KIMMITT: Good afternoon, ladies and gentlemen. My name is Bob Kimmitt, and on behalf of the Council on Foreign Relations, I would like to welcome you to this conversation with Dr. Wolfgang Schauble, the finance minister of the Federal Republic of Germany.
Herr Bundesminister, willkommen in Washington. Mr. Minister, welcome back to Washington and to the Council on Foreign Relations. Today's exceptionally large turnout is a real compliment to you.
German Finance Minister Wolfgang Schauble has given a lifetime of service to his country, half—half to West Germany and half to united Germany. He was a central member of the historic group that—under the leadership of Helmut Kohl and supported strongly by the United States—moved Germany from division to unity in fewer than 11 months in 1989 and '90.
After service over decades in the Bundestag, the federal chancellery, and the interior ministry, he became federal minister of finance in October 2009, just as the financial crisis was moving from the United States to Europe. In these last five years, Wolfgang Schauble has become the most consequential finance minister in Europe and a leading figure in the G-7 and the G-20. Throughout, he's been a superb representative of Germany, a strong supporter of a more unified and effective European Union, and a committed transatlanticist.
It's my pleasure and honor to introduce Wolfgang Schauble, the minister of finance of the Federal Republic of Germany. Mr. Minister, the floor is yours.
SCHAUBLE: Thank you, Ambassador Kimmitt.
Ladies and gentlemen, it's a great honor and pleasure for me to be here again. And I will not waste my time, but I will start immediately in saying, above and beyond all of the irritations, that the three letters in Germany, NSA stand for, this fact remains true: Like no two other actors on the global stage, the United States and Europe—what we call the Western world—share common values, common strengths, and common interests when it comes to shaping the global order of the 21st century.
What conditions do we face together today? Globalization keeps marching forward. Digitalization is bringing many different places together into one world. The global balance is shifting. International politics are taking on a new shape. Power is moving to the non-Western world. Although the emerging countries are currently experiencing short-term difficulties, in the long term, global power relations will continue to shift towards emerging regions of the world.
This is a challenge that Europe and the U.S. face together. How should we react to this development? How should we deal with it? What does it mean for our conviction in the West that we have built a way of life that can work as a model for the rest of the world?
Some things haven't changed, like our values—liberty, equality, and fraternity, solidarity with the weak, human rights, and the principles of democracy, rule of law and separation of powers—we fought for these values in the two Atlantic revolutions of the late 18th century, the American and the French, and they form the core of our Western self-image. We come from the same Judeo-Christian tradition, from the same European enlightenment. We stand on the same foundations of ancient philosophy and politics, which were built in Athens, Rome and Jerusalem. That is the West.
And we regard our values as universal, freedom from persecution and torture, not being at the mercy of despotism, but being protected by laws that apply equally to everyone. That's what people want. These are human rights that are independent of culture or religion.
However, the attempts made since the French revolutionary wars to forcefully impose these values in other places have often ended in failure. And this has caused some people to attack the optimism about freedom and the vision of spreading democracy around the world and to abandon the notion of universalism altogether. I think this is going too far. But in light of changing global power relations, we would indeed be well-advised to adopt a more realistic and more modest stance today, and even more so in the future.
I also don't pay much attention to theories of decline, like those of Niall Ferguson, who talks about the "great degeneration" of the West. But it's true that Europe today is not in a position where it can achieve very much by giving moralistic lectures, and this also applies to the West as a whole.
Since World War II, people have taken for granted that the West functions well. But since the collapse of Lehman Brothers, as you just mentioned, six years ago, and the resulting financial and economic crisis, the functionality of the Western economic and social order as a whole has been called into question. Systemic problems have become visible. Not least, decision-making mechanisms need to be reformed. That's something we have learned, and not only from the years of crisis in Europe. Recent developments in the United States have shown us the same thing.
If the most powerful nation in the world can be at risk of going bankrupt over a period of weeks—and this can only be prevented at the last moment—then the creditworthiness of the West as a whole is in question, not just in financial and economic terms, but also in the political sense. And if we want to achieve something in this fast-changing and challenging world of the 21st century, then we must, above all, remain credible. It doesn't help the West's interests if we focus only on our moral strengths but fail to ensure that we maintain effective institutions and strong economies.
Today, our ambition should, first of all, be targeted at ourselves. We have to concentrate on making sure that we can get things done and that we stay competitive and attractive on the global stage.
The conditions for achieving this are better than people sometimes think. Some important trends indicate that the West's values and position in the world will remain strong in future.
