The 2019 CFR annual Back-to-School Event celebrated the tenth anniversary of the podcast The World Next Week with a live taping before a student audience. CFR Senior Vice President James M. Lindsay, CFR.org Managing Editor Robert McMahon, and Deborah S. Amos of NPR and Princeton University looked back at the last decade and discussed the decline of democracy, the Middle East, and U.S.-China relations.

German Finance Minister Olaf Scholz discusses fighting climate change in multilateral settings, European economic developments, and German economic policy. ALLEN: Good morning. Thank you all for being here today. And we welcome you to today’s Council on Foreign Relations meeting with Olaf Scholz, the finance minister from Germany. I’m Thad Allen, a member of CFR’s board of directors and a senior executive advisor at Booz Allen Hamilton. I’ll be presiding over today’s discussion. And at this point, I’d like to invite Mr. Scholz to the podium to give his remarks. SCHOLZ: Thank you. Thank you for the kind introduction. Ladies and gentlemen, I’m happy to be here at the Council on Foreign Relations today, and I look forward to be a frank and lively discussion with all of you. I want to use my opening remarks to address a topic that concerns all of us around the globe with increasing urgency, tackling climate change. This year, millions of people, young people in particular, have taken to the streets to remind us of the urgency of limiting global warming. But at the same time, we have seen pushback from those who refuse to grapple with the reality of climate change, who question the science, and who deny the need to take action because they find it inconvenient. I would like to respond to them by quoting one of your founding fathers, John Adams. “Facts are stubborn things. And whatever may be our wishes, they cannot alter the state of facts and evidence.” Manmade climate change is a fact. Another fact, the global community hasn’t done enough so far to limit global warming. None of us, including Germany. Speaking for Germany, I can say we want to change that. To this end, the federal government has recently laid out its multibillion-euro climate strategy for the next decade. As I like to point out, to those that always insist that Germany should be spending more to combat climate change, Germany is investing fifty-four billion euros in the period until 2023. And if you look at the next decade, until 2030 we are in the region of one hundred and fifty billion euros. When we undertake such a massive task, there is one central question that we need to answer: What’s the point? Why do we bother when at the same time new coal-fired power plants are being built in other parts of the globe? When, as in Germany’s case, our share of total global emissions is about 2 percent? My answer is threefold. Firstly, it is the right thing to do. As industrialized countries, we have emitted the bulk of mankind’s greenhouse gas emissions until now. Now we need to acknowledge our responsibility and start leading the fight against climate change. Secondly, we can do it. We have the necessary technological and financial capacity. Germany prides itself on its engineering. If we can show that it is possible to reduce emissions significantly, and be all the more successful for it economically, others will follow suit. We can lead the shift to a low-carbon global economy. And thirdly, it is an opportunity. Yes, making this transition requires a big effort now, but ultimately it will strengthen our industrial base. From battery-powered vehicles to hydrogen fuel cells, we are seeing climate- friendly technologies improve to the point where they are becoming commercially viable, similarly to what happened, for example, to wind energy. The fight against manmade climate change will become a business opportunity. And in a country which prides itself on its business instincts, in a country of dealmakers, I say if you do not join in the fight against climate change you are voluntarily forgoing a great deal. Ladies and gentlemen, the fight against climate change will be the defining issue of the coming decades for all of us. Climate policy will shape all policy areas, economic policy in particular. By the way, we are also seeing this trend at the IMF. Tomorrow, on the margins of the current IMF and World Bank Group meeting, we will be having a special meeting of the coalition of finance ministers for climate action. Increasingly, foreign policy will have to be climate policy. The need for coordinated action to reduce overall emissions is only one of the channels connecting climate change and foreign policy. We need to consider the link between migration and desertification, of flooding, between water scarcity and the potential for international conflicts.   