Professor Schwab,
Ladies and gentlemen,
It's a great pleasure to be here in Davos today and to speak at this particularly interesting Forum with its ambitious theme "Shaping the post-crisis world".
Faced with the current economic difficulties, we realize we can only master the global crisis if we pull together. Certainly, the message I've heard from Davos during the last few days is that we have to tackle this crisis together with a measure of optimism.
We find ourselves in a slump which is global in scale. The European Commission expects the European Union economies to contract by 1.8 per cent this year. There have also been dramatic falls in growth in many other parts of the world – whether it be Asia or the . This crisis has thus hit everyone. That is one of its defining features.
What triggered this crisis – and I believe there is widespread agreement on this – were reckless speculation, particularly on the American real estate market, and excesses on markets – certainly there was also too much money in circulation –, coupled with new technological possibilities which led to financial market derivatives being distributed anonymously around the world without sufficient transparency. The slowdown in growth on the global market, combined with this international financial market crisis, has given rise to the present global economic crisis.
Our priority now must be to restore confidence, for loss of confidence due to the failure of market forces was one of the key factors in this crisis. Confidence is an indispensable pillar of the economy. Without confidence in the stability of our economies, businesses won't invest. Without confidence, banks won't lend and consumers won't consume. Thus, without confidence there will be no return to the path of growth. The main task, one to which policy-makers have to make their contribution, is therefore restoring the markets' ability to function, thus placing confidence on a solid basis once more.
In we are pursuing a dual approach. As the world's biggest exporter, we are of course aware that we have to undertake national efforts to help the German economy get back on its feet, but also to help boost growth internationally, to help citizens bridge the crisis, thus making another contribution towards restoring confidence. However, we also know that we have to push ahead with the necessary reform of rules and institutions at international level. An international crisis can only be resolved internationally. What's more, any lessons must be learned at international level.
On the first point: as Professor Schwab has just said, the German Government has launched a comprehensive package of measures to master the crisis. This package is unprecedented in our country's history. But just like most people here in this hall, I'm firmly convinced that this is an extraordinary situation. And extraordinary situations need extraordinary measures.
Together with the steps taken last autumn, we have adopted a package to the tune of more than 80 billion euro for 2009 and 2010, corresponding to roughly 1.5 per cent of our annual GDP. But I'd like to add that the German Government is pursuing a policy which allows automatic stabilizers to have their full impact. With regard to our social security system, that means that this year we will have rising pensions and considerably more money available in the health-care system. That will, of course, provide renewed economic impetus. That's why, for example, the programmes of the and cannot be compared one-to-one.
This package doesn't consist of programmes with a short-term impact. Rather, we want to safeguard jobs and promote development in a way which maps out a course for our country's long-term future. We don't want to simply muddle through this crisis somehow. On the contrary, we want to focus on the future and emerge from the crisis stronger than before.
On the one hand, therefore, we are offering guarantees and securities for our companies, and – as in many other countries – we have opted for lower taxes and levies. Naturally, we will also have to continually develop access to loans as well as the bank bail-out package. However, is aware that halfway through the next decade – that's not far way, namely in five or six years – we will have experienced a considerable demographic change. 's abundance of well-trained skilled workers is its main asset. We therefore also need an employment bridge, which we intend to create by combining short-time work and on-the-job training in a special way.
The measures adopted will entail major efforts for a high-performance economy like 's. I believe it's only right that the question of debt, the question of burdens is being discussed in . During the last few years, we have steered a course – partly by raising taxes, partly by implementing structural measures – which led to us having an almost balanced national budget at the close of 2008. We've therefore gained room for manoeuvre. But we also need a credible strategy on limiting new debts and, above all, on how we want to reduce the debts we are currently accumulating at a future date.
It's already evident that we have to put these additional measures in place – via a clear repayment plan and the inclusion of a debt brake in the Basic Law – for when we have higher growth rates, because we are firmly convinced that we mustn't get used to living beyond our means. I know this discussion is not to the fore at present. But, when I look at the West's economies, I believe it's right and important that we don't push it aside but, rather, that we remember that at present we are living far beyond our means and that this situation cannot continue for ever. And that we have to change course when the good times come again.
