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Speech by Federal Chancellor Angela Merkel in the European Parliament in Brussels

Angela Merkel
Wednesday, 07. November 2012

Mr President, Martin Schulz,
Members of the European Parliament, ladies and gentlemen,

I am delighted to be able to speak to you today. This is my first opportunity to do so since the German Council Presidency in 2007. I would like to use the opportunity to give you my slant on the State of the Union – not looking primarily at the Multiannual Financial Framework but I’m sure we can come back to that in the discussion.

In two days it is 9 November which this year marks the 23rd anniversary of the Fall of the Berlin Wall. 9 November 1989 was a truly wonderful moment in the history of Germany and indeed the whole of Europe. It marks the start of an era of freedom, unity and democracy in Germany and all across Europe.

We Germans will never forget that the happy development of our country is inextricably linked to the history of the European Union. We will never forget that we also owe a debt of gratitude especially to our eastern neighbours for their courageous yearning for freedom.

We Germans are aware of our responsibility for a bright future for the EU. It is in this spirit that the German Federal Government’s policies are geared towards the interests of both our country and Europe.

I would like to recall a leitmotif today, a mainspring of European integration, namely the freedom that opens the way for a life in peace and prosperity. It is this freedom in all its facets – freedom of expression, of the media, belief and assembly – that we have to work tirelessly to defend. Without freedom there can be no rule of law. Without freedom there can be no diversity and no tolerance. Freedom is the foundation for the united and determined Europe.

Particularly in this major test that Europe faces today, the power of freedom can help us lead Europe out of the crisis stronger than before. After all, the power of freedom, I am convinced, also gives us the courage to change. It is precisely this courage to change that we now need to show to assert the European Union in the international race that is the 21st century.

On my trips outside the European Union, for example to Asia, I have in recent years got to know many dynamic, ambitious countries that are very much on the rise. There, people look with keen interest to us, the European Union. But the people there often ask me with some scepticism: will the European experiment weather the crisis?

This question makes it plain. The current grave crisis dominates people’s perception of the European Union – also those looking from the outside. Now it is up to us to change the sceptical attitude towards Europe and catch up in global competition – through hard work at home.

For this reason, it is not just a great honour for the European Union to receive the Nobel Peace Prize this year. This important prize in the midst of the most serious crisis to strike Europe since the adoption of the Treaties of Rome 55 years ago is also an extremely valuable political signal to the world, but also to the Europeans.

Martin Schulz will receive the prize in Oslo together with the Presidents of the European Council and the European Commission. I am delighted that some of my colleagues have, like myself, decided to attend the ceremony. By being there, we want to underscore that the European Union is all of us together: 500 million citizens. We all know that we Europeans have united for the better.

The Nobel Peace Prize reminds us never to forget this no matter how huge the challenges and how difficult our work and our daily lives. With its decision, the Nobel Committee is enjoining us to focus once more on what is really crucial in the current crisis. It is not the debt figures, unit labour costs and growth rates, no matter how important that all is. What is truly important is instead the realization that our single currency is so much more than just a currency. It is the symbol for the peaceful and democratic unification of Europe we have achieved. It is the symbol for a Europe of peace, prosperity and progress.

So what we are actually talking about at the current time is preserving and further developing European unification for the good of our children. That is why the Nobel Peace Prize is a mandate for us all to create a better EU together – a Europe marked by strength and stability.

Martin Schulz was right when he said in his inaugural speech as newly elected President of the European Parliament “Either we all lose, or we all win.” The conclusion we draw, ladies and gentlemen, can only be that we want to and indeed will win together. That is certainly what I want.

Together we can assert our European model that combines economic success with social responsibility. And taking it further, together we can consolidate it to make it stronger than ever. To do so, we need together to recall the power of freedom and find the courage to change.

We can see the first fruits of our efforts to overcome the crisis, both at the level of member states and also in the development of new crisis management instruments. Yet we must not leave it at that. Much remains to be done to win back trust in the European Union as a whole. That is why we must not stop halfway.

I would like to make a pledge to you here today. Germany will do everything it can to ensure the European Union can also in future keep its promise of freedom and prosperity. But I am also here because I am counting on your support. Once again, we are hearing more and more voices saying we could just sit back and relax now, saying we don’t actually need to renew economic and monetary union because the work has already been done with the immediate crisis management measures.

To my mind, that is completely wrong. Instead of sitting back, we need to ensure step by step at all levels of the EU that Europe’s strengths can flourish once more: the freedom, the dyna¬mism and the prosperity that the European Union can offer its people at home; the impact and influence that the European Union gives us in the outside world.

