Key Messages on Germany and Its Role in the EurozoneEnlarge image European Central Bank in Frankfurt (© dpa/pa)
1. Germany is fully committed to doing whatever is necessary to defend the stability of the eurozone as a whole. This includes providing assistance to highly indebted partner countries. But Germany is also convinced that partnership is based on mutual responsibility and a clear commitment to fiscal stability. Compliance with the Stability and Growth Pact (see below, 6.) is thus essential and must be ensured through quasi-automatic sanctions in cases of violations.
2. The euro has proved to be strong since its introduction in 1999 at a value of €1.16/$1.00, at times climbing to 136 percent of its initial value. When the financial crisis began to unfold in summer 2007, triggered by developments in the U.S. subprime market, and the Lehman Brothers bankruptcy in September 2008 nearly led to the collapse of the entire global financial system, the stability of the euro was one of the main factors in shielding the eurozone, the EU, and the international markets from an even more devastating economic downturn.
Enlarge image Economic data (© dpa/pa) 3. In terms of both GDP and population, Germany is the biggest country of the eurozone. With 82 million inhabitants and GDP totaling $3.6 trillion (€2.5 trillion) in 2011, Germany makes up roughly one-forth of the eurozone’s population and contributes almost 30 percent of the eurozone’s overall GDP. Germany is thus aware of its possible impact on the balance of the eurozone and on the financial stability of the euro as a currency.
4. Germany is commonly known for being an export nation. In fact, Germany is the world’s third largest export nation after China and the United States. It exports roughly 41 percent of its GDP (compared with 11 percent for the U.S.). Approx. 63 percent of its exports flow to other EU countries. Germany’s export strength stems from companies and consumers worldwide, and its trade surplus makes a significant and important contribution to the eurozone’s overall balanced trade account. Moreover, €664.6 billion in imports also make it the third largest importer of the world and thus also a driver of economic growth in and outside the eurozone.
5. It is in Germany’s interest to bolster the eurozone’s institutional framework to ensure financial stability, sound fiscal policy, and competitiveness. The EU and the eurozone have transformed many national interests into supranational ones, and it is a common goal of all member states to safeguard these common interests and preserve and strengthen internal consistency.
6. The Stability and Growth Pact demands fiscal discipline of the eurozone member states, requiring them to stay below an annual budget deficit of 3 percent of GDP and a national debt of less than 60 percent of GDP. Having posted budgetary surpluses in 2007 and 2008, Germany recorded a general government deficit equaling 3 percent of GDP (GDP) following the financial crisis in 2009and 3.3 percent of GDP in 2010. The federal consolidation package and economic growth resulted in an annual budget deficit of 1 percent of GDP in 2011.
Enlarge image (© picture-alliance) 7. The eurozone countries have adopted a common approach to coordinate national policies in the future in an effort to adapt structures and move in the same direction. The aim is to strike a proper balance between national and European responsibilities. The International Monetary Fund, the European Commission, and the European Central Bank have established measures in collaboration with the European governments to achieve more vigilant monitoring of impending macroeconomic imbalances.
8. A euro-zone rescue fund, known officially as the European Financial Stability Facility, or EFSF has been set up to stabilize the euro. In future 440 billion euros are to be available to be used as loan guarantees for struggling euro-zone states, as compared to the current total of 250 billion euros. State guarantees will thus rise to around 780 billion euros as compared to the current total of 440 billion euros. Germany's share is to rise from 123 billion euros to 211 billion euros. The instruments of the EFSF will also be applied to the permanent European Stability Mechanism (ESM) in line with the agreement reached by the heads of state and government on 21 July, 2011 and amended on February 2, 2012. Equipped with a flexible set of instruments – including financial assistance programmes, tools to intervene in primary and secondary markets, precautionary assistance measures, and loans to recapitalise financial institutions – the ESM will be put into action already in July 2012 to create stability in the euro area as quickly as possible. It will function in tandem with its forerunner, the European Financial Stability Facility, until the latter expires in mid-2013. The German government is convinced that the efforts will manage to guarantee the lasting stability of the euro.
The new ESM treaty will be interlinked with the fiscal compact that was launched on December 8-9, 2011. The two treaties will complement each other in fostering fiscal responsibility and solidarity within the European economic and monetary union. In the future, only those countries that commit themselves to complying with the new fiscal pact’s rules – i.e. to reducing and avoiding debt – may be granted financial assistance through the ESM.
The parties to the fiscal compact will commit to introducing strict national budgetary rules. Within a year of the treaty entering into force, they must have binding and permanent provisions in place, preferably at constitutional level, which ensure that their annual cyclically-adjusted deficit does not exceed 0.5% of GDP in principle. As in the case of Germany’s debt-brake rule, cyclical fluctuations are taken into account when calculating the deficit. One-off effects and exceptional emergencies are excluded from the calculation.
9. Eurozone monetary policy is administered by the European Central Bank (ECB). While the eurozone is neither identical with nor representative of the EU, it is, nevertheless, clearly important to the economic and financial stability of the EU as a whole. With approx. 320 million inhabitants and gross domestic product (GDP) totaling €9.3 trillion, the eurozone accounts for roughly two-thirds of the EU’s population and GDP.
10. Viewed as a single economy, the eurozone constitutes the second largest economy in the world. With almost €850 billion in circulation, the euro is second in the world only to the U.S. dollar as both a reserve currency and the most traded currency.
11. In 1999, members of the EU intensified that union by moving towards a monetary union. The eurozone is a monetary union presently made up of 17 of the 27 EU member states, with the euro as its common currency. The euro is a stepping stone toward creating a new European identity and bringing together the people of Europe. The efforts over many years of former Chancellor Helmut Kohl and French President Mitterand and finally the creation of a common currency were a historic achievement in overcoming European separation.