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Eu­rope is Ger­many’s most press­ing na­tion­al in­ter­est

Ahead of his trip to the Iberian Peninsula, German Finance Minister and Vice-Chancellor Olaf Scholz gave an interview to the Spanish newspaper El País and the Portuguese newspaper Expresso. The Spanish interview was published on 1 March 2019 in El País and on 2 March 2019 in Expresso.

Olaf Scholz
Source:  El País / Patricia Sevilla
  • Date 1 March 2019

El País: How worried should Spain, Portugal and Europe be in general about the German economy? The figures for Q4 2018 and the lowering of the growth forecast for next year (1.8 % to 1.1 %) have had quite a deep impact in Europe.

Olaf Scholz: There is no reason for Spain or Portugal to worry. Germany´s economy is robust and still growing, but not as fast as in the recent years. We have record levels of employment and even have a growing need for skilled labour in our country. If we address this demand by improving the free movement of labour within the EU, I expect additional growth impulses.

El País: Some say that Germany and the eurozone may be on the verge of a recession. But you don't agree with that.

Olaf Scholz: No, I do not agree. If you look at all the economic forecasts you will notice that they agree: The global economy is growing, the same is true for most European countries; the growth rates are just slowing down a little. This reflects the tensions that we can currently observe in the world economy – among other things, the trade tensions between the United States and China, the possible trade tensions between the EU and the United States, the risk of a Brexit. But there is a good chance that the economic upswing in the EU, which has been going on for some time now, will continue - both in terms of employment, industrial production and trade. Ultimately, I am optimistic.

El País: But we still don’t know what’s going to happen between the United States and China. We don’t know what’s going to happen with Brexit. So actually the risks are still there and also the risk of a recession. What are your plans to tackle these risks?

Olaf Scholz: First, I very much support the idea of rules-based free and fair trade in the international arena. I support the idea of a multilateral order and cooperation. It helps us that we stand united in these questions within the European Union, because Europe is stronger when we act in concert. This gives us the power to safeguard our consumers, our jobs and businesses, our European way of life, which is especially important for trading nations such as Germany that are highly integrated into a globalised economy.

El País: Due to the forecast for the German economy that you mentioned, you know that the years of plenty are over and the belt will have to be a bit tighter now. Does that mean less public investment again?

Olaf Scholz: I was referring to the fact that we can no longer hope to collect more revenue at the end of the year than we had predicted at the beginning. The German budget is large, and we are investing record amounts in our infrastructure, in housing, trains, railway tracks, in the maintenance of our roads, in research and development, and some other things that are key to supporting the growth of our economy. And we will maintain these high levels of investments. I keep emphasising that we can finance everything that we consider important, as long as we follow clear priorities.

El País: Why haven’t you been spending more in the last few years? This is one of the alerts from the European Commission, namely that the surplus in Germany is also an imbalance as is the deficit in Portugal.

Olaf Scholz: If you look at the German economy and the labour market, you will see that we have spent a lot of money. And when I became Finance Minister last year, I even increased public investment. Furthermore, we reduced taxes for low and middle-class incomes to increase the spending power within our country. We increased social welfare spending, and we implemented and raised the minimum wage.

El País: So, you don’t see it as an imbalance?

Olaf Scholz: The reason for the surplus of the German economy is the big Mittelstand sector, small to medium-sized companies that are effective on a global scale, competing with companies in Latin America, Asia, in the United States and in Europe. It’s important to ensure that our competitiveness, which is an asset, benefits everyone, through good education and training. Social cohesion is also very important. All this combined enables us to address technological and social change with courage and confidence. Germany and Europe need to be open to the world, to technology and to progress.

El País: If we look at the European Union, we’re thinking also about the upcoming European elections and the growing distance that many citizens in different countries feel towards the institutions. We were wondering to what extent the economic policies of recent years have played a role as a factor for this detachment and for this discontent that is reflected in votes for populist parties and also anti-European attitudes.

