The Social Democrat Olaf Scholz, Merkel´s Minister of Finance in this legislature is not thinking of changing his predecessor´s objective of budgetary balance. Despite the German consensus on the principle of not spending more than you earn, Scholz has been much criticised.
Volker Wieland: The German economy is experiencing a major upturn, which has contributed to a significant budget surplus. Currently, the fiscal situation is good, however, it is not permanent. In 2017, the general government budget surplus amounted to 38.4 billion euro, that is 1.2 % of GDP. By 2019, the level of debt in relation to economic output might have fallen just below the 60% of GDP criterion of the Maastricht Treaty. In such good times, it is necessary to reduce debt to have a margin for manoeuvre in the future. In bad times and crises, deficit and debt will inevitably rise again. Therefore, it is absolutely correct to continue this consolidation. Furthermore, interest costs will increase in the future and the demographic change will represent major fiscal challenge to politics. The government should use the current fiscal headroom for growth-friendly reforms such as measures to increase the economic potential.
How far can cooperation between France and Germany on EU reform really go?
Volker Wieland: In his speech at the Sorbonne in Paris, Emmanuel Macron laid out an ambitious plan to advance European integration and listed a series of proposals to consolidate cooperation in the EU, which we should make use of. Especially in the area of migration, public security and defence policy, as well as energy and climate protection, it would be possible to work together to secure common objectives, which would also help counteract the voters’ frustration with the EU.
As far as the monetary union is concerned, President Macron only repeated old French recipes such as a European minister of Finance, or, a “European fiscal capacity”. This will not solve problems. A European finance minister would not be able to control French finances, nor those of any other country. The member states are, by the general wish of the voters, sovereign in budgetary policy. For this reason, each country should operate on a sustainable basis, and bear their debt. If there is a crisis, the European stability mechanism already exists. A fiscal capacity would only be the gateway to transfers and unconditional credits. This would reinforce the centrifugal forces in the Eurozone.
What would you propose?
Volker Wieland: The European institutions should focus their efforts on emphasising individual responsibility. Risk-adequate capital requirements on sovereign exposures in banking regulation would contribute to this. In the future, we must also avoid chaotic restructuring of public debt, like in Greece. This requires a regulatory framework for the orderly resolution of such processes, combined with the European Stability Mechanism. You could refer to this as European Monetary Fund. The council has made concrete proposals.
Do you think the Eurozone can exist without a system of transfers?
Volker Wieland: Germany is a federal republic. According to our constitution, a similar living standard is to be obtained. Therefore, there is a major regional redistribution. Some federal states contribute to finance the budgets of other Länder. However, the states that receive transfers do not grow faster. On the contrary, the experience is that the divergent conditions are reinforced. That´s why this system is not good for Europe. As far as the US are concerned, the states are constitutionally obliged to manage balanced budgets. Regional differences and risks are counter-balanced by labour and capital market mobility, and, the counter-balance of risk, through the financial markets. This is why in Europe we must move forward with the union of capital markets and facilitate greater capital and labour mobility within the EU by changing the regulatory framework.
And the difference in economic competitivity with other countries?
Volker Wieland: Economic competitiveness is the decisive factor. In recent years, the euro area member states have implemented structural reforms, including labour market reforms but even more. If we compare Spain and Italy, we see that Spain has embarked on a very tough road, but its economy has begun growing at record speed again. By contrast, Italy has suffered a sharp fall in GDP per capita since the beginning of the crisis and remains below the level reached in 2000. Should Spain transfer money permanently to Italy to improve its economic situation? I don’t think so. It is the Italian government that needs to reform not only its labour market but also its legal system and other important areas in the administration to increase the ccompetitiveness of its economy and create employment.
The German economy depends on exports to the rest of the world. It is true that Germans pay more than they receive in the EU budget, but that is not how the value of the EU is measured. What are the limits of solidarity between stronger and weaker countries in the Eurozone?
Volker Wieland: Being the leader in exports is not an end in itself. The other side of elevated levels of exports of goods and services are growing foreign claims. In other words, in this way Germany invests a great deal abroad. If that is reasonable or not must be decided by the actors involved, that´s to say by the companies and the consumers. Is it worth the effort? That we will see in the future. What is relevant for economic policy is whether the growth is sustainable and whether the economy can adapt to new demands e.g. the digital revolution without increasing unemployment.
Volker Wieland in an interview with "The Corner":
"The German States That Receive Money from the Richer Regions Do Not Grow More"
Interview in the magazine "Consejeros"