Germany and Europe's Economy

Wednesday, April 15, 2015
Courtesy: Don Pollard
Wolfgang Schäuble

Federal Minister of Finance, Germany

Lawrence H. Summers

Charles W. Eliot University Professor, Harvard Kennedy School; Former Secretary of the U.S. Treasury

Wolfgang Schäuble, the federal minister of finance of Germany, joins former U.S. Secretary of the Treasury Lawrence H. Summers to discuss Europe's economy and Germany's role therein. Schäuble charts Europe's economic trajectory following the financial crisis in 2008, and outlines the eurozone's reaction to Greece's sovereign debt crisis. He goes on to assess Germany's fiscal discipline and structural strengths. Schäuble addresses a range of other topics, including the weakening euro, public accounting standards, and the ongoing crisis in Ukraine.

The C. Peter McColough Series on International Economics is presented by the Corporate Program and the Maurice R. Greenberg Center for Geoeconomic Studies.

SUMMERS: This meeting is part of the Council on Foreign Relations C. Peter McColough Series on International Economics and it is cosponsored with the American Council on Germany.

I am delighted to welcome to the Council a man I admire very much, German Finance Minister Wolfgang Schäuble. Wolfgang Schäuble entered the German parliament the same year that I entered college—(laughter)—that being 1972. He is the dean of the G-7 finance ministers, having served as finance minister of Germany since 2009. As he and I were just remarking, we are members of a very small club, the club of G-7 finance ministers who have delivered budget surpluses—(laughter)—while in—while in office. And in all seriousness, Wolfgang is universally respected for combining two things: a ferocious commitment to what I might call German economic values—hard work, saving, functioning markets—along with a certain reluctance towards the more Keynesian tradition that some of us have, with a deep sense of integrity and respect for all colleagues with whom he negotiates, whether or not he is in intellectual sympathy with their views. That makes him a formidable and much-respected figure, and we are lucky to have a chance to have a conversation with him this morning.

I will begin the conversation by asking a number of questions. And then, at the appropriate moment, we will open—we will open the session up.

Wolfgang, IMF Managing Director Christine Lagarde has described the global situation in rather pessimistic terms, referring to the “new mediocre” and a possibility of the new mediocre becoming the new normal. And I think it’s fair to say that, at least in the IMF’s view, Europe is at least as much as source of weakness as a source of strength. How do you view the European economic prospect now in the context of the global prospect?

SCHÄUBLE: I would—let me say thanks for your very kind introduction, and I assume that your enthusiasm to a surplus in budget has been much higher in your time as finance minister than you have welcomed my surplus with the German budget. (Laughter, laughs.)

But having said this, to answer—to act on your question—

SUMMERS: If your country were running a substantial trade deficit and were serving as a global engine of demand, as my country was, I would be more enthusiastic about—(laughter, laughs)—I would be more enthusiastic about your surplus. (Laughter.)

SCHÄUBLE: OK. (Laughs.) OK. But I will-we can discuss it, but you have raised it as a(n) issue.

I have often said you—in the—in our IMF meetings in the last couple of years you must not expect from Europe that we will deliver the highest growth rates for world economy if you look at the given situation of world economics. That’s my judgment. We must have more dynamic, more growth in the emerging economies. We enjoyed some—the last—a last, some couple of years in the past; actually not. That is one of the major concerns. And we have to concentrate on the developing economies as much.

In Europe, those deliver. Europe will have to solve its own problems, which are really high and difficult, because we have to overcome the heritage of the Cold War and the division of Europe. Don’t underestimate. Even we in Germany suffer still. We have spent billions, trillions of euro for overcoming the division of Germany on behalf of the Cold War. Don’t underestimate. And the same is in Europe as a whole if you look at Poland, the Baltic States, Hungary, Czech Republic, Slovenia, Slovakia, and the own problem, not to mention Romania/Bulgaria, as member states of the European Union. And we have a different culture in Europe as a whole from—between south and north and—(inaudible, technical difficulties).

