Professor Schwab,
Madam President,

Allow me to also extend my warmest greetings to one of the many government representatives here today, namely my colleague Helle Thorning-Schmidt, the Prime Minister of Denmark, in her capacity as President of the EU Council. For Denmark currently holds the Presidency of the European Union.

Excellencies,
Ladies and gentlemen,

Mr Schwab, I was delighted to accept your invitation and have come to the Davos Forum with particular interest this year. After all, this annual meeting marks the high point of the numerous activities you organize throughout the year. This year’s theme, “The Great Transformation: Shaping New Models”, is certainly very appropriate and, as always, very ambitious. But then, Davos is ambitious. It implies that, basically, a major rethink is necessary. Since 2008/2009 we have, in principle, been discussing what we’ve learned from the large-scale financial and economic crisis of the last few years.

If we ask ourselves – I asked this question here last year and will ask it again – what lessons we’ve actually learned from the financial and economic crisis and whether what we’ve learned is sufficient, then this year I feel bound to say once more: we haven’t yet learned enough. If we’re talking about adopting a completely new way of thinking, then we certainly haven’t completed the process yet. So there’s no doubt in my mind that there’s enough scope here for new ideas.

If we look at things realistically, or even pessimistically, we have to admit that although it became patently obvious in 2008 and 2009 that the world is closely interconnected, we haven’t managed to conclude the international WTO trade round, the Doha Round. On the contrary, at the last G20 meeting the OECD told us that signs of protectionism had increased rather than decreased.

We have made progress on bank regulation. Yes, at the last G20 meeting in Cannes we agreed on a regulatory framework for the world’s major systemic banks. But when it comes to the entire shadow banking sphere, it looks as if we’ll have to wait another two years for a regulatory framework. Naturally, many people are asking us what this means, what we’ve learned. For after all, it’s obvious that a lack of regulation led to the current predicament.

I don’t want to look at the financial transaction tax here today. However, I would like to say that if the world had learned its lesson and everyone had agreed that “we have to show our citizens that not only do we pay VAT on every product but that we all also pay tax on all financial transactions,” then that would have sent a strong political signal. But it doesn’t look as if that is what will happen.

And here’s a third pessimistic remark: 2012 marks the 20th anniversary of Rio. We will be gathering in Rio de Janeiro again this year. However, when it comes to a follow-up agreement to Kyoto – the President has just spoken of this – we have to admit that in the sphere of climate protection there will be fewer binding obligations rather than more for the time being.

That means that the world still has much to do. Indeed, we have more than enough to do. We also have to choose a pace which will prevent immutable and irreversible damage.

Questions regarding new methods certainly also have to be discussed in Europe. We’ve learned our lesson: we’re aware that we’re all closely connected, that we’re part of one world. However, we’ve also seen in Europe that the financial and economic crisis which emanated from America has left deep scars in Europe, scars which we are still working to heal.

Europe is a major – and successful – political project. I believe that all my European colleagues share my strong conviction that we want to further develop this project. We rightly said on the 50th anniversary of the signing of the Rome Treaties “We have united for the better.” It’s fortu¬nate that we have united, for we wouldn’t be in a better situation if we had not.

If we consider that the seven billionth citizen was born last year, then we can see how Europe has developed in the global context. For when European integration began to emerge in the early fifties – a post-war peace project whose success cannot be overrated following centuries of war – the world’s population was around 2.5 billion people. 500 million of them were European at that time. Europe’s population has remained more or less the same since then, but the world now has seven billion inhabitants. Europe thus only accounts for seven per cent of the global population and 20 per cent of the global GDP. Both figures will fall further in the coming years. Thus, alongside the question of peace, freedom and democracy, we now have to ask ourselves: How can we hold our own in this world, and how can we articulate common interests? That’s only possible if we work together as Europeans. A country like Germany, the largest economy in Europe, has only just over one per cent of the world’s population – and this figure is falling, as Europe as a whole faces a major demographic change.

