Speech by Andreas Künne, Minister, Economic & Global Issues

given at the Annual General Meeting of the Southern African-German Chamber of Commerce and Industry
Johannesburg Country Club
 
Mr. President, dear Mr. Donauer,
Members of the Directorate and of the Senior Council,
Mr. Boddenberg, dear Matthias,
members and friends of the Chamber,
distinguished guests,
ladies and gentlemen,

Thank you very much for the kind words of introduction. And thank you very much for inviting me to today’s Annual General Meeting.

Enlarge image In the 20 minutes allotted to me, I would like you to join me for a tour of the world economy, of Europe and the Euro, Germany, South Africa and the BRICS. At the finish line of this tour, there will be – what else - the Southern African-German Chamber of Commerce and Industry.
 
These are difficult times for the world economy. China’s Central Bank lowered interest rates last week for the first time since 2008. The US GDP growth figures for the first quarter had to be revised downwards. Brasil’s GDP growth is minimal. India is in the spotlight of very unfavourable attention from the rating agencies. Japan and Great Britain do not farewell either.  
 
The usual avenues for alleviating this situation appear to be blocked: the room for fiscal stimulus in the US is extremely limited, with the infamous “fiscal cliff” looming early next year. China focuses on tackling its internal structural problems. Money has become tight again. It seems that the crisis of 2008/09 has been solved only on the surface. The crisis has all the appearances of being a shape shifter, of having morphed from a crisis of the private financial sector into a crisis of public finances.
 
And in the midst of all this – or, as world opinion has it, at the heart of all this – lies what is commonly called the “Euro crisis” – which is not a “Euro crisis”, but rather a sovereign debt crisis. The term “Euro crisis” may be convenient, but it is misleading. In the first ten years of its existence, and indeed until today, the common currency has been remarkably successful by any standard. Its exchange rate is as stable as that of the Deutsche Mark. The Euro has assumed the role of a second global currency. In times of globalization, the Euro was the right thing to do.  As German Foreign Minister Westerwelle recently said: “If we did not have the Euro, we would have to invent it now – as a lesson learnt from today’s financial crisis that would have had worse effects without the common currency.”
 
What we are facing today is primarily a “sovereign debt crisis”. A number of European countries no longer enjoy sufficient confidence within the financial markets.
 
Germany and the “Euro-Crisis”
In most of the English-language media around the world, Germany is being described as holding the keys to solving this crisis of confidence. If only Germany moved, we are given to understand, things would finally start to move in the right direction again. Most of this can be summarized in a very simple formula: Now that you have ruined Europe’s weak economies by relentlessly insisting on austerity, turn around. Open your coffers, pay for everybody else’s debt, introduce Eurobonds – and then everything will be fine.

Enlarge image (© dpa/Pa) This advice is based on the perception that all we want is austerity. It is true that austerity is crucial. We all know that sound public finances are a precondition for macroeconomic stability. But what has largely escaped the media’s attention is that we Germans are also pushing for increased competitiveness, increased productivity, employment and investments.
 
Let me start with austerity. Over the last decades, debt levels in the industrialised world have risen to unprecedented levels, including in Germany. With the crisis of 2008/09, these levels rose again, by leaps and bounds.  And when recovery began in 2010, only very few countries started to reduce their debt levels again. This is unsustainable. A debt level of 160 percent and more, as is currently the case in Greece, is ruinous. This is why Germany played a leading role in establishing new rules for the Euro zone.  Let me focus on the two most important ones:

The Euro Plus Pact of March 2011, also known as “Stability Pact 2.0”.  This revised version of the old Stability Pact foresees that if a country breaches the deficit or debt limit, counter-measures will begin automatically. And these counter-measures have real teeth. Highly indebted Euro zone members have to reduce the difference between their actual debt level and the 60 percent limit by 1/20 every year. If a state fails to do so or breaches the 3 percent deficit mark, it will have to deposit 0.2 percent of its GDP in Brussels. This is a lot of money. In South Africa, it would amount to about 650 million dollars.

The Fiscal Pact of March 2012, which introduces an enhanced coordination of national budget policies. It introduces the famous German “Schuldenbremse” - a “debt-brake” – in the legal framework of all EU member states (except for the UK and the Czech Republic). This debt brake means that the annual structural deficit must not exceed one percent of the GDP. If breached, an automatic correction mechanism sets in. When this Pact succeeds, “Schuldenbremse” will become as much a household term in most languages as “Oktoberfest” already is – and while the one is undoubtedly and deservedly so much more popular, the other one stands for the only sustainable way out of a fiscal crisis.