Having said this, Europe is doing better than—we have overcome our problems as a result of the financial crisis in 2007, 2008, 2009, and the actual numbers are not so bad. And even the eurozone has—(technical difficulties)—overcome—I don’t know what’s going on—its so-called euro crisis. If you—if you—if you look at the—at the—at the numbers, there is no contagion, not at all. Some member states under program are—used to be under (program ?) like Ireland, Portugal, Spain, even Greece. Cyprus have improved and have recovered better than expected. France/Italy are doing better than—and the problems in France and Italy have been a little bit of political reasons, but they are doing better. German economy is rather well. Therefore, eurozone as a whole is—will not be the engine for world economy, but we will deliver a major contribution for sustainable economic development.

That’s my answer to Christine Lagarde.

SUMMERS: There’s one tension between your—let me—let me ask the question this way. You have been a strong advocate of fiscal discipline. You certainly come out of a strong postwar German tradition of believing in strong anti-inflationary, disciplined monetary policies. The German tradition has been one of believing in strong currencies. The euro has declined quite substantially over the last year, and many in the markets expect it to decline considerably further through parity and believe that greater competitiveness achieved through a weaker euro is an important part of Europe’s growth strategy now, and perhaps a necessary part of Europe’s growth strategy. How do you regard the level of the euro, the possibility of its further decline, given your belief in the importance of exports for Europe on the one hand and your belief in financial discipline on the other hand?

SCHÄUBLE: It’s a little bit different, in my view.

Of course you are right: German people has, on behalf of special reasons of last century, an emotional link to financial stability and a strong currency. That’s true. By the way—by the way, that was one of the reason what—why a lot of European member states like France were strongly in favor for—to create the monetary union in the—in the—in the ‘80s—it was Jacques Delors—before German reunification.

But the problem—the problem is a little bit different. It’s not fiscal discipline. The problem in Europe is we have a structure of the—of a monetary union which is not, have been never seen as, on the long term, sustainable. We have a monetary union, but we have no fiscal and economic union, and that creates a lot of problem. And therefore, we—the shift in competitiveness is our major problem in the—in economy and in the—in the—in all the fiscal policy of the—of the monetary union of the European—eurozone. Therefore, we have a strong independency of the—of the central bank, the European Central Bank, which is totally independent, which has the whole and all responsibility for monetary policy, but which is not responsible for fiscal and economic policy. And the burden for the ECB to solve all the problem with the euro world is a little bit too high because you can’t solve our problems with monetary policy. And therefore, our problem in the eurozone is to add to the monetary policy a common fiscal and economic policy. That’s difficult to get.

I will never commend decisions on monetary policy, but everybody knows I was not the most enthusiastic fan of QE. And I have foreseen that if you—if ECB will take this decision in monetary policy, which is—has been a lot of good arguments for this decision of the ECB, on behalf of the different economic situation in the member states of the European monetary union—for Germany it was a different situation if compared to Spain or Italy, but you have one monetary policy. And it was clear if you—if you take a decision on QE or, what, all these decisions on monetary policy, the reaction will be a weakening of the exchange rate of the euro and, of course, the reason as a consequence will be by sure an increase of the German surplus. But I can’t—I can’t solve the problem of the German surplus in weakening German economy. Then we will weaken the economy of the eurozone as a whole. Therefore, we have to manage this.

But we are not the one who depend on surplus on behalf of anything. Therefore, we have again and again—and I am in favor of strengthening competitiveness of the euro—of the member states of the eurozone as well, because that will be the major challenge, even for German economy, in the long term, that we’ll remain competitive in the dynamic of the global economy.

SUMMERS: I remember in the—in 1999 and particularly in the fall of—in the fall of 2000 there was very considerable anxiety in Europe because at that point the euro had fallen below 90 cents, and there was just a sense that it was very important to have a sound currency and a currency that lost too much value was in some danger of becoming unsound. Is there any of that kind of concern today? How far would the euro have to move before there would be that kind of concern?