Thus, both the common sense and the emotions which lie behind our decision to unite for the better now motivate us to successfully come through this difficult phase. What has been brought home to us? Three things have become clear. The debate on sovereign debts in some European countries is always to the fore. We therefore sometimes speak of a sovereign debt crisis. Second, it’s become clear – and this is as least as important – that some European countries are finding it difficult to be competitive. And it has become clear – and this is even more difficult to deal with – that the political structures required to ensure that the whole system works are lacking, especially in the sphere of our single currency – in the economic and monetary union.

That shouldn’t be cause for despondency. I’m very glad that, all in all, everyone agrees with this analysis. The deficits have built up over years. It therefore won’t be possible to close them in one go. It will take time to come to grips with them. However, we’re determined to do just that.

As the considerable burden of the international financial and economic crisis has meant that these structural causes are much more evident than they would perhaps have been if we had experienced steady development – although one day we would have reached this point, but probably not so soon – confidence in Europe, and particularly in the euro area, has now been lost throughout the world. For the question that’s being asked is: how are you going to put things right?

I believe the first question has to be: are we ready to dare more Europe? My response to that is: 2011 showed that, yes, we are ready. That’s the good news. More specifically, we are ready to do so in three areas.

The first area is budgetary discipline, and not only because it concerns the budget but also because it concerns sustainability. All in all, we need stable growth, not only in Europe but all over the world. We need stable conditions. Sustainability will have to be the hallmark of the future if we are to achieve stability in the budgetary sphere.

Second, I’d like to mention the sphere of competitiveness in combination with jobs. This is a very central area. People won’t believe in Europe if unemployment remains high.

And third, mutual solidarity, which shows that we belong together, that we want to belong together and that the outside world expects us to support each other.

If we look at what has been achieved by individual countries during the last year in respect of the first two points, budgetary discipline and competitiveness, then it’s still not enough. But there is perhaps something among the many issues discussed every day which is sometimes forgotten: anyone who looks at what has happened in Spain, at what is now happening in Italy, what has happened in Portugal, Ireland and to some extent also in Greece – although it’s not always completely satisfactory – will realize that much more has been set in motion than we’ve seen for many years.

In 2000, the European Heads of State and Government decided that Europe was to be the most competitive continent by 2010. Obviously, we haven’t quite succeeded. However, we have realized recently that something has to change in this sphere. That’s why it’s not only the austerity measures, which are very much to the fore at present, which matter. Equally important in my view are the structural reforms which are being tackled and which will result in more jobs. That’s my firm belief. Incidentally, all the examples we’ve seen in Europe show this, too –whether it be Sweden or the labour market reforms in Germany, known as Hartz IV, which led to a massive improvement in the labour market. We’ve gone from five million to less than three million unemployed.

However, everyone knows that this takes longer than 12 or 18 months. It’s important now to be patient and allow these reforms to take effect rather than doing a u-turn halfway and saying: there’s no point. As our world has become very fast-paced, it’s crucial that we make sure that this is, in principle, the right way forward.

In just a few days’ time, on 30 January, we will hold an extraordinary EU Council, and subsequently a regular European Council in March. We’ll be talking about growth and jobs at both summits. We can put it in very simple terms – Commission President José Manuel Barroso has said it often: Europe has 23 million companies and 23 million unemployed people. If each one of these companies could hire just one person then we could solve the problem. Of course, I know that’s not possible. I just want to say that this isn’t a problem which can’t be solved at all.

Europe has an internal market. Of course, employees don’t move freely because our cultural realities are very different. Certainly, we have to become more flexible in this respect. We’ll therefore discuss which countries have had the best experience, which laws laid the groundwork for this good experience and how can we learn from each other, even if labour law, for instance, doesn’t fall within the EU’s sphere of competence. We will consider where we still have funds which could be utilized more efficiently and which could perhaps be used to promote small and medium-sized enterprises. And we’ll also discuss where we can organize partnerships among countries and who can make their experience available to whom.

I believe it’s absolutely essential for young people in particular to see that things are moving forward. However, we have an average youth unemployment rate of more than 20 per cent, more than 40 per cent in some countries. It’s little wonder then if some young people aren’t exactly convinced that Europe has opted for the right path.