Sovereign debt in a monetary union

These are revolutionary steps. Member States have given up part of their fiscal sovereignty. They are no longer the only masters of their national budgets. If somebody had been here three years ago and predicted just that, most of us would have declared that person either extremely naïve or completely round the bend. And yet, Europe has always been at its best in times of crisis. With these new rules, there is a way of enforcing reasonable fiscal policies. To be perfectly clear: Germany was not alone in pursuing this new set of rules. We were strongly supported by a good number of our European partners, and we still are.

Enlarge image (© بيكتشر أليانس ـ دي بي إيه) Events in Spain show that we have not gone far enough yet. In an interview last week, Chancellor Merkel underlined that we need more Europe, not less. It is not Eurobonds, though, which are the way out of the crisis. Eurobonds mean that those who performed well are being punished for performing well, and that those who did not perform well are being commended for failing. This is not a sustainable solution. You cannot give incentives to those who underperform. And you will not be able to garner German public support for this policy.
 
Besides, no wall of money reaches heaven. As soon as we have Eurobonds, some actors on the markets will demand a new, even costlier instrument.  As Chancellor Merkel said: What we need is more Europe - in the form of a fiscal union, in the form of a common budgetary policy. This is what we aim for. As processes in Brussels go, this next revolution will not happen within a day.  But European leaders are confident that we have more than the three months Madame Lagarde mentioned the other day.
 
Next Sunday, Germany will play Denmark in the Euro 2012 in Lemberg, Ukraine. Most of us will watch that important match. Even though the going has been good for our team up to now (remember Holland), we are not through to the quarterfinals yet. And even though Euro zone leaders have done a lot already, we are not through on that front either. This is why next Sunday will see an even more nail-biting event than Germany playing Denmark, and this is the elections in Greece. These elections might turn into a watershed moment for Greece. Germany is committed to solidarity with all our partners. We commit very substantial funds. At the same time, help can only be given to those who accept it. Let me be clear about this: It is a watershed moment for Greece, not for the Euro zone.  Greece accounts for 2.6 percent of the Euro zone GDP. So, as important as psychology is on the markets, we need not run scared.
 
Austerity is of utmost importance. The sovereign debt crisis was a long time in coming. We all turned a blind eye to it. But reducing structural deficits is only one side of the coin. Solid finances are not enough. You also need competitiveness. We have always been convinced that investments in long-term growth must be the other side of the coin. We need to increase employment, investments, productivity and we need well-functioning markets.  This is what makes an economy competitive, not fiddling with your currency.  Germany successfully demanded that the EU provides incentives for employing the young, that the conditions for employment are improved in the economies of Southern Europe, that the funds of the European Investment Banks are increased in order to provide for investments in infrastructure, telecommunications and so on.

Enlarge image Angela Merkel with colleagues at the G8 Summit (© picture-alliance/dpa) Unfortunately, this side of our policy has not commanded global attention. This is why everybody was convinced that with the election of Francois Hollande, the Franco-German partnership would find itself in deep waters. Let me stress this: It does not. New leaders set their sights on new lights, they shift focus. This is what is happening at the moment. Given that we Germans have always strongly advocated for enhanced productivity, employment and investment, the differences are in form, not in substance.
 
Germany is doing its homework. We are reducing our debts. The unemployment rate is at 6.7 percent, well below the three-million mark. Inflation is at 1.9 percent, consumer confidence is stable. The figures are still good. Let’s not get carried away too much by perceptions, let’s remain sober Germans (and South Africans) and stay focussed on what we have and where we need to go. Germany is willing to play its part. We are not, as you might think when you read some of the editorials these days, either the saviour or the ruin of the world economy. The far right is not on the rise, nor will it. We are, instead, ready to invest even more in creating the conditions for growth. We do show leadership. And we show solidarity with our partners in Southern Europe and in Ireland. Combined, our crisis response and prevention mechanisms amount to 800 billion Euro.  Germany alone accounts for 27 percent of the funds provided.
 
South Africa & Europe, BRICs
I will not bore you with remarks on South Africa’s economic and social situation. You are way more experienced in this country than I am. I would like to dwell on two points, though: The connection between South Africa and Europe and the rise of the BRICS, with the opportunities this creates for us.
 