We're therefore strongly committed to the rules laid down in the European Stability and Growth Pact. I would like to take this opportunity to point out that with the euro we have a currency system covering 16 member states within a single market. It goes without saying that such a currency system needs clear limits. If we didn't have this Stability and Growth Pact, it would be much more difficult to do business in the eurozone. is therefore a strong advocate – a strong advocate of this very Pact.
Moving on to the international dimension and to the international consequences, I would like to say that deciding how to deal with the world's economic imbalances, to what extent we should commit ourselves after this crisis to not living beyond our means is, I believe, one of our key tasks. The fact that the economic imbalances are so great is, in my view, one of the main causes for this crisis. As I believe in democratic principles, it's important to me that we keep the issue of "do we live on what we have earned or do we constantly endeavour to live a little better than what we have earned?" on the agenda.
That brings me to my second point. I'm convinced that a series of international guidelines now have to be agreed upon. We mustn't content ourselves with crisis management. We were right to coordinate the bank bail-out measures at international level. This international debate will be continued. But at the G20 summit in in early April, our main priority will be to learn lessons from this crisis. In last November, we adopted an action plan. Most important is that the financial markets once again reliably serve the economy – I stress: serve, a job which they neglected at times – and that we help ensure that such crises do not reoccur. Needless to say, this task can only be carried out at international level.
The action plan must therefore now be realized and implemented. The Finance Ministers are working on this. I hope that we will also make headway with the new American Administration when it comes to enhancing transparency and risk reduction and that this will allow us to draw up clearer rules.
I don't want to look back. I just want to point out that during our G8 Presidency Germany called in vain for greater transparency in financial market products. We didn't receive much support then. That's why I'm delighted that we've made some progress, that global awareness of this has grown. As European member states, we will prepare this G20 summit very, very carefully. In February, I will invite the European members of the G20 Group to . We'll then approach the other partners with our ideas and try to come to concrete results.
This raises the question: what form will the future architecture of cooperation take? It's clear that the G8 states won't be able to solve every problem on their own in future. I therefore believe that the G20 format, which to date has only existed at Finance Minister level, is a good format at Heads of State and Government level. In my view, this could engender renewed confidence in international cooperation and also enable us to find new players who are prepared to jointly shoulder responsibility for the future.
What do we have to achieve? Which principles do we have to find in order to agree in the long term on joint action at international level. I believe we have to look at five elements:
First of all, a commitment to market forces, to a market economy which fulfils two prerequisites. On the one hand, it must leave market forces the scope to develop freely and vigorously. For it is the driving force of growth. It was before the crisis and it will continue to be after the crisis. On the other hand, it must prevent market excesses, such as the irresponsible excesses we've witnessed in recent times in the financial sector.
I believe 's social market economy is a good model which can show the way forward. The principles of the social market economy are very simple, but also very clear. The state is the guardian of economic and social order. It has a clear function. Competition is vital. But it has to be accompanied by moderation and social responsibility. In my view, we should agree on these principles also at international level. Freedom is necessary if market forces are to develop. However, the freedom of the individual must be curtailed when it begins to infringe upon the freedom of others. Markets without state regulation cannot, at least this is what I believe, fulfil this function. One could perhaps call this the "third way", which I feel we need worldwide, a system which contrasts with unbridled capitalism involving great financial and other risks but has nothing to do with socialist command economy experiments.
Second, we need an international financial architecture which is intact, stable and interlinked, and which has the right institutions capable of shouldering global responsibility. In future, we will return time and again to the same question: are nation-states prepared to relinquish a part of their responsibility to international organizations in order to make possible global action? We don't have a global architecture which works sufficiently. We have to work on that.
