'Shaping Globalization Together' Policy Statement by Federal Chancellor Gerhard Schröder in the German Bundestag on June 16, 1999

This weekend I will be meeting the heads of state and government of the other G- 8 states at the Economic Summit in Cologne. The G- 8, the seven leading industrialized nations plus Russia, has proved its worth during the last few years: together with the World Bank and the International Monetary Fund, the G-8 has become an indispensable instrument for tackling global economic problems and crises.

And not only that: in the field of foreign policy, too, the group of industrialized nations is assuming ever greater responsibility. With the G-8 Petersberg agreement initiated by the German government we succeeded in achieving a breakthrough in the quest for a political solution to the Kosovo conflict that paved the way for the necessary Security Council resolution.

Allow me at this point to say a few words about developments in Kosovo. Now that the international security presence has been introduced there we can be more optimistic about Kosovo's future prospects. The enthusiastic welcome which the soldiers received from the remaining Kosovo-Albanian population as they moved in shows that people now have hope in the future again.

KFOR and the international interim administration must now create safe and democratic conditions for everyone living in Kosovo. A mass exodus by the Serb population is just as unacceptable to us as the expulsion of Albanian Kosovars was.

We knew from the outset that implementing peace can involve casualties. This was tragically highlighted last weekend by the terrible incidents in which two German journalists were murdered and a German soldier injured. On behalf of the federal government and, I am sure, of this house, I would like to express our sincere condolences to the victims' families.

The international community will have to undertake considerable efforts to reconstruct Kosovo and the entire Balkan region. At present the European Commission and the World Bank are busy preparing an international donors conference.

The long-term stabilization of the Balkans will also be one of the main issues discussed at the forthcoming G-8 summit. All participating states agree that stabilizing the region and protecting human rights will incur considerable expense. However, we also agree that financing peace and reconstruction is a a necessary and good investment.

Globalization is causing the economic base to change at a much faster pace than ever before. The revolutionary transformation taking place, particularly in information and communications technology, is not only having an impact on the global economy and world trade. They are also having an effect on our everyday lives, on our working conditions and on society. This creates many opportunities, but also entails risks. At the Cologne summit our main task will therefore be to prove our economic competence and to establish social justice. These are the demands on modern economic policy.

Here in Germany, too, people are concerned about the consequences of globalization. These worries are not unfounded. We must be better prepared for global competition and redouble our efforts, particularly in education and research. We need new and better ideas, new processes, new products, as well as new ways of tackling problems. In doing so we should rely more on private initiative and responsibility, rather than hoping that the state will sort everything out.

The liberalization of the financial markets in particular, the growing mobility of capital and the increased competition between business locations have restricted the nation-state's scope for action. Many even see the end of national sovereignty looming ahead. I regard this concern as exaggerated.

It is true that globalization limits the scope for national action. However, it does so asymmetrically by penalizing bad policies and rewarding good ones. After all, globalization not only increases economic competitiveness but also fosters political competition between countries, thus providing a means of benchmarking policies. We intend to take our bearings from successful ideas developed by others and we also intend to share with other countries the lessons we have learned from our experiences.

I must emphasize that we can learn a great deal. And yet we need not fear comparison with others. Our partners are envious of much of what has made us an economic powerhouse.

I presented a discussion paper on this issue together with Tony Blair, the British Prime Minister, last week. Initial reactions have shown that we have set off a necessary debate which will not fail to have an effect - also on the political moulding of globalization.

One idea should be to the fore here: that of participation. Not only the individual's participation in society, but also active participation in the opportunities offered by the markets, by education and training. For the driving forces are not the ever closer intermeshed multinational companies but, rather, people. As Willy Brandt once put it so aptly, "It is people's quest for freedom which changes the world not the longing for equality."

Assessing economic developments together, as well as gauging economic prospects and risks together forms the basis for devising economic policies. Analysing current conditions together must be the starting-point of any common policy.

The temporary economic slowdown in the wake of the financial crises, not only in the threshold countries but also in some major industrialized nations, seems to have been largely overcome. There is much to indicate that the Cologne economic summit will mark the beginning of a new upswing.

Europe and, to some extent, Asia, too, will and must revive the forces of growth in the global economy. Although a strong increase in growth is not expected this year and the IMF is predicting a mere increase of 2.3% in production worldwide in 1999, a growth rate of 3.4% is expected again worldwide next year.

For Western Europe, this means that the current temporary slowdown will most likely be replaced next year by a marked revival in economic activity. For the euro currency area, a rise in production of 2.9% is predicted. The economic upturn will be considerably enhanced by interest-rate developments in Europe. By reducing the refinancing rate to 2.5%, the European Central Bank has mapped out a course for growth which will not trigger off inflationary tendencies. Inflation will remain under control.

In Japan, the government has set about reforming the banking system and has taken financial measures aimed at overcoming economic weakness. It is hoped that Japan will also benefit from the revival in economic activity already clearly visible in other Asian countries. Happily, some newly industrialized countries have reentered the international capital market.

In the past year, the exchange rates of the currencies of the major industrialized nations were subject to considerable fluctuations. We need not be concerned by such swings as long as they merely reflect differing economic developments and interest rates.