The President of the European Commission, José Manuel Barroso, said in his speech on the State of the Union on 12 September in this chamber: “We must complete the economic and monetary union.” In fact, we now need to find the right way forward to stabilize economic and monetary union in the long term by rectifying the design flaws. We need to be ambitious here and must not shy away from changing the treaty basis of economic and monetary union if this should prove necessary. This process of deepening the European Union is indispensable. In this process, I see you, the European Parliament, and also the European Commission as allies. Let me say that quite plainly.

There is no model for the current crisis. The European Union is a unique entity. That is why we now have to do what Europe is rightly famous for, that is, we need to be inventive. We need to find our own, new solutions. All member states need to implement reforms, structural changes and tough consolidation steps to increase competitiveness if we are to effectively combat the causes of the crisis.

I know that this is really asking a lot of the people in the member states particularly affected by the crisis. I know the people there are finding it very difficult as a result of these steps. But I have some good news for you at such a difficult time. The reforms are starting to bear fruit. It is not a waste of time. It is worth it. In Ireland, Portugal and Spain, but also in Greece, unit labour costs have dropped significantly. That is a key factor in competitiveness. Current account deficits are also falling.

The consistent reform path followed by the member states to increase competitiveness is also of course bolstered by the solidarity of Europe, for example through the new permanent rescue package, the European Stability Mechanism. The two go hand in hand and they are both equally important.

Sustainable consolidation and growth are interdependent. The two need to be pursued with equal vigour. I want to say that again because sometimes we try to play one off against the other. But we need them both. We want new growth. We want more jobs based on solid budgets. But we also have a responsibility towards future generations not to rob them of possibilities in the future. Growth is rooted in enterprise. Growth is not something we can define politically. Rather, we need entrepreneurs in Europe. Entrepreneurship is rooted in freedom and the necessary flexibility. We need to work on this in Europe.

That is why the Euro Plus Pact includes steps to strengthen growth and employment in the member states. That is why we made a point of bolstering the fiscal compact with a Compact for Growth and Jobs. So on the one hand it is matter of targeting public spending. But because it isn’t just about money, we are on the other hand creating the conditions for new growth, above all by working hard to further develop the internal market.

We now need to rapidly implement the legislative steps included in the Compact for Growth and Jobs. This will release growth momentum that is crucial for our future. The Council is committed here, as is, I am convinced, the Parliament.

Of course, the Multiannual Financial Framework that we want to adopt at the European Coun¬cil in two weeks is also an essential prerequisite if we are to provide the necessary impetus for growth. Each and every euro that we spend – and this must be our yardstick – needs to create added value in terms of growth and jobs. It is not enough to spend money, rather the money has to be invested in a good and targeted manner.

We need to take a very close look at our policies at national and European level to effectively combat the roots of the crisis. Critically analysing and then rectifying the design flaws in the architecture of economic and monetary union is no less important. The only way to be successful in the long term, I am convinced, is if we pay equal attention to both. That is the only way to build a Europe marked by strength and stability.

It was the Maastricht Treaty that created economic and monetary union in 1992, twenty years ago. Back then, there was not enough support for those who wanted to bolster monetary union with a real economic union. A monetary union with fully communitarized monetary policy was the result. Economic union, however, was weak in structure. Today, we are dealing with the consequences of these decisions, consequences which remained concealed initially after the introduction of the euro only to emerge later.

For example, the differences in the competitiveness of the member states of the eurozone have increased not decreased. By way of example, we need only look at the development of unit labour costs. In his capacity as ECB President, Jean-Claude Trichet made the point on many occasions. All too often, it fell on deaf ears.

In some member states, it was also possible to accumulate massive debts for years without being penalized by higher interest or by the sanctions created for the purpose in the Stability and Growth Pact.

This all goes to show that the problems we are dealing with today had taken root long before the current crisis began.

The problems are of course different in each member state, ranging from government debt, banking crises, private sector debt to a lack of competitiveness. And with the onset of the global financial and economic crisis in 2008/9, developments were exacerbated.

If all the member states had stuck to the agreed thresholds and engaged in reform to increase their competitiveness, economic and monetary union would never have been embroiled in such a crisis even with a relatively week economic union. But the mix of home-grown contraventions and design flaws almost spelt disaster for Europe.

