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Saturday, October 29, 2011

Leadership lives

From time to time over these last seven years I have written and posted speeches that I would like to hear an American President make. In composing them I drew upon speeches I have read from past eras. In 2006 I also posted a guest contribution, a mythical speech by John F. Kennedy showing how he might have addressed the state of our nation. Meanwhile I have become increasingly convinced that the United States is no longer capable of effective crisis leadership.

Last week it was widely but briefly reported that Chancellor Angela Merkel had given an important speech on the Eurozone crisis to the German Bundestag. Coincidentally, last weekend I had speculated once again that Europe, not the United States, would have to provide real leadership and keep the best of western values alive during the current crisis. I was thus sufficiently curious to find the complete text of Chancellor Merkel's speech. I found it in German, on the Bundestag's official web site. After a pass through the google translator program, I have worked all morning on providing the translation below, the first, it would appear, to be publicly available. (That in itself is an interesting fact that I will address tomorrow.) I am sure it is not perfectly clean but I think it will do.

I have not been a particular fan of Chancellor Merkel, and were I German, I suspect I would vote with the SPD. (I have known for 40 years, however, that the Christian Democratic party to which she belongs has consistently been to the left of our own Democratic Party, even though it represents the right there.) I am now inclined to revise my opinion. She has seized the moment in exactly the way that President Obama has failed to do. Below I reproduce the text of her speech in full, and I hope you will take the time to read it. Tomorrow I will provide my own commentary. My admiration for her has enormously increased because of something that happened since the speech: the news that she and Nicolas Sarkoczy forced the bankers to write off 50% of their Greek debt to help solve the crisis. Meanwhile I thank Chancellor Merkel for showing me that I have not been living in a completely delusional world.

Dr. Angela Merkel, Federal Chancellor
Mr. President! Ladies and gentlemen, Three years ago, the bankruptcy of investment bank Lehman Brothers triggered the biggest stock market crash of the postwar period. What began as an American real estate crisis quickly developed into a global financial crisis. Joint efforts by the Federal Government and the Bundestag had time to prevent Germany from falling into a deep recession. The crisis has demanded much of our citizenry: economic losses, but also patience and trust.

Today we can say that our joint efforts have paid off, because Germany has emerged stronger from the global financial crisis than it went into it. We can look forward to impressive economic growth. And above all, unemployment has reached a 20-year low.
It is also clear that Germany cannot do well in the long run if Europe does badly. Therefore, the main concern of the Federal Government is that Europe emerge stronger from the crisis stronger than it entered into it. The European Union must be a stabilizing union. What does that mean?

It means, firstly, that we must address the immediate crisis. We need to find viable solutions for the countries that have an excessive debt, and thus correct the mistakes of the past. At the same time we must prevent the crisis from spreading to other countries.

Secondly and equally importantly, we must take precautions for the future. We need to tackle the causes of this crisis to resolve it at its root. This is the excessive debt, but also the lack of competitiveness of some euro-member states. This means than that we need to strengthen the foundations of economic and monetary union .

Each of these two challenges is quite large in itself. But we must nonetheless find convincing answers to these challenges if the economic and currency union is to survive this test and emerge ever stronger from it.. I think we all agree: This is the greatest test of the Economic and Monetary Union that the world has ever seen.

(Voice from the Left: Probably not the last)

The deliberations of finance ministers and heads of government made a good deal of progress towards finding the answers this past weekend, and I declare this evening that we shall find workable answers. Some of the the problems that we must solve had their origins well before the onset of the current crisis. They were unfortunately ignored both by the markets and by political leaders for much too long.

The truth is this: For years it was possible to go into debt without incurring the market sanctions of increased interest or penalties which the Stability and Growth Pact called for. For years it was possible to avoid necessary reforms and fall behind in competitiveness. For the truth is also that the Structural Fund and the Cohesion fund provided by the EU to increase competitiveness led in part to unintended consequences and failed to achieve the desired result. After many years of stalled reforms, we now must struggle . It would be totally irresponsible to say that the problems could disappear overnight.

But there is also good news. Above all, Ireland is back on track, Portugal is firmly determined to implement its adjustment program, and the Greek government has begun much-need reforms in recent months. We must also note that much is demanded of the people of Greece. They deserve our respect, and they deserve above all a viable future in the euro-zone.

