Opening Speech "Making Globalization Work: The German EU-Presidency" - Panel Discussion in cooperation with Network 20/20, German House, May 24, 2007

Dear Ms. Huntington, dear Ms. Impellizzeri, dear Ms. Huang,
I would like to welcome you all very cordially to our German House here in New York.

I am happy that Network 20/20 has accepted this invitation. Your mission statement is close to my heart, as it describes important “desiderata,” preparing young people, the civil society as such, to participate meaningfully in public diplomacy. Several influential political scientists, such Stanley Hoffmann and Zbigniew Brzezinski, call for a “global political awakening.” While our business community is already going global, we cannot, in my eyes, say the same of our political leadership or civil society as a whole.

Building bridges

As a European, and as a German who grew up here in New York, it is, for me, a heartfelt endeavor to help preserve this community of western nations, all influenced by the age of enlightenment. I would not like to wake up one morning to realize that an “illusion of closeness” between the United States and the European countries has led to a situation in which our countries and regions can’t come together on essential policy matters. We are, of course, closely intertwined economically and by common trade; American elites spend their holidays on the Cote d'Azur, Europeans on Long Island, we seemingly speak the same language. But can we take the business leaders of internationalized companies as “pars pro toto” for our populations? How close are we still in reality?

It would be interesting to analyze newspaper and television reporting in the U.S. and Europe today and compare it with similar reporting 20 years ago. I believe this could show that we on either side of the Atlantic perceive the world differently. The headlines differ, the focus of editorials differs, the topics differ. And even so, we live in the same “globalizing” world.

Globalization

The topic I am to discuss is extensive. Globalization as a process of interaction and integration among people, companies, and governments, a process driven by international trade and investment and aided by information technology that affects almost everything. There is a globalization of mad cow disease, of obesity, and of sports reporting.
Let me limit myself to those challenges of globalization that are the focus of our policy in Europe and link us closely with the people of the United States.

The European challenge

The first challenge is one that you do not read much about in the New York Times or the Wall Street Journal: it is the European challenge, making the European experience succeed.
The European Union, as a complex union, partly supranational, partly intergovernmental, with deep and close daily coordination and fine- tuning of policies, has been a success story and is, today, the deciding force on the European continent. Next to the European Commission, the body dealing with integrated policy fields, mainly trade and economic matters, it is the rotating presidency -- in this half year held by Germany -- which takes the lead on most policy matters, and these are dealt with taking an intergovernmental approach.

Through its enlargement from six, to 12, to 15 and in the last three years to 27 member countries, the European Union has extended its sphere of stability and prosperity on our European continent further than it has ever been.

At the same time, the European Union, and I would say, the project of further European integration, faces decisive challenges in the coming years: the question of whether the European Union will remain a purely economic union or become a political force, capable of playing a leading role in world affairs, as a partner of the United States, depends on the ways member countries will cope with these challenges.
The fundamental challenge the EU has to meet now, and in the future, is based on its size. The enlargement of the Union to 27 member states necessitates new rules in order to enable the EU to reach decisions efficiently and transparently. For that we need a new basic treaty. As you know, an ambitious draft, called the constitution, had been elaborated in recent years and ratified by 18 countries, but rejected in referenda by France and the Netherlands.
Nevertheless, this “constitutional process” is alive, there is much good will for reform, and the difficulties are surmountable. The German Presidency, represented by Chancellor Angela Merkel, is in close discussion with the European leaders to overcome the difficulties. At the celebration of the 50th anniversary of the Treaty of Rome in Berlin on March 25, the leaders of the European countries already agreed to have this new treaty ready by 2009. The European Council will now meet on June 21 and 22 to force that process and to formulate a road map for further progress.
We will most probably reach agreement on a new basic treaty that will eliminate nonessential parts of the constitution, but stick to what has been accepted by the large majority of member countries and keep the focus on the main aim of the treaty: to improve the EU’s capability to act. The exact identification of the scope of the EU and of its national states is another fundamental aspect of the constitutional treaty – as is improved participation by the national parliaments. A widening of citizens’ rights, the involvement of Europeans in shaping their future, and improved cooperation in the fields of justice and internal policies are key elements.
A consistent voice for Europe is basic to the future success of the European idea. Confronted with other powerful economic areas, Europe can only master these challenges together.

