Speech by Federal Chancellor Angela Merkel at the 49th World Economic Forum Annual Meeting in Davos on 23 January 2019

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Professor Schwab,

Ladies and gentlemen,

I’m glad to be back in Davos again today. And it’s my impression that the snow looks more beautiful this year, rather than worse. I am delighted to greet you all – in particular those of my Cabinet colleagues whom I can see in the audience – and let me say that Germany is back with a stable government and that, after a rocky start, we are all willing to work together constructively.

You have picked a topic that is of paramount interest, namely shaping the global architecture for the fourth industrial revolution.

Your discussions will be influenced by two things, one of them being the Global Risks Report which is published before each Davos Forum, and which reminds us we face many significant challenges. Let me mention climate change and natural disasters, for example, as well as cyber attacks and associated challenges, and terrorist attacks. At the same time, there are numerous disturbances and uncertainties in the multilateral system. Taken together with the general challenges, this has also resulted in the lowering of growth forecasts by the International Monetary Fund. This gives rise to a situation in which I think it can fairly be said that this Forum can play its part in bringing more security into the system, instead of allowing insecurities to grow further after this discussion. For I think there are many people who want to strengthen the multilateral order.

If we look at the global architecture at the start of the 21st century, we see that it is still based in its essence on the actions taken following the end of World War II. We have the United Nations and we have other formats such as the G7, and the G20 set up later at the level of Heads of State and Government in response to one of the major crises which was ultimately also already influenced by the digital transformation, namely the big banking crisis of more than ten years ago. If we’re honest, we’re still feeling the repercussions of that crisis. It caused an incredible loss of confidence – in politics, but also in the economic sphere, particularly in the financial sector. The regulations we introduced – to better control the banks – were a step forward, but if you ask people in our countries, you will find that their belief in a stable international financial sector has been damaged quite significantly. Therefore we have to do everything to avoid a repetition of the crisis. If we look at the interest-rate policies of the major central banks, it’s obvious that we are still chewing on this crisis, that we are not yet out of the woods, and that we have limited our own room for manoeuvre in the future in the course of this crisis. This makes it all the more important to get back to normality as quickly as possible.

Secondly, we have major international organisations, such as the World Trade Organization, and these are beneficial to progress. This international architecture – the United Nations with all its subsidiary organisations, the International Labour Organisation, the World Bank and the IMF, as well as the OECD – have helped make the world a better place all in all. Notwithstanding all the problems, I would like to remind us that when the World Economic Forum was established in 1971, the global population was 3.8 billion, and 60 percent of the population lived in extreme poverty. The planet is now home to 7.6 billion people, and only 10 percent of them now live in extreme poverty. That’s still 700 to 800 million people, it’s true, but it marks a reduction both in absolute numbers and as a percentage.

One of the bright spots among our international decisions was, for example, the adoption of the SDGs, the development goals for 2030, and the fact that the international community has for example pledged to end extreme poverty by 2030. I am confident we will achieve this goal. The Global Compact for Migration and the Global Compact on Refugees which were adopted by the United Nations with relative unanimity are further bright spots. However, these two compacts also illustrated how the international order is currently under pressure and is being cast into doubt.

If we ask why this is the case, and look to the history of mankind for our answers, we find that the decisions underlying today’s architecture were taken roughly 74 years ago. That is, as it were, a lifetime ago. We have to be careful not to casually dispense with the knowledge and insights of the people who were in charge in the immediate aftermath of the terrors of World War II. Because back then those in charge drew what I believe to be the right conclusions, for example by establishing the United Nations.

However, we have also seen that international organisations are very slow to adopt institutional reforms. Just think how many years it took us to implement the quota reform at the IMF or to increase the capital of the World Bank. These changes were urgently needed because emerging market economies such as China and India had long since had a greatly increased impact on our world economy. If an existing system reacts far too slowly to change, the result is that other players make themselves felt, for example by establishing new institutions. That’s what has happened several times. The fact that there is now an Asian Investment Bank alongside the existing G20 format and the World Bank, the fact that there is also a Shanghai Cooperation Organization, which brings together China, India, Russia and other countries, and the fact that China is promoting a 16+1 format to work with parts of the European Union, this is, I believe, a warning shot which should tell us – or tell me, as an example of a western politician – that we have to do something to stop the fragmentation of the international architecture, that we have to be ready to reform the existing institutions to reflect the true balance of power in the world.