By firmly consolidating the federal budget and reforming business taxes, the German government will make its contribution towards fostering growth and employment, and thus the euro's stability.

It was not just the efforts to end the war in Kosovo which showed us how important it is for Europe to have a relationship with Russia based on trust and cooperation. No-one can benefit from outmanoeuvring Russia, either politically or economically. I would like to emphasize that progress in the Russian reform process is very much in Germany's interest.

However, the Russian side cannot have any interest either in pursuing a separate course. At the Cologne summit, we will encourage Russia to reinvigorate its economic reforms. We should agree on how we can provide assistance beyond the programmes of the international financial institutions - as long as Russia is prepared for its part to carry out the necessary structural reforms in the economy, state and society.

The Russian public must know that we want to see a stable, democratic and flourishing Russia as a partner. We are prepared to help Russia if it is prepared to help itself. Of course, not everyone in Russia has the necessary willingness to help themselves. The belief that changes will help not only the community but also, in the longer term, each individual seems to have been lost. That is why we must send Russia a clear signal that we are ready to cooperate. I believe that this requires a policy of small steps towards a lasting partnership rather than a major economic plan. Offering Russia membership in the WTO and OECD should be a long-term objective for both sides.

In Cologne, we will most likely also talk about short-term economic measures in Russia. The programme agreed upon with the IMF has our full backing as long as the Russian government succeeds in fulfilling the requisite conditions. However, I do not believe that comprehensive debt forgiveness, as called for by some time and again, is possible at present.

During the nineties, world trade has expanded by leaps and bounds from six to ten per cent. We must make use of the market opportunities that this has brought if we want to mobilize the growth potential to create and safeguard jobs in the long term. In the sphere of world trade, a few dark clouds of protectionism are gathering on the horizon. The German government therefore wants to work with its partners towards a new WTO round of negotiations.

A matter of particular importance is China's accession to the World Trade Organization. I, jointly with President Chirac, have recently declared myself in favor of this.

We want the WTO to be an organization with universal membership. We therefore take a positive view of the accession of other states to the WTO. This is, however, conditional on those joining being prepared to pursue open trade policies.

Around 1.5 trillion dollars a day are currently moved on the international financial markets. This barely conceivable mobility of capital does not only heighten competition between business locations but also makes entire economies and currencies susceptible to speculation and instability. Particularly vulnerable are the newly industrialized countries. Well-functioning financial markets are an important requirement for growth and development. We will therefore hold discussions in Cologne on how the interplay between financial markets in the industrialized countries, as well as the new markets of Asia and Latin America, can be made more stable.

There is one thing that we must keep in mind: if Indonesia, Thailand or Brazil fall victim to crisis because of currency speculation, we are not simply dealing with figures. We are also dealing with the fate of hundreds of thousands of people who have been deprived of their sources of income and have had their hopes cruelly dashed.

In many of these countries, the financial crises have destroyed the very foundations of small and medium-sized businesses, which were then only just beginning to establish themselves. This has left these economies with a heavy burden to bear in the future, for it is precisely the active middle class which is the carrier of economic and social progress.

This makes our task of recognizing crises as early as possible and nipping them in the bud even more vital. The Finance Ministers have already made a significant contribution to the stability of the international financial system in their preparations for the World Economic Summit. Starting from the results of last year's Economic Summit in Birmingham and their meetings in autumn 1998 and spring 1999, they have worked intensively on strengthening supervision and thus financial stability. With the establishment of a "Stability Forum" in spring 1999 - at the suggestion of Hans Tietmeyer, President of the German Federal Bank - we have made good progress.

In addition, I am personally of the opinion that the early involvement of the private sector in crisis prevention and management can act as an important impetus towards a new stability in the financial markets.

An open world economy could claim neither moral nor political legitimacy if it were to neglect the developing countries. I have therefore - as you know - endeavoured from an early stage to give the poorest developing countries the option of a far-reaching debt relief. A significant easing of debt would enable those countries that pursue responsible economic policies to make full use of their development potential. Even the poorest in society must benefit somehow from this.

The German government, in its "Köln Debt Initiative" of January this year, presented concrete proposals to significantly reduce the debt burden on the poorest countries. This government will not step on the brake when it comes to debt relief, as its predecessor in office did. It has indeed initiated an intensive international discussion, in which our partners, the international financial institutions and numerous non-governmental organizations are actively taking part.

The issue at hand is the speeding up of the process of reducing indebtedness and significantly increasing the volume of debt relief. Debt relief measures should also be more closely integrated in an improved strategy for combating poverty and for sustainable development.

I am confident that a comprehensive debt initiative for the poorest countries will be agreed at the Cologne Economic Summit. This would send a clear signal of solidarity towards developing countries from the major industrialized states.

But the developing countries' debt burden is not the only issue. The poorer countries need a social infrastructure and systems of protection. Considerably more aid is required for this than has previously been forthcoming from the international financial institutions. The World Bank and the International Monetary Fund have now shown themselves to be considerably more willing to help than before. It is also important that the International Labour Organization's Declaration on Fundamental Principles and Rights at Work, adopted in 1998, is implemented.