The other significant European challenge is making Europe economically fit for the global market. The dynamics of the original member countries of the European Union have been weak for some years, whereas the new member states can boast high growth rates. I am satisfied that after many years of economic languor, the German economy is now really picking up. Growth rates are, for the first time in 15 years, higher than in the U.S., unemployment rates are declining. The pace of growth in the Eurozone will reach 2.7 % this year, compared with an expected 2.1 % in the U.S. But all in all, the European countries have not done enough; the new French President, Nicolas Sarkozy, is also convinced of this.
Structural reforms and improved regulations for industry and the service sector are therefore central aspects of the economic agenda during the German presidency – as are the reduction of redundant bureaucracy, the protection of intellectual property, and horizontal and sectoral initiatives. The automobile sector, for instance, was supported through the initiative CARS 21, which aims to improve the regulatory system affecting that industry.
The German presidency worked on the completion of the Single European Market, for example by implementation of the new services directive in December 2006. But a modern economic policy has to look beyond its central concerns.
In the end, the European market will never be able to compete with global challengers without reducing trade barriers and without the support of a multilateral trading system. Facing these demands, the German Presidency of the European Council conducted various negotiations and dialogues with other WTO partners and trade associations. (For example, with ASEAN an May 4, when a meeting took place to launch negotiations on a wide-ranging pact that is expected to boost two-way trade and investment between the two regions by up to 20%.)
Now that the renewal of the Lisbon strategy for growth and jobs is starting to yield its first results, Europe is willing to use the current dynamic for further reforms and liberalization. Opposing protectionist tendencies, the European Union offers a dynamic economy that combines competitiveness with social and economic responsibility – with the aim of keeping the European model of society and living.

Global challenges

World economy
The changes in the world economy are, of course, a challenge to both Europe and the U.S.

Even today, the U.S. and Europe make up the bulk of world trade and investments. Economic relations between the EU and the U.S. account for at least a third of global trade in goods, almost one third of global trade in services and some 60% of global GDP. Every day, about $1.6 billion in goods are traded between the U.S. and the EU and the numbers show that bilateral trade is still on the rise. These transatlantic economic relations generate a total investment volume of $ 2 trillion.

But we have new actors on the scene and regional balances are likely to shift in the future. The most prominent newcomer is China. During the last 20 years, China’s share in world exports has risen by more than 5 points from below 1.2 % to a staggering 7.5% in 2005. Comparing Chinese and American efforts from 1953 through today is interesting: at that time American exports were 15 times larger, today China exports almost as much as the U.S. does. China’s total trade with the U.S. now accounts for $ 340 billion, an increase of $ 60 billion just within the period between 2005 and 2006. The number has tripled within the last six years (2001: $ 116 billion). And: the new players are not only traders but also investors. China, with its enormous monetary reserves, will be an active player, the acquisition of a share in Blackstone is just a first step. Companies from other emerging countries are out there, too. Mittal Steel bought Arcelor, Russian companies are trying to get into the German telecommunications market.

But can protectionist sentiments be an answer? In our view – and the figures I cited earlier show this – our economies would suffer most. Against this development, it becomes crucial that we reach global consensus on the importance of free trade. Even if the overwhelming but not surprising successes of newly emerging economies like China, Brazil and India have given rise to protectionist demands, we must not yield.
After all, Germany, as the number one in worldwide exports, is a telling example of how a country can benefit from booms in the world economy if trade barriers are kept down. The transatlantic economy should remain at the forefront of globalization. We have to analyze how we can boost our competitiveness. The OECD estimates that market barriers between the U.S. and Europe still hamper our exchange and that a growth potential of more than 3 % exists if market barriers and regulatory obstacles between the U.S. and the EU are removed.