SCHÄUBLE: I hope he will not move so far that we will have this concern again. (Laughter.) You’ll remember we started the euro, I think, with ($)1.17, and then we fall in the late ‘90s below ($)1, close to 90 (cents). One year ago, we were—we have been close to ($)1.40, ($)1.39. Now we have, hmm, mmm hmm. I hope we will—(laughter)—and once again, it’s—on behalf of this given situation and structure of the eurozone, a German finance minister is not allowed to make any comment on monetary policy. The only exception is I have to defend my surplus in the coming—(laughter)—IMF meeting and saying, oh, I’m—I’ll do my best, my very best, in Germany to—not to.

We don’t rely on primary surpluses—on surpluses, actually, in our ratings. But in this situation, with—we need all Europe—the whole Europe and the whole global economy needs a strong German economy. But a strong German economy is—must be competitive. In this given framework of the eurozone, that will—as long as we don’t overcome the shift in competitiveness in other member states, that problem is not to be solved.

But once again, I will never give—answer a question how—on what we’ll—how we’ll be—speculate on the exchange rate of the euro. I hope he will not—yes, I hope he’s big enough, (because that means he’s well ?). As soon as we have a recovery of—if the recovery of the economy in the eurozone as a whole is going on and we will have a little bit more inflation, the euro exchange rate will recover. I hope so. I don’t know. (Laughter.) Nobody knows. (Laughter.) Even Larry Summers don’t know. (Laughter.) Don’t know.

SUMMERS: On the last—I am the last to know.

You’ve made a number of references to the countries that need to adjust to achieve competitiveness and so forth. A month ago, you said that time is running out for Greece. It’s now been a month. Has time run out? Does time run forever? (Laughter.) How would you—how would you assess the situation vis-à-vis Greece?

SCHÄUBLE: It’s a very difficult situation for Greece, and it has always—from the very beginning, Greece has by far the biggest problem of all member states of the eurozone, not to be compared with any other member state of the eurozone. And therefore, I know—since I have been finance minister, from late 2009, I have always been concerned with Greece problems. And most people have said in 2010, 2011, it’s impossible; it will never work. We have—and if you have listened, when we had one Greek program, then a second Greek program, it was very difficult to get the IMF engaged in the second program. I could—I could spend hours to tell you the story of our negotiation. They said, ah, it’s beyond all rules and all expertise and so (I will not have it ?).

The second program was very ambitious. We have the underlying assumption of the second—of the—and there is actually a program for Greece, is that Greece will regain market access, financial stability, in 2022, with a ratio by 120 percent of debt-to-GDP in 2022—2022. In the last year since 2011, they have—they have delivered better numbers than it was assumed in this different program. Now the new government has destroyed during campaigning and after election in Greece all the numbers. And now it’s difficult to come back because nobody has an idea how we can even agree on a—on a more ambitious program because the key of the problem is not the debt. Restructuring of debt is not a(n) actuality because the Greek debt is—(off mic, technical difficulties)—with low interest until 2020, 2030, for 30 years.

By the way, the average interest rate which is Greece paying for its debt is below the average interest rate the German finance minister’s been doing for the German debt. You have to know this. That is because we have all this finance. You have to know we have, for Greece, financing and assistance in, oh, altogether about 350 billion—350 billion. It’s not—it’s not peanuts. We have—we have agreed on a haircut of the whole private sector in 2011, late—no—yes, by 53 percent. It was—I was the most advocate for this, together with the same Greek finance minister. It was Venizelos. And it was against the IMF, against the ECB. And all these people who were strongly against the haircut have now asked for another haircut. That is quite interesting to have that, therefore.

But the key problem is not the debt of Greeks. The key problem is that one day—2020, 2025—but Greece must be competitive, must become competitive. Otherwise, it’s a bottle without bottom. And you can’t spend hundreds of billions and another hundred of billions in a—in a bottle without a bottom. That is—that is the key problem. And therefore you need to—you need an idea. And until now, I have no new idea. Listen, but we are waiting on Greece government and the negotiations with institutions, what we used to call troika, now it’s our institutions. It’s fine. But we says, until now we have no solution, and I don’t expect that we will get a solution to be in the next weeks. We have the next Eurogroup meeting at the end of coming week, but nobody expects that there will be a solution.

But the key is in Greece, in essence. They have to find a solution, not to say: we will not; or no, we need more money but we will not do more reforms. No program. We don’t need another program. And what else? That is not the way.

