Speech given by Federal Chancellor Angela Merkel on May 4, 2006, in New York to representatives of the American Council on Germany, the Federation of German Industries, the German American Chamber of Commerce and the American Chamber of Commerce

Transcript

Mr. Thumann,
Mr. Irwin,
Mr. Winkelmann,
Mr. Volcker,
Ladies and gentlemen,
Henry Kissinger, whom I warmly greet,

I am delighted to be with you here today. Also on behalf of my delegation I would like to thank you all very much indeed. My thanks go to those who prepared and organized this meeting – the American Council on Germany, the Federation of German Industries, the American Chamber of Commerce and the German-American Chamber of Commerce. And of course I would also like to thank everyone present for having all taken time off from whatever else you might be doing at lunch-time to come and discuss with us German-American relations and economic relations in particular. That is something I particularly appreciate, for in the globalized world of the 21st century time is, I know, the scarcest commodity of all. And you are giving of your time to foster good relations between Germany and the United States of America. To my mind there are many reasons – also historical ones – why these relations are good. But one of the reasons is that in a changing world we share much the same values, so when taking certain decisions we are guided by broadly similar ideas.

As we all strive to successfully compete with other nations and cultures, these shared perceptions of what it means to be human, of democracy can be very valuable in helping our two nations understand one another better. In this day and age German-American relations can no longer be founded exclusively on the post-war experience.

As far as our economic relations are concerned, there is absolutely no cause for pessimism. On current figures, our bilateral trade is worth some 100 billion dollars. Outside the European Union the United States is Germany's number one trading partner. Some 3,000 German companies provide jobs for nearly 750,000 Americans. The United States accounts for the largest share of foreign investment in Germany and provides over half a million jobs there.

Both countries face similar challenges. Yesterday I discussed with the President of the United States the importance of sending another joint message – if at all possible – in the months ahead that we want the world trade negotiations, the negotiations now in progress under WTO auspices, to succeed. Demonstrating a real commitment to free trade means demonstrating that we accept competition, that we want open markets, that we are not isolationist and protectionist, although such tendencies do exist. It means demonstrating that globalization is a challenge we are meeting head-on. That is easy enough to say, but the difficulties begin when action is called for.

If for all our avowed principles we end up – and everything we do, by the way, is closely followed by countries such as China or India and many others, too – at odds with each other for the sake of some minor commercial advantage, our values are of course not going to be quite so highly esteemed as if we matched our words with actions on the ground.

So the democratic model is now being put to the test, notably also as regards a new regime for world trade. Countries whose growth rates are today higher than ours are of course watching and will take careful note of how we respond to this challenge. Are we prepared to accept that others, too, should gain a bigger share of global output and income or are we determined to stop them at all costs? I believe transatlantic relations, German-American relations should demonstrate we are optimistic that this challenge can be met.

For some months now Germany has had a new Government, a grand coalition. This grand coalition has adopted a three-track strategy: retrench, reform, invest. In my policy statement I called for us to proceed in small steps, true to our motto "Let us dare more freedom".

Small steps are, I believe, very un-American, which is why a brief comment is perhaps in order. For years in Germany politicians were prone – not just in the last government but previous governments as well – to raise all manner of expectations, but the predicted results and successes never materialized. There was always a gap between promise and reality. If this gap becomes too wide or continues over time, there is a danger that people stop believing there is any point in changing things, since changes never in their experience produce the promised results. It is precisely for this reason that I am working hard, the whole Government is working hard to ensure what we actually achieve matches our promises.

It is crucial, too, that we make an honest analysis of the situation. That is why there is currently a big debate in Germany – a debate that is of course also under way in the United States – because we have said we want to consolidate our budget, our public finances. Germany is an ageing society, and that means growth must not be bought with ever new debts, for such a strategy will in the long run enormously restrict our scope for investment. Today we are already spending less than 9% of our budget on investment, and if the burden of interest increases, our investment rate will decline still further. In effect we are already living on our capital and that is very dangerous. I know this debate, too, is being conducted in very different terms in the United States. There might even be something Americans could learn from us Germans here, for excessive burdens can clearly spell trouble. That is why, on the basis of an in-depth analysis, we have reluctantly decided that taxes, too, have to rise. But we are not only raising taxes, we are at the same time introducing reforms and making needed investments.

I believe this three-track strategy is an honest one. On the issue of reform I can tell you the German Government has agreed on a real change of course where attitudes to research and development are concerned. This has implications not just for our national budget but also for our mentality and outlook. As a nation we have always earned our living with our inventions, ideas and products. Yet right now we are training every year 10,000 too few engineers, because many young people feel they have no prospect or hope of finding a job as an engineer in Germany.

This means we need, firstly, to make clear that the only way to maintain our standard of living is through research, development and renewal, by making sure we are the first to get certain products onto the market. That is why we were right to set this priority, and I hope industry, too, will play its part in meeting our target of spending 3% of GDP on research and development, something other countries have been doing for years.

Secondly, we have promised to cut down on red tape. That, too, is easily said, but putting it into practice is a different matter. We want to learn from other countries in Europe that have pioneered ways of measuring regulatory impact. I will spare you the details, but emphasize this is something we are very serious about. And you will be interested perhaps to know that also in the European Union – next year Germany will have the presidency – we intend to pursue this approach further.