As member states of the European Union, we have already learned much, for we've handed over a sizeable portion of responsibility to the European Union in . It's not always easy when one gets a wrap over the knuckles from or there's a move to initiate proceedings at the European Court of Justice. But this system has proven its worth for the 27 member states of the European Union. I'm convinced that all nations, including large ones, will have to go through this learning process.
Third, we need an open global economy. I believe we have to take great care during the current phase – that's why we need international coordination – that we don't completely distort market forces because, as it were, everyone has to fight for their own survival. I admit that in our country – where, for instance, the car industry is one of the key economic pillars – there is, of course, a certain degree of mistrust because the is currently pumping substantial subsidies into its car industry. Such measures must be of short duration because otherwise they will distort competition and generate a certain form of protectionism. In my view, there's no alternative to an open global economy. We should therefore work on this and, above all, conclude the Doha Round at the earliest possible date.
Fourth, the principle of the sustainable use of natural resources. This is the only way to preserve the sources of life on our planet for future generations. Two issues will continue to occupy us in this area. One is climate protection. We're being asked to rise to the challenge at the close of this year when the international follow-up agreement to is to be concluded in . I was delighted to hear that the is going into this debate much more openly. But we'll have to be very concrete. We can only persuade emerging economies to make a commitment if we as industrialized countries take the lead.
Climate protection hasn't become less important in this crisis. Rather, it is another example which demonstrates we can only resolve certain problems globally by working together – in this case via the Framework Convention on Climate Change at the United Nations.
Fifth, we must not forget the global fight against poverty. For the financial year 2009 – and again for the financial year 2010 – is substantially increasing spending on development aid. Curtailing development cooperation at this stage would not only generate political instability but, above all, would widen the gap in global development. What's more, there would be disappointment in countries to whom we made many pledges and commitments with our Millennium Goals.
Ladies and gentlemen, I'm firmly convinced that all of these principles – which, of course, I can only outline roughly – must be laid down in binding form, for example in a charter for sustainable economic governance. It could be based on principles which we can perhaps agree upon among the G20 states. I will champion this idea. This could take the form of a world economic council at the United Nations, just as we created the UN Security Council after the Second World War.
If you think about what we succeeded in achieving in the terrible aftermath of the Second World War, after the immeasurable suffering inflicted by National Socialism and my country, what was achieved through concerted international efforts with the adoption of a Convention on Human Rights and the establishment of the UN Security Council, I can only say: we, too, are called upon at the start of the 21st century to carry out institutional reforms following this crisis, and to engage in strong international cooperation. I believe this should, wherever possible, take the form of cooperation under the auspices of the United Nations, for I know of no other organization with this level of international legitimacy – despite all its weaknesses and slowness.
Just like during 's G8 Presidency, next week I will invite representatives of the IMF, the OECD, the World Bank, the ILO and the WTO to discuss the principles I've mentioned here. For I believe that cooperation among these long-standing international institutions is still inadequate. I believe the collaboration is not yet sufficient. We can then synthesize the standards laid down by the individual organizations and incorporate them into a charter for global economic governance.
Although we are faced with the huge task of managing the current crisis, I believe we also have incredible opportunities to shape globalization – which we are experiencing at present as a crisis-stricken development but which has been an engine for growth during the last 20 years, in such a way that it enables nations to co?exist better. I'm convinced the world has mastered much greater challenges in the past. It overcame bloc confrontation. It brought peace and freedom to many countries on this planet. This year my country is celebrating not only its 60th anniversary but also the 20th anniversary of the fall of the Berlin Wall. I grew up in the former GDR and today I'm Chancellor of a reunited . All of that tells me that nothing is impossible. It tells me that we can also master this global financial and economic crisis. And we will master it. We can master it in such a way that enables us to live together in greater harmony.
I believe this is an opportunity to combine freedom with social justice, growth with sustainability. In the light of the day-to-day difficulties we face at present, I know that some may find that a little too visionary. But I believe we have to have a clear compass in this crisis to ensure that a few years down the line we don't have to manage a similar or even worse crisis using the same resources we have at present.
Thank you very much for your attention.