Of course we also know the world is currently very much divided on the question of how to move forward. In my opinion, we must not beat around the bush. If we want to reform existing institutions which set global benchmarks then we have to be on board and we have to accept the balance of power as it now is. However, another mindset is now also represented on the world stage, one which harbours basic doubts about multilateralism and which claims that the world works best if everyone thinks of themselves and puts their own interests first, and then an order will emerge which is good for everyone. I have my doubts. I think we should always understand our national interests in such a way that we factor in other countries’ vested interests, and thereby create the win‑win situations that are the prerequisite for multilateral action.

I see myself in the tradition, if you like, of the great sociologist Max Weber, whom I revere, who exactly 100 years ago spoke about the “ethic of responsibility” for politicians in his “Politics as a Vocation”, setting us guidelines and making the point that compromise is the result of responsible action on the part of politicians. When I hear, as I often do nowadays, that compromise is something that is not to be accepted, something bad, something negative, then I would like to respond unequivocally that no global architecture will function unless we are all able to compromise.

Even now, we are finding it difficult to reform and update the present system with its global institutions. But the question asked here at the World Economic Forum goes even further: We are now faced with disruptive developments, with a fourth industrial revolution – what does that mean for the architecture we have today? I for one stand before you as someone who values multilateralism and multilateral institutions and believes them to be indispensable if the world is to thrive. The key question is therefore where can we really set new benchmarks now?

In this regard, I could now make a somewhat tongue-in-cheek but nevertheless very serious comment: some things do still work out. On 16 November – I don’t know whether you noticed – a revolution took place in Versailles, France. The General Conference on Weights and Measures was held. As a result of this conference, the old kilogram, the ampere and other units will become obsolete and measurements will be redefined by natural constants. This truly is a revolution in the world of weights and measures. The international community came together to agree on this reform. On 20 May 2019, new definitions for all base units will become effective. As of that date, the prototype of the kilogram of 1889 will no longer shrink and we’ll always have a kilogram which has been clearly quantified. That should encourage us to carry on striving for reform and to engage with the ideas of the modern age.

The first major challenge that should be mentioned here is how we deal with data, how we evaluate data and how we clarify the ownership of data. We’re grappling with these questions in all areas. Secondly, in the world of big data, we’ve experienced a huge leap forward in the sphere of artificial intelligence. Here our task will be to put ethical guidelines in place. Thirdly, I’d like to mention the possibilities of genetic engineering and bioethical issues. Here too, we don’t yet have any global agreements. We have to find answers to these pressing questions. As yet, I don’t see a global architecture to deal with them. However, I cannot imagine that every major economic power is going to find different answers.

Just look at the two major poles when it comes to data processing. On the one hand, we have the United States. There, data is largely in the hands of private stakeholders. That makes it difficult to set down guidelines which determine limits. My view is that the rules we had in the analogue world cannot be simply cast aside in the digital world. Rather, we need clear guidelines here, too. On the other hand, we have China. There the state has extensive access to all data – even personal data. Neither of these two very different approaches is in line with my own ideas or those which influenced Germany with its social market economy, ideas that include the protection of privacy. For all its imperfections, the European Union set down guidelines on how to better regulate personal data with the adoption of the General Data Protection Regulation. That takes some effort; however, when the Industrial Revolution took place and people moved from the countryside into the cities, it was probably also difficult for them to carry around different sets of keys to open their own doors. These are civilisational developments which we have to go through. I therefore believe that we should certainly strive to protect a certain degree of privacy.

We’re also faced with the major issue of fair taxation in the digital world. I’m very much in favour of the proposals currently being drawn up in the OECD, and I believe that we can achieve greater fairness and clarity in the sphere of taxation if we combine minimal taxation with what the G20 Finance Ministers have come up with – the BEPS system. Of course, we shouldn’t by any means leave this to chance.

Since our difficulties with the NSA back in 2014 or 2013, Germany has tried time and again in the UN General Assembly and in the UN Human Rights Council to sponsor resolutions aimed at addressing the privacy of data in the digital age. North and South are working well together, as you might say, for Germany and Brazil are trying in cooperation with Mexico, Austria and many others to define ever more clearly how to move forward in this sphere. But I cannot deny that this has been a laborious process.

I was delighted when my Japanese colleague Shinzō Abe said here today that he would like to use Japan’s G20 Presidency to focus on data and to launch global data governance. I believe the G20 is a very good format in which to place this issue on the agenda of the largest industrialised nations on a comprehensive scale.

