Just over a year ago the chairman of Germany’s Social Democratic Party, Sigmar Gabriel, was enmeshed in complex negotiations to form a grand coalition government. Following a relatively poor showing in the election, under the leadership of Peer Steinbrueck, Gabriel masterminded coalition talks which saw the Social Democrats take a number of the key ministerial posts, as they had done in Merkel’s first government, between 2005 and 2009.
In advance of his first visit to the United States as Vice-Chancellor, and ahead of meetings with Treasury Secretary Jack Lew and Vice-President Joe Biden, Gabriel sat down with CAP senior fellow Matt Browne to discuss the economic and political challenges facing Germany, Europe, and the transatlantic relationship.
Below is a lightly edited version of that conversation:
The Economist recently joined the chorus of anti-Austerians, noting that with a significant decline in industrial production and manufacturing, Germany should stop worrying about budget deficits and invest more aggressively in infrastructure. How do you see the challenges facing Germany’s economy, and how can you as coalition partners ensure Mrs. Merkel’s government is focused on economic growth?
I agree that German infrastructure investment is far too low. Addressing this is one of our top priorities right now. However, in addition to public investment we would like to do it using private funds. Household savings are high in Germany — almost 5 Trillion Euros. If we manage to channel just one percent, 50 Billion, to infrastructure, this would go a long way toward closing our infrastructure gap, as well boosting our economy. It would also give German savers an opportunity to invest their money domestically at a better return than the miniscule interest rates they can earn on government bonds. Achieving this objective would also help to lower the German current account surplus.
I am very much in favor of increasing public investment. We are already doing so, and we need to find ways to do more. But frankly, we have solid domestic demand in Germany, driven by a buoyant labor market and high wage growth. Our output gap has almost closed. What we need in Germany are systemic changes to the way in which infrastructure projects are identified, structured, and financed. This will yield significant growth benefits where we really need them, namely, by raising potential growth, which is much too low.
Fellow progressive leaders in Europe, most notably the Italian Prime Minister Matteo Renzi and French Prime Minister Manuel Valls, have called for a relaxation of the budgetary rules that many blame for Europe’s austerity agenda. Former Social Democratic Chancellor of Germany, Helmut Schmidt has also been critical of Germany’s role through the recent economic crises. What’s your vision for a more progressive, pro-growth Europe?
I don’t think that Valls and Renzi have argued that the rules should be relaxed. They have argued for the use of the existing flexibility that the current rules provide. I fully agree with them. Of course, this leaves open the question of exactly how much flexibility the rules allow. In the case of France, it is for the European Commission to take a view on this in the next few weeks.
Rules like these define a common standard of behavior that is necessary for the Euro to function. But it is equally true that we do not want these rules to be used in a way that worsens an existing economic problem. What we need, and what I am trying to work towards, is a sort of new grand bargain for Europe — better government with less waste of public funds one the one hand, more investment in areas where we need to foster competitiveness on the other. A better internet, broadband infrastructure, energy efficiency and new industrial capabilities of electric mobility, these are good examples for higher investment. What we don’t need is a waste of money for the next bridge or the next highway to nowhere.
It’s been argued that much of Mrs Merkel’s political success has been built on the tough reforms and good policies designed and pushed through by Social Democrats — I’m thinking of particularly Chancellor Schroeder’s Agenda 2010 and the practice of work-sharing during the crisis. Now that you are leading the Social Democrats in the coalition government, do you have a plan to ensure that this time around you get the political credit for your policies?
First of all, we have a duty to deliver what we have promised to our voters: a minimum wage, a fair retirement deal for workers who paid pension contributions for 45 years, equal opportunities for women, better education, and better management of the „Energiewende“, Germany’s ambitious transition to renewable energies. That is my strategy — good government and trustworthy politics. I am sure that at the end of the day, voters want somebody in power they can trust.
You’ll be speaking later this week at Harvard on the future of the transatlantic partnership which — with disputes over current trade deals, the Prism spying scandal, and difficulties in agreeing sanctions with Russia — has been strained in recent times. Do you have a vision and proposal for how we can renew this alliance for the profound economic and security challenges we face today?
Confronted with new instabilities and imbalances, both economically and politically, Europe and America share many challenges. They have common interests and share a values-based view of international cooperation. It is the promise to enable a better future for the greatest possible number of their citizens. This idea requires energy security, financial stability, sustainable growth, and equal opportunity. Sustainable progress could serve as the focal point of a new common commitment. It will help to build trust in a new transatlantic agenda embedded in stronger global ties and networks.