We all know that climate change poses a global challenge. And so, in the fight against it, we will need international cooperation and strong international institutions. Here, at the Council on Foreign Relations, in the heart of the capital of the most powerful nation in the world, I do not have to stress the importance of international cooperation and strong international institutions. Everyone is aware of this, at least almost everyone. Let me put it this way: The future does not belong to those who deny reality and isolate themselves. The future belongs to those who take action together. Thank you. (Applause.) ALLEN: Thank you, Mr. Minister, for the remarks. If I could follow up on your remarks and have you comment on the economic impact in Germany, on their economy, of the proposed climate change package you put together and some of the pros and cons you’ve had to deal with in cobbling that agreement together. SCHOLZ: I would—so it is one hundred and fifty billion for the next ten years. This is quite a lot of extra impact for the economy. But it’s more important that it also helps to do the necessary investments into the infrastructure, for instance, in the railway system, in the infrastructure of our electricity grid, in the infrastructure which is necessary to have new battery companies and things like that. So I think it will be an aspect of future growth, which is coming from the investments we do now. And it will be even more important because if we are able to produce things without fossil—using fossil energy, this might be of big importance in ten or fifteen years when anyone is willing to look for a solution like that. ALLEN: One of the major tools in implementing this program will be a carbon tax. I know there was a lot of discussion on the level of carbon tax, what would actually allow you to achieve your goals. Can you comment on that? SCHOLZ: We have a strategy where we increase the price for using CO2 on different levels. And we are now implementing them step-by-step. One of them which is already decided now is to increase the tax on using airplanes. So there is a special tax we already implemented, and we will increase it. This will be extra benefits for financing what we are doing, but it helps that people use the railway, for instance, where there is a chance to do so. And this is why we, at the same time, reduce the value tax at this level for trains. Then we will have an increase in the car taxes we take if there is a big—if they are producing a lot of CO2. And so we changed the way how people buy cars. This is what we hope. And the third thing is we will have an increase in the road taxes, if you would call it like this, for trucks, if they have very high CO2 emissions. And the last thing is then to have a very special CO2 taxation, which is an extra model. We will organize it in a way that the people have to buy certificates. And we start with the low price, increasing it for the next years up to 2025. And afterwards, there will be a market which will be built because we have the agreed limit of CO2 emissions by Germany in the sectors of transport, of housing, of heating, of every culture and small businesses. And this is going down each year. And if enough investment into reducing CO2 emissions would have been done before, the price will increase. I think if nothing would happen it will increase up to a hundred euros per ton of CO2. And knowing this, I hope—and all of us hope—that this will have an impact on private—on decisions in the future. ALLEN: I think any great technological challenge, at least in this day in age, cannot be solved by an individual country or the private sector. There’s a large automobile manufacturing industry in Germany. Can you comment on the public-private conversation that goes on around an agreement like this, and how you actually interact with the private sector, specifically the automobile manufacturing sector? SCHOLZ: The first thing to understand is there is nothing—there is nothing like a German car industry. There is a European car industry. And this is a market of four hundred and fifty million people living there, if we expect that the United Kingdom will have left the European Union soon. But there is a common decision about CO2 emissions, which are allowed for cars in the next years, and a very strong aim for 2030. This is due for cars and for trucks. And it’s very similar what is happening in China, for instance. So big markets of the world are giving regulations, which are saying the production of CO2, the emission of CO2 should be reduced, otherwise you will have to pay a lot of extra money in this case to the European Union. And this is the field where all our activities are now taking part, because they are an environment where anyone knows there is a big market that asks for other cars, which will be battery electric cars, which will be plug-in hybrids, which will be in the end, especially for the big ones, hydrogen with—using hydrogen with—and all the things which are necessary for that. And I think that this is now going on. Because the market is big enough, what we now do is building the infrastructure. Our aim is now one hundred—one million charging points for electricity in the streets. ALLEN: Thank you. Since you mentioned Brexit, it looks like the outline of an agreement is coming together, at latest from the press reports. Can you comment on how this is actually moving along, and the potential economic impacts for not only Germany, but the European Union and specifically the euro? SCHOLZ: It’s a good message that there is, again, an agreement on how the Brexit could take part. It is much later than we expected, but in the end it is early enough if the House of Commons will accept it tomorrow. And I hope that they will do. It’s good for the U.K. economy, because they would suffer a lot if there would be a hard Brexit. It’s good also for Europe, because there is some uncertainty which is related to a hard Brexit. We are prepared for that. Mostly in the financial sector there will be no problems because anything is done, and it’s more virtual. You can do it easily. The bigger problems are coming from the supply chain of goods in