(Applause from the CDU / CSU, SPD, FDP and Alliance 90/The Greens)

Nevertheless, there is still much to be done to bring the problems in Greece under control. The so-called troika comprising representatives of the European Commission, the European Central Bank and the International Monetary Fund is monitoring and evaluating the implementation of the program, designed to allow Greece to carry its burden of debt. We must now draw the right conclusions from their latest report. The report draws on the experience of one and a half years a realistic picture of the situation in Greece. This is particularly thanks to the IMF and its new director, Christine Lagarde, to whom I would like to express my gratitude at this point.

(Applause from the CDU / CSU and FDP)

The Troika report shows that Greece is only at the beginning of a long and difficult journey. It also makes clear that the private sector must make a significant contribution to improve Greece's long term debt sustainability. This means that the measures that we decided upon on 21 July 2011 at the European Council are no longer viable. Our goal is that today's deliberations must design debt sustainability for Greece such that Greece in 2020 has a debt of 120 percent debt of gross domestic product. We cannot achieve this without the private sector assuming a much greater share of the burden than on 21 July 2011 was provided.

(Dr. Ilja Seifert [The Left]: That was already clear!)

Debt relief alone - let me be very clear here - no matter how it is configured, will not solve the problems of Greece. Painful and necessary structural reforms must be implemented effectively. Otherwise, in spite of debt relief we shall in a short time back to where we are today. This must always be clear.
(Applause from the CDU / CSU and FDP)

Thus, the principle which we applied from the beginning is right: there can only be help if the recipient accepts responsibility. Aid must always be tied to strict conditions.

Ladies and gentlemen, in this way we must provide Greece with security for quite some time. I believe - and we'll talk about it today - it's not enough that every three months a troika comes in and then leaves. Permanent supervision in Greece is desirable.
(Voice from the Left: Just like us!)

Similarly, we are obliged to do everything possible to ensure that Greece will have the opportunity to grow again. This means investments under clearly improved conditions. For this reason there is an EU mission led by the German Horst Reichenbach. For this reason, there was the trip of the Federal Economics Minister to Greece – carrying with him a variety of potential investment by German companies.

(Juergen Trittin [Alliance 90/The Greens]: As if the Greeks are dependent!)

And for this reason there will be a meeting of representatives of German and Greek cities next week. They will discuss how they can help each other.
I stress - I think I say this on your behalf - We want Greece quickly on its feet. We will do everything we can, within the framework of a German-Greek partnership.

(Applause from the CDU / CSU and the FDP and SPD deputies)

A reduced debt for Greece, including the participation of private creditors, means that we must also find a solution that avoids systemic risk, that is, that other countries from being infected due to this process . Therefore we have to do two things.

We need to ensure , first, that the banks do not lose confidence in one another. Therefore, this past weekend the Finance Ministers have decided upon a stronger recapitalization of on the basis of proposals of the European Banking Supervisors. This is an absolutely necessary and very important element to prevent such infection. We must carry out this recapitalization of the banks in the following sequence. First, banks must attempt to recapitalize on their own, and only in the second place can nation-states help, and only if the stability of the Euro itself is in danger, because a nation state can not allow the EFSF to get used to its help. This is the sequence.
A second important element to prevent the risk of infection is the so-called protective barrier over which we have been talking a lot. You can also call firewall if you have mastered English.

(Laughter from CDU / CSU and FDP)

I wanted to use only German, which I thought would help. (Applause from the CDU / CSU and FDP)

For this we need to - this is the second step - shield all the other countries from the risk of contagion that may emanate from Greece. To which I add: it is absolutely essential that before we erect such shields, any country that might be affected puts its house in order and takes additional measures to try to prove its own soundness. This must be the first subject of discussion.

Now we come to the form the shield will take; it has been much discussed. The EFSF now has an effective capacity of 440 billion euros, which we agreed to here. Germany takes on guarantees in the amount of 211 billion euros. Those will remain the total volume of the EFSF and the upper limit of the German guarantees.

In today's meeting we agreed that the EFSF must achieve with this capacity the maximum impact in the prevention of contagion. The effect of this shield must be large enough. There has been a full public debate on it. I say again - this is very important in this context: - All models that assume the participation of the European Central Bank are now off the table and not the subject of discussion.