We’re determined to find it. The Danish EU Presidency will work together with the Commission to this end. Incidentally, this project can be implemented by every country regardless of whether or not they belong to the euro area. After all, we have the Euro Plus Pact and much more.

Ladies and gentlemen, of course we are also asked: what about more commitment in Europe and more solidarity? I believe Europe has now reached a point where the boundaries between foreign policy and domestic policy are slowly blurring. We have to discuss our internal market and our common European Union. And we have to be honest with each other. There’s no use, for example, in simply stating, preamble-style: “We have united for the better.” We have. However, our task today is to transform this Europe into a functioning Europe so that future generations will still want to say it. That means we have to be prepared to hand over more national compe¬tences to Europe.

We’ve had a Stability and Growth Pact for many years now. However, we haven’t adhered to it. On the contrary, Germany and France actually watered it down. It was said when the Lisbon Treaty was concluded that the European Court of Justice shouldn’t be able to call us to account if we don’t adhere to the Pact. Confidence was lost because it became obvious that we had committed ourselves to something with which, ultimately, we wouldn’t comply. However, confidence is the most important currency anyone can have in today’s world.

That’s why the real message of the fiscal compact on which we are working so hard – obliging each country to incorporate a budget rule into its own national law and empowering the Com¬mission and the European Court of Justice to monitor compliance – is: we are ready for more commitment. We won’t talk our way out of it, we won’t simply explain things away. We are prepared to commit ourselves. That’s important because we will continue to lose credibility otherwise.

However, I predict that this won’t be the last step towards further integration in the next few years. We will have to move closer together, as I’ve already stated in the case of competitiveness and jobs. Of course, we can ask why such tough demands are being made now. I’ve heard the claims that Germany is the cause of economic imbalance. One can of course ask whether it makes sense to set the imbalances within a currency area off against each other. After all, I could do that with the imbalances within Germany. That would show that the economy in southern Germany is much stronger than in the north. But the question is whether that’s the right way to look at things.

However, let’s assume that the imbalances show that there are tensions within the euro area. That raises only one interesting question. And the answer to that question is: Germany will help reduce such imbalances wherever we have unjustifiable barriers, for example in the services sector.

However, if this is about imbalances due to different levels of competitiveness then we have come to a very interesting point in Europe. Do we want coherence without ambition? Then we’ll meet somewhere in the middle. Or do we want to look and see who does what best and try to emulate the best in Europe? Then we have a chance of holding our own on the global markets. I’m deeply convinced that this is not only about cohesion as such. This is about Europe’s future: what is Europe’s role in a dynamically interconnected world?

We’re not entitled to anything. It’s not possible to say “because we’ve been to the fore for the last 50 years, we will continue to be so for the next 50 years.” Rather, we have to work on this anew every day – by manufacturing products which can be sold elsewhere and by creating innovations which enable us to stay ahead. If we’re no longer able to do that, then we’ll certainly remain an interesting travel destination for a long time to come but we’ll no longer be able to create prosperity for people in Europe.

Therefore, this is not about who’s more or less strict but about ensuring that we really do produce wealth for tomorrow’s Europe. I believe we should be ambitious in this respect. And I therefore believe that we have to keep up our efforts. Of course, we’ve made considerable progress with the first steps towards a fiscal pact. However, in view of the difficulties we face, in view of the discussions on mutual support, I believe we have to gain speed, get faster and become more decisive.

On the whole, however – at least this is my impression – Europe is growing together. That’s what has happened during the last few months. There are tensions; we can speak frankly about them. There are euro member states and non-euro member states. We have to take care that the Europe of the internal market, the Europe of the 27, remains a common Europe even if, of course, some countries are more closely interlinked. But I’m optimistic that we can succeed.

The question now is how do we actually measure the extent to which European countries are prepared to support one another, especially in the euro area. I sometimes have the impression that the rest of the world judges this very much in terms of the extent to which countries are prepared to assume each other’s liabilities and to surround themselves with a firewall. How much money are they prepared to commit for each other? This is a hotly debated question which, I believe, also has much to do with different cultural backgrounds.

