Speech by German Ambassador Michael Clauss at the 5th Caixin

Speech by German Ambassador Michael Clauss at the 5th Caixin Summit
“New Normal and Continuous Reform”
December 19 - 20, 2014
Session on: “ World Economies Are Finding New Paths”
Excellencies, Ladies and Gentlemen,
thank you very much for the invitation to speak at the 5th Caixin Summit today, which
allows me to give you a German and Eurozone perspective to the discussion.
If you take a look at the state of world economy today, it is obvious that China is the
only growth engine for the foreseeable future, despite its current economic slowdown.
US unemployment is decreasing, growth is picking up, but is still well below before
2008 levels. Japan is struggling to boost growth, its economy has almost come to a
halt. How does Europe come into this picture?
If you look at the media, Europe seems to be in a state of permanent crises,
underperforming. Sometimes it is even being portrayed as a risk to the world
But let us recall a few basic facts:
a. Growth:
For the first time since 2009 almost all Eurozone countries are back to growth .
2015 prospects are fairly good, especially in countries hardest hit by crisis.
Compare 2014 to previous years: in 2009 Ireland was in a deep recession
(-6.4%), Greece was badly hit in 2011 (-7.1%), Spain suffered from negative
growth in 2012 (-1.6%), Cyprus went into recession in 2013 (-6%).
The situation is very different today: Ireland is growing at an annual rate of
4-5%. Greece, which was hard hit, is expected to grow by 2% next year, also
Spain, Portugal and Cyprus have returned to growth.
b. The confidence of international financial markets has returned, spreads have
gone down. In 2011 there was an almost 10%-gap between Portugal/Ireland
10-year government bonds and the German “bunds”. Today, the spreads have
narrowed down to less than 1% in the case of Ireland and 2.3% in the case of
c. All Eurozone countries have carried out impressive and often painful reforms,
for example on labour and fiscal spending. We can see that countries, which
started reforms early, such as Ireland, Portugal and Spain, are in above1
average shape now: . But also France and Italy are taking bold steps in
creating a more flexible labour market and reducing red tape. This will no
doubt enhance their competitiveness and spur growth. But despite these
positive developments there are discussions of a possible return of the Eurocrisis.
Today, the focus is again on Greece. There is some concern of new political
instability. How big is the risk of a return of the Euro-crisis? If the presidential
elections in GRC, foreseen within the next four weeks, fail to produce a majority for
the government in Parliament, general elections will have to be held. This causes
some international concern, since Syriza, the radical party, leads the polls. But
despite current jitters, there is little risk of contagion. Even if things went wrong in
Greece, other former crisis countries, like Ireland, Portugal and Spain, are on a
completely different track and not likely to be infected. Greece only stands for 2% of
Furthermore, the Eurozone has drawn its lessons from the so-called Euro-crisis: it
has put stable mechanisms in place to prevent the return of government debt as well
as banking crises. Germany as Europe’s strongest economy played a crucial part in
this. It struck a great bargain in this process: In exchange for Germany’s solidarity as
the largest contributor to the rescue mechanisms, all Member States committed to
reform in order to reestablish fiscal solidity and enhance their competitiveness. The
Eurozone created a euro-firewall, the so-called European Stability Mechanism, which
can step in anytime a new crisis might be looming.It is able to respond swiftly to
possible new requests for financial assistance by euro area Member States. Its
lending capacity is currently set at 500 billion euros. This amounts to about 4 trillion
We have established a European banking union. Between 2008 and 2013, 1.6 trillion
Euros, the equivalent of 13% of the US annual GDP, were committed to stabilize the
ailing banking sector. After these “fire rescue type” operations we now have a durable
institutional framework. The European Central Bank (ECB) has become the central
supervisor for systemically important banks in the Euro area. The ECB now
supervises all important banks with a balance sheet of above 30 billion euros or
accounting for more than 20% of national GDP.
Let me open a parenthesis here: The greatest challenge to the world economy at
present is the Ukraine crisis. This has left a deep impact on Russia’s economy, which
will probably shrink in 2015 also because of the dramatic fall of the oil price. Despite
somewhat positive developments in recent days, the risk of a new Cold War has not
been averted. Should the situation deteriorate further, no major economy will be able
to shield itself from the effect. And it is certain that the deepest effect will be felt in
Russia. Both China and the EU have a considerable interest in bringing Russia to
respect the sovereignty and territorial integrity of Ukraine, to de-escalate and to
prevent a new Cold War.
Returning to the EU: So what does successful EU reform mean for China and the
world? The EU will not only remain crucial, but even has the potential to increase in
importance to China and the world. If you compare to the other big economies China,
USA, Japan, the EU is the number two in terms of polulation size (more than 500
million). The EU is the largest economy in the world, a 13.5 trillion Euro size economy.
The EU is the biggest player in global trade. In 2013, it enjoyed a significant trade
surplus of more than 227 billion Euro. At the same time, the EU is the largest source
and destination of foreign direct investment in the world measured by both stocks and
flows, attracting investments worth more than 327 billion Euro from the rest of the
world in 2013 alone. On R&D the EU spends almost three times as much as China,
almost double that of Japan and almost 90% of that of the US.
Let me make a last remark on EU-China trade.
EU-China trade in 2014 so far outstrips competitors and propels China’s growth.
According to Chinese customs statistics, China’s exports to the EU increased by over
9% in the first ten months of 2014, faster than China’s exports to ASEAN and nearly
twice as fast as China’s overall export growth. Among European countries, Germany
is by far the strongest player: According to Chinese statistics, bilateral trade grew by
10% this year. I expect this trend to continue in the coming years. I am optimistic that
the reform of the Chinese economy will offer more and better business opportunities
especially for German and Chinese companies.
Xiexie dajia.