For example, I am confident that economic growth will foster democracy in many developing and emerging countries. Economic modernization leads to growing demands for democracy. It fosters a mentality that calls for democracy. When people succeed on their own, independent commercial activities, their desire for self-determination and for a voice in public affairs grows.
Here's another example. The U.S. economy has gained new strength in the past couple of years. And in Europe, the past five years started a process to put the continent on a more solid foundation. In economic terms, Europe is no longer the world's main cause for concern. Despite all the shifts in the global economy, the U.S. and Europe still account for almost half of global GDP.
And when I say that the West's position in the world will remain strong in the future, I don't mean a unipolar moment, and definitely not an imperial one. The only word in these concepts that has turned out to be true is the word "moment."
Today's process of globalization has made it impossible to build empires in the traditional sense. We no longer have a situation where traditional centers of power dominate the countries in their periphery. Instead, the countries in the periphery are building their own centers, which exert a lot of influence on traditional power centers. These emerging countries are becoming stronger economically, and their self-confidence is rising. And this is causing fundamental change in the architecture of power.
For this reason, globalization can be successfully shaped only on the basis of integration, cooperation, and the recognition that our partners are our equals and not on the basis of hegemonic or imperial attitudes and actions. If we want freedom, democracy and the rule of law to be spread on a sustainable basis, the best way to do this is through integration, not intervention.
Globalization and empires don't go together. Globalization—in contrast to empires—is a global phenomenon, not a regional one. This makes globalization a much more powerful and long-lasting mega-trend. Because of this, Russia's current imperial moment will remain just a moment, especially since it's already based on a shaky foundation.
In a globalized world, soft power has decisive significance. And by this, I mean an attractive social model underpinned by a strong economy. And these long-term factors don't favor powers like Russia. Instead, these factors put the West in a good position, if we continue to do our homework.
A recent study by the European Institute for Security Studies shows that E.U. countries are considered to have the largest amount of soft power in the world. In my view, Russia does not currently offer a very attractive model for emerging countries, and Russia's economic outlook is rather gloomy, as well.
The Russian economy suffers from the fact it is increasingly dominated by commodities and its industrial sector is in decline. Today, Russia's economy is much less diversified than it was under the Soviet Union. Today, oil and gas exports make up 70 percent of Russia's total exports.
Russia's backslide into patterns of behavior from the previous century has caused the U.S. and Europe to move closer together. President Obama was just in Brussels for the first time. I am confident that the Ukraine crisis will help us to strengthen transatlantic ties and to rediscover our common interests.
We are looking at possibilities for more cooperation in the energy sector. And we are closely coordinating our actions on the basis of diplomacy and sanctions. At the same time, this crisis is also showing us how important it remains to maintain hard power. Europe is currently experiencing this right on its doorstep. But, like soft power, hard power has also to be underpinned by a strong economy.
I am seeing how recent crises are leading us towards a new culture of seriousness and focus. Even more than before, the West must be ready to set priorities and to avoid sideshows. We have to talk about what's really important.
The global crisis that followed the collapse of Lehman Brothers was a first loud wake-up call. The Ukraine crisis is another one. Two decades ago, the notion of the "end of history" became fashionable, first here in the U.S. and then in the rest of the world. Looking back now, this idea was completely ahistorical.
Europe and the U.S. have to work together to build common strategies for a world that continues to struggle for stability. For me, a guiding principle here is the notion of reciprocity. This starts with the regulation, for example, of financial markets. For example, we Europeans think it's counterproductive for the U.S. to place higher regulatory requirements on the U.S.-based activities of foreign banks. We think this poses the risk of discrimination, weaker regulatory cooperation, and the fragmentation of regulatory laws.
Of course, reciprocity doesn't end with financial market regulation. The U.S. has a global responsibility to lead. But in our multilateral world, this responsibility to lead can only be carried out in multilateral frameworks. And this calls for reciprocity in every area of policy.
For example, for a long time now, it's clear that foreign and security policy can't work on a unilateral basis. It can succeed only when partners work together closely, and as equals.
In addition, the universality of human rights must be observed in actual fact and must be reflected in our own actions. When it comes to civil rights and data protection, everyone in the world must enjoy the same rights.