I have no answer on your question, actually. But I am patient. I am waiting. And so we will see.

SUMMERS: Is it possible—I’ve heard different views. Some people suppose that, given all that is going on with QE, given all the time that there has been, given that the debt is held in the official sector to a large extent, that if no negotiation could—was able to succeed and Greece had to leave, that that would be very manageable given the—given the magnitudes involved. Others believe that you never know, that LTCM was a surprise, subprime was a surprise, Russia was a surprise, LTCM was a surprise, and that major failures are like pulling one thread in a sweater—it might be fine, or the whole thing might fall apart. Do you—do you believe—we all hope that it does not come to that, but do you believe that the global financial system could comfortably withstand a Greek default or a Greek withdrawal with capital controls if it had to?

SCHÄUBLE: You mentioned—I must not speculate, and I will not. But I think Greece is part of Europe and Greece is part of European Union. And Europe knows and the European Union knows that we have a common responsibility, and therefore whatever will happen we will—we will—we will stick to our responsibilities. That’s quite clear, one—and the number one.

Number two, without any speculation, you can’t see any contagion in markets. If you look at Greece’s pie, it’s not a major part of the—of the economy of the—of the eurozone as a whole. And you can see—I think most participants of financial markets are telling us that markets have already priced in whatever will happen. You can’t see any contagion.

We suffered contagion, I can tell you, in 2010, when you get bad news from Malta or from Cyprus, and by morning a political—so we went to spreads for Greece, for Spain, for Italy raised up to 800 base point compared to Germany and so on and so on. Nothing from—is actually going on. There is no contagion. And therefore, I would like to answer your question with a—we are—I’m quite confident that it will not happen. No damage for global economy, no serious damage.

SUMMERS: I’m going to ask you one more question, and then we will throw this open. It’s a very—this is a very different question than the one that I’ve asked.

There’s been considerable discussion in the United States in the last several weeks about the formation of China’s Asian Infrastructure Investment Bank and the decision of a number our allies to join that bank in the face of what’s been—what was reported as U.S. reluctance about the bank. Say something about—if you would, about Germany’s thinking about that bank, but more generally Germany’s thinking about the rise of China as an economic power and its impact on the global economic and financial system.

SCHÄUBLE: I would start with a remark to this AIIB issue. Actually, I am—Germany’s in the presidency of the G-7, therefore I have the mandate for the G-7 finance ministers. And I was—I was—I was not amused, and I am not amused, that we didn’t get a common position of all G-7 in this. But we managed it. We had—before we have taken—we have—we have decided late. We decided together, with Germany—German government, with France and Italy. U.K. has go ahead, but U.K.’s always leading Europe on the right way, the right direction, as we know. (Laughter.) And I had close contacts with my American colleague and friend, Jack Lew. And we—because—and we discussed it several times in the—in the—together, all G-7 finance ministers, even if we don’t have a common position, that we will have a common understanding. And Jack told me, it’s OK, we can’t—we can’t join because we will never—Congress will never accept and so on, blah blah, blah blah, but we must not discuss. But if you will do it, you European—I don’t know what’s—what will be sort of final decision of Canada. I don’t know the final decision of Japan. We will see. But then you have to stick that—some content of this, of the regulatory framework, all this, will be—and let’s agree on this endeavor. We will even use the meeting in Washington in the coming days to discuss, all G-7 finance minister, on a common position in the content of this coming bank, because I believe, of course, China, India as well—Indian Prime Minister Modi has been the last couple of days in Germany.

And so Asian economies, emerging economies will play a more—a more important part of world economy, that is—we all know. But even this means that—it regrets that our—what we used to call a transatlantic partnership, including Japan by the way, is even more important, I think. If we don’t—if we will not achieve to stand together in this—in this coming development—not only economically; politically as well—the European will suffer, by far. My assumption is that even United States will be much better—in a much better position to have common position with the Europeans, and therefore we should—we should, even knowing, having in mind that the responsibility’s totally different, so we have to cope with China. We have to do whatever we can to get China as much involved in global economy and global framework on their own, or as to—because all the other emerging economies, we are—actually, we are suffering a very difficult fallback in relation to Russia, which is also one of the member states of the BRICS economies. That is a major tragedy, also economically. Therefore, we have to drive whatever we can get to China as much involved as possible.