Naturally, it’s only possible for Europe or Germany to take part in the debate on what a global architecture should look like if we are a major player, if we are an economically strong player that is in a position to enforce ethical measures. For the reality is that you can only have an impact internationally if you are economically strong and able not only to analyse the problems and to provide moral guidance but also to speak from your own experience.

Coming back to my own country, to Germany, I can tell you that we still have a strong economy which, however, has been shaped to a very large degree by the industrial age. In our country, the manufacturing sector still produces much of our wealth. And the automotive industry certainly still plays a very important role in this generation of our wealth. If we look at the revolutionary development in the automotive sector then, of course, we can see there are potential risks: risks in terms of jobs; risks in terms of data management. For example, the question as to who owns data is of crucial importance. If, as it were, data always belongs to platforms then our prospects are less favourable than if they belong to the car manufacturers themselves. The fact that we in Germany, for instance, but also in Europe, aren’t able to this very day to produce battery cells ourselves is certainly a major problem for Europe’s future as a car manufacturing base. That’s why I remain convinced that we should make policy decisions concerning this industry – as we’ve already done in the case of chip manufacturing – and use our cooperation in Europe to close the gap in areas of technology where we’ve fallen behind. For I believe that we cannot simply leave a large portion of the value added in relation to tomorrow’s cars, for example in the sphere of e‑mobility, to other continents if we want to be a competitive player on a durable basis.

Germany faces three challenges of considerable importance to our future, which I’d like to mention here.

First of all, the energy transition – the issue of affordable but also sustainable energy which meets our climate protection objectives. I’m quite certain – and this, after all, is becoming more evident from year to year – that climate change is of huge importance to us and to the world as a whole. Industrialised countries therefore have a responsibility to develop technology which can also benefit others. That’s not because the CO2 emissions of 80 million people, as in Germany’s case, could have a great impact on overall global emissions. Rather, it’s because we have the capability to do so and because we have already emitted so much CO2 in the course of industrialisation. I’m therefore very happy to be able to say to you – even though it has an impact on our energy prices – that renewable energy is now the cornerstone of our energy supply in Germany and accounts for the largest percentage in our overall energy mix.

We will have phased out nuclear energy by 2022. We have a very difficult problem, namely that almost the only sources of energy that will be able to provide baseload power are coal and lignite. Germany has now phased out its own coal production. That means that subsidies have been discontinued. Lignite isn’t subsidised and is thus a relatively cheap but very CO22‑intensive source of energy. We’ve therefore set up a commission which is examining the phasing‑out of coal-based power in Germany and is now in the final stage of its work. Naturally, we cannot do without baseload energy. Natural gas will therefore play a greater role for another few decades. The dispute about where our natural gas comes from is thus a bit over the top. For, on the one hand, it’s perfectly clear that we’ll continue to obtain natural gas from Russia. However, it goes without saying that we want to diversify. We’ll therefore also purchase liquid gas – perhaps from the United States and other sources. We’re thus expanding infrastructure in all directions. However, I believe we would be well advised to admit that if we phase out coal and nuclear energy then we have to be honest and tell people that we’ll need more natural gas. What’s more, energy has to be affordable.

This brings us to a subject on which we in the coalition have resolved to do better. For, being honest, I have to say that compared with elsewhere in the world, we are far too slow with construction projects. We are too slow when it comes to the expansion of the grid – the generation of renewable energy requires entirely different transmission structures. We are too slow when it comes to our infrastructure as a whole. – I see our Infrastructure Minister here. – Our aim must be to become quicker, obviously without neglecting the rule of law.

The second point is digitisation. Here, too, it is a matter of infrastructure – but of very much more besides. One thing that particularly worries me – and this is something else we can only resolve at European level – is that we have fallen far behind in the platform economy. Maybe it’s the case that countries with a fairly saturated and relatively well-functioning administration do not feel such a drive to innovate as developing countries and emerging economies do. In particular, nothing the state does with its citizens is anywhere near as digitised as it should be. So we plan to ensure that all administrative services are available to our citizens in digital form as well, by 2022 at the latest. Here, too, though, we really are not up with the frontrunners at European level. We’re actually a bit behind.

I think the digital transformation is going really well in our big companies. Things are getting better in SMEs; B2B is working really quite well. But business-to-customer is where it all unravels. Here we are in a competition. That is absolutely clear. And it is a competition that will decide whether those who operate the platform or those who offer the product gain the value added, as it were. I don’t think this battle is over, certainly not from the German perspective. We can win it, but we will have to be fast.