By the way, in my view, the problem with NSA is not in the first place a problem of intelligence services. It's a problem of how the innovation of technology changes efforts and requirements to protect civil rights. And I think this discussion, which, is much more important, how we can protect our values—civil rights, privacy, freedom, democracy—in times of Internet, in this changing world. That is a discussion we have to start in the Western world. And I think we must (inaudible) by the way, as always, the U.S. should take the lead in this discussion. And it's not a matter that intelligence services, they—they look for information where they get it. It's a little bit ridiculous to think informations are allowed to everyone except intelligence services and we must not spend money for intelligence services.
So having said this, for decades, soft power was one of the central pillars of America's strength around the world. My generation has grown up under the soft power of the United States, to be very clear. If this pillar is to remain intact, and if the U.S. wants to ensure that it does not lose power overall, then it must do much more to exercise its leadership responsibility within the frameworks of multilateral relations.
As a token of their goodwill, the U.S. should finally ratify the IMF reforms to give the rising powers of the 21st century a say in the fund's affairs. This would strengthen the fund's legitimacy, as well as its capacity to act not only in times of crisis, but also in its day-to-day decision-making.
Viewed from a short-term perspective, non-reciprocal behavior sometimes seems to bring benefits. But in the long term, it causes more self-inflicted damage. It's a basic issue for transatlantic relations in particular. If reciprocity doesn't succeed between both sides of the Atlantic, then it certainly wouldn't succeed on a global basis. And when there's visible damage between friends, you can be sure that it's going to be even worse in the rest of the world.
We Europeans worry that the soft power of the U.S. is eroding because of unilateral actions. But soft and hard power go hand in hand. As much as Europe needs a strong U.S., even the U.S. needs a reliable Europe. To strengthen global governance in the 21st century, we, Europe and the U.S., need to be reliable partners.
Therefore, it is the task of the U.S. to strengthen its soft power, and it's the Europeans' job to strengthen their hard power. If both, Europe and the U.S., do their homework, we will set a new standard for our transatlantic partnership.
We need also reciprocity when it comes to global commons, places that up to now have been used on a joint basis, or have not been exploited, where there's no clear ownership and no globally binding rules for use. These global commons include space, the seas, the poles, and the Internet, especially the Internet, including taxation of companies acting on the Internet. We are already seeing conflicts and rivalries here.
The world is looking for global rules in these areas and for new forms of international cooperation or, let's say, global governance. The U.S. and Europe should pave the way forward here. Working together with as many partners as possible, we should develop and implement new forms of international governance.
"The problem with NSA is not in the first place a problem of intelligence services. It's a problem of how the innovation of technology changes efforts and requirements to protect civil rights."
European integration and the European model of cross-border cooperation are being carefully observed in Latin America and Asia. People there are paying a lot of attention to whether or not the European project succeeds. In Latin America, Asia, and in Africa too, decision-makers are thinking about carrying out similar projects if Europe achieves long-term success.
The Transatlantic Trade and Investment Partnership is another area that holds key opportunities for sending signals to the rest of the world. That's why we need to negotiate patiently and to proceed from the assumption that we respect the same values, for example, in the areas of environmental and labor standards. The TTIP will give us a major boost to transatlantic relations. It's the most important transatlantic project for the foreseeable future.
Concluding this agreement together will improve our ability to counter challenges from outside, challenges that face companies and research centers in both Europe and the United States, challenges like forced technology transfer, cyber spying, discriminatory patent systems, the unfair practices in setting standards, and the violation of intellectual property rights. China, Russia, and India are not global models in any of these areas.
We also need the Transatlantic Trade and Investment Partnership to set a key example for freedom in the world, an example of how freedom and globalization can lead to shared prosperity in the world of the 21st century.
Our transatlantic agreement would provide powerful momentum for a global trade agreement, which of all possible trade agreements would, of course, be first best. The transatlantic partnership needs a renaissance. And there's no better time than now, because the shared challenges we are facing are greater than ever. We've had plenty of wake-up calls, so let's join our forces and tackle these challenges together.
Thank you very much.
KIMMITT: Mr. Minister, thank you for those thoughtful and thought-provoking comments. I think they provide a very good foundation for the question-and-answer period that we'll have now. I'll start with a few questions. Then we'll turn to the audience.
If I may, why don't I pick up on the very last point you made about the Transatlantic Trade and Investment Partnership? I think I can speak for everyone in this room, we would share your sentiments about its importance, not just in economic and financial, but in political and security terms. I think it's as important to the future of the transatlantic relationship as the North Atlantic Treaty was to its past.
What do you think the prospects are for this agreement? And because it seems to me that the negotiations have moved along at a pretty good pace, have hit the bumps that negotiations often hit, but is there a concern that the political momentum is slowing in Europe as perhaps some think it is in the U.S.?