Europe, because there is already something where a car that is produced is produced at forty places, and it’s going back and forth. And if you interrupt this supply chain, this has a negative impact on economic growth. So I would be very happy if we will not have to suffer from those problems. ALLEN: Thank you. One of the issues with introducing new technologies, and I think we see this globally, is the transition of workforces at new jobs. You have a very strong apprentice model in Germany. Any comments regarding how you’ve been able to adapt to changes in technology, some of the things that you just mentioned, and how you actually build the workforce to do that? SCHOLZ: The most important thing is that we have to invest in research and development. This is my—I’m absolutely sure about that. And if you look at what Germany is doing this is quite a lot. It’s more than 3 percent of GDP now, which is one of the reasons for the global competitiveness of the German economy. But the other part of skilled labor. And, yes, we have this model of apprenticeship which is working really well. The more important question is to convince young men and women leaving the schools that this is something they should use for their activities and for their—for their vocation, for their training. And the second is to convince the companies that they offer something like that, like an apprenticeship. And this should be changed due to the new needs. So now anyone is in the car industry, trying to figure out how to people could deal with electricity, which is not the case in this size today. My view is that we not—should be not just successful at university and at the vocational training schools to react to the changing request of the economy due to technical reasons. We also should be able to have a better chance for adult people to change their profession. So my view is something of an apprenticeship which is better financed than when you are seventeen years old or so, but with forty-six or fifty-one, to take a new job if the world changed. And I think this is one of the things that people expect from us for being safe in an always changing world. ALLEN: Thank you. As you know, we’re pretty occupied in this country right now with issues related to trade between the U.S. and China. I wonder if you want to comment on the impact that has on the European Union and Germany specifically, that maybe is not caught up in the discussion that we hear, which tends to be bilateral between the U.S. and China. SCHOLZ: We are very much looking at the trade conflict between the United States and China, because it has already an impact on the global economy. And this is not just because of tariffs. They have an impact, and anyone can find out that they will reduce growth, and they are already doing in United States, in China, and in the rest of the world. But the more important aspect of this conflict is that there is a growing uncertainty. And if those taking decisions in the companies all over the world are not sure what the future will be about, they postpone their decisions. And the lower growth in the global economy we face today is the—is the direct outcome of postponing decisions because no one is sure what will be the future about. And so this is one of the reasons why this conflict should end as soon as possible. And it would be a good message for world economy if this would happen. ALLEN: Thank you. Assuming that Brexit occurs and you’re not dealing with the British pound, just the euro community, there have been some stresses in the past, the—Greece and others. How do you see the European position to move forward and deal with those kind of challenges when they arise? SCHOLZ: When the U.K. will have left the European Union, 85 percent of GDP will be directly produced in Europe. There is—there are two countries now directly asking for participating in the euro system very soon. And I think that earlier than anyone expects, all the rest of the countries will follow. We don’t know yet if this will be in five or ten years, but it will be earlier than anyone thinks. And then the whole European Union will have one currency in the end. I’m sure about this. And we managed to be more effective in fighting crises. We did so with Ireland, with Spain, with Portugal, with Cyprus, and with Greece—especially the Greek program was the biggest program in the world to save a country that lost its contact with the world—to the financial markets—bigger than any program the IMF financed before. And this shows that there is a lot of strength in Europe to do things like that. And now we build the necessary institutions, and we are remodeling them now at this time to be more successful. Also, to act much—a long time before a real crisis appears on the scenery. And this will be one of the aspects of the changing agreements we are looking for in Europe. We did our political work the last year, and we are now doing the legal work to make it feasible. ALLEN: Moving beyond the euro, we live in a digital world and we’ve seen the rise of digital currency. Would appreciate any thoughts you might have on how that’s evolved. And recently Facebook indicated that they might launch their own digital currency. Your views? SCHOLZ: First, to be—frankly, there is a technical and economic question, which is related to this approach. And this is that there should be a better payment system. Cross-border payments should be faster and should cost less than they do today. And the payment