It was a personal initiative of Angela Merkel, as president of the EU Council, to achieve substantial progress on transatlantic regulatory cooperation in the fields of intellectual property rights, financial markets (namely, the streamlining of accounting principles) and industrial standards, as well as testing procedures.
The Merkel Initiative is an important step into the right direction. It accommodates what we know and builds the important foundation for a new transatlantic economic cooperation.
At the EU-U.S. summit in Washington on April 30, both the U.S. and the EU showed a high level of ambition to reduce regulatory divergences and deepen their transatlantic economic partnership. For the first time, the United States and Europe created – next to NATO – a new transatlantic body, the transatlantic Economic Council, which will be lead by Commission Vice-President Günter Verheugen as its Co-Chairman, while the American Co-Chairman will be Allan Hubbard, from the Executive Office of the President. Its role will be to oversee and assure progress in reducing regulatory burdens and accelerating collaboration on the so-called “lighthouse projects” in the key areas of intellectual property rights, secure trade, investment, financial markets and innovation. Agreement has been found to streamline international accounting principles (instead of [GAAP???] GAPP IFRS: international financial-reporting standard).
The desire to reach prompt and efficient agreements in the upcoming WTO Doha negotiations was reaffirmed on both sides.
A first, very tangible result was the adoption of the Air Transport Agreement, also dubbed Open Skies, which is groundbreaking in liberalizing transatlantic air traffic and allows European airlines to operate connecting flights within the U.S., thus heightening convenience for passengers and contributing to increased competition, which will benefit consumers on both sides.

Another important global challenge addressed at the EU-U.S. summit, an issue that concerns us all and the significance of which can hardly be overstated, is climate change and its consequences for energy policy. On the European side, it was seen as a modest success that “the ultimate objective of stabilization of greenhouse gas concentrations at a level that would prevent dangerous anthropogenic interference with the climate system” was commonly agreed upon. After many years, the importance of this issue seems to have been noticed by more and more people and political entities. A few days ago, New York hosted the C40 summit. The mayors of major world metropolises made clear statements that they are willing to take the lead in tackling climate change. This initiative is only one of many examples showing that questions of climate change are beginning to influence the policies not only of governments, but also of cities, regions and states and that we can start changing from the bottom up and do not need to wait for federal governments to adopt bills, pass laws and implement regulations.
The growing awareness is not surprising when you look at the numbers in the latest UN report, prepared by a working group for the Intergovernmental Panel on Climate Change (IPCC). The IPCC calls for a major U-turn in policies to avoid the worst-case scenario. If we don’t act now, we will have to pay a heavy toll in years to come. Global greenhouse gas emissions have grown by 70 %, significantly between 1970 and 2004.

If we don’t undertake radical change now, the prospects for our planet are somber. This could mean a sea level rise of 9-88cm by 2100 as assessed by the IPCC, with Arctic sea ice declining along with this rise. The frequency of tropical storms is likely to starkly increase. Islands and cities could be flooded.

Of course you can always find institutions, like the “Competitive Enterprise Institute” and others, that will question the findings. But to those still in doubt, I would recommend taking a look at businesses which deal with risk. The reinsurance groups were the first to notice, in their statistics, the initially slow and now faster global warming. To the reinsurers, that change is measurable in terms of money. They measure the costs caused by the increasing number of extreme weather situations, drought and forest fires, heavy rainfall and flood disasters. The reinsurers are adapting to the new situation by re-rating existing risks and including new risks in their portfolios. The reinsurance companies teach us that we need market mechanisms that adequately reflect this change to our climate system.

The German EU Presidency has repeatedly proved that it is a major driving force willing to and capable of leading the way on this challenge. At the European summit in March, all European countries took on two decisions and binding commitments: to cut greenhouse gases by 20 % vis-à-vis 1990 levels. The European Union members agreed, furthermore, to increase the use of renewable energy to 20 % by 2020 to increase energy efficiency by 20 % and increase the minimum biofuel content to 10 %. If international partners come on board, the European Union offers to reduce emissions even to 30 %. These targets are ambitious and go way beyond Kyoto.

Regional challenges

Let me move on to some challenges that have affected recent political discussions between Germany and the U.S.

When Angela Merkel made her first trip during the Presidency, on January 4 of this year, to Washington, one of her aims was to convince President Bush that a more active policy in the Middle East conflict, the Israeli – Palestinian conflict, was needed and the meetings of the Quartet (US, RUS, UN and EU) should be revived. The first meetings of the Quartet have taken place, the Arab nations have reacted and shown interest in trying to come to a solution. The U.S. policy has since been activated, with Secretary Rice taking up the issue. The next Quartet meeting will take place next week in Berlin. But the weakness of the actors in the Middle East makes progress difficult. The latest fighting in Lebanon shows how ever more complicated things are becoming and that we are dealing with a growing number of jihadist movements that are out of government control and will make every solution most difficult. The European Union, with Chancellor Merkel at the forefront, condemns all terrorist acts and supports the Lebanese army.