The principle of social participation that has been tried and tested in the West would also reduce the danger of social unrest in the developing countries. The observance of internationally recognized standards - such as the freedom to form associations and to engage in collective bargaining, the abolition of forced labour and child labour, non-discrimination at work - is a vital condition for social stability and thus for sustainable growth.

Globalization is a process which is bringing profound changes to our working conditions and way of life. It is a process that will be largely carried by the use and ever faster development of information and communications technologies.

At the beginning of the German G-8 Presidency, I proposed that we should discuss the place of education and basic and further training in this process. This suggestion has been enthusiastically taken up by our partners.

We will have to concentrate on preparing young people for the challenges that the globalization of knowledge brings for each of them. Political and business leaders must provide this process with a framework which gives everyone a chance. Equality of opportunity in the face of globalization means above all that we must enable young people - and young people must empower themselves - to use the knowledge that is available all over the world for their own benefit and for the benefit of society. Because it is of this conviction, the German government has given education, research and innovation policy a high priority.

When the heads of state or government take up this theme at the summit, they will be making history, for educational policy has until now mainly been contained within national boundaries. In particular vocational training and further training are among those domains of policy which are still specifically national and frequently also determined by tradition. If the universally demanded flexibility of education systems is now given a common focus, then we will be well on the right way.

Globalization of international economic relations places considerable demands on environmental policy too. It also offers new opportunities for strengthening environmental protection world-wide.

A reinforced international environmental and development partnership to prevent ecological, economic and social crises is essential. The Cologne Summit should bring us a step closer to achieving a global ecological regulatory framework. This should promote sustainable development, raise the level of required international harmonization and prevent environmental dumping.

Increased cooperation in environmental standards could lead to greater efficiency and to cost savings. We must make efforts at national and international level to modernize our economies in an ecologically sound manner. The development, introduction and proliferation of new technologies and environmentally-friendly manufacturing processes as well as of innovative products and services do not only provide opportunities for environmental protection, but also for the creation or preservation of jobs.

The threat to the climate is in my view the greatest environmental challenge which the world has to face. I therefore emphasized with my EU colleagues a few days ago, that climate policy is the most significant example for the necessity of integrating environmental concerns into other policy areas.

I am greatly concerned that emissions of pollutants are now considerably higher in many industrial countries than they were in 1990, and that they are continuing to increase. The leading industrial states must commit themselves at Cologne to increasing their efforts on this score. For only if we industrial nations take a leading role, only if we reverse the trend of emissions in our own countries and significantly increase energy efficiency, only then can we expect the developing countries too to limit and ultimately reduce their emissions of greenhouse gases.

With the adoption of the Kyoto Protocol, a significant step forward has been taken towards effective climate protection. Now we must ensure that this protocol enters into force as soon as possible. The Cologne summit will also have to take steps to implement speedily the related Buenos Aires Action Plan.

Political crises, violent conflicts or ecological catastrophes can destroy in a very short period of time what has taken decades to build up. The causes of such conflicts are often economic and social tensions and dwindling resources. Uncontrolled population growth is a threat to peace and stability just as much as disregard for human rights. We have learnt that where democracy is lacking, the seeds of violence take root, and much human suffering is the result. We will therefore also increase our efforts to better target the instruments of our development policy so as to prevent violent social conflicts.

Development policy can on the one hand help diminish structural causes of conflict, and on the other hand should also support those social mechanisms that are necessary for peaceful conflict settlement - a functioning legal system for example, or the democratic participation of the population in the political process.

I can only repeat what I have already said in my government policy statement of November 10, 1998: "We know that something is seriously amiss if a few people are getting richer and richer while many are getting poorer and poorer. Overcoming the divide between poor and rich regions of the world remains the greatest international challenge on the threshold to the 21st century."

We wish to ensure that developing countries and countries in transition have a share of the opportunities of globalization. They themselves can best contribute to this by pursuing responsible policies, guaranteeing and furthering the rule of law and legal certainty, and adapting their economic structures while respecting the need for social compatibility and ecological sustainability. We will help them in these efforts.

Globalization affects the foundations of our culture and our very coexistence. In the future, we must pursue four equal-ranking strategic goals, namely: economic competitiveness, social justice, ecological sustainability and democracy based on the rule of law. These four goals form the "magic square of modernization" into the next century. They form one indivisible unit.

Globalization does not mean the end of action at national level. What is important is that we adapt our national policies to the conditions of globalization. Our foreign policy actions must be directed towards international stability and the fostering of democracy and human rights. We want a politically and economically open society all around the world. Only between states with democratic structures which are committed to the peaceful balancing of interests can the necessary arrangements be reached that are needed to serve as "crash barriers" to keep us on the road to globalization.

It is the G-8 states in particular whose leadership is called upon in the coordination of international political and economic cooperation.The Cologne Economic Summit will prove that the G-8 countries are, under German presidency, living up to their responsibilities:

- in stabilizing the international financial and currency systems,

- in the political moulding of globalization,

- and in securing peace.

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