(Applause from the CDU / CSU and FDP)

Such ideas contradict the European treaties. I have made clear that for the Federal German government such solutions do not come into question.

(Voice from the Left: The biggest nonsense!)

Now, two options without the participation of the European Central Bank are: firstly, the partial insurance of new government securities of the affected Eurostate and second, the possible participation of private and public investors in the financing steps taken by the EFSF. Both options can only be used within the agreed framework for EFSF action. This also ensures that existing clear EFSF principles are always applied. The Member State shall submit an application for assistance,a Memorandum of Understanding will be negotiated, and a strictly conditional aid agreed.

The German Bundestag and the Federal government must consent to the grants of aid in individual cases and agree to the application of the two options, and do so in a way that allows for parliamentary action. Today the Bundestag will decide upon the two options in principle, we will discuss them this evening at the meeting of Heads of State or Government in principle and decide upon them. . Of course, any guidelines will go through the parliamentary process here in the German Bundestag.

(Applause from the CDU / CSU and FDP MPs)

Furthermore, Europe has a consensus to hold talks with the International Monetary Fund on how the IMF can contribute further to the stabilization of the Euro-zone, drawing both on its expertise and as appropriate on its financial instruments.

I want to repeat , because it is important for today’s decision: Whoever wants private creditors to contribute to the debt sustainability of Greece, must also take care that a shield, a protection against contagion is established. Anything else is grossly irresponsible.

(Applause from the CDU / CSU and FDP)

I have said: The federal government wants the Economic and Monetary Union to become a union of stability. Therefore we must both deal with the acute crisis and provide for the future, namely by having the European member states undertake greater common responsibilities. We have already taken the first steps, for example, with the euro-plus pact with the leaders of the Euro-zone voluntarily committing to implement structural reforms. This means that competitiveness is now a top priority in the European Union. With the newly effected procedures for preventing and correcting macroeconomic imbalances, competitive weaknesses can be detected earlier and corrected. Also, the Structural and Cohesion funds must be used more this in the future, that they truly improve competitiveness.

But I also say – looking at matters from another perspective-- economic imbalances are not bad in themselves. If a surplus arises because a country is more competitive than another, it should clearly not be called into question and leveled, just as different interest rates reflect different strengths. (Applause from the CDU / CSU and the FDP and the Abg. Zöllmer Manfred [SPD])

We have tightened the Stability and Growth Pact. Sanctions come into play earlier. They are more effective. The pact now hs a lot more bite. In this respect, we have initiated a new trend.

Moreover, the French president, and I proposed - and we'll pursue it further – that national parliaments will commit themselves, if the European Commission criticizes their budgets, voluntarily to take account of the criticism, and that all euro Member States undertake to include a debt brake in their constitution.

(Applause from the CDU / CSU and FDP)

These discussions are in full swing. I find it absolutely remarkable that a country like Spain has changed its constitution to include such a debt brake shortly before elections.

(Applause from the CDU / CSU and the FDP - Dr. Barbara Hendricks [SPD]: There are Social Democrats in power there!)

Thus we tighten and improve European procedures. We complement and reinforce them by obligating ourselves, as I have just said. We thus extend the framework of existing European treaties. The problems we face today must and can be solved within this framework. But I also say this: We need more. It is my firm conviction that we must go beyond this approach.

Moreover, it is also thus: If the international community looks at us in Europe, it also wants to know where the development of the European Union will go in the medium term, because it need assurances that the euro zone stands together, improves its competitiveness and strengthens its culture of stability.

Therefore, we will need to alter the European treaties.

(Voice from the Left: Aha)
The Foreign Minister on Saturday, and I on Sunday, have begun work on this, and we gave decided that we shall ask the President of the Council to make proposals in December proposals on how the culture of stability can be better anchored. This is not a comprehensive reform of the Treaty of Lisbon – that would be too much – not is it a pooling of larger parts of our economic and financial policies,

(Juergen Trittin [Alliance 90/The Greens]: Too bad!)

but in the next step is to, first of all with regard to countries that violate continuously and repeatedly the Stability and Growth Pact, to create an opportunity to have a real sanction for their violations of the Stability and Growth Pact.

