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Berlin Address by Federal President Horst Köhler 24 March 2009

Federal President Horst Köhler Berlin, 24 March 2009 Photo: Steffen Kugler, BPA © Photo: Steffen Kugler, BPA

"The Credibility of Freedom"

Let me tell you a story of how I once failed.

It was in Prague, in September of 2000. I had recently been appointed as Managing Director of the International Monetary Fund. My goal was to turn the IMF into a center of excellence that was to ensure the stability of the global financial system.

I was worried about the development the financial markets were taking at the time, because I was no longer able to gain a perspective on the gigantic financing volumes and the overly complex financial products. That is why I began to develop in-house expertise within the IMF on capital market policy. This was not welcomed by everyone. In fact, I was surprised to note that the G7 countries were quite hesitant to subject themselves to an assessment of their financial sectors; after all, these reviews had been resolved by the member states of the International Monetary Fund in 1999, as a lesson learned from the financial crisis in Asia.

Many people familiar with these matters had warned of the growing risk to the system as a whole. But these warnings went unheeded in the capital cities of the industrialized nations: no-one was willing to actually exercise political authority over the financial markets.

Now, the big wheels have broken down and we are experiencing a crisis, the outcome of which may define the 21st century. I believe this could be for our good, provided we are able to learn from our mistakes.

At present, however, the recession continues to unfold. It has reached every continent. The financial crisis has hit the real economy, at lightning speed and hard. Yesterday, Germany was the world champion of exports. Today, we see our proud title in tatters. Orders are drying up at an unprecedented speed.

It is reassuring to see that most companies in Germany are trying to avoid dismissals. They know they will truly need their highly motivated, well-trained employees if they want to overcome the crisis. But we should be honest: many companies will be able to ensure their survival, and thus retain jobs, only if they let go some of their workforce. We should prepare ourselves: the unemployment rate in Germany will rise steeply again.

Some people are asking, why don't we just opt out of globalization? But having a national economy in which every product, from bread to shirts, from computers to cars, is manufactured in our own country, is no longer conceivable. Pulling out of the world markets would destroy our prosperity in next to no time.

So let us face our responsibility. This is in our interests, as we sell half of our economic output abroad. The global economy is our destiny. That is why we must now involve ourselves, actively and constructively, in the efforts made all over the world to overcome the crisis, and must bring our weight to bear.

This crisis offers a unique opportunity in that now, it is clear to all of us that no-one can permanently create advantages solely for himself. We, all of humanity, are in the same boat. And people in the same boat must help each other. In the 21st century, self-interest has come to mean that we must take care of one another.

In particular, we in the North must learn to rethink. Currently, about 6.5 billion people live on our earth. A mere fifteen percent of them live in the same circumstances we do. More than two billion people live on two dollars a day, and one billion people must make do with one dollar a day. We should stop fooling ourselves into thinking that this is just. Security, prosperity and peace - they will be assured for the industrialized nations only if we achieve greater equity throughout the entire world. We need to have a development policy for the whole planet. This means that the industrialized nations - including Germany - must find out what changes they need to make, in order to ensure there will be a good future for the world.

In the past months, the German federal government and the Bundestag, our parliament, have proved that while they are capable and willing to act, they will not rush into action just to be seen to be doing something. Their opinion is heard and respected by others involved in managing the crisis, both within Europe and internationally.
In Germany, our government must now deal with exceptionally difficult decisions and balance them carefully. They will affect the weal and woe of many people. There are no ready formulas. We cannot be sure what the specific steps will be, nor can we foresee the difficulties lying ahead. But we can trust in one thing: we are headed in the right direction.

Any serious suggestion must be considered seriously. Struggling to find the best solution is what constitutes democracy. However, our upcoming parliamentary elections cannot mean that the administration can take some "time out" from its governmental responsibilities. In particular in times of crisis, the populace is entitled to see its government act as one and develop sustainable solutions meeting tomorrow's needs, and those of the day after. The crisis cannot serve as a backdrop for political posturing. It is a trial by fire that will put democracy itself to the test.

Many citizens of our country are concerned. They are asking what is still in store for us, and what is to be done now. They see the income earned by bank executives, the losses suffered by investors, the crises that many companies are going through, and the gigantic economic relief programs developed by various nations. Many of them are beginning to doubt the validity of the market economy, and are not convinced that this system will last.

People need more information; they need to be given an explanation of what is happening. They want to know how they can become involved, how they can contribute their own ideas and concepts. In fact, parliaments and government administrations, both at the federal level and in our states, the Länder, need the support and cooperation of their citizens in dealing with the crisis. We must now find new ways to do so, together.

It all begins with the question: How did we get into this?

We do not know all of the causes yet. But some things have become clear in the meantime. Too many people working with much too little of their own money were able to use huge financial levers. For many years, they succeeded in fooling people into thinking that debt is a commodity with real value, and all you need to do is trade it. Increasingly, banks bought and sold securities whose effects they themselves no longer understood. The focus was on obtaining maximum returns in the short term.

Even reputable German banks increasingly lost their perspicacity and good judgment in dealing with risk. That was possible only because they gave up their own culture. They lost touch with the principles that made them the major institutions they are today - a sense of monetary stability, respect for their savings depositors, and the ability to think long-range. Even banks can create added value in the long term only if they see themselves as a part of society as a whole and have its support. If they respect the principle set out in our constitution: Property has its duties. And when property is used, this use must also serve the general good.

But for many, piling up financial pyramids became an end in itself, in particular for the institutions called investment banks. In this way, they disconnected themselves not only from the real economy, but from society as a whole. These matters also concern issues of responsibility and of integrity. Many have lost this sense of decency, the knowledge that some things are simply not done. We have yet to see those responsible analyze their actions with an appropriate degree of self-critique, to say nothing of making an appropriate contribution to mitigating the damage they have wrought.

