Europe 'still an example of successful integration'

The welfare state model in Europe has resulted in a sovereign debt crisis there. The export-led model of Japan has failed to bring the country back on the recovery path in spite of success in the 60s, 70s and 80s. The US consumption-led economic model has also created debt and a crisis. What should be an appropriate model for Asia, given its diversity, with India and China less open in their economic systems than Thailand and other Asean nations?
First of all, sovereign debt crises are not a novelty. They took place over the years in Latin America, Russia, Asia... They are not a feature of the European or US economic models.
Secondly, I do not think the sovereign debt crisis in the euro-zone should be seen as an indictment of the European welfare state. Rather, it is a reminder that such comprehensive welfare systems must sit on sound financial foundations. Being able to support the most vulnerable members of society is in fact a great and historic achievement of market economies.
The origin of the crisis is not disputed. It was the result of insufficient financial regulation and supervision, decades of neglect of competitiveness in some member states, excessive reliance on tax income fuelled by speculative developments in the financial and property sectors, and lax fiscal policies leading to excessive sovereign borrowing in an environment of very low interest rates.
The result was deep erosion of the financial foundations of these member states, which now have to be rebuilt. As we do this, we must also adapt constantly as the world is not waiting for Europe. This includes constantly adjusting the various elements of our welfare state to reflect the gradual ageing of our European societies.
As for your question, finance ministers have enough to do in Europe at the moment. We are not in a position to give advice to nations around the world about how they should run their economies, especially in such a generally successful continent as Asia, from which we have much to learn.
That said, I think we should all follow the G20’s call to promote strong, balanced and sustainable growth. Europe is delivering on its promises and is tackling its fiscal and structural weaknesses.
In the future, we, together with the IMF, must be more vigilant about signs of deepening imbalances in the world economy or about unsustainable trends, for instance in public finances. We must also create a solid regulatory framework to govern all financial markets and all financial actors. We have made a lot of progress in this area within the G20 but there is still a lot to do. Lastly, we must avoid actions that would be detrimental to international trade, as it is one of the biggest sources of growth for all of us.

What kind of experience can we learn from Europe?
Europe is characterised by a structure of sovereign nations which, after a disastrous century, have decided to overcome old conflicts and build peace and prosperity together. Starting with a single market and abolishing borders, we have created our own common currency. The member states have steadily moved towards deeper integration.
Consider the internal market in financial services, for instance. Decisive steps were taken in this area within a very short period of time, especially if you take into account the decentralised structures of our 27 nations.
Europe may look confusing because of its complex structures but we have proven, not least during the current crisis, that we are able to act, swiftly if necessary. So I would say that Europe is an example for successful regional integration, which retains flexibility despite complex structures and preserved national competencies in many policy areas.
Throughout the crisis, the degree of integration we have developed in the European Union and in the eurozone have forced everyone to stay at the table, confront an unpleasant reality, converge on solutions and implement them consistently and reliably, however painful they were. A less integrated, less coherent system could easily have broken under such strain.
In many ways the European model that distributes sovereignty between the local, regional, state and European levels according to where problems and questions are best dealt with, is arguably the most modern in the world. The EU may look complex and sometimes slow, but it delivers functioning solutions for its 27 member states, which form the largest economic block in the world.
The fact that European governments have, in reaction to the crisis, implemented reforms that they would not even have dreamt of half a decade ago, and the fact that these long-term reforms are beginning to bear fruit, bears witness to the resilience of the EU and the efficiency of its governance.
The deep interconnectedness between the EU’s constituent economies and societies and the shared values enshrined in its members over the years have also allowed more solidarity to develop between its members than would have been possible under a looser system and thus contributed to its solidity.
Of course, the EU cannot be replicated identically around the world. It is a product of Europe’s history, including devastating wars, and geography. And yet, it shows that regional cooperation mechanisms – with strong institutions, clear rules and legitimate decision-making processes – are essential in averting crises, preventing them from escalating when they do occur, and eventually solving them. They are conducive to prosperity in normal times and also clearly show their worth in times of tension.
For if there is one truth that applies to all of us regardless of our peculiar histories, it is that the main problems we face today, be they economic, environmental or political, can no longer be effectively tackled by nation-states alone.

The crisis in Europe is pushing it toward closer integration – the coming of the Federation of Nation States with a fiscal union, banking union and the end of nation states. Is this course desirable for Germany?
European integration is not about building a federation, a “superstate” or a new empire. As I said, you will not find an equivalent for it in the world or in history books. As a model, it is innovative, flexible and therefore future-proof because it always seeks to address the problems at the level where they can best be solved and it is in constant evolution.
In certain areas, EU member states retain much more influence and power than in a typical federal model. But in others, such as trade and competition policy, they have been gradually transferring more prerogatives to the European level. The crisis has shown that we had to strengthen integration in some specific areas – in fiscal policy, in economic policy in general, in banking regulation and supervision... – but, clearly, we are not creating the United States of Europe.
As a federal state and because of its history, Germany is perhaps more comfortable than most about having different policy areas being tackled at different administrative levels. But in general, whatever makes Europe stronger and more stable is also in Germany’s interest.

The bailout cost for Europe is, from one estimate, 4 trillion euros (Bt159 trillion) or more. A chunk of this will be borne by Germany. Do you think Germany can participate in what seems to be an open-ended bailout?
We in the euro zone have put in place financing mechanisms that allow fundamentally sound economies that, for any reason, have lost the confidence of investors and therefore access to capital markets, to keep financing themselves while they implement reforms that need time to bear fruit. Our European Stability Mechanism is therefore no more a bailout instrument than the IMF is at the global level. However, like the IMF, it is an expression of the strong solidarity that exists between its members.
Because of this, it is equally wrong to speak of costs. Germany’s support for the adjustment programmes in Greece, Portugal and Ireland has meant that we have taken over a certain amount of risk that investors would have assumed in normal times. And again, all members of the euro zone have an existential interest in doing all they can to stabilise it.

All major central banks are now engaged in money printing – from the US Federal Reserve, ECB and Bank of Japan to the Bank of England. The Bundesbank is against this practice of using monetary solutions to tackle the fiscal crisis. Are we under the threat of hyperinflation?
One founding principle of the monetary union is the independence of the central bank, which governments have to respect. I will therefore only say the following, whatever you mean by “money printing”, the ECB has a very clear mandate and this one is aimed in particular and foremost at ensuring price stability in the euro zone.
It has always acted within its mandate and I have no reason to think that it would ever do otherwise. And since you mention the rest of the world, we should not forget that one of the causes of the financial crisis of 2007-2008 was excess liquidity. For all central banks, a timely exit from their non-standard measures will be essential to prevent generous liquidity provision turning into inflationary pressures.