But having said this, once again, we can much better do it if we—if we stick to a common position in the—in the Atlantic partnership, not only politically but also economically. So therefore, I am very much in favor of the TTIP issue as well, and we have to strengthen this. That is what—the way we have to do if we want to be successful in this new century, which is already 15 years old. It’s not so new. It’s not granted that it will remain a century of the—of the—of the Western world. But if we stand together we can achieve it, because I am quite convinced that most people all over the world, of the 7 billion human beings on the world, deliver on our—on our values—on democracy, rule of law, market economy, social coherence, environmental sustainability, and that (we address ?), of course, involving these major economies. And Asia will have a tremendous influence on the world in these coming centuries, that’s quite sure. But we should manage it, and that is (we address ?) better mutual understanding and cooperation. That’s what I am working for again and again, since 42 years—(laughter)—since you have started your college career. (Laughter.)

SUMMERS: Thank you. Thank you very—thank you very, very much.

At this time we’re going to open up for questions. I would remind everybody that this meeting is on the record, ask people to wait for the microphone and speak directly into it, remind people that we have a one-question-per-customer rule and no compound questions, and encourage people to keep their questions concise.


Q: My name is Lucy Komisar. I’m a journalist.

What is the moral distinction between the obligation of Greece to pay back loans that were negotiated by previous corrupt governments and Germany’s obligation to pay back the loan that the Nazi government extorted from Greece?

SCHÄUBLE: The problem of Greece is not the problem of whether former Greek governments have been a better legitimization than the given government. That is always in democracies. The people elect in a parliament or a president and then this is a given government, and the next government has to take liability from the former government. Otherwise, you can’t—it’s difficult to get the world in a—in a civilized—(inaudible).

Whether Greek governments have been corrupt or not, it’s not the subject to be judged by others. And of course, we know fighting corruption is not only in Greece a problem, but in a lot of member states. But having said this, the problem of Greek is not the loans given. The problem of Greece is the lack of competitiveness. And the problem of Greece is that Greece has enjoyed, since having joined the eurozone, low interest rates. And they didn’t use this opportunity to increase their competitiveness, what has been the assumption in joining the eurozone.

So what is the German, you can’t—would you really compare a former Greek government with the Nazi—with the Nazi times? It makes no sense. And having said, I would like—I have been born in 1942. I have the memory that in—since 1945, Germany had not any sovereignty. We had—it was—in some way it was something like—(chuckles)—the end of German history as a state. And we only regained our full sovereignty in 1990—in 1990—on the start of October, 1990.

And what we have to—what we have—how we had to deal with our ongoing responsibility for our past. And I feel strongly responsible for the heritage of German history, to be very clear. But you can’t mix it, the one with the other. And we have international rules. We have international law. We have international courts. We accept all decisions of international courts, even the criminal court. Not any well-admired member state does accept membership in the International Criminal Court, by the way. For example, we do—of course, we do, German. But having said this, it’s nothing to be compared. I’m sorry. I have no idea to compare this.


Q: Hi. I’m David Malpass with Encima Global and a columnist with Forbes.

I want to ask about the reform programs themselves. Most of the fiscal discipline has taken the form of higher taxes. This is in Greece, in Italy. And the countries would be more competitive if some of the fiscal discipline was on the governments themselves. They still run very big parliaments, big military, in Greece, that haven’t been downsized. Couldn’t you get competitiveness by focusing more on government spending on itself? And you could have a big influence on that through the troika.

SCHÄUBLE: Yes, but the room of maneuver for these three institutions—IMF, ECB and European Commission—is a little bit limited, of course. I say—imagine, it’s not the German finance minister who have negotiated the details of these reform programs for Greece or any other member state under program. It has been these three institutions on behalf of their expertise and their independency. But of course, they have limits. And when Greek governments have said, no, we will not—we are not ready to reduce our expenses for military, we blah, blah, blah, blah, then they have to find other ways.