Olaf Scholz: It is a fact that public confidence is decreasing in modern societies despite good economic indicators, especially in countries that were once called the industrialised West. This resulted in the election of Donald Trump in the United States, the decision in the United Kingdom to leave the European Union and, to some extent, to sombre moods in some other countries as of late. People are growing weary of the promise that if you work hard and play by the rules, you and your children will get your share and succeed in life. Technological progress and the sheer velocity of change in the economic sector put this promise in jeopardy. But people need hope and confidence to make a difference in our countries. Restoring this confidence is a Social Democratic project. And the main question is how we can shape digitalisation and globalisation so that everyone benefits. I think one way to address the sense of insecurity is to guarantee stable pensions and ensure decent wages as well as good education.

El País: This social agenda isn’t it against the policy that has been emplemented in Europe in recent years and also defended from Berlin? You mentioned education services but the austerity agenda - with cuts, with less spending - to what extent is that also a lesson that we can now learn from in the coming years?

Olaf Scholz: No, it is the other side of the coin. It is wise to keep your finances in good shape in order not to be too dependent on the financial markets. This is why we agreed on common rules for the eurozone. We all have to ensure sound public finances, further social coherence in Europe, and to improve the environment for living and for doing business in Germany and in Europe with the help of targeted investments. Let me give you an example. When the financial crisis hit Germany in 2008/2009, we spent great sums of money to stabilise our economy and raised the debt to 80 percent of GDP. Now we are back to 60 percent, which is important because it gives us leverage if a new crisis arises. This will not only help Germany, but the whole euro-area because of the impact of the German economy. And as one part of the process for cohesion, we need a support instrument for national unemployment schemes in the different countries. The US has had such a system for a long time…

El País: Why don’t we have it?

Olaf Scholz: Well, I put a proposal on the table, which I think is getting increasing support in Europe.

El País: When could we have it? Next century maybe?

Olaf Scholz: No, this would be too late. (laughs). But too often, European political debates take the form of – currently 28 – national monologues. Therefore, an essential step in strengthening the EU is to move towards a genuinely European political sphere in which the national perspectives play a less important role. And I can tell you that, in the case of this re-insurance scheme, I am absolutely in line with my friends, my social democratic and my socialist friends from Portugal and Spain.

El País: In Brussels we have the feeling that it didn't move forward because Chancellor Merkel didn’t want it to.

Olaf Scholz: I think Europe must think and act more politically. For too long, we thought in terms of the single market, which is important, because a strong European home market is the basis for the success of many of our companies worldwide. But a strong and sovereign Europe has to go beyond the internal market and provide solutions for today’s pressing political issues. Let me name a few: foreign policy, defence, the protection of our common borders, the migration of refugees – all these questions have to be addressed. And they shouldbest be addressed with a European answer.

El País: In many of these aspects there is a growing feeling among the member states that Germany is acting unilaterally. I’m thinking of Nord Stream 2, and the arms exports to Saudi Arabia.

Olaf Scholz: I do not share this feeling. On the contrary: Europe is Germany’s most pressing national interest. To solve many of the urgent challenges we face, we need common European decisions. Democracy is always about jointly determining the right way forward based on differing positions, it requires a culture of debate and a willingness to compromise. Germany will use its political influence to make Europe stronger, together with our partners.

El País: You did not answer the question. Do you think you would be able to convince your government to accept an employment insurance scheme at the European level and the same for the European deposit insurance scheme (EDIS)?

Olaf Scholz: I would not have proposed establishing a European Unemployment Stabilisation Fund that would temporarily support national unemployment schemes in times of crisis, if I thought it impossible to implement. What we have to learn and accept in Europe is that some ideas need time and debate. Politically, I am convinced that we need a social agenda, a system of minimum wages in the different countries and a support instrument for national unemployment insurance schemes.

El País: This is your point of view. But is this the German government point’s of view?

Olaf Scholz: Again, let us discuss such proposals – that is how democracies work. There has to be a European approach and not only a national agenda. A social democrat from Spain and a social democrat from Sweden, for example, will find that they share many of the same opinions and together engage with people from different political sides – just like in national politics. The underlying idea is that as a politician you get support by convincing others.

El País: Would you convince the rest of the Eurogroup to get a European budget?