SCHAUBLE: There is a concern, but I think maybe even the recent events in the relation with the Ukraine will be a good opportunity to fight against this slow down. And I would quote federal chancellor in government speech he delivered some weeks ago in parliament, when she said maybe we have a lot of free trade agreements with different parts of the world. It would be really incredible if—especially the two major economic spaces of the world, United States, and the closest alliance, United States and Europe, would not have such a common free trade agreement. Therefore, it's not to be imagined, we have to concentrate on this.
And I think—I have been in my—I had to present my draft budget in parliament this week. And in my speech, I said this transatlantic negotiations are a chance for ourselves, because we have to accept the Germans, that we need common standards, and that means not any German standard. It's only standard who can be agreed on the world, but that is not the way we can find common solutions. And the Germans understood what I mean and must not explain in Washington DC. What to tell you—to give one example.
For some—for some months, Indian minister for air traffic visited Berlin. And when he got the problem with our airport in Berlin, he couldn't really understand (inaudible)
I can't explain (inaudible)
KIMMITT: I will—I will not pressure—press you on the airport.
SCHAUBLE: (inaudible) no, not on the airport, no.
KIMMITT: You mentioned Ukraine and Crimea. You spoke some very strong words recently on that subject, I think some very clear words today. I think you came here from a meeting of the G-20 with your Russian counterpart at the table, unlike yesterday when the G-7 met without him at the table.
I was struck that you mentioned energy cooperation as an important way for Europe and the United States to respond to what has happened there. Do you think—and there are certainly things we need to do in the United States, difficult political decisions, but I think that have important long-term consequences both for us domestically and also for us strategically, so Keystone XL pipeline, export limits being lifted on energy resources.
Would this closer cooperation in the energy sector lead Germany to perhaps look closely at the Energiewende, the German energy policy, and that perhaps could reopen some issues that were closed there or perhaps reopen a more open debate on shale gas and other issues?
SCHAUBLE: I think there will be a reopening of the discussion in Europe. I think it's not—it's not—in the first place, it's not a problem in Germany. It's a problem in Europe. But if I have said, I think in Germany we are actually on the way to make our energy change a little bit more suitable, and we have made a lot of progress, even in this week. It's not easy to get, but we are doing step by step, because we know—and it's up to the finance minister, as well as the minister for economy, telling again and again our public opinion, that to remain a strong well-doing in economic affairs, well-doing state, we need solid energy with competitive prices. And that is not granted until now.
Therefore, we have to solve this problem in the medium term. Otherwise, we would risk that we will lose a lot of investment. Therefore, it's not the best way. I think we are—and especially in Europe, we are working on a European market, because that is the best way to solve the problem.
KIMMITT: So talking about Europe, German-French cooperation is often described as the motor of the European Union. France, of course, just formed a new government. You have a new counterpart. What would be your early assessment of this new government's ability to take on some of those tough issues that were laid out in the restructuring proposal of President Hollande?
SCHAUBLE: In France, it's similar to the United States. The decisive position is the president. And the president has not changed, and the president has announced—President Hollande has announced I think in early January the decisions he—France must take, and I think this announcement of President Hollande was the right one.
And now they are trying to implement. It's always more difficult to implement. But they are on the right track. And I think this government change is an instrument to implement what President Hollande announced.
I am hopeful and I'm confident that they will get it. France remains a strong country. And as you have said, it's granted—we Germany alone cannot lead Europe. It's impossible. We don't want and we can't. Even if we do so, we can't, on a lot of reasons. It's quite—therefore, we need a reliable partner. The most important partner is France.
Of course, if U.K., but U.K. will not. If U.K. would be more—would have been more engaged in European integration from the beginning, it maybe would be a little bit different. But in the given European structure, if France and Germany don't cooperate, if France and Germany don't find common solutions, common proposals, Europe is blocked. And therefore, we are—we depend on France, France depends on Germany, Europe depends on both. We are not dominating Europe. We involve very much Poland, similar important partner in the former eastern part of Europe, the former Soviet Pact, and as the triangle of Weimar.
But once again, we and France, we need France, but we are confident that France—France is very different related to Germany with a lot of advantages. But together we can—and I think—I am—to sum up, I am confident France will get it, in a French way, not in a German way, different, but (inaudible)
KIMMITT: Thank you. Minister, we're now going to invite our audience to join in the conversation. Please wait for the microphone. Speak directly into it. When I call on you, please stand, state your name and affiliation, and to allow as many attendees as possible to speak, please keep your questions and comments concise. In fact, I'd say keep your questions concise and your comments even more concise, please.