By the way, the most important thing they achieved in the last couple of years was reducing wages, and reducing wages increased competitiveness. And if you look what’s going—what have—what have been in the Greek economy in the last couple of years, they have regained some competitiveness. Therefore, they got a—they achieved a primary surplus for the first time since decades in the last year. In the last couple of months, they have destroyed this development. It’s a tragedy. But they had achieved. And the perspectives to increasing primary surplus have been very, very good, very positive. (Inaudible)—reducing wages, but they are still—the minimum wage in Greece by law is still higher than the minimum wage by law in a lot of member states of the eurozone. But the other member states have to pay for Greece. Therefore, it’s so difficult.

Reducing expenditure by government is, of course, the most important thing, but it’s—you have always to negotiate with the—with the government of the member state concerned. They did something, but by far not sufficiently. Of course, I can imagine it’s very difficult, and therefore I have always been—in German public discussions, I have always been asking German public to be a little bit more generous in relation to Greek—to Greek people, because the institutional framework increase is not to be compared with other European member states. It’s one of—but that is not on behalf of the—it’s not on the—the vote and the responsibility of the Greek people, but it’s a matter of a different tradition, a different historical heritage.

You may have in mind Greek has joined, on behalf of the rules of law and becoming a democracy, only in the late ’70s the European Union. Therefore, it’s—you have to have all this in mind. But I would strongly join you. It would be much better still Greek has—even today the relation between civil servants and population is in Greece still higher, much higher than in the areas of the eurozone. And there is—but maybe—I have got in newspapers, my Greek colleague and friend Yanis Varoufakis is also in Washington tomorrow—in Washington. So you should discuss with him, cut your public expenses more. That would be a good idea, to solve the Greek problem. (Laughter.)

Q: Thank you.

SUMMERS: George.

Q: George LeMieux (sp)—(off mic).

STAFF: Sir, the microphone.

Q: Mr. Schäuble—

SCHÄUBLE: There’s the mic.

Q: Oh, thank you.

A question about the institutional structure of the euro. It’s commonly thought that a common currency needs a lender of last resort, an institution specifically which can intervene with individual banks and deal with questions of liquidity, solvency and so forth. And there is a view that in that context the European Stability Mechanism, which is often talked about, is insufficiently capitalized and too constrained to really be an effective organization of that—with that, playing that role. What is your view?

SCHÄUBLE: It is—you is partly right. The European Stability Fund is only being created for the stability mechanism in times of the euro crisis. And as I have tried to say in my first reaction to Larry, the given construction of the eurozone is, on the long term, insufficient.

You may remember when we had this discussion in the late ’80s and then in the ’90s on a monetary union in Europe. A lot of people, especially the then-German government with Chancellor Kohl, Minister of Interior Wolfgang Schäuble in that time, had been asked—had asked for a political union as a precondition for a monetary union. But some other member states in Europe were not ready for a political union. Therefore, we have said, OK, let’s start with a monetary union and with a pact on stability and growth, and then we will go on step by step to—we failed with respect on stability and growth, that this was 10 years later. And now we have—and I am working again and again in German government, Chancellor Merkel and her finance minister. And then I have been vice chancellor. We all are working for strengthening the governance of the eurozone. At the end, this will require treaty changes in Europe. But it’s difficult to get. But on some day we will get, I bet—as long as we don’t get it, because you can only get treaty changes by a unanimous decision of 28 member states, including United Kingdom. Good luck. (Laughter.) Yeah, it’s a given situation. You know there will be maybe a referendum after election in the U.K., and—well, let’s wait.

Having said this, we will have to do it in an—what we did with the fiscal compact and with all the fiscal treaty on the—in an unperfect way. I don’t want to say it’s the best. It’s only what we are—always agree are second-best solutions. But second-best is better than nothing. But second-best is never enough, therefore we have to work on. Therefore, we have to increase the coherence in the governance of the eurozone. But we have to have in mind, as long as we don’t get it, don’t underestimate the dimension of moral hazard.