(Applause from the CDU / CSU and the FDP -
Unrest in the LEFT)

Because - because as people are muttering again - it is this: We cannot allow, as has happened over 50 times , that agreed targets in the Stability and Growth Pact are not met. We now know that a failure in one of the 17 Member States - Greece is not the largest - may jeopardize the stability of the euro overall.

(Voice from the Left: Of course!)

Therefore, these violations of the culture of stability must be more sharply sanctioned, for example, by a complaint before the European Court of Justice, if a country does not permanently adhere to the guidelines.

(Applause from the CDU / CSU and FDP)

I am very sure that the citizens in Germany, rightly burdened with many concerns, understand one thing very well. They do not merely want more Europe, they want more security for the culture of stability in Europe.

I think only when we create more of a Europe in this sense, if we continue to develop Europe further, then, we will have understood the political dimension of this crisis. Then we will have also understood that we will eliminate the weaknesses and flaws in the design of economic and monetary union now or not at all. If we eliminate them now, then we use the opportunity of this crisis. Otherwise we would fail.

(Applause from the CDU / CSU and FDP)

I am well aware of: A treaty modification always involves risks. It is a painstaking process. All 27 member states must agree. Nevertheless, it is necessary and the best way to prevent a split between the European Union's euro and non-euro countries. If we do not succeed, the euro-zone countries will have to conclude binding contracts with each other. I do not want that. I would not find it reasonable, because many countries still want to join the euro. Therefore, we must be ready to go this route.

Since we are in such an existential crisis in Europe, I ask: Where is it actually written that a treaty amendment must always take a decade? Who in the world will think we are capable of action, if we stand up and way : "After the Lisbon Treaty, there must never again be a change"? The whole world changes, and Europe must also be willing to change.

(Applause from the CDU / CSU and the FDP - Thomas Oppermann [SPD]: One year too late!)

Just as we managed in the question of German unification to conclude a two-plus-Four Treaty in six months, so will it also be be possible - the Euro should be worth enough to us – to look at amendments to the treaty.

(Applause from the CDU / CSU and FDP)

Given the dimensions of the struggle against the crisis, we must not forget: It was created largely by too little regulation. Therefore, the regulation of financial markets remains a major task, which is still far from done.

(Applause from deputies of the CDU / CSU and Alliance 90/The Greens)

Therefore, the European Council on Sunday once again took up the matter and stressed that important proposals for the regulation of derivatives, deposit insurance and capital requirements for banks now have to be adopted quickly. In this context, I want to reiterate that the federal government is committed to the introduction of a financial transaction tax, and indeed
(Call from Mr. Alexander Ulrich [The Left])
in the next few days at the G-20 summit in Cannes. We are also grateful that the European Commission presented a proposal for it. The finance ministers will discuss this proposal in early November, and Germany will do everything to make this proposal by the European Commission a success.

(Applause from the CDU / CSU and the FDP and from members of the SPD and Alliance 90/The Greens - Alexander Ulrich [The Left]: Just like here!)

It is also true: Many questions require not only a national or European response but a global response. Thus the G 20 is the appropriate forum. The G-20 represents at least two-thirds of world population and 80 percent of world economic power. Therefore, the starting point of the G-20 discussions in the rest was a better global regulation of financial markets.

One can say: We did a lot. An important step will now betaken in Cannes: Megabanks will no longer be dealt with as they were in the crisis, forcing the taxpayer to play a role. . "Too big to fail" is no more, and we shall have an international agreement on the restructuring of megabanks such as we have already carried out in Germany with the proposed restructuring law for banks.
(Juergen Trittin [Alliance 90/The Greens]: Then do it finally! Switzerland is further along than we!)

It was a long time coming, but it is good that we can now decide in Cannes.

(Applause from the CDU / CSU and FDP)

At the same time we shall take on the task of making clear, that what applies to banks, including the "shadow banks" must apply, for example, to hedge funds, because they too present as much a systemic risk to financial markets. The so-called Financial Stability Board will be addressed next.