The third point is demographic change in Germany. Here, freedom of movement within the European Union is a big help. But on top of this we in Germany have now decided – after decades of discussion, it has to be said – to adopt an immigration act for skilled workers. Of course, this also means that we will have to manage migration better. Here, too, though, we have made considerable progress in recent years.

We have seen, ladies and gentlemen, – and here I’m adding a fourth point – that we can only truly move forwards if we stop believing that we can go it alone. The war in Syria and terrorism in Iraq have shown us how globalisation is reaching us in Europe and especially in Germany too, in the form of many refugee flows. That is why I am very proud to be able to say that Germany is one of the major donors helping to bring stability to the arc comprising Syria, Jordan and Lebanon. For we know that it is much better if people can stay in their home countries and not fall into the hands of human traffickers. Our development, too, goes better, if we provide help on the spot. That is why our focus will be on this region, but also on partnership with Africa. That is why we did so much with Africa during our G20 presidency.

Let me say this once again: from the European perspective, Africa is often regarded as a problem continent. But if we take a look at how Africa, a huge continent which will have two billion inhabitants in 2050, is gradually expanding multilateral cooperation and strengthening its African Union and regional associations, at how it intends to introduce freedom of movement and at how it has a clear idea of future infrastructure projects, then we also have to regard Africa as a continent of opportunities. This applies particularly to us Europeans, Africa’s neighbours.

And so a clear commitment to multilateralism, even if it takes courage, is a fundamental prerequisite for our policymaking. It is also well worth bringing together like-minded countries across the world. Because anything else will end in misery. With this in mind, Germany sees its future firmly within the European Union. Because the European Union can generate the necessary energy to move things forward.

However, we are now having to come to terms with the shock of the United Kingdom wanting to leave the EU. I am directing all my thoughts and energies to finding an orderly solution in which we can have a good partnership for the benefit of all. We are absolutely dependent on cooperation with the British in matters relating to internal security, external security and defence. But we are also a trade area – and the closer and the less complicated our relations are, the better. But of course this is also up to the UK.

Within the European Union, we have always championed free trade. And I am pleased that the EU‑Japan Economic Partnership Agreement is entering into force on 1 February. We are also committed to trade talks with the United States of America. We have concluded the trade talks with Canada. And I believe more should follow – with Singapore and Australia, if possible also MERCOSUR and others.

Ladies and gentlemen, we in Europe have decided to take the huge step of saying that in future we also want to combine our defence capabilities. This is also a question of our vision of ourselves. This joint strategic agreement to consider defence policy together is not directed against NATO. In fact, it can make things easier for NATO, because today we have over 170 different defence systems or weapons systems. The US has, I believe, fewer than 60. You can imagine the resulting loss in efficiency with respect to training and maintenance.

Germany and France’s decision to build combat aircraft together in future, to build tanks together, is, of course, a very important strategic decision – just as yesterday’s signing of the Treaty of Aachen between Germany and France as the continuation of the Élysée Treaty is a commitment, a commitment in an age of many uncertainties. It is a commitment that says yes, we want to play our part as important partners in Europe and to further develop the European Union. Yesterday I found it very moving that not only did the French President and the German Chancellor sign a treaty, but that this was done in the presence of the Commission President, the President of the European Council and the rotating Romanian Presidency of the Council of the European Union. This was intended to make it very clear that we want to help to strengthen Europe.

But let me tell you that, for historical reasons, we Germans do still have our difficulties with multilateralism. Agreeing arms export guidelines with France, for example, is a huge task. But it has to be done, because no‑one will want to develop weapons systems with us if they are not sure they can sell them later. In other words, and I want to say this unequivocally, it is not the case that I always find multilateralism easy because it is always easy. On the contrary: it is difficult. But then I always have to ask myself: what is the alternative, and what will it mean? We can see it in all of our countries: the challenges posed by populism, the emergence of nationalist forces. We have to square up to these challenges. But perhaps that makes the battle lines clearer and stronger.

That is why I and my colleagues in the German cabinet will champion a multilateral order which does not end at the European Union, but which is capable of giving really good responses to the new global challenges. However, that means that we must take care not to ruin the existing order so much that no‑one believes in the validity of new parameters any more. So I am delighted to have had the opportunity to speak to you on this note today.

Thank you.

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