Former German chancellor Gerhard Schröder thinks that the rest of Europe needs to follow the reform programme he pioneered for Germany. This, coupled with the establishment of a true political union, will help Europe's damaged economy to recover and rebuild itself.
Europe needs to carry out the same kind of structural reforms that have already been pushed through in Germany – this means reforming labour markets, welfare and pension systems and tax rates. The Agenda 2010 programme transformed Germany from being the sick man of Europe into its new role as the continent’s engine of growth and the region’s most competitive economy.
These are the opinions of former German chancellor Gerhard Schröder, who pioneered Agenda 2010 during the final two years of his chancellorship, which ran in total from 1998 to 2005. “Before, we were a sick man, now we are a healthy woman and that is why it is of the utmost importance that other European countries follow through with their own structural reforms, above all France, Italy and Spain,” he says.
Moving forward, together
Mr Schröder believes that the only route out of the current malaise is a political and economic union in the eurozone. He is critical of countries such as the UK which have promoted financial services rather than manufacturing as the backbone of their economies, and he thinks the failure to get a consensus on further integration will lead to a two-speed EU.
“What Europe needs now is growth, reforms and more political integration. The direction of European economic and financial policy must change towards growth. In order to generate growth we need a coordinated programme of structured reforms," he says.
European reforms are needed to unburden state budgets from the impact of the financial crisis, to strengthen the international competitiveness of national economies so they can compete with the emerging markets, and to take account of the impact of an ageing population on social security. This was the same rationale behind Germany’s Agenda 2010 with its labour market, pension, education, health and childcare and tax reforms. The retirement age was raised to 67, hiring and firing was made easier and tax rates were lowered, from 25% to 19% in the case of corporate tax.
It is now essential that other European countries follow Germany’s example, says Mr Schröder. “Europe must be more politically integrated. The fundamental mistake of the monetary union is that there is no coordination of economic and financial policy in the eurozone. You cannot have only a coordinated monetary policy you must also have a coordinated fiscal or economic policy.”
The euro’s creation was driven by former German chancellor Helmut Kohl and former French president François Mitterrand. “Mr Kohl’s mistake was to assume that the monetary union would force a political union," says Mr Schröder. "We were unable to create a political union in Europe, even in my term in office, but now it has to develop to secure the common currency. With the common currency, Mr Miterrand wanted to enclose Germany’s economic strength and hence our political strength. This was doomed to failure because Germany as an export country profits enormously from the euro.
"We need a European economic government for improved coordination and control of individual country expenses and for the creation of common rules of competition. The fiscal union is an intermediate step to create more stability but it is only a temporary solution. Our next step has to be the establishment of a true political union."
Splitting the EU in two
Not everyone in Europe is prepared to pursue this route, as Mr Schröder is well aware. In particular, he sees the UK's opposition to such a union as an obstacle to further European integration.
“The UK believes that its economic future lies in financial services," he says. "By contrast, our German position has always been that a national economy can only be successful in the long term if it has a strong core rooted in industry and what in Germany we famously call mittelstand [small and medium-sized enterprises]. If you compare the economic situation of [the UK and Germany] you will easily see which way proved to be the more reasonable and effective – the industrial sector in Germany proved to be an advantage in a world with an international division of labour.”
According to Mr Schröder, financial regulation is another area in which the UK is slowing European progress. “For years now," he says, "continental Europe pushed for more regulation and transparency within the EU as well as in the G-8 process. As a general principle, we have to conclude that the UK’s strong financial lobby has little interest in making progress [in this area]."
The result will be a Europe of two speeds. "A core Europe that grows together more quickly politically and a fringe Europe in favour of greater autonomy," he says. Unsurprisingly, he is more optimistic about the future of the former. "The countries that do not wish to be part of greater European integration will be left behind politically and economically," he says.
“The wider EU needs to decide whether to promote growth, speak as a common voice on global issues and play a significant global role in the 21st century or to accept that the world will move on without Europe.”