So could we have the first question? Please, Nancy?
QUESTION: Hi, Nancy Jacklin at Johns Hopkins SAIS. You spoke about the concern of banking regulation in the U.S., in a sense taking a view that is, in a way, territorial and essentially requiring foreign banks to have holding companies that are meeting U.S. capital standards. I suspect some reason for that or some concerns that led to that had to do with the slow pace at which Europe was assessing asset quality and stress testing of their banks and a worry that at least they be a source of strength for the operations in U.S. and some lack of confidence in that.
I wonder if you feel at this stage that the political will is finally there to deal with some of these difficult questions in terms of increasing capital and doing credible stress-testing on the European banking system.
SCHAUBLE: I wouldn't—I wouldn't be understood that I think reciprocity is only a problem of United States, but different regulations—different level of regulations are—it's the second-best solution, not the best solution. Therefore, I am obviously in favor (inaudible) for example, if you—but maybe we will—if it takes too much time if to go to—too much into details of banking regulation, capital requirements, it's the end. We can't do the accounting standards.
And again and again, I am trying even to get the G-20 involved in the issue of accounting standards, because it's hopeless. Since decades, since decades, we cannot achieve common accounting standards. Of course, I know—and since I have been finance minister for some years, I know better than I used to do so before, why are the reasons we have totally different traditions. In America, you have economists, market finance. In continental Europe, not in U.K., but in continental Europe, or maybe old Europe, economy is financed—is credit financed, bank financed. It's totally different. And therefore we—we have to find common solutions on this very difficult—different traditions is not easy. Nevertheless, we have to deliver in the globalized world, I think, for globalized markets.
And therefore, I would just mention, I can't really—I'm not satisfied that we don't make any progress in getting common accounting standards. You may say, oh, it's not so important, but I tell you, as soon as I am starting discussions, of course, we are increasing capital in European banks, as well. And you may know the discussion. As a finance minister, you suffer it again and again and again.
And then you are told, yeah, but you can't compare the American requirements with the European. The European is much stronger, because the way of accounting is totally different. And, of course, you take off (inaudible) another argument, what is (inaudible) help me with the wording.
SCHAUBLE: (inaudible) you can take it to companies. You make it out of your balance sheet, and that reduces your balance sheet. Therefore, your core capital is higher. And you can't compare.
And my answer is, why don't we get common standards for this? Is it impossible? I hope no. I think this century we'll have another 85 years, and in this 85 years, we should come to common standards (inaudible) yes?
KIMMITT: Right behind Nancy. Yes.
QUESTION: Thank you. Steven Kramer, National Defense University. So a day or two ago, the Greeks were able to float bonds on the market, and that in a certain sense can be seen as a great success for E.U. policy. But at the same time, the—you know, the unemployment rate increased, and in Italy and much of Southern Europe is very, very high. And you know—we all know that when European elections take place, the result is going to be a disaster, that the extreme right is going to do very, very well.
So what concerns me is the fact that the policies that you followed have created a huge disenchantment with the entire European Union mechanism. I mean, what are you going to—you know, and that austerity, which has delivered some success on the bond market, but not on the employment market, you see this as a long-term problem? And if so, where do you think the E.U. needs to go?
SCHAUBLE: It is a problem, not only a long-term, but as a short-term. But having said this, I don't agree with your analysis. Unemployment rate is high. And, of course, we have an increasing Euro-skeptic mood in some European member states. The relation between both is a little bit more complicated, because what are the unemployment rates in U.K.? And the anti-European mood in U.K. is even higher than in most continental European countries, not only in the Conservative Party, not only in the Labour Party, but everyone expects that maybe it's possible that in the coming European election for European Parliament, UKIP is very innovative party, to be very diplomatic, in the U.K. political system will be number one. That is therefore the relation between unemployment rate and—my first remark.
My second remark is, if you want to fight unemployment, you have to look what is—what is the very reason. In Greece, I can tell you. I have—I can—we both know what happened in the former GDR, what was a socialist part, Soviet-occupied part of Germany, in times of reunification, it's a day when we introduce on the very strong desire of population in GDR, the deutschmark in GDR, the first July of 1990, before German reunification.
The economy of the GDR until that time, number 11 on any OECD statistic, number 11. The economy was bankrupt, because they were not—the economy was not competitive. In the globalized market, in the common European market, with the European currency, you need a competitive economy first.