I know a lot of American economists—my good friend, Tim Geithner, he said, oh, no, he don’t take this moral hazard issue not so serious as some—as some stupid people in old Europe. But having—in the—in the construction of the eurozone, the moral hazard dimension is really crucial, because if you have a parliament who can avoid to take a decision which is not beloved in their constituency, what is always the problem in democracies, and you have more—in the short term a more convenient solution to spend on the liability of somewhere else, that’s a temptation you always—you will never success.

Therefore, we have to move—by the way, so ESM has a capacity of 500 billion. It’s not peanuts. We have really paid in capital, not used—no cent is used by 80 billion paid-in capital. That is not peanuts. And we have the European Central Bank as well, with some power if—Larry has just mentioned. But it is not enough. We have to work on it. Europe is ongoing story, but not hopeless. (Laughter.) Oh, absolutely not.

Q: Gregory Maniatis, Colombia University.

You say about Greece that it’s about competitiveness, but you can’t be competitive if you’re corrupt. The OECD and many others have insisted that the EU should adopt uniform public accounting standards. If Greece had those standards, you’d be able to see where the money went. And also, I think the scary level of debt, at 170 percent, would be much lower. Why does Germany oppose that?

SCHÄUBLE: I didn’t get your question. I’m sorry.

Q: Greece has terrible public accounting standards. Many European countries do. You don’t know what the real level of the debt is unless you have accurate public accounting standards.

SCHÄUBLE: Accountability standards?

Q: Public accounting standards—counting where the money went and counting what it is that you owe. Switzerland, Norway, Canada all have something called IPSAS. The OECD has asked the EU to adopt European public accounting standards. You’d be able to see where the money went. Why not?

SCHÄUBLE: It’s a little bit more difficult. It would be—it would be very—it’s a very complicated issue, these accounting standards. It’s not the solution for our problems, to say that. I would—I would—I would be ready to discuss this for a long time, but it’s not. I can tell you; to make a long story short, it’s not the solution for the—for the—we know—we know what the problem is.

There is—we have different traditions in accounting, reporting. We have different traditions in surveying public expenditure. And look, a member—a nation-state like France has a long and very specific tradition. And they have—they have a lot of reasons to be very proud on their history, since there’s some centuries even before the United States have been on the—on the—on the map, on the global map. (Laughter.) Yes, Europe is an—is an old continent. You are a young, dynamic continent and world superpower. It’s not to pick (at it ?). Having said this, it’s not the—it’s not the crucial problem, these common accounting standards. Sorry.

SUMMERS: In back.

Q: Hi. Hi, thank you. Terra Lawson-Remer with Brookings.

And I wanted to ask about one aspect of trade and investment agreements currently under negotiation, and this is the investor-state dispute settlement mechanism, ISDS. I know this has garnered pretty significant opposition domestically in Germany. And I’m wondering your view on its inclusion in many of the agreements, including the Trans-Atlantic Trade and Investment Partnership.

SCHÄUBLE: (Laughs.) I can’t—I can’t—I must not go in any details because I am not the responsible member in our government. That’s my first excuse not to—(laughter)—to react to your—it’s to my—it’s with a colleague, Minister of Economy Sigmar Gabriel. And he suffers a lot of problem as president of his party, which is not my party.

And of course, you know, it’s a long story. In Europe is—and not only in Germany. Not only in Germany. It’s in the European Parliament. It’s a lot of European member states. You have to have in mind this in United States. There’s an increasing reluctance on a lot of issues in—together—which are linked with this Trans-Atlantic Trade and Investment Partnership. I am strong in favor of this, and we have to work to overcome this. But we have to know that we should—we have to have in mind on both sides of the Atlantic that we have to do better than we did in the last couple of years to convince our fellow—our fellow citizens that Atlantic partnership is—counts and is important. Otherwise we will fail. And that you—and any specific issue—you can see we disagree in what is food protection. I think we should come to a common solution on this.