systems within our countries need to improve as well. So there is something to do and to organize. But this is not the reason for building a new private-owned currency. I think this would be a danger for all democratic states, but in the end for all states, if the sovereignty on currency is moving from states to private-owned companies. And I would like to say directly, this should not happen. It was not the best model of developing the world to have this private companies, like the West Indies investment companies from London and from Amsterdam. We shouldn’t have something—like in a currency way—in our twenty-first century. ALLEN: Thank you. Interested in your views in the context of what we’ve just been discussing about the European Central Bank and the future of that institution moving forward. SCHOLZ: The European Central Bank was successful in fighting the last crisis. And President Draghi was really successful when he said that they will do whatever it takes. And I think this was the important sentence for making this a strong currency that is able to fight any difficult situation. And now, after all the reforms we have done and the reforms we are working on, I think the European Central Bank is stable. And with the new president, Madam Lagarde, who has a lot of experience and who made a very great job at the IMF, I’m sure that this institution will be able to do the right decisions, in all the different economic situations we will have to survive. ALLEN: Thank you. There’s been some discussion about the possibility or the potential for a larger European budget, the ability to do eurozone public bonds. Your views? SCHOLZ: These are two questions. I very much supported the idea of my French colleague that we should do something about the eurozone budget. And we made a common proposal to our friends in the European Union and the euro group. Now we succeeded to get consensus on a special model, which is not including any aspect that was in the discussion in the beginning, but in the end we will have it. It will have a small size in the beginning, but it is the model to enlarge it, if there is the time to enlarge it. And so the more important question is to have the institutional framework for acting, which is taking years to get it. And now when we will get it, we have it to use it for immediate action, if there is a need for it. And this is, I think, what is the best advantage from the proposal and from the agreements that we had in the last meeting of the finance ministers in Europe. My view on bonds is that we need to build something like really working banking union. And my idea is that we should very much look to the United States, because this is also—or, this is a federal state. They have some central institutions that work quite well. And so we have to understand how in a big continent like the United States is—in the end, it is feasible to have a united banking system. The FDIC is something we have to look at, and things like that. And if we do this, I think there will be more stability in the banking sector in Europe. It will be much more able to solve problems with—for financing we will have a better growth. But this is the next big task. And if we do so, I think sovereign bonds will be part of the banking sheets in the end. And they will have—they have to find out how they do it themselves. ALLEN: Across the range of topics we’ve talked about this morning you’ve emphasized multilateral institutions and cooperation as a way to move ahead. My last question, before we go to the fellows here in the room is, just your general view on multilateral institutions, transatlantic partnerships. And moving, and this world is getting more complex, and the tension between nationalist and populist movements, and where do you see all this headed? SCHOLZ: I think the only way for a good future is the multilateral approach. We will be not successful just to look at our own nations, because the world is getting closer. And it is better to cooperate. My view on the world of 2050, or of the world in hundred years is more or less that there will be big countries. The United States will be one of them, and obviously the strongest, as they are today. But there will be other strong countries or groups. Hopefully Europe will be one of them. There will be still Russia, there will be China, but there will be also India. And if you just look at India and China and their part of GDP they had two hundred, three hundred years ago, this is something which gives us an advice how the world will be in thirty-forty years. And knowing this, it is really wise now to work for a multilateral world that works and not to do the things which are more on the line to avoid situations with a lot of strong nations. ALLEN: Thank you. At this time, I’d like to invite members to join our conversation with their questions. Just a couple of reminders. This meeting is on the record. Please wait for the microphone and speak directly into it. And please stand and state your name and your affiliation. And if you can limit your request to one question and allow as many members as possible to speak. At this time, we’ll take your questions. Q: My name is Hattie Babbitt. I’m on the board of director of the World Resources Institute, which is a global environmental think tank, but based in Washington. And I’d like to get back to the climate change issue. One of the things that has happened in the environmental community in the past has been that we have been