That is why I believe it is extremely important that we really learn the lesson of this crisis. We have to make sure that such a situation does not repeat itself. And we have to make sure that Europe emerges from the crisis stronger than before. That means we need to analyse what went wrong in the creation of economic and monetary union and renew its foundations. Taking it further, we need to create reliability at national level in the member states by finally sticking to what we have agreed.

Let me just give you one example: we or our predecessors as heads of state and government had agreed for every member state of the European Union to spend 3% of its GDP on research and development. Today, we have states that spend 0.7% and states that spend 3.5%. But hardly anyone has really stuck to what we said we would do.

In my view, therefore, four elements are of crucial importance for the future.
First, a renewed economic and monetary union will need greater financial market policy integration, based on functioning and robust financial markets. To this end, we have to define the framework conditions for the financial markets more precisely, harmonize financial market regulation and ensure that all of this is also applied to the international financial markets. Furthermore, we must create an effective European supervisory mechanism for European banks in order to be able to better avert systemic risks to our economic order.

The most recent decisions by the European Council made it clear that quality must have priority over speed. It’s vitally important that our supervisory mechanism really does work. We therefore have to take great care to clarify the complex legal issues. For we have to establish banking supervision worthy of that description.

Second, a renewed economic and monetary union needs greater fiscal policy integration.

We have already made significant progress towards strengthening budgetary discipline by adopting the fiscal compact. I’m delighted that eleven of the twelve member states required for its entry into force have now ratified it, most recently France and Estonia. I can well imagine going even further by, for example, granting the European level real rights to intervene in national budgets when the agreed ceilings of the Stability and Growth Pact have not been observed.

Third, a renewed economic and monetary union needs greater economic policy integration.

Today we see quite clearly that sufficiently binding economic policy coordination was lacking, and indeed is still lacking. In the monetary union, for instance, it’s not possible to keep on demanding that national policies be geared to strengthening competitiveness as the basis for long-term growth and employment nor, if necessary, to enforce such policies.

Let me remind you that in his 1989 report on the establishment of economic and monetary union, the then Commission President Jacques Delors pointed out the importance of the two pillars of economic and monetary union because, and I quote, “[...] monetary union without a sufficient degree of convergence of economic policies is unlikely to be durable and could be damaging to the Community.” That’s what Jacques Delors said back in 1989.

The crisis has shown how right Jacques Delors’ analysis was. It has shown that problems in individual member states really can cause the monetary union as a whole – and with it all of us, all 27 EU member states – to falter. Nevertheless, we have only just begun the urgently needed process of strengthening economic policy coordination.

So what needs to be done? At the European Council in October, we had an initial discussion on this and agreed that we have to look more closely in future at those areas of policy which are vitally important for the functioning of economic and monetary union. For one country’s loss of competitiveness quickly becomes a problem for all.

Greater economic policy coordination will also perhaps become necessary where core spheres of national sovereignty are affected. I’m thinking here of sensitive policy areas such as labour market or tax policy. Naturally, we have to proceed with caution. The principle of subsidiarity and national democratic processes must be respected. We therefore need solutions which create a sensible balance between necessary new intervention rights at European level and the scope for action of member states and their parliaments, which must be preserved.

The European institutions must be strengthened to allow them to correct mistakes or violations of the rules effectively. We have to finally establish a genuine exchange between the European and the national levels. I favour a new layered and differentiated procedure within the framework of which the member states, with the approval of their parliaments, would conclude binding and feasible agreements on reform with the European level, for example the European Commission.

I can also imagine supporting in a spirit of solidarity concrete reform measures which result in more competitiveness through targeted incentives from a new financial instrument in the eurozone. This is an idea for the future which, of course, needs a viable legal basis and about which we will make a decision at the European Council in December as part of the package of measures necessary to deepen economic and monetary union.

I will work to ensure that we adopt an ambitious roadmap in December on renewing eco¬nomic and monetary union. It should contain concrete measures which we can implement in the coming two to three years.

Ladies and gentlemen, I want to say once more that the European Parliament will be our partner in all of these endeavours. Our intention is neither to bring about a divided European Union nor to do anything which will have a detrimental impact on either the European Parliament or the European Commission. This is merely about shaping the necessary interaction between the various levels in such a way that it really can result in the greater economic policy coordination which Jacques Delors advocated. I believe that this will enable us to regain confidence and credibility on an enduring basis.

For – let’s be honest – the European sovereign debt crisis is essentially a crisis of confidence. That is evident when you talk to investors outside Europe. Confidence will have to be regained with care. Renewing the foundations of economic and monetary union is in the interest of Europe’s citizens, whom all of you represent here in this Parliament. That is why I’m counting on your support!