(Applause from the CDU / CSU and FDP MPs)

In Europe we have already regulated the hedge fund. But the world has not done so sufficiently. Therefore, the topic of tax havens is n the table again, because we had planned in the G 20 at the beginning, that every instrument, every place and every player would be subject to regulation. Since we cannot do enough nationally or in Europe, that must happen worldwide. However, I also say this: With Individual measures in Germany, for example the ban on short selling, we have had good experience, because now the whole subject is discussed at least in Europe. Now we have to bring it forward even worldwide.
(Applause from the CDU / CSU and FDP MPs)

What is very important: G-20 will only work, if new resolutions are not passed every year. We committed ourselves to halve our 2013 state deficit. Germany will do it, but not all industrial countries in the G 20. I do not believe we can decide every year exactly what fits the economic situation. Rather, I believe that the G-20 has the obligation to hold itself on a long-term path to remove the cause of many difficulties. There is debt not only in Europe but also in other parts of the world such as Japan or the United States of America. Therefore, I think: It's not enough, when we exhort one another only, it's especially important that we act together.

Who is on the road these days in various countries speaking with citizens, whoever follows the demonstrations in New York, Brussels, Frankfurt or Berlin, who knows how much the debt crisis moves the people. I say that I have great sympathy. The situation is very serious. To cope with the crisis, requires persistence. We all break new ground. I have laid out the causes of the crisis. They are complex. Simple solutions, the one magic bullet, will not emerge. The issues will occupy us for years.

The documents on maximizing the lending capacity of the EFSF, the best which knowledge and conscience can now produce, now lie before you. In the public debate on this maximization we hear much of a major failure and liability risk that Germany will assume. Whether that will be, no one can ultimately assess conclusively. But I say explicitly: we can not exclude it.
(Thomas Oppermann [SPD]: the last week still sounded different!)
Therefore it is right and good that we have this enshrined in our resolution .
(Applause from the SPD and Alliance 90/The Greens)
I want to talk about it because here we are at a point where all bear who political responsibility, have to answer a simple political question. It reads: As we go into a situation like this, how do we deal with risks? Put another way: What do we consider to be acceptable risks? Can we specifically regard risk that we take with the maximization of the EFSF acceptable or not? Today this is the specific question. When I consider the risk unacceptable, then I cannot run it. If after weighing all the pros and cons I consider it reasonable, then I have to take the risk. This is exactly what distinguishes political action from other kinds of action.
(Applause from the CDU / CSU and FDP)

Regarding the maximization of the EFSF we know:

First. The German share will remain at 211 billion euros.

Second. Contracts are not broken.

Third. We are the economically strongest nation. But - and I say it- we are not the center of the world. The world looks to Europe and Germany. She looks to see whether we are willing and able to take responsibility in the hour of Europe's worst crisis since the end of World War II.

Fourth. The potential loss and liability risk is offset by the economic profit that Germany like no other country has taken from the Euro.

Fifthly. My conclusion is therefore: the risk that is associated with the maximization of the EFSF now proposed is acceptable.

(Voice from the Left: for whom?)
I go even one step further: It would not be reasonable and not responsible, not to take the risk. A better alternative, a more sensible alternative is for me, considering all the options. not available.

Dear colleagues, thank you for your past support and critical support in our efforts to protect and strengthen the euro. It is my personal goal, in close cooperation with the German Bundestag - to find solutions for the benefit of our country - with government and opposition factions.

I am convinced that the comprehensive approach that I have laid out to address the acute crisis on the one hand and take wise precautions for the future on the other, will enable us to make the Economic and Monetary Union again a union of stability. To our citizens, I say: It remains true: What is good for Europe, is also good for Germany. This is what half a century of peace and prosperity in Germany and in Europe proves.

Allow me given the situation - not only the economic situation of the debt crisis, but also the political situation in individual European countries - to end with a personal word. No one should believe that another half century of peace and prosperity in Europe is inevitable. It is not. Therefore I say: If the euro fails, then Europe fails. This must not happen.

(Applause from the CDU / CSU and the FDP and from members of the SPD and Alliance 90/The Greens)

We have an historic commitment to defend and protect, with all available means, the unification of Europe, which our forefathers put under way 50 years ago after centuries of hatred and bloodshed. None of us can foresee the consequences if it does not succeed. It must not happen—that is my deep belief—that one day it shall be said, that the generation of political leaders who bore responsibility in Europe in the second decade of the 21st century failed before history.