shuffled to the environment ministry in discussing climate change. You spoke very eloquently about the role that the finance ministers are now playing in this. And I wonder if you could talk about how you have been successful—those of you—those of you who are finance ministers and dealing with this—in bringing together the health ministries, the people involved within your governments on refugees, on what—those other issues that all feed into the climate change issue. It’s herding cats, in some cases. And I’d be grateful for your—to learn how. SCHOLZ: We should understand that climate change is one of the really big challenges we are facing, and that it is not—we will be not successful if we just act in the responsibility of the ministry that is responsible for climate, and environment, and things like that. So cooperation is necessary, and that we understand that all the different decisions we take are linked to each other. If we are not successful in fighting climate change, this will have deep impacts on the economy. This will have impacts on the situation of refugees, as you already mentioned. This will have impact on the natural resources we can use, and so on. And so I think this is absolutely key that we understand this is nothing we just let those who are directly responsible. We have to cooperate, and we have to think about the necessary steps. So my view is governments should have a common strategy to fight against climate change. And we should discuss on international levels with all those involved in the different views of the question. But we must go from literature, discussing, speeches and things like that. We must go to action. This is the real change that needs to happen now. ALLEN: I’ll come back over here. Q: Hi. My name is Charles Reynolds, State Department Foreign Service officer going out to Berlin for my next assignment. I’d like to know if you can talk about the shape of the state of Germany’s economy and if there is potentially a global slowdown how that may affect you, and what steps you’re taking to prepare for that. SCHOLZ: First, the economic situation in Germany is not that bad. We have the highest number of people employed we had ever. And there’s—all the forecasts say that there will be a continuous increase in labor, and people at the workforce. So in the dimensions of Germany, we are now—have more than 45 million people employed, which is really a lot. And we haven’t had that much ever in the past. And we have a lot of industries, not just but also construction, where they are desperately looking for better capacities because they are not able to work for all the requests which are there on the market. And we have quite a very stable situation in the inner market of Germany. So there is an increase in growth coming from that, which helps in the difficult situation we have due to the global economy. We had to support the situation with reducing taxes for low- and middle-income families. We increased the support for childs in the families. We will get mostly rid of a special tax we implemented after German unification for financing it. So there is a lot of impulses for growth coming from Germany itself. But in the end, if you are a really competitive economy that’s successful on the global market with goods and services, as lower growth in the world has an impact on your economy. There is no—nothing to avoid that. But if you understand that there is this slower growth, we are still having a quite—not a difficult situation. This is my view on that—on that aspect. And just referring to some of the public debates we sometimes have, we have the biggest figure of public investment financed by the federal budget we have had ever and this is how just supported also by these special decisions we took on climate change, and the investments related to that. ALLEN: Thank you. Q: So there is a growing view that monetary policy has been pushed too far, to the detriment of the economy. That emergency measures in the past have been regularly applied to non-urgent conditions. So how do member states, especially important ones like Germany, play a role to help steer a different course going forward? SCHOLZ: I think we did a lot to understand the situation. We have very good supervision institutions. Not just the European Central Bank, but many others. And they cooperate a lot in the world. So our knowledge about the difficulties in the financial system, problems that may come up, are much better than they had been before. And after the last crisis, we took a lot of decisions to have better regulations. I’m a bit afraid that now, at this stage, some people think they should get rid of them, which I think would be a mistake because they had good reasons for being implemented. And if we are working on this field very exactly and understand the development in the financial system well enough, we are able to act very soon if there—if a problem is coming up. And just for looking at the European Union, already mentioned that aside of the European Central Bank we built up the European Stability Mechanism, which is giving us the ability to support a country that has—that’s losing contact with the financial markets. We have the ability through this system to help a country out of a difficult structural crisis. And we now are remodeling it to have better instruments. This will be supported also by the eurozone budget we spoke about before. And we built up a system of how to deal with banks that are relevant