“The eurozone cannot result in a separate core Europe”

Former Vice President of the EU Commission Günter Verheugen on Berlin's crisis management and the European Central Bank

08/10/2012 interview with Günter Verheugen

DGAP Interview, October 8, 2012

Category: European Union, Europe

During the decisive decade from 1999-2010, Günter Verheugen helped shape the European Union in Brussels. He warns of a splitting of the EU in a DGAP interview: “The currency union is an integral part of integration.” The introduction of the euro is also one of the functional specifications for new EU members. But the basic rules of the currency union, which were inspired by Germany, have proven to be useless and have impeded a solution to the crisis.

Foto:Dirk Enters

The debt crisis continues to have the strongest effect on Europe. As the continent's most difficult case, Greece raises the question of whether the euro was adopted too quickly in many countries that were not yet ready for it. Why did Europe think it was necessary to include Greece at the time?

The common currency was not introduced too early, but rather too late. Discussions on the currency union actually go back to 1969. Furthermore, in Germany, the assumption that the euro was the price for German unity is widespread – which is pure nonsense. The euro was absolutely necessary both economically and politically – for Germany as well as for other countries. 

But the decision to allow Greece to join – despite doubts that existed at the time – was the wrong decision in retrospect. Greece joined the club as a result of false assumptions. But the decision can be explained by the fact that the information that was available at the time was not thoroughly analyzed and was in some cases false. Today, one might realize earlier that the country's low level of competitiveness would cause serious problems. This was overlooked for many years.

I cannot say whether member state governments, particularly the German government, had some bias toward Greece that went beyond purely economic and finance issues – it certainly cannot be ruled out. We had a similar situation when the European Commission denied Greece's entry into the European Economic Community (EEC). Heads of state and government overruled the Commission's suggestion for purely political reasons, and no one concerned themselves with how to construct the membership treaty so that the country's membership would be a success.

One wonders today whether the EU Commission completely fell for Greece's figures during the introduction of the euro... 

Not only the Commission, but also the IMF and EU member states.

... or whether they completely looked the other way?

No. I actually took part in the last round of decisions in the EU Commission. At the time, the Commission member responsible for enlargement submitted – after a thorough examination by experts – that Greece had fulfilled the conditions for accession to the eurozone. There was no more debate on this assessment either in the Commission or the Council.

In retrospect, I wonder about the extent to which political decision makers should rely on experts – or whether they should in fact have to check things themselves. But how can a normal politician examine an entire country's financial stability? We have a real structural problem here. However, it is clear that the experts were wrong at the time.

Today, one goes to the country as part of the troika: experts from the Commission, the ECB, and the IMF...

The same problem is faced there.

What institutional lessons need to be learned beyond the current emergency measures such as firewalls and bailouts?

First, we have to learn that the rules for the currency union that were implemented by Germany in the 1990s as a sort of mantra have failed across the board in both economic and political practice. The way the Germans envisioned it – that the European Central Bank and the euro would be no different than the Bundesbank and the deutschmark (except with a different name) – is not how it works. We have to kiss this approach goodbye. Otherwise, we will not come out of the crisis any time soon.

At the moment, politicians' inability to make decisions is being compensated by the actions taken by the ECB; at least, until certain German dogmatists prevent the ECB from further action. I find that what is happening right now is in no way ideal. It is a matter of constructing a contract that requires a certain amount of courage. But there is no other alternative at the moment in light of the German “no” to every other solution.

By the way, I find the current institutional discussion to be beside the point. We will not have new institutions so quickly because there will not be a new EU treaty in the foreseeable future.

One could henceforth decouple EU accession from membership in the eurozone.

In Berlin as well as Brussels, there is already a tendency to disconnect the eurozone with the rest of the Union and create a sort of “core Europe” in the shape of the eurozone that has its own institutions and procedures. I cannot be more insistent in my opposition to this. It would amount to a partitioning of the Union – and such a partition would be the beginning of the end of the EU.