But this request—and a general understanding of reciprocity. If everyone it saying, oh, I am—I have the right thing—we have the—we have the very important issue of data protection. By the way, I am really not amused that we don’t understand that we in our—in our Western community of values should care on this. I have—I think I have already mentioned this issue with the Council. (Laughs.) We should care on this issue. But how does this new technology of communication fits with our—with our understanding of human values? It’s a question that is not solved. It’s not even seriously discussed. If we will not—look what we suffered in the last—in the last couple of years with data protection, including NSA, what is—I was always a little bit—I was not amused on my—on the German reaction on this, but I was not also amused on some behavior in the United States, as you all know. Therefore, we—if we want to succeed, we have to work for common understanding. And this requests some basic understanding of reciprocity. If some are saying, no, we have our roles, it’s fine, and the rest may see what they will do, we will never—we will never achieve it. Reciprocity is a precondition for overcoming some differences.

That’s a more philosophical answer, but I think it’s the right time to make such a philosophical remark at the Council on Foreign Relations.

SUMMERS: Last question. Yes?

Q: Hello. Andrew Nagorski, formerly of Newsweek in Bonn and Berlin.

And I—you briefly alluded to Russia and Ukraine. And I know you will say it is not responsibility right now, but what—

SCHÄUBLE: Oh, Ukraine is hardly my responsibility.

Q: Yeah, right. OK. So good, good—OK.

SCHÄUBLE: Finance minister—(inaudible). Finance minister—(inaudible).

Q: Quite determined. All right, if there is an offensive against Mariupol, as many people expect, what happens on sanctions? And what else happens in terms of Western—European and American reaction? And what is wrong with giving Ukraine weapons to defend itself?

SCHÄUBLE: One minute. (Laughs, laughter.)

No, I would say, first of all, this conflict cannot be solved by military instruments. It is not to be solved by a military instrument. That is not the way. (I mean ?), we all agree, even U.S. president and U.S. government. We do agree on this with them. And we tell President Putin, you can’t—you can’t change the map of Europe by military force. You can do it maybe for some—for some time, but we will not accept it.

Second remark, I think Putin did not expect a common European reaction which have sustained since months and months. Quite surprising. Not easy to get. I am happy not to be the one who has to get this. (Laughs.) It’s my friend Chancellor Merkel who has to work this. But she did it, together with others—Mr. Hollande and all these other people. And we will continue to do so. We will not—(inaudible). Nobody of us will—no one of us will answer what will happen if there will be a Mariupol. That would be—it would be the same as I would answer the question how far will the euro fall down. (Laughs, laughter.) I will not answer, of course.

But I will tell you, we are working to avoid this. We are working to make clear we will not accept. You can’t—we will not fall back in this history of, as I said, a hundred years ago, that you can—you can change with military force, with threat and so on and so on.

For this we need the United States. You have seen when American troops move through Poland the reaction of the Polish. Yes, that is quite clear. We know we need U.S. We know that we have to care as European on this matter. We do it better than most have expected that the European would do. But it’s still difficult to get it. It’s difficult get—a difficult job.

We have—we will—we will use the coming days—even the finance ministers, which are not the most important in this game. Our foreign minister had spent the last Monday with another meeting with his colleagues from Russia, Ukraine, France in trying to get the Minsk Agreement implemented. I will meet with my Russian colleague and say: Yes, you, Russia, must look that the Minsk Agreement will be implemented, that we can start to work together to do something to assist humanitarian in the southeast of the Ukraine. But the precondition is blah, blah, blah, again and again.

But having said this, I think we will continue to make sure, saying there will be no military solution, will not be misunderstood by no one, even not by Mr. Putin, that he can do it. In the short term he may feel himself a little bit in a better position. In the medium term, he is not—by sure not. And therefore, I am—I am quite optimistic that we’ll—the Atlantic community, the European Union and the Atlantic community, will be strengthened.

Therefore, I like to make jokes. And therefore I have—some months ago I have said maybe someday—in Europe, there is a prize for merits for European integration. It’s the Prize Charlemagne. It’s famous in Europe. And I have said, maybe one day Putin will get the Prize Charlemagne for merit for European Union—(laughter)—because he will tell the Europeans: You Europeans have to stand together, together with your American friends, and the world will be better off.

Thank you very much. (Laughter, applause.)

SUMMERS: It has been our honor to have you, Minster Schäuble. We are adjourned. Thank you very much. (Applause.)


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