for financial security. And there is a supervision or an authority that has been built in Europe. And we built a fund that is financed by the banks to the resolution of banks, if necessary. So there is a lot of activity that has been done to be much more prepared for a difficult situation than we were ten years ago. And this is a reason for being quite confident that we will be able to manage situations. ALLEN: Thank you. In the back. Q: Thanks. I’m Megan Greene. I’m a senior fellow at the Harvard Kennedy School. And some of my colleagues have put together this atlas of economic complexity. I’m not sure if you’ve seen it, but Germany is a terrifying outlier on it. So they basically look at countries and what they produce, and connectiveness of what they produce. So how easy is it, if you produce one thing, to jump into something else? And it turns out for Germany, it scores very low on connectiveness. It’s really easy for Germany to jump into other industries. They also look at complexity, so how easy is it for you to move up the value chain and boost your productivity. And there, Germany is actually already at the top, which suggests there’s really no more room for Germany to move up the value chain. And this suggests, you know, the common narrative is that Germany needs to provide fiscal stimulus, and that will solve everything. This actually suggests that won’t solve much of anything. So I’m just wondering if you have any plans at all for what to do about this connectivity, complexity problem. Because Germany really is an outlier here. SCHOLZ: So in a situation where the economy is running quite well and where we have a lot of people employed, and where a lot of Mittelstand companies are successful in the world market, it is quite—it is—I do not agree that there is not an ability to develop new technologies and to be successful in the future markets. I think many of them do. The main aspect of this is spending money for research and development, which is happening quite well. And we are increasing it right now. We are launching a new act which is dealing with the question of supporting research activities in private medium-sized companies to have it not just in the big corporates but also in many other activities in the business environment. So I believe that we would be able to react to different situations. And what is happening now is that the country is remodeling itself and becoming more independent from fossil energies. And this will help us to be successful in the future as well. My view is, just to give you the figure, that it is necessary to increase research and development as the aspect of getting the future, and not just having it in some companies, and not just having it at universities and research institutions—which is something the state can do—but also enabling the companies to do it all very broadly. And this was the mood of the past. Now they have to do the necessary decisions. My view is that if we make it, for instance, to have mobility that is not related on fossil energies, but working with batteries, with plug-in hybrids, with hydrogen, this will be something which will support the activities of many companies, not just big car producers but all the supplier industries around. And this is the same with the energy supply in the country. This is the same in investment into infrastructure for supporting the digital development. What is the things we have to do in Europe and in Germany? I think we have to make it more easy to have big digital companies that are able to be successful on the world market. Some of them occur, but they are not of the size they should have to—if you look at the dimension of the European Union. And working in this field, I think, not just on legislation but also on legislation, not just on research but also on research, and not just in business but also in business, I think is key. Q: Hi. Andrea Shalal. I just wanted to build on that question. ALLEN: Who are you with? Q: I’m with Reuters. Andrea Shalal with Reuters. I wanted to build on that question. So in—there is a lot of sense that China kind of won the artificial intelligence race, and a lot of the sort of development on higher-end technologies, and that Europe has waited too long to get into that game. You’ve just mentioned this lack of critical mass on companies. Do you anticipate any changes coming? I mean, are you able to convince the EU—the new EU Commission that perhaps there should be sort of mega-companies and mergers allowed? And then, just very quickly on the technology piece, where do you see opportunities for Germany and for Europe to get ahead or get into a sort of pull position to make a difference in the future technologies? SCHOLZ: Most things will depend on whether we are successful in continuing the building of the European Union and its market. The next step is the banking union. And this should have—and the capital market union—to make it more successful, as they are today. And one of the outcomes should be that there is a change in the way how we finance the business. If you compare the United States to Europe, you will find that 80 percent of financing the business is equity. In Europe, it’s 20 percent. And my view is that there should be a change. And building the banking union and the capital market union could be a way to get there, and to get further growth for those companies who are successful in inventing new technologies, which is happening all over Europe. But they should always