We have a temporary rescue package, the EFSF, which amounts, in principle, to 770 billion euro in guarantees. On the markets they only count as 440 billion euro, because of the desire for a triple A rating. We thus have the funding needed to finance the necessary programmes and aid for Portugal, Ireland and, in future, Greece. And we have more funds. We’ve made this package flexible. To date, no country has had to apply for assistance. It’s good that it hasn’t been necessary. Then we said we would create a permanent mechanism. This shows that we are not interested in short-term measures but, rather, want to create a permanent structure of unlimited duration with paid-up capital totalling 500 billion euro. We’re working on that at present. It will have the form of an international agreement on which all participating European member states can rely.

But now some are saying that this is not enough even though the European Central Bank launched a three-year refinancing operation last month which provided banks with 500 billion euro and will do the same again; if it was twice as much then we would believe you, they claim. Some say that it should be three times as much and then they would believe us. I always wonder how long that would make us credible and at what point we would cease to be credible because doubts were again being voiced.

I therefore want to remark on Germany’s situation: each European country is strong; some are a bit stronger, some less so. It’s generally believed that Germany is especially strong. And it’s true that Germany is relatively large and also relatively strong. But we Germans aren’t saying that we don’t want to show solidarity or that we don’t want to enter into any binding commitments. We’ve no problem with that. After all, we’ve said from day one that we will support the euro. However, we don’t want to find ourselves in a situation where we promise something which we ultimately cannot deliver. For when Germany promises something on behalf of all European countries which subsequently becomes impossible in the face of strong attacks from the markets, then Europe has an exposed flank.

It’s therefore important to find a balance. Our commitment takes many different forms. It’s evident in rescue packages, as well as in more Europe and in the readiness to allow ourselves to be sanctioned by European institutions. It’s also reflected in the fact that we do more together – even in areas which are not yet communitarized. All of these points answer the question as to whether we really do stand by one another. I wanted to take this opportunity to make that quite clear once more.

Ladies and gentlemen, I’ve spoken about Europe’s problems. Let me just remark that some regard us as a threat to growth throughout the world. We know how things stand, but I believe that on closer inspection it becomes clear that we’re not the only ones in the world with problems. Other regions, which I don’t want to name, still have much to do. That reassures me to the extent that it shows how we are all very much occupied with each other.

It will therefore remain crucial that we continue to work on our agenda at the next G20 meeting in Mexico, in particular the agenda for growth and employment put forward by South Korea. The Mexican Presidency has also made this one of its priorities – along with green growth, sustainable growth, as well as food security, climate protection and energy. We will have to carry on seeking ways to regulate the financial markets. We’ll also have to continue looking to see how we can ensure that trade is as free as possible.

Let me therefore conclude by making a few remarks on transatlantic relations. Because we’re making such little progress on Doha, what will happen now – and I don’t believe it’s the best course of action – is that individual regions, for example the EU, will conclude trade agreements with others. We’ve already signed an accord with South Korea and we’re working on an agreement with Japan. I believe that we also still have very many possibilities in the transatlantic sphere, for example a free trade zone, something we still don’t have today. The EU and the US are now each other’s most important trading partners with a trade volume of more than 670 billion euro. However, the potential for cooperation has by no means been exhausted. There are many obstacles, especially in the non-tariff sphere – services, investments, technical standards, public procurement and much more. I’m pleased that there is now a readiness both on the part of the Europeans and of the Americans to continue working on this. That will, of course, take some time. However, alongside our cooperation with many others – with China, with India, with Asia as a whole – I see more possibilities to strengthen our economic growth in this tradi¬tional area, which is sometimes even taken for granted.

I hope you have a productive Forum and fruitful discussions. Davos provides an opportunity – and I’m pleased that this time there are many representatives of the social sphere here – to conduct frank and unconventional discussions on many different topics. I say quite openly that we politicians need this input. For we, too, have realized that ultimately we can only succeed if we work together. In the midst of the economic and financial crisis – this, at least, is our experience in Europe – the social market economy has proven its worth. In such a system it’s never assumed that politicians bear sole responsibility. Rather, it’s always assumed that employers and employees work with us to ensure our societies’ success.

On that note, I wish you an enjoyable and interesting time here in Davos.