In the European Union – next year we will be celebrating the 50th anniversary of the Rome Treaties – there has in recent years been a tendency to introduce more and more rules and regulations but never get rid of any. In a very welcome development initiated by the present Commission, a process known as Better Regulation has been launched with the aim of rescinding directives that have become obsolete. The German Presidency will continue this process, for in a single internal market it is clearly crucial to review at intervals what is needed in the way of regulation and what is best abolished in the interest of giving everyone greater freedom to develop their true potential.

There is also a third point that for years has been hotly debated in Germany. The coalition partners have agreed that more must be invested in our infrastructure, and that means in essence mobility. There is much controversy in Germany over whether rail transport is better than road transport and a host of other issues. We have re-examined the whole subject from a value-free perspective and concluded, firstly, that mobility is a hallmark of an advanced industrial and knowledge society and, secondly, that without a high and increasing level of mobility economic growth, too, will be jeopardized.

In the few months my Government has been in office we have already introduced a bill to accelerate transport infrastructure planning. For the plain fact is that Germany takes three times as long as other European countries to implement certain infrastructure measures. To get a new runway built at Frankfurt Airport has taken 15 years. In a country where there are 5 million unemployed, where such a runway can provide jobs for 10,000 to 15,000 people, we must realize we cannot take all the time in the world to get things done, we have an obligation to people and their future, we must enable them to get back to work.

One problem we have in Germany is that our social security systems are linked to our labour costs, our wage costs. In a globalized world where many countries organize their social security systems differently, this puts us at a competitive disadvantage. That is why my Government plans, firstly, to bring non-wage labour costs – the costs of our social security systems – down well below the 40% mark and, secondly, to progressively decouple them from wage costs. In my view that is extremely important, especially if we are to keep unskilled jobs in Germany and enhance our competitiveness.

We know our social security systems need a radical overhaul. Over the next few months our efforts to address the problems in the health care system will show we are serious about this. Discussions about health care are always complicated. In a social market economy such as Germany people certainly expect more of the health care system than in the United States. But although our culture in this respect is rather different, we still need to introduce a greater element of competition. One very important way to do this is to give patients greater freedom of choice and thereby encourage competition. That is clearly the key. The health care system excels all others in creating its own markets. So it is only by enlisting the help of the patients themselves as health-conscious and responsible citizens paying a limited share of their treatment costs that we can prevent health costs exploding.

Also in the field of pensions, security in old age, we will need to move towards more individual and – by the way – capital-funded provision. That brings me to something I believe is very important also from the educational point of view and where the United States has a very different tradition. Although in today's world the capital markets play an ever greater role, relatively few people in Germany are familiar with these markets. They have scant experience of such matters because share ownership is not widespread and our social security systems are not capital-funded. That is why we are keen to encourage not only a better understanding of the way the capital markets operate but also efforts to give employees a greater stake in their companies – through profit-based wage bonuses, for example – in order to strengthen identification with their company.

For the first time in a long while – and I think this is very significant in the light of current international debates – we also plan to make a fresh attempt to draw up an energy strategy for the years ahead, for the period up to 2020. The intention is to consider how Germany can best meet its energy needs. There will be a similar discussion at European level. One issue will be that of dependence. Europe's dependence on energy supplies is set to increase over the coming years. This is currently the focus of a great deal of discussion in Europe, which I think is entirely natural.

We will also have to answer the question of how to enhance energy efficiency. How can we increase the share of alternative, renewable energy? I am glad to see this issue – I am thinking of biofuels, for example – is now getting more attention also in the United States. For in my view we can gain and maintain a greater measure of independence in dealing with international issues only if we are not totally dependent as far as energy supplies are concerned. That is simply common sense.

At the same time – considering how finite the world's resources are and what growth rates China and India are now recording – there are good reasons to make sure we are in the top league in energy efficiency technology. For that will definitely be an export hit, since other countries are all going to face the same problems we have today. As the reports, for example, about Peking's air pollution make clear, economic growth has its limits if it is not generated from a technologically advanced base.

For all these reasons I believe we face in many respects the same challenges. The United States, Europe and Germany certainly have different cultures, so the way they respond to these challenges may also differ. In Germany, for example, we tend to enact legislation that makes government responsible for a great many matters. Some matters that are the subject of government regulation in Germany end up in the courts in the United States. Obviously we need to discuss how best to deal with specific risks. There is no perfect, one-size-fits-all solution.

I believe it is important that the transatlantic relationship is founded on shared convictions. We can be proud to live in societies that cherish freedom, which is why we value competition and accept it also as we address the tough challenges ahead. With our excellent education, organization and infrastructure, we can inspire hope and confidence also elsewhere that, however fierce the competition, we will prove our mettle and we will succeed. For of one thing I am quite sure. No one will be convinced of democracy's superior merits if its economic benefits are found wanting. Our citizens will view notably the European Union as a success and the internal market as the right answer to globalization only if that success is tangible for them in their daily lives.

With these remarks I have tried to outline for you – we can go into greater detail in the discussion – the agenda the new German Government plans to tackle. As we take this work forward we intend to be good partners in the economic domain and reliable partners in the foreign policy domain. It is legitimate, I believe, for everyone to pursue their own interests, but I am convinced that Germany, Europe and the United States have a great many interests in common. It is important and right that we identify those interests and manifest them also in our daily lives. That is why I am most grateful to you all for being here today and showing, through your presence at this gathering, such a keen interest in German-American relations. I hope that interest will continue and become greater still. On this note, may I now thank you for your attention.

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Germany Info Special: Chancellor Merkel Visiting Washington and New York, May 3 and 4

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