understand that there is market that they can reach very soon, and which is not fragmented. And this must be the European Union, with its four hundred and fifty million inhabitants. And we should cooperate in questions like artificial intelligence, and increase our public research activities, which we are doing. This is happening in most of the countries. Germany is doing a lot. France is doing a lot. Many other also. And if we join our forces, I think there is a chance that this is the basis for then later business models coming from that. We are working in the question of some cooperation in this field. And if we continue to do things like that, it is not that difficult. Where we should have a better progress is better cooperation. And it must be necessary that the next commission is working how we can make it easier that two things are happening. First, new companies to become big very soon, and being supported by equity markets so that they can grow by this support. And looking at the whole European market as the first one to get. And second, the opportunity for those companies who could be successful in the world market if they get together. And I think there is something that should be changed. The third is that we are very successful in opening markets, especially our own, but we are not very successful in defending the markets. So we did a lot that big payment companies now can get into cooperation with any bank in Europe. But we did not make it feasible that these banks could cooperate with the payment companies and ask them to give them access to their technical opportunities for their clients. And this is just a big mistake, and I think it will stop very soon. Q: Hi. Rebecca Patterson from Bessemer Trust. I’m an investor. It seems to me that there’s a difficult challenge that Europe so far has been very successful with, which is managing or balancing national, economic and political priorities with the regional European monetary union and EU goals. And you talked about the importance of working across countries to succeed in the future, whether it’s banking union, et cetera. Do you think there’s enough leadership within the monetary union today to drive that forward at the speed that’s required? And do you think that the German population appreciates the need to be thinking not only domestically but also regionally? You’ve got a strong consumer in Germany. What’s pulling down Germany is broad. It’s not domestic. SCHOLZ: Yes, there is a need for leadership. And as I’m part of this leadership in Europe, I think we will be successful. (Laughter.) And to the second question, just to give you an idea, on the question of banking union we are working very hard. And I will also make my own proposals on those questions very soon, because I think it is not wise just to speak about it. As in the question of climate change, we have to go to action. We have to understand what is the right way to do. And this is why I said we have to look at the United States. They have their banking union, in a way. And learning from that, we could do something, which is then a European approach which would be successful. And the second question, about the people if they accept that it is better for them to be part of a strong European economy and a strong and sovereign European Union, yes, I think there is a broad majority in Germany understanding it. And if you argue in the questions and explain what is necessary for it, I think you will have the support of the people. There is no need for being afraid. Q: Hello. Brad Setser. I’m a senior fellow here at the Council on Foreign Relations.  I’m wondering if you would be willing to comment on the consequences of negative interest rates for fiscal policy, both in Germany but also for European fiscal rules. And in particular, do you believe that it is still necessary for questions like France and Italy to aim to bring their debt-to-GDP ratios down to 60 percent? SCHOLZ: I think that it is one of the key advantages in building the European Central Bank Germany fought for that we have an independent central bank. So the decisions on interest rates, which are taken by the central bank and all the activities they undertake, are their business. We are discussing with them, we have our own views on the one or the other discussion. But if you are the one that was fighting for independence, you cannot always intervene and say, please do it the following, because this would be a wrong arrangement in this field. So I think, just looking at the past, that the European Central Bank more or less did necessary things. And especially what Mr. Draghi said when there was the big crisis. And what he did was a big advantage, which saved the European economies. And we should not forget that. This is my view on this question. So we will see what will happen the next time. My view on interest rates is that the problem is not just a question of central banks, neither in Europe, nor in the Bank of England, nor the Fed, or the Bank of Japan, or—and so on. There is a lot of money in the world looking for interest and for ways to earn money. And if they are—and they have to go to the real economy, and to invest more in this field. But this is the question we are dealing with. And as it is the case that we have that much money, this will have an impact on interest rates, aside of the activities of the central banks. It’s not just a central bank question, to my—this is my point of view. On the GDP—debt-to-GDP