Germany will not be deterred from its attempts to press fiscal rectitude on the Eurozone. That was the overwhelming message for policymakers, economists and bankers at the 8th annual Euromoney Germany conference, held at the Adlon Hotel in Berlin on 25-26 April. “We are no consolidation Taliban,” said Thomas Steffen, state secretary at the Federal Ministry of Finance, before arguing that there was no alternative to the recipe of deficit reduction and structural reforms. Andreas Dombret, a board member at the Bundesbank argued that four principles underlined the response: a sound currency; sound public finances; competiveness and a sound banking system. “And by the way these are all enshrined in the Maastricht Treaty,” said Dombret. “Far from being a specifically German conviction these principles serve the well-being of citizens, not just in Germany, but in the Eurozone as a whole.”
Speakers from overseas saw things differently. Stephen King, group chief economist at HSBC, argued that Europe’s problem was Germany’s too. “In history, debt crises are not just a crisis of the debtor,” he said. “It is ultimately a problem of the creditor. The question for Germany is how will it take its pain over the next few quarters and years? It cannot protect itself from what is happening elsewhere in the Eurozone”.
Collapsing demand in key export markets such as Spain was one important transmission mechanism; that would be reflected in job losses.
The heavy exposure of German banks to troubled Eurozone debt was another; that might mean a taxpayer-funded bailout. Otto Fricke, an FDP member of the Bundestag, said it could be hard to explain to the average German what the single currency meant for the country.
“The Euro is a huge profit we have,” said Fricke. “The problem for a politician is that every time you talk to the voters, they say: ‘I don’t think so: it is just because we have good products’”.
The success of the changes introduced by former Chancellor Gerhard Schroeder in 2003 underlay much of German attitude towards what other European countries had to do to get their house in order. “We have had our reforms and now Europe has to do the same,” said Holger Schmieding, chief economist at Berenberg Bank. He predicted that Germany had at least another couple of years of benefits still to flow from labour market reform. Others cautioned against complacency, arguing that more needed to be done to refit the German economy for the twenty-first century. “We are drifting into an environment of safety-first,” said Michael Eilfort, a member of the board at the free market-inclined Stiftungs Marktwirtschaft.
One thing on which most of the more than 450 delegates at the Berlin conference were agreed: this debate is not over yet.
Presentations available to download:
Keynote Presentation: Dr Andreas Dombret, Deutsche Bundesbank. Towards a more sustainable Europe