I’ve already indicated that I’m aware of the concerns about a division between an EU of the 17 and of the 27, soon to be 28. I believe we can convincingly assuage such concerns. For, firstly, the deepening of economic and monetary union is essential for the future of the European Union as a whole. Second, a renewed economic and monetary union will remain open to those non-euro countries which wish to take part. There is no closed club of euro countries, we will always welcome others. For, after all, economic and monetary union was established with the aim that every member state would take part.

I’m certainly committed to ensuring that deepened economic and monetary union does not lead to a two-speed Europe but, rather, creates a double-strength European Union. Furthermore, I’m firmly convinced that we can only create a Europe marked by stability and strength if the member states and the organs of the European Union work together.

Ladies and gentlemen, I’m also aware of the concerns about the repatriation of powers. However, I’m convinced that if we perform the tasks that lie ahead well, that’s to say if we truly learn the lessons from this crisis, then we will experience the very opposite. Then we will see a Europeanization of national powers in no space of time. If we seize this opportunity and if we understand that we are stronger than any individual nation on its own, if we stand together as Europeans in a globalized world, then we will succeed.

National parliaments – just like governments – will increasingly assume their responsibility for greater European integration. In a speech in Brussels last February, the President of the European Council, Herman Van Rompuy, said that politically speaking national parliaments have become “European institutions”. We can sum up this idea by saying: all of us together make up Europe. Europe is domestic policy. A stronger dialogue between national parliaments and you – the members of the European Parliament – would also help national parliaments to perform their task of guaranteeing the Union a bright future even better.

I’m convinced that together we can create a Europe marked by stability and strength! And for that we need greater democratic legitimacy and oversight. For me, the important thing is that legitimacy and oversight are to be found on the level where decisions are made and imple¬mented. That means that if one of the European level’s competences is strengthened, the role of the European Parliament must also be strengthened. If national competences are affected then, of course, national parliaments must play a key role.

We should also openly discuss how decisions at European level which only affect the eurozone can be lent legitimacy in future. For example, we have to consider whether only parliamentarians from the euro countries should be allowed to vote on such matters. However, we should not contemplate – as is sometimes suggested – establishing an additional parliamentary institution. The European Parliament is the bedrock.

Stronger democratic legitimacy and oversight – this principle must be adhered to in all measures aimed at deepening economic and monetary union. It forms the centrepiece of a renewed European Union! As Head of Government, I want to state categorically that democratic legitimacy can only be achieved through parliaments.

Mr President, ladies and gentlemen, speaking here again today in the European Parliament naturally reminds me of 2007, the year of the German EU Presidency. That year we set out our fundamental convictions in the Berlin Declaration marking the 50th anniversary of the signing of the Rome Treaties. The then President of the European Parliament, Hans-Gert Pöttering, signed the document on behalf of this House. In retrospect, the signing on 25 March 2007 can be regarded as a breakthrough in the difficult negotiations which ultimately led to the Treaty of Lisbon.

At that time, we were seeking to deepen the European Union as a whole. Today our task is to deepen economic and monetary union in order to lead the European Union to a new level of stability and strength. In the 2007 Berlin Declaration we said, “Our history reminds us that we must protect this for the good of future generations. For that reason we must always renew the political shape of Europe in keeping with the times.” I’m convinced that we will only live up to our responsibility if we renew the political shape of economic and monetary union in keeping with the times.

At the start of my speech, I repeated the question which I’m sometimes asked outside Europe: will the European experiment weather the crisis? I’ll tell you how I normally respond. As a physicist I know all about experiments and am therefore in a position to say that European integration has long since moved beyond the experimental stage – if, indeed, it was ever accu¬rate to call it an experiment. At any rate, I regard it as a union which – to stay true to the image – has long since achieved a stable aggregate state. Even if we have to subsequently realign individual parameters in our model, it will remain steadfast, stable and strong.

To put it like a politician: yes, we will continue the European Union success story. Germany will play its part. The European Union will be successful because the power of freedom lends us Europeans courage and imagination. We know that we are stronger if we are united and determined. United and determined we can defend our European social and economic model in the globalized world. United and determined and as a union of peace, freedom and prosperity, we can serve as a model for other regions of the world. This – and no less – should be our common goal.

I believe in our common European future. – Zu unserem Glück vereint. Unis pour le meilleur. United for the better.

Thank you very much.

Thursday, 08. November 2012

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