ratio, I think it’s wise to have a stable financial situation. You should do it very intelligent, to look at the situation where you are in and where you want to get to. In the case of Germany, when there was the last crisis we increased the debt-to-GDP ratio to 80 percent. Now we are doing down this year down under 60 percent. And having this idea of being able to act in a crisis, but using better times to get to a lower debt-to-GDP ratio I think is still wise, because the strength in the crisis is key for the ability to do something against negative impacts coming from a world economy slowdown, and things like that. And the message for Germany is we would be able to do anything necessary. And this is, I think, a good message. ALLEN: I’ll throw a question in. Would you care to comment on the current large current account surplus in Germany, and certainly the larger eurozone, and what should be done, if anything, to bring it down? SCHOLZ: The surplus is the outcome of business activities. And it was already mentioned, there was a question about it, but the strong Mittelstrand companies being competitive on the world market are the reason for the surplus. And in the end, any country needs some companies that are not just acting on the home market, but also worldwide. And they may be small. They may have just five hundred employees, or two hundred, or two thousand or so. But if they are competitive, this is the key reason for strength, and economic strength. And the outcome of this sometimes is then the surplus you mentioned. For the future, just to give you some figures, there is more than $500 billion which are invested in research and development by the United States. It’s a bit smaller from China, but they are at this size. Japan is at about $170 billion research and development. Germany is about $130-140 billion. The rest is following far behind. If the European Union would do the same as Germany is doing, investing more than 3 percent of GDP in research and development, it would be $600 billion. And this is one of the answers to your question. Q: Gale Mattox from the U.S. Naval Academy. Let me ask you another percentage, and that is the one that this administration mentioned often, and that’s the 2 percent for defense. Where do you stand on this? And will you meet the Wales summit percentage that you agreed to? SCHOLZ: We increased the military budget in the last years more than we did all the years before. And we did it due to needs from our defense forces. And this is part of our activities within the NATO, since we are supporting very much transatlantic partnership and all the things related to that. We are always doing it in a way that we can finance it from our budget. And this is, I think, the most important message. What we do, we will be able to continue to do in the next years. And if we have increases, they should be not just for one year, or for two. They should be something that is stable for the future as well. And constantly we are working on this question, looking at our budget abilities, and things like that. And as you look—see from the past, there has been a bigger increase than we had before. ALLEN: Maybe I’ll close out with a question related to our conversation before we came in. If you read the minister’s biography, you know he’s a former mayor of Hamburg, Germany, a major seaport. We had a discussion, maybe we could extend it into the room here, sir, on maritime transportation growth. Ninety-five percent of the goods that come in and out of the United States go by sea. There are environmental issues related to that. There are cyber issues. There are issues regarding modernization of ports. You had some interesting views. Would you like to share them? SCHOLZ: Yeah. We had a very interesting debate on that question. I hadn’t expected it, but it was really something which I was—I discussed about very much when I was the mayor of the city of Hamburg. I think we should understand that for globalization and for the global economy, shipping is key. It’s a cheap transport we have. And without the ships, and without the containers, all the possibilities we—advantages we had from globalization would not happen. But we have to manage it in a way that it is good for our future. So we have to reduce emissions. It is necessary that decisions are taken, and that we try to implement it into the shipping systems. We have to do something with the ports, so that there is less emissions-producing problems for the people. And for instance, I think we should make it feasible that when they are at the shore, in the port, they should—they should use electricity from land and not from the ship with some diesel, and things like that. And we should discuss about something, which is getting away from a permanent growth of the size of ships. So we are now—we reached twenty thousand containers, and more. I don’t think that we should give—go far beyond that, because this would have constantly new investments necessary in all the ports all over the world. This would enforce dredging and things like that all over the world, which is not the best thing for the environment. And so international agreement possibly about the size of ships and the further enlargement could be helpful for environment and for the world economy. ALLEN: Thank you. We have time for one final question. Otherwise, we’ll give you back a couple minutes here. Thank you very much, sir, for joining us this morning. We appreciate it. (Applause.) (END)