Europe in Crisis: Breakdown or Breakthrough in Turbulent Times

February 14, 2012

On February 14, 2012, the American-German Institute and the Friedrich Ebert Stiftung hosted a lecture and discussion featuring Peer Steinbrück, former German Minister of Finance and Member of Parliament. The lecture was intended to help in building a strengthened dialogue between Europe and the United States in a time where a clash of ideas over austerity and growth characterize the transatlantic exchange. In his lecture, Peer Steinbrück explained his perception of the European financial crisis, elaborated on the importance of the European project to Germany, called for greater commitment to the “European idea”, and urged Europeans toward further integration in order to weather the economic crisis and maintain the continent’s relevance in a changing global landscape.

The former finance minister began by outlining the “fragile” situation in Europe, reminding listeners of the postponing of a conference of Europe’s finance ministers in response to Greece’s failure to reach the goals set in the last aid package. According to Steinbrück, this resurgent focus on Greece reflects the immensity of the task confronting European leaders: despite months of discussion on austerity, bailout, and reform, no solution to the Greek problem has been found. On the other hand, Steinbrück emphasized that Europe is not confronted with an inevitable, uniform threat – Europe is “not facing a euro crisis,” as characterized by the popular press, nor is every state drowning in insurmountable public debt. In reality, the euro has returned to a strong, stable price after a brief volatile period, and the currency’s purchasing power remains approximately where it was before the crisis. Instead, a variety of economic ills underlie the “refinancing crises” faced by some states in the European Monetary Union.

Nevertheless, Europe’s strong economic interdependency has turned these refinancing crises into a European, rather than national, problem. In confronting these crises, European leaders must take into effect a variety of factors, most of which are ultimately unforeseeable. For example, Steinbrück identified the difficulty in predicting the effects of a Greek default and the extent to which the contagion effect could lead to collapse in neighboring states. The unpredictability and scale of the crisis has led leaders to delay on decisive countermeasures, resulting in a situation where Europeans can choose from three insufficient solutions: having the European Central Bank (ECB), print money and buy governmental bonds, expand the mandate of the European Financial Stability Facility (ESFS) to print money and act as a “firewall” to contagion, and a shift to common “Eurobonds” which reflect the creditworthiness of stronger and weaker countries.

Despite the immense difficulty of confronting the crisis and the unappealing nature of those solutions, Steinbrück argued that Europeans, and Germans in particular, must maintain the European Monetary Union. According to Steinbrück, “Germany has a deep national interest… and responsibility” to maintain a European Union. Steinbrück further argued that a “monetary renationalization” would inevitably lead to a “political renationalization.” Such a development would be catastrophic to the national interests of all European states, including Germany, who cannot hope to have the same weight in an increasingly multilateral world individually as they do as a cohesive unit. Moreover, Germany, as Europe’s economic powerhouse and as a great benefactor of economic union, would “undoubtedly” have to pay for the saving of the European Monetary Union and – by extension – the political union.

Furthermore, Steinbrück called for solidarity between both lenders and borrowers in the European system. He feared the resurgence of old “ressentiments” that plagued Europe before the EU era. Moreover, he pointed out new antagonisms resulting from the crisis and its aftermath, with borrowers characterizing German leadership in terms of German domination and lenders showing their frustration with borrowers’ preference to spend and borrow while failing to make sound investments in times of growth. The former finance minister attributed these fresh cracks to the failure of European leaders in the 21st century to develop a new “European Story” to reinvigorate European identity and solidarity. Steinbrück presented a new “Western Civilization Project,” which would bring Europeans together over the ideas of peace, civilization, independent jurisdiction, free speech, free press, privacy, the separation of church and state, and other freedoms accompanying a free market capitalist system. Such a project would fill the void in motivating young Europeans to embrace the European Union and ensure its continued stability and unity.

In the immediate term, Steinbrück demanded that Germany must act strongly in solving the crisis and move towards strengthened European institutions. Steinbrück attributed the current government’s hesitancy to an intragovernmental conflict resulting from the junior coalition partner’s opposition to further European entrenchment. Nevertheless, the former finance minister encouraged the use of the ECB as a “bridge” that would continue buying unwanted governmental bonds until the European Stability Mechanism comes online to act as a firewall and the European Fiscal Pact, which would include automatic sanctions and eventually lead to the introduction of Eurobonds, comes into effect. Steinbrück described the present as a critical juncture for the European Union, from which Europe can move either to a loose association with a free trade zone, or further integration. Steinbrück indicated that the latter option, coupled with an improved EU infrastructure and democratization, was the best possible option for Europeans today.

Before concluding, Steinbrück restated the importance of the transatlantic connection, and argued that the United States has an interest in keeping a strong, stable partner in Europe. Nevertheless, he expressed his frustration with the present American perception of Europe, which he believed unfairly stereotyped Europeans as fiscally undisciplined and unwilling to act, despite the United States’ public debts, which exceed the European average, and current accounts deficit. Despite this conflict, Steinbrück called for greater cooperation in an era of dynamism and dissipating power.

Peer Steinbrück presented a view of Europe both in crisis and with great potential. At a time where the the future of Europe is very much in doubt, Steinbrück called for greater solidarity and cooperation towards a closer and more successful European Union. Steinbrück outlined the causes of the financial crisis, restated the importance of sustaining the Union in the face of pressing challenges, and challenged European leaders to overcome their difficulties to increase the cohesiveness and functionality of the European Union.