As you know, the European countries work closely together with the United States in trying to contain Iran’s efforts to acquire capabilities for nuclear enrichment, which would put that country into a position to build nuclear weapons. In our view, it is likely that Iran does aim to build such weapons. Iran has so far neglected to take the steps called for by the United Nations Security Council to build confidence that its nuclear programme exclusively serves civilian purposes. It has continued to drive forward its nuclear program and has further restricted its cooperation with the IAEA. Even if not much progress has been achieved in the negotiations with Iran, we believe that it is, in the long run, possible to convince the Iranian leadership to find solutions that will lead to transparency and cooperation with the IAEA and give them all the access to nuclear energy they need, but assure the world and their neighbors that it will stay without nuclear weapons. Our Foreign Minister, Frank-Walter Steinmeier, presented a proposal a short time ago aimed at the creation of enrichment facilities under the auspices of the IAEA. Iran is, in our eyes, one of the countries with the greatest potential in the region: a young, rather well educated population, very interested in the U.S. and the West. Polarization has helped the radical elements in the country – and the president is one of them – to gain ground. The Security Council resolution sanctions are showing an effect that goes beyond the decisions taken. German companies are already going beyond their obligations, and trade exchange is diminishing rapidly.

I could go on to speak about other world areas, where Germany, also in its capacity as president of the EU, is in close, sometimes daily discussion with U.S. partners about the way ahead. In some areas of the world we have to deal with the challenges of ongoing genocide, as in Darfur, or the danger of failing states, as in Somalia, where I myself was posted for two years. In Afghanistan, where Germany has more than 3,000 soldiers stationed, we just lost three soldiers in a suicide attack a few days ago, which shows that even the soldiers stationed in the north are targets. It is a common challenge, but in our eyes, a manageable one to prevent Afghanistan from falling back into the hands of the Taliban.

But let me, instead of going deeper into these regional issues, turn to one neighbor of the European Union, whom the German Presidency perceives as a particular challenge to involve constructively in world affairs: Russia. Not only Germany, Europe as such, is closely connected geographically and economically with Russia. Russia has five direct EU neighbors. The EU accounts for 52% of Russia’s foreign trade and, with more than 60% of foreign direct investment in Russia, is also the biggest investor in the country. Russia for its part is the EU’s third-largest trading partner, after the United States and China. Russia supplies 20% of the EU’s oil and 40% of its natural gas. But Russia is also a necessary partner when it comes to world affairs. As a permanent member of the Security Council it is a difficult, but crucial partner in creating common positions on Iran, Kosovo or Darfur. The German Presidency is firmly committed to a strategic partnership with Russia. We do believe that in the energy sector, on climate protection, in research and in efforts to resolve international conflicts, both sides have to cooperate. But the recent EU-Russia Summit in Samara has also shown that this commitment has its limits when EU solidarity is at stake, and where human rights and our values are concerned.

As I come to a close, please let me return to what I said in the beginning. Very little seems as important to me as restoring a close transatlantic partnership on the basis of the existing organizations and involving the civil societies on both sides of the Atlantic. This may be the number one challenge.
Even if transatlantic economic affairs are moving ahead from an already high level, the German Chancellor, Angela Merkel, is highly respected by President Bush, and European and U.S. political experts are working closely together, we should not ignore the fact that world opinion of the U.S. has suffered in recent years. This is also true in Europe. The generations that built post-war relations are dying away and the young ones that follow have not experienced the support the U.S. gave to Europe after World War II or even during German reunification. It is, in my view, of utmost importance that the U.S. government realizes that it will need the support not only European governments but also of the populations of Europe if it is to retain its leading role in world affairs. Our economies might be interlinked like never before, but the community of the West cannot be taken for granted. Yet we will need to rely on it if we want to solve today’s and tomorrow’s challenges. A reliable transatlantic alliance is absolutely indispensable to us – and I think for all of us when it comes to addressing the challenges I have named. Thank you very much.