in my country, from the governing coalition to the main opposition parties. 

A doctor’s task is to fully cure a patient’s illness, the cause of disease, not only the symptoms. That is why George Soros’ advice of either just flooding ever more money into the Eurozone or splitting it is flawed. It disregards the heart of the problem – spreads in competitiveness, excessive debt and lack of trust into the architecture of our monetary union. Instead, it just tackles the symptoms with only new debts to fight the debt crisis.

Besides the necessary solidarity, Europe needs reforms. If we manage, and I trust we will, we will emerge stronger from the crisis and will be again an engine of growth. And as the EU is by far India’s largest trading partner, this is also good for India.

Yes, the crisis is still not overcome. There is no quick fix. We need stamina. We need more reforms. It’s hard. We need political courage. But we have already achieved results unthinkable only two years ago. And don’t forget - our fundamentals are pretty strong. According to the World Economic Forum, seven out of ten most competitive countries in the world are European.

Germany lead it or leave it?

Lead it: The role of a „hegemon“, and be it benevolent, as George Soros demands, does not match with the cooperative spirit of the European project, to the contrary. 

Leave it: Germany is at the very heart of Europe, it is Europe’s anchor of stability and indissolubly interconnected with the European and the global economy. The sheer idea of leaving the Eurozone is an economic and political non-starter. An exit of Germany, a split of the Eurozone, wouldn’t make it stronger, it would be a recipe for disaster. Not only for Germany, not only for Europe and the Eurozone,but for India and the world economy as a whole.

Lead it or leave it – it’s a nice alliteration, but the wrong answer. Financial sustainability, solidarity and growth are right instead. Bitter medicine, but the most promising one for a healthy and viable Eurozone that benefits Europe and India."