Olaf Scholz: We are in the middle of this discussion. Within the Eurogroup we had and still have different opinions on this matter, but we are getting closer to a solution. The agreement in December was a breakthrough. For the first time we now have a mandate to work on a budgetary instrument concerning competitiveness and convergence in the eurozone. As the finance minister of the largest member state, I feel an obligation to work towards European compromise. Which is how I want the French-German proposals on these issues to be understood: as a basis for discussions with our European partners. I think it is realistic to think that we will have an agreement.

El País: What size should it have in order to be effective?

Olaf Scholz: At this stage this is not the right debate, because we link it to the multiannual budgetary framework for the European Union in order to avoid doubling the instruments for convergence, which are already in place and financed by the EU budget. Thus, defining needs and possibilities in the context of the next multi-annual budget, which will set out Europe’s strategic priorities for 2021-2027, will have an impact on the size of a eurozone budget.

El País: Macron said it should be several percentage of GDP. Are we there?

Olaf Scholz: The goal is that with this special budget we will enable a country to not have to reduce its investments in a difficult economic situation.

El País: Your party, the SPD, just presented a document that is considered to be a shift to the left. Do you think that is the direction social democracy in Europe should take, and to what extent is that compatible with the government coalition in Germany?

Olaf Scholz: We are the oldest democratic party in Germany and combine cosmopolitanism, practical economic sense and governmental competence with our strong commitment to social issues. That is unique in the political landscape. And we do have to give answers to people, who sense insecurity and fear fuelled by populists. A more political EU in the sense that I have described would allow us to make more progress with many of the issues that European citizens care about most. I have said this before, and I will say it again: A strong and united Europe is Germany’s primary national concern. We will continue to champion it. Because doing so is in our national interest, as it is in the interest of all Europeans, but also because it is the right thing to do.

El País: Is it compatible with the Christian Democratic Union?

Olaf Scholz: We have a great coalition in Germany with the Social Democratic Party and the conservatives being major competitors. It is always a special thing to cooperate even though you follow different political perspectives. My view is two-fold: we have to be pragmatic in solving the current challenges for our country and on a global scale, but it is absolutely necessary that the SPD develops views on the political perspective for the 2020s or 2030s, which are different from those of the Christian Democratic Union.

El País: Spain is often portrayed as a model of a country that adopted reforms and overcame the crisis, but also in Spain there are growing worries about inequality and unemployment. Which should be the European and the German response to the current situation?

Olaf Scholz: I do not see the role of Germany within the European Union as giving advice to others; that is not my style. I am following the debate and discuss with Prime Minister Pedro Sánchez and my counterpart Nadia Calviño. I think they understand the country´s situation well and follow the perspective of balancing social and economic interests, of worker participation and social security – a model that gives the large numbers of innovative people in our countries the freedom to pursue their ideas, to the benefit of all. My view is that an open-minded society needs social cohesion and I understand it as the Spanish and Portuguese government´s approach.

El País: Are Portugal and Spain independent in terms of the markets? They still have to decrease deficits. In Portugal there is a big discussion about nurses and hospitals, and where you cannot put the money because of the deficit.

Olaf Scholz: Yes, they are. But it is a question for all of us being a grown-up. Things you wish and things you can afford always need careful balancing. This is true for a family, a city, a state or a country. Just collecting ideas of what you can do, is not a political view. I think Portugal and Spain are doing well.

El País: You spoke about European champions and what can be done to tackle external risks. This month, German Economy Minister Peter Altmaier put out some plans considered protectionist by some. In Portugal we sold our main energy provider to state own Chinese companies. Is this a good thing for Europe in terms of security that strategic assets are being sold to China?

Olaf Scholz: First, there is not one right answer for every country. Second, there is no way that a company can be successful if it is not able to compete on the global scale. Third, we need to understand how to make it easier for someone who is successful with a good idea, to develop the ability, competence and strength in order to succeed on the market of 450 million people in the European Union.

El País: You mentioned you would be up for the chancellor job. Are you still up for that?

Olaf Scholz: The next general elections will be in 2021. And it is important that parties have politicians who believe themselves capable of taking on such a role.

El País: So yes.

Olaf Scholz: (Laughs).

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