All of you experience on a daily basis that events in Europe have direct repercussions on South Africa. The EU is still South Africa’s biggest trade partner. And Germany is number two for South African trade, with a trade volume of almost 15 billion Euro last year. To make matters even more difficult, South Africa’s crucial manufacturing sector largely depends on its exports to Europe. Old wisdom has it that when Europe coughs, South Africa risks catching a flu. There is some truth to this. When my South African counterparts insist on decisive action in Europe, and insist on being informed about our plans, they do have a point. When you have to eat the soup, you would much rather be in the kitchen as well. This is why we engage with our South African partners in the G20, also in preparation for the upcoming G20 summit next week.

Enlarge image Flags of Germany, the European Union and South Africa (© photothek/Th.Trutschel) Not everything that is a bump in the road for the South African economy, though, can be led back to events in Europe. We welcome the clear diagnosis of the state of South Africa’s society and economy tabled by the Minister in the Presidency, Trevor Manuel. We enthusiastically welcome the ambitious infrastructure programme introduced by President Zuma. I know that all of the companies here stand ready to participate.  We count on you to make important contributions to the realisation of these plans, and you can count on the full support of the Embassy. What is important now is that the first spades are being pushed into the grounds. Earth needs to be moved, trains need to be built, and soon.
 
From the South African perspective, trade with Europe is already where trade with China and India should be going. It is not entirely balanced, but the composition is right. It is not the export of raw materials which dominates our bilateral trade. Instead, South Africa exports a substantial amount of manufactured goods to Europe, many of them to Germany.   The situation is much different in the South African trade with its BRIC partners. More than 90 percent of South Africa’s exports to China are raw materials, and figures for India are similar. While this is not surprising and basically reflects the economic balance of forces, it needs to be taken into account amid all the BRIC-enthusiasm. The South African government is focussed on changing the trade balance with the BRIC partners.  Let me make a point here you do not hear too often: I am convinced that this entails enormous opportunities for German companies.
 
South Africa will host the next BRICS summit in 2013. One of the results should be the introduction of an intra-BRICS development bank. We already see credit facilities in BRICS currencies. Better market integration, an improved telecommunications infrastructure between the BRICS partners, improved transport links are in the planning phase. We should see this as an opportunity. Better market integration and infrastructure are in everybody’s interest. German companies with their strong ties to China, India, Russia and Brazil are excellently positioned to profit from better integration within the BRICS. The South African government’s ambitious plans to improve intra-African infrastructure, financed in part through BRICS funds, provide even more opportunities. As long as nobody puts all his eggs in one basket, all of us stand to gain.
 
The Southern African-German Chamber of Commerce and Industry
It is time to turn to the Southern African-German Chamber of Commerce and Industry. A chamber unrivalled in South Africa, but not satisfied with resting on its laurels, instead constantly being on the move. The services provided go far beyond the ordinary.

With the recent opening of the office in Durban, the Chamber has cast its nets out to KZN. 

Enlarge image Workers manufacture the C-Class Mercedes-Benz in East London (© MBSA) The initiative started by Matthias Boddenberg to install Chamber branches in the wider SADC region helps German business profit from the positive trends evolving in countries like Mozambique. The regional policy followed by the Chamber enjoys the full support of the German government, in words and in deeds.
 
With the SA-German Training Services, the Chamber offers valuable support to both German and South African companies. Under the leadership of Henry Höse, SAGTS is being consolidated and evolves into a major player on the Gauteng training market. 
 
With the Competence Centre on Corporate Social Responsibility coordinated by Silke Partner, the Chamber has become a respected actor in a field of considerable importance to business in South Africa. And, last but certainly not least, with the introduction of the Code of Ethics for all Chamber members, this Chamber leads the way in South Africa. Let me quote from instructions I received from Berlin just last Friday: “Corruption hurts the competitiveness of German companies abroad. Where corruption exists, it endangers a country’s economy. The German government has an interest in German economic success abroad being achieved by legal means. This is the only guarantee for “Made in Germany” being respected for good and fair corporate governance.  This is in line with the policies followed by German companies.”
 
By introducing the code of ethics, the Chamber and all its members demonstrate their commitment to fair business practices. I congratulate you on being the first to do this in South Africa. And I appeal to all the other business organisations here to follow this example.
 
Let me conclude by turning to the members of the Chamber, to the South African and German companies present. You employ tens of thousands of people, providing livelihoods to their families. You train them. You are instrumental to South Africa’s development.
 
Your work and your profits are the backbone of South African-German relations. We share your pride in your achievements, and we are very grateful for your commitment to strengthening the ties between Germany and South Africa.
 
Thank you very much again for having me here today. Thank you very much to the Chamber team for the ever perfect organisation. 
And, last not least: Thank you very much for your attention.