Second remark is, maybe we have all underestimated, even in United States, and in Europe, by sure, the changing—in labor markets by the globalization and the digital revolution, the competition not only on investment, but in the supply of—labor supply, cheap labor and better educated labor, by billions of people is huge. And by the technology change and revolution, it's increasing. There we have underestimated. Therefore, we have—what are we doing? We are fighting this crisis by structural reforms.
Yesterday, in the—in the G-20 meeting (inaudible) we agreed—quite interesting, under Australian presidency, the key structural reforms, to increase competitiveness, there is no—no global policy, no monetary policy, no monetary—quantitative easing (inaudible) that make—always help for the short term.
In the medium and long term, there is no way beyond—to buy competitiveness, to gain the preconditions to get employment enough, to deliver to the social standard, people won't ever—last remark to Greece. Years ago, maybe two years, three years ago, you know, no, we have some very interesting sessions overnight in the Eurogroup (inaudible) Greece program. And the then-Greek finance minister again and again, he says, oh, my people are suffering so strongly and we cannot accept additional conditionality and bah-bah-bah-bah-bah.
And at 3 o'clock, a colleague from one of the Baltic states said, "Oh, please stop. I can't suffer it, because I will tell you what my people had to suffer to achieve the change from former Soviet Union to become member of the eurozone. We did it. And now I have to tell my people that we have to pay for Greek?" Which are—minimum wages in Greece used to be higher than minimum wages—minimum wages by law than they used to be in Spain, in times when we—in Germany didn't have a minimum wage by law. Now we are introducing, because we want to fight our surplus on behalf of the recommendations of state, of White House (ph) (inaudible)
Joke. Joke. So having said this, it's too easy. And I think—I'm quite optimistic. Greece is doing well, better than expected. And, for example, I tell you, two years ago toursits in Greece (inaudible) in summertime, and Greece has wonderful coasts and island and so on. Two years ago, it was a disaster. Greece was too expensive, and everyone who traveled in this part of the Mediterranean went to Turkey.
Last year, they cut wages. Of course, it's not—they will not be loved in public opinion, but last year, it was the best year in tourism increase since decades. It works. Spain is doing very well. Portugal is doing very well. Ireland is on the right track. We—but there is no way beyond structural reforms. We're gaining competitiveness, and that has to be said.
Of course, we have to do it in a way which is political to be tolerated, accepted. That is the risk of democracy. But I think until now, we are rather—we are always aware and finding—and looking for the right balance. We are also aware on this problem (inaudible) I am quite optimistic that even in the next European Parliament, you will see a clear pro-European reliable majority. I am quite optimistic that even in Greece, the outcome of European parliament will be an encouragement for Samaras's government.
KIMMITT: I'm going to go to my left front, and then we'll go further back in the room.
QUESTION: Thank you very much. I'm Bridavata Nelson (ph) from the German Historical Institute. And my question is regarding the very highly emotional debate right now in Germany about retirement age. Do you think it would make sense, given the huge differences in retirement age between Germany, France and some other European countries, and sort of some grumbling in the German public that, you know, when we want to have chief union (ph) that's stronger financed and has schemes of sort of income redistribution without Europe, do you think there should be the goal to find more political consensus on certain common rules, such as a common retirement age within the European Union?
SCHAUBLE: Yes, but—look, the—you must not—if you look at Europe, you must not only look on France and Netherlands and Belgium and Germany, but also on Bulgaria, Romania, and the former eastern part. And the standard of life and the standard of social insurance is so totally different. And we had—of course, we have a common labor market. It's the freedom of movement for everybody. Therefore, we—if we—we have to do it step by step.
If we build common rules on social security in Europe, it's not to be managed. And having said this, in Germany, we agree that we have to raise the pension age from 65 to 67. That's decided. That will go on. But we have a very specific—it's overestimated in public debate, but the real problem is quite easy, and it's to be understood even in the United States. We fought a campaign on general election. We had, my party, Chancellor Merkel had some positions, as Social Democrats were totally averse. The outcome of the general election was totally clear. We won. And Social Democrats have been defeated.
But in our system, we need a majority in parliament, and we didn't get another partner, because our favorite partner did not get 5 percent, and therefore we have—we have close to majority, but not above. It's like inflation rate in European close to 2 percent, but below—we are below 50 percent. You know, therefore we need a partner, and the only partner was Social Democrats. Social Democrats, who had announced never, ever we will join a Merkel government. And voters said, yes, you are right. Go to opposition. Now they had to stay and to come to—they had to convince their own electorate. It's not easy to get, and therefore we make some compromise, not too much. It's in line with the recommendations that we have to care on surpluses, but we don't go beyond.