I find all the more valuable the political message that the German Bundestag sends today a joint request by the CDU / CSU, the SPD, the FDP and Alliance 90/The Greens, by the people of Germany, to Europe and the world. It is sending a message that goes far beyond financial policy statements . It sends the message that Germany regardless of party lines protects the European project and stands together for this goal. For that I thank all those who contributed to it. You can be sure that I will take this message with me today for the complex negotiations in Brussels.

Thank you.
(Prolonged applause from the CDU / CSU and the FDP - Applause from the SPD and Alliance 90/The Greens)


Anonymous said...

In this morning "irrational exuberance" post
you are overlooking the following:

(1) The banks are NOT the only ones losing money
on this deal. The Greek union's pension funds
are also taking 50% loss!


(2) This is just a solution that "kicks the can down
Chancellor Merkel is working on ORDERLY
expungement of Greece from the EU and
minimizing impact of other EU members.

(3) There are German auditors in each Greek
government department overseeing the books
in real-time. The Greeks consider this an attack
on their sovereignty.

(4) President Sarkozy has publicly said that
granting Greece membership was an ERROR.

(5) There are upcoming elections in Germany.
In the most recent German elections Merkel's
party lost, signaling that the German electorate
has no patience for their money being sent
here, there and everywhere.

(6) The accord reached the other day, lacks details.
As Ross Perrot once said"The devil is in the
If the markets find the upcoming details,
unsatisfactory the whole thing will unwind.

The only difference would be, that with the
passage of time, the banks will be in less
vulnerable position and Greece could be let
go out of EU without causing much issues to
other member states.

Or to recap - nothing has actually been resolved-
"the can has simply been kicked down the road."

Anonymous said...

Furthermore, you might find this decision
of the highest German Constitutional Court pertinent
and germaine to your post this morning.

Possible Setback for Bailout Plans
German Constitutional Court Halts Special Euro Panel


Anonymous said...

Anonymous. You might note that always getting the court in Karlsruhe involved quickly is part of the give and take of the German system but the court gives way mostly in a very nuanced way as in their last pertinent ruling on this matter some weeks ago, delineating limits to political actions. It will be no different this time.

Merkel gives a good speech here. Being a physicist and a pastor'S daughter grown up in Eastern communism of West German parents, she is a strange bird indeed, mixing the interests of a modern uniting Germany of East and West and in the same sense of Europe. So though she climbed up the ladder of party power under Kohl she is not a traditional party "Apparatchik" of conservative party(say a male civil servant/lawyer from western Germany). So being a sort of outsider in many ways she can be more distanced from the game. She has, like Thatcher, outmaneuvered and removed lots of big male egos striving for power around her, who dropped out or got promoted. This speech is quite good in that it includes the right messsages to everyone in terms of current finances in conneciton with German and European repsonsibilities. Many say that the Euro and EU can't hold together so cut your losses. Others say that the Swedish solution of bank nationaliszing in 2008 would have sensible and not more big "insurance funds" like the current one and previously in 2008 were made here in Germany. In other words she personally is not proactive but is just being forced like everyone else to see that the banks were pulling govt. strings the whole time and must be put back in line globally. So not quite leading a charge on moral grounds of absolute certainty (damn hard to do without a sort of absolute power which does not exist for a parliamentary leader in just one of Europe's countries) I would say but having not lost her nerve the whole time but doing a sort of constant gradualism as the crisis has developed she, along witht he whole political and financial apparatus have tried to save the situation. We can still hope that it won't go mostly wrong. The eptihets reserved for Summer and Geithner as tools of Wall Street monster squid Goldman Sachs are not appropriate here as a massive collpase could cause massive bloodshed eventually so that moral responsibility despite all disagreements is paramount. In Washington/Wallstreet axis this consciousness seems nonexistent. The takeover seems complete. People like Hoenig should be Fed Chairman and Bair as Finance Secretary. The President seems irrelevant like a pretty face. The consensus of the political class is important as a sensible person like Merkel will follow the consensus, be pushed along so to speak as was the case with Bush and Obama being pushed by Hank Paulson, et. al. So you could say that Europe as a whole is leading from a collective consciousness built over decades. In America there is a lack of collective political repaonsiblity but it is developing through increased suffering of the whole. Sometimes this is the only way.