(photo credit: Reuters)
Europe is facing its toughest test ever. The debt crisis brutally revealed all
the cracks in the economic and monetary union: the decade-long accumulation of
public debt and the lack of competitiveness of some national economies as well
as shortcomings of the European treaties. Despite the European Union’s most
strenuous efforts, it has not yet won back the confidence of financial markets.
Whatever happens in Europe will inevitably also affect the wider world and the
EU’s trading partners, such as Israel.
There are forces that are betting
on the breaking up of the euro zone. What would that actually mean? The euro
zone is the economic backbone of the EU. Its stability directly affects non-euro
states and global financial markets. An erosion of the euro zone would
jeopardize Europe as a political project – and with it the chance to make our
values and interests heard in the new power setup of the 21st
Stabilizing the euro zone is in the interest of all 27 EU member
states, not least the UK, with its extremely close economic ties. Time to find a
solution is running out fast.
Three things need to be done urgently if
people and markets are to regain confidence in Europe.
• The first is to
tackle the immediate crisis. Greece’s government must without further delay
adopt and implement the necessary reforms. Just as urgently, states and banks
need protection from contagion. This includes implementing the decisions of the
European Council on private-sector involvement, recapitalizing banks and
increasing the “firepower” of the EFSF. But one thing is clear: the
effectiveness of the rescue mechanism cannot be separated from the soundness of
the economies behind it. Only when states regain trust by immediate and thorough
reforms, can the crisis be overcome.
Some argue the euro can be saved
only at the price of sacrificing monetary stability. This would be a momentous
Putting the European Central Bank’s printing presses to work
might at best bring some short-term relief. But it would have dire consequences,
both raising inflation and dissipating vitally important incentives for reform.
In the end we would end up with a depreciated currency and an even more
destabilized euro zone. The ECB’s independence and firm commitment to price
stability are of paramount importance to Europe’s economy.
• Second, we
need a clear-cut strategy for competitiveness and growth. This includes
completing the single market by extending it to growing sectors, such as energy
and IT, and creating a more enterprise-friendly environment. It is equally
crucial to put much greater emphasis on innovation, education and research in EU
budgets. Economic and financial policies must be coordinated more closely. Also
EU structural funds need to be targeted better to improve
• Third, we need to provide for the future and upgrade
the monetary union to a stability union. Sound budgeting is not just a German
obsession based on our historical experience of hyperinflation; it is in the
interest of Europe as a whole.
Voluntary commitments and debt brakes are
necessary, but they are insufficient. If we want to turn things around
irreversibly, we will not be able to avoid amending the treaties.
is no time to lose. It is vital to send a clear message to markets that the euro
zone is determined to end the policies of creating debt. At the European Council
in December, we should agree on establishing a convention for a limited treaty
change. Its mission would be to strengthen the economic and currency union – no
more and no less. The process leading to sanctions should in the future be
triggered automatically. There need to be binding rights at the European level
regarding the budgets of euro-zone states that continuously deviate from the
fiscal straight and narrow.
To overcome its weaknesses the euro zone
needs deeper integration through tighter economic governance and tougher rules
for the stability pact. The challenge is to manage this without creating a split
within the EU. Does that mean squaring the circle? No. There are ways to ensure
coherence of the union as a whole.
Changing the EU-treaty at 27 – however
tiresome and difficult that may seem – is the best way to prevent a disconnect
between the euro zone and remaining EU member states.
transparency and closer ties between the euro-17 and the other EU states would
also help cohesion, as would further measures to strengthen the single market. A
separate treaty limited to the euro zone can only be a last
Treaty change will require considerable political will. But if we
fail to muster the courage to do this now, Europe will remain permanently
vulnerable to crisis.Guido Westerwelle is Germany’s foreign minister.
This article was first published by
The Financial Times.