"[T]here is no way beyond structural reforms. We're gaining competitiveness, and that has to be said. Of course, we have to do it in a way which is political to be tolerated, accepted."
KIMMITT: Back left here, please.
QUESTION: Hi, thank you. My name is Ben Hancock. I'm a journalist for Inside U.S. Trade. I wanted to follow up on the comments about different banking regulations and also about accounting standards that you mentioned. Do you see the TTIP as a tool to address this issue? The European Commission has been quite clear that it wants to include financial services, regulations, or a method to cooperate on implementation on a more granular level within TTIP? Do you support that? Are you calling for that?
And then, on the standards this year, accounting standards, do you also see TTIP as a method of finally wrangling that issue? Thank you.
SCHAUBLE: I will—I will restrict myself a little bit, because I'm not responsible for the TTIP negotiations. It's the Ministry of Economy and, of course, with the European Commission. And if you try to take me to go to concrete details, I think I will make a lot of nonsense.
Therefore, let me say in this way. I am totally convinced that TTIP is in favor of both sides. Therefore, I am a strong supporter of TTIP. And I will always be in favor of working for common rules.
But what this means in a concrete details a little bit, it's a little bit too complicated for that discussions. Therefore, let's—you can't believe that German finance minister personally or this guy who is this old guy who is sitting at this table will always be in favor of—to expect—it's a view of the others. If you negotiate, you have to understand the position of the other. Otherwise, it makes no sense. Any negotiation starts with understanding and respecting the position of your partner in negotiating. Otherwise, you—it makes no sense, because you can be one successful and you will never have another negotiation with this partner if you don't care on this.
And I am—and as I have tried to tell you, I am—I remain convinced that transatlantic—strong, reliable transatlantic partnership is the best what we can deliver for this world of globalization, because, look, a competitive economy—there are other models in the world. We are not the only competitive economy, and that will—that will even change in the coming world.
But if you look at successful economies combined with democracy, rule of law, sustainability, responsibility for environment sustainability, social coherence, only the Western model, United States (inaudible) and Europe have this model. If we want to make this model, this way of life to be the model to make the globalized world stable, to prevent peace, stability, without any illusion in the nature of 7 and maybe 9 billion people, human beings, it's a population in which in Africa about 60 percent or 70 percent of people are—of population are younger than 20 years.
In this time, if we want to make our values what we are convinced they are worth, we have to cope. We can do it together. And we can't only do it in unilateral ways I would like to repeat what I tried to say. I think this time of globalization—look what happened in the last—it's like 60 years. This time of globalization is not—is not to be stabilized on universal—on—it can only be stable on multilateral solutions. Otherwise, we will—everyone will fail. That is the lesson that—this lesson has to be taken by whoever is concerned, all of us.
And the Europeans must not be as self-confident as they are. They have to care. They have to take responsibility, as well. I'm always fighting for a more reliable European partner, because if we let U.S. alone, and say, oh, you (inaudible) you have to—you are responsible to solve all the problems in the world, to please care (ph). It will not work. You need partner. You need partner.
KIMMITT: Back center, please?
QUESTION: Barry Wood, RTHK in Hong Kong. Minister, what has been the effect of the American failure to ratify the 2010 IMF reform? And what might its effect be going forward?
SCHAUBLE: Oh, look, we had two-hour discussion this morning, and we all agreed that we try to convince members of Congress that says ratification of the—of the 2010, the 14 quota reform is in the best interest even of the United States. But that's democracy. We respect—that is—I got this morning a lot of decision in the second chamber of Federal Republic of Germany I hate (ph). That's democracy. I have to take it.
That is—that is—second chamber is the representation of the state, and they always want the money of the federal government.
I'm—we have all agreed we hope that United States will ratify the 2010 reform up to the end of this year.
KIMMITT: OK, Judith?
QUESTION: Thank you. Judith Kipper, Institute of World Affairs. You've spoken eloquently about competition. And I wondered what policies you would recommend because in Europe, Japan and the U.S., the population is aging very rapidly. And in terms of the labor force, an aging population has a tremendous impact on society, health care, housing, workforce, you name it. What should we be doing to anticipate this issue in the—in the Western world plus Japan?