And having EU membership without the goal of eventually introducing the euro is not possible according to current legal norms. The EU Treaty is clear on this point: The currency union is an integral part of integration. This was codified in the membership treaties of 2004/2007: all new members are obligated to introduce the euro, without exception.     

That means that it is only a matter of time before even the most economically weak EU members are finally ready to adopt the euro?

Exactly. This can certainly be controlled to an extent. A number of conditions need to be fulfilled in order to adopt the euro. And at the moment, no one will want to pressure a country to adopt the euro. But I appreciate that the Poles have made clear that they are continuing with preparations to join the eurozone despite the current difficulties. They still trust the common currency.

In general, there is actually no reason to lose trust in the common currency. I still hesitate to use the term “euro crisis.” The euro is stabile: Its external value is currently very favorable, not too high and not too low, and still above the 1999 purchase price. And we have price stability in Europe – in any case more than we had during the deutschmark era. We can thus be satisfied.

The currency as such is in no way in danger. The risk comes much more from the debts of member states and the difficulties states are having in financing their budgets and thus fulfilling their functions when they have to take on large-scale liabilities for troubled countries. That involves risk. After taking all of the viewpoints into consideration, I have thus come to the conclusion that what the ECB has done and signalized was necessary, particularly to relieve pressure on Italy and Spain.

The EU's appeal for neighbor states continues unbowed. At the same time, the cohesion of the Union is at stake: preserving the status quo so to speak. But how can the Union achieve the conflicting objectives of consolidation and new steps toward enlargement? Croatia will be the 28th member, other candidates are knocking on the door... 

One does not preclude the other at all. The process of European integration is characterized equally by two dynamics. The one dynamic is that of consolidation: More and more political areas pass into European hands and there are also matters that could be retransferred from the EU to the national level; that would surely contribute to a better balance. The other dynamic is that of enlargement for new members.

The whole purpose of EU integration in the 21st century consists of the fact that, on the one hand, we should not lose sight of the original goal of securing peace. But today it is essential to connect this to another goal: the preservation of our opportunities for life and freedom in a rapidly changing world. We can reach this goal in two ways: political capacity to act as well as a necessary importance in the world – a certain critical mass – in order to remain competitive in the face of competitors who have billions of people at their command. We thus cannot abstain from integrating new members. The best example is Turkey, the European country with the strongest economic potential. 

How can one convince the population of the value of European integration and the necessity of further steps toward integration?

National politics have to take the European dimension much more seriously than before, and even treat it as a benchmark for national action. Unfortunately in Germany, European policy has traditionally been a matter for experts, and has been completely disconnected from national politics and the public. At the moment, political parties and institutions in Germany do not really give any effort beyond sermons about what European unification means for citizens. This is absolutely the wrong way. National politicians have an obligation – from parliamentarians in the European Affairs Committee to local mayors – to make Europe accessible and to explain it to citizens.

What are the three matters of survival for the Union?

In no particular order: First, the EU has to safeguard its capacity for action on the international level and represent its interests in the world with a common foreign and security policy. Second, the EU must overcome its democratic deficit: The Union must transition from a project of governments and civil servants to a project of citizens. Otherwise, it will not survive. Third, we need stronger insight into the necessity and accuracy of national differences on the European level. Until now, an ideology of conformity disguised under the term “harmonization” has dominated. The belief that Europe will materialize through European rules is a huge mistake. We should not see our enormous diversity as a weakness, but rather as a source of great prosperity.

The interview was conducted by Lucas Lypp, online editor.

Günter Verheugen was a member of the European Commission responsible for EU enlargement and neighborhood policy from 1999 to 2010. During his second term in office, he was vice president of the Commission and commissar for business and industry. He is honorary professor at the European University Viadrina in Frankfurt/Oder and has written a number of books and essays. He has also dedicated himself to promoting young professionals as director of the Carl Friedrich Goerdeler-Kolleg of the Robert Bosch Stiftung, which is organized in cooperation with the DGAP.