The German Finance Ministry is housed in one of the most imposing buildings in Berlin, and one laden with history. The seven-story neoclassical structure, whose austere gray stone façade stretches for 250 meters along Wilhelmstrasse in Mitte, the capital’s historic heart, was the first government office built by the Nazis in 1936, to house the Reich’s Aviation Ministry. From the building’s grand ballroom, Hermann Göring directed the bombardment of England during World War II. After Hitler’s defeat the Communist East German government’s Central Planning Commission took up residence and began remaking the country as a socialist economy. Fittingly, two generations later, after the fall of the Berlin Wall, the government of the newly unified Germany used the building to house the Treuhandanstalt, the agency that privatized East German businesses and restored a market economy. The Finance Ministry took over in 2000, when the federal government moved from Bonn to Berlin. In contrast to the building’s sweeping historical significance, Wolfgang Schäuble’s office is distinctly workmanlike, with a desk designed to accommodate his wheelchair. Although he eschews the trappings of power, the minister is determined to impose his will on the German and European economies. He met recently with Institutional Investor Contributor William Boston and explained his belief that fiscal restraint is the sine qua non of prosperity.
Institutional Investor: Why was Germany so reluctant at first to agree to the Greek rescue?
Schäuble: We wanted to make sure that Greece’s commitments to reduce its deficits, which were the cause of the crisis, were so serious that they would be adequate to relieve the problem. Otherwise, every act of solidarity would just extend the problem, not resolve it. Chancellor Merkel succeeded very well. Greece is fulfilling its commitments in a way few people would have thought possible at the time.
How do you respond to those who say that your tactical maneuvering on Greece shows that Germany is putting its narrow national interests ahead of broader European interests?
We had to convince the German population to at least approach the question in a responsible way. That we weren’t popular in the polls was no surprise. But we have achieved a better understanding that what we are doing is also in Germany’s interest. Our greatest national interest is that Europe succeeds. We were successful, which is made clear by the fact that the decision concerning the €110 billion [$147 billion] credit package for Greece was more difficult to pass through Parliament than the decision for guarantees of €440 billion from the members of the euro group. If the euro sceptics become dominant, Europe will fail. And in Germany we have been more successful in preventing that from happening than some other member states.
What instruments are necessary to guarantee that the bailout of Greece is the last of its kind?
To begin with, we want to achieve greater transparency and ensure that draft national budgets are ready at an earlier stage so they can be reviewed at the European level sooner. This way we would be in a better position to point out the European implications of decisions by national Parliaments. Secondly, the criteria that could identify problematic developments need to be made more precise. I am not talking just about the well-known rules of the Stability and Growth Pact — rules on deficits and debt — but also adverse developments in the area of competitiveness. We want sanctions to be pronounced sooner and to be as automatic as possible. And we want to widen the scope of sanctions to include European structural funds at an earlier stage, at a time when corrections are still possible. Imposing sanctions against Greece at the beginning of the year would not really have moved things along.
Reaching agreement on any of this depends on Germany and France making common cause. Aren’t you still miles apart on the issue of sanctions?
We are in favor of rule-based sanctions. But we know that other countries, including France — a particularly close ally and an especially important country — say there must also be a possibility to exercise a degree of political discretion in agreeing to sanctions. Then the question is, what type of majority should be required for these decisions? We would favor a passive qualified majority.
Wouldn’t a new majority rule require changing the EU treaty?
We are first taking care of the issues that can be settled within the framework of existing treaties. Then there are instruments that require a change of the EU treaties — for example, noneconomic sanctions and voting privileges. That is why we are considering practicing these things voluntarily within the euro group until we can change the treaties. Many member states are skeptical about the feasibility of treaty changes. I do not share this skepticism. We could use the upcoming ratification in 2012 of Croatia becoming a member of the EU, which itself requires a treaty change, as an opportunity to make further amendments.
Has Germany dropped its opposition to allowing political rather than strict rule-based decisions concerning sanctions?
We want it to be rule-based as far as this is possible, but without an agreement, the situation will remain as it is now. We also realize that it was Germany and France who once did lasting damage to the Stability and Growth Pact by saying, “Yes, the rules are fine, but they don’t apply to France and Germany.” This should not happen again. We want better rules than we have now, but to get them we have to reach an agreement. I know that I need to lobby in Germany for a compromise. A lot of people say, “The condition for everything is having automatic sanctions.” Then I say, “Yes, I agree, but if we don’t achieve that, what do we do? Is it all or nothing?”
Your French counterpart, Christine Lagarde, has called on you to do something to correct imbalances within the euro area. What can you do?
The only thing we can do is what we are already doing now. We are carrying out a policy of growth-friendly deficit reduction. German domestic consumption is rising, and not as a result of economic stimulus. It is rising because of growing confidence in Germany and as a result of sustained and solid financial policies. German growth is the European locomotive. And what no one seems to have realized yet is that German imports in the last quarter reached their highest level since the creation of the Federal Republic of Germany. So we are pulling our weight.
Are you trying to create Europe in Germany’s image?
When I attended my first Ecofin [the European Union’s Economic and Financial Affairs Council] meeting as Finance minister, my colleagues all said, “Germany must defend the Stability and Growth Pact. If Germany doesn’t do it, the others won’t do it either.” I said that Germany would do it, and in the meantime, no one doubts that we will do it. We aren’t the teacher or headmaster for the other European states. But we are fulfilling our responsibilities. We know that we are a relatively large country compared to others in Europe. That doesn’t give us a reason to dominate, but rather to live up to our responsibility. And we will do that as closely coordinated with France as is possible.
Is that an expression of German leadership of Europe?
It is leadership, but not — as is often alleged — in the sense that we want to dominate others. Rather, we try to bring about shared beliefs and results. And this is something that you can see in the example of automatic sanctions. My understanding of European leadership means that we not say, “Our way or no way,” but rather, “We need to reach a common result.” We defend our position more energetically when economic developments in Germany allow us to say, “Look, it’s possible.” Few people ask me anymore if it is possible to reduce the deficit and still create the conditions to promote economic growth. We are proving that it can be done.
You are part of a generation that has always seen Europe as Germany’s destiny, but the younger generation seems to be less attached to Europe. What’s changed?
If you read Angela Merkel’s speeches to Parliament over the past few months, I bet you would find the phrase “community of fate” very often. There is a good reason. Why did the Poles go the way of Solidarity? Because they wanted to be part of Europe — just like Czechs and Germans in the German Democratic Republic. The pressure from the Cold War no longer exists — thank God! European unity, especially for the younger generation, is an obvious reality. The number of students who study entirely or partly in other European countries is higher than at any time in German history. People can no longer imagine that they would have to exchange money if they travel to another European country. The things you have and don’t consider endangered have less value than the things that you miss or which you think are endangered.