SCHAUBLE: What we can do is to take—to be aware on this development what is—what is going on. I tell you, Federal Chancellor Merkel has been criticized in Germany that they have arranged a lot of meetings. In the last five, six years, on exactly these issues, a lot of—including all parts of society, what does it mean? What are the consequences? How can we prepare on this? We must not—we must not be depressive.
Life expectation is increasing for every one of us. But having said this, of course, for—to remain competitive with the most thing is for research and education, education of children, schools, training. We need every girl and every boy, the best way educated for—the best possible way.
Research and development, we must be better, if we want to live to a higher standard, including social assistance, security. We have to be better than others. Therefore, we will know that the proposals will go on, that we will have different comparative advantages in the different parts of economy, but we can stay for a long time in leading. U.S. will be a leading economy (inaudible) quite sure. We are in research and—a lot of other things, innovation, we are better, in communication.
So institutional framework. Any economist (inaudible) quite optimistic that they will—even more get—understand, the most important thing for a reliable economy are the—is the institutional framework. If administration is corrupt, and if justice is not working reliably, you can't spend as much money as you wanted, will not work.
I have mentioned—and I'm quite sure other successful economies will face the problem that the more people get rich, the more they will ask sometimes to—for democracy, to the right to decide themselves, and not to think—I think some models give—make people rich, but tells them you—in a political way, you have—you must not care. That will not work. You can't—at the end, the human being tends to prefer liberty.
And therefore, we have a lot of specific advantages, but we have to care on this, and we have to have in mind. Therefore, I have to tell my people, please, don't have in mind (inaudible) we can. But we can do something, but we—if (inaudible) it's critical, it's dangerous. That's what we can do. And then prepare on—what does—what does it mean in elder society, how to reform our health care system, our—all these things, how we can use Internet for new things, and how we prepare our social reality or society not to—sometimes I think I have—I have make the proposal in my speech that we should take this issue of changing the world, societies, political systems by the Internet revolution more seriously.
One of my major concerns is that my generation and the young generation—the generation of my grandchildren—even my children—in Germany, live in total different world of communication. They don't see the same TV programs. They don't read the same newspaper, if the young generation don't read newspaper, bah-bah-bah-bah, and that. And therefore, we have to care how we can get society together. Without social coherence, there's no free—there's no stable freedom, ever.
"Our soft power—and especially the U.S. soft power—in this multilateral framework is not increasing. It must be changed."
KIMMITT: Frank Finelli, you have the last question.
QUESTION: Thank you, Minister Schauble, for your remarks. We've seen a string of poor economic news out of China, exports down over 6 percent, imports down over 11 percent, purchasing manager indexes below 50 percent, indicating contraction, GDP perhaps 5 percent on a quarter-on-quarter basis. Could you talk about the importance of the Asian export markets for the German economy and financial situation? And what would you like to see in terms of monetary and financial policy in Asia related to this issue?
SCHAUBLE: You know, the German economy is actually very strong in most Asian markets. That is one of the major achievements of German economy. Therefore, we tried to build on this. We tried to use it for European and transatlantic interests together in the relations.
Therefore, what we can do—not to mention one specific issue—is we must to use multilateral, universal, global institutions for enhanced governance. It needs economic governance of the globalized world. That's what we are doing in these very days in Washington, in the G-20, in the IMF, and again and again.
And therefore, that is one of my, very frank, my last answer. I would like to, once again, ask you for your assistance and for your understanding. And if you—you can—sometimes you can feel it in the G-20 and sometimes—and in finance ministers' meeting, that our soft power—and especially the U.S. soft power—in this multilateral framework is not increasing. It must be changed. That must be changed. U.S. have—together with Europe, we have to have a leading role. And I think the rest of the world is urgently waiting that we do so.
And, therefore, of course we will not dominate the world. It's the same with France and Germany and Europe. But we can lead. And that is the indispensable nation, God's own country. Good luck.
We need you.
KIMMITT: Thank you, Minister.
Mr. Minister, on behalf of the Council on Foreign Relations, and especially today's attendees, I'd like to thank you for taking almost two hours out of your very crowded bank fund schedule. That is a real compliment both to the council and to the attendees. Loved your last answer. It also—it also reminds us that Europe and the U.S. coming together is not being done on a zero-sum basis. Of course, we all have to reach out to China and other important emerging economies.
But the closer we are to one another, the more effective we will be in that outreach. We wish you every success in your important responsibilities, not just Germany and Europe, but we in the United States have a stake in that success. Thank you again for joining us.