In the meantime, the circulation through the veins of international finance continues to be blocked. This leads to consequences everywhere, and also for us. In order to make investments, companies need to obtain loans, and banks need to cooperate with each other in granting such loans. But they continue to mistrust each other. They are holding on to whatever money they have. The financial crisis is engendering a sense of uncertainty and paralyzing the spirit of entrepreneurship all over the world.

We are now experiencing the consequences of insufficient transparency, lax controls, deficient supervision and risky decisions taken without anyone being personally accountable. We are experiencing the consequences that freedom without responsibility will entail.

But passing the blame and making short-term repairs is not going to teach us any of the profound lessons we want to learn from this crisis. Because there is an issue that concerns us all. Although prosperity has been increasing continuously since the 1970s - in the Western world, in Europe and also in Germany - the national debt likewise has increased continuously. Bills of exchange were issued on our future, and the promise was made to discharge them. But as of today, that has not happened, because we shied away from the effort that redeeming debts inevitably entails. We handed those bills of exchange to our children and grandchildren, putting our minds at ease by telling ourselves that economic growth was going to help them honor these bills. Now, the crisis is demonstrating that we have all lived beyond our means.

The crisis originated in the industrialized nations - those who thus far had believed themselves to be strongest. Thus, it illustrates the contradictions in which the industrialized world has been caught up in the past decades. We ourselves have made the world the place it is today. But increasingly, we are losing our bearings in it. That is how the gap widened between the demands of our new reality and our sense of entitlement that everything should stay the way it is.

And we fooled ourselves into thinking that there was a perfect resolution to these contradictions. We fooled ourselves into thinking that permanent economic growth was the answer to all questions. As long as the gross domestic product increases, so the logic went, we can finance all the needs that are so dear to our hearts - while at the same time raising the funds that adjusting to a new world will require.

The financial markets were growth machines. And for a long time, they ran quite smoothly. That is why we left them alone - only to see them rid themselves of all constraints and sever all ties. Now we see that the market is unable to deal with this alone. In fact, we need a strong state that lays down the rules for the market and ensures they are enforced. The market economy is based on competition, and on setting limits to economic power. It is based on responsibility and on people being held accountable for their actions. It needs to have transparency and a general willingness to abide by the law. People must be able to trust in all of these things.

At present, this trust has been shaken to the core. There was no regulatory power controlling the financial markets. They evaded the supervision by governments. The crisis is now teaching us that destruction lies at the core of freedom that knows no constraints. But the market must have rules and a sense of ethics.

We need to remember something else as well: Those who are free are strong. But this freedom cannot mean that we are subject to the might of the strongest. Because that is the string attached to freedom: it will sow the seed of self-aggrandizement in those who have sated themselves and grown strong. And it will also instill in them the idea that freedom can be had without responsibility.

Freedom is not the prerogative to reserve the best seats for ourselves. We want to learn to not only make sure we are free, but that others are as well. The credibility of freedom is something that can be measured by our ability to share opportunities with others, internally and externally. And it can be measured by our readiness to accept responsibility for our neighbor, and for the good of the whole. If we could manage that, then we will be able to bring out the best in ourselves.

That is why it is precisely the crisis that confirms the value of the social market economy. It is more than an economic system. It is a system of values. The social market economy merges freedom and responsibility to the benefit of all stakeholders. This culture now has been violated. Let us re-discover the cultural good that the social market economy represents. And all are well advised, in particular those active in the financial markets, to also learn to become modest.

On the other hand, the crisis is already developing into something positive. The goals that President Barack Obama intends to achieve for the American economy and society are quite similar to our model of a social market economy - another aspect showing that Germans can make a contribution to dealing with the crisis.

Our government and our parliamentarians are faced with a huge challenge. The need to accomplish a two-fold task in shaping the policy of our country: they must prevent a self-intensifying, downwards spiral from taking hold, and they must concurrently lay the foundations for stability and prosperity in a world that is undergoing fundamental changes.

The first step is to restart the circulation of money. We metaphorically refer to the "main artery of the economy", and we know that the economy needs to be supplied with funds in order to ensure that the people who work hard and play by the rules will still have a job tomorrow. Also, we must combat global recession to prevent it from taking hold. And finally, the international financial markets need to be reformed and given better rules, strong regulation and effective accountability.

All three of these tasks are being worked on. The political level has reacted quickly and decisively. Banks are being supplied with capital and guarantees to ensure that money does not stop circulating entirely. The economic incentive programs generate demand and help companies weather the crisis. State aid for banks and companies is costing a lot of money. In granting it, we must accept a higher national deficit as the consequence. But it can be justified only if the money is used intelligently. For us in Germany, such intelligent use means:

  • We are aware that the global crisis demands a global answer. This will entail a new quality in international collaboration. Germany as the largest economy in the European Union will have a leadership role to play. At the same time, we need to face the crisis with the full force of 500 million people jointly committing themselves to this effort. Let us use the crisis to our benefit and give the unity of Europe new momentum.
  • We are working energetically towards reforming the international financial markets. This should be oriented by the following principles: Banks must base their transactions on a considerably higher share of equity. This will increase their awareness of risk. The financial markets need to augment consumer protection. Bank employees should not be remunerated based on their turnover. They should be rewarded for their clients' long-term satisfaction. We cannot allow there to be locations where financial transactions are not subject to regulations, nor an we permit financial institutions and financial products to be unregulated. And we must subject the major financial institutions to uniform international supervision.
  • The financial rescue package is not a gift to the banks. We are demanding counterperformance in that the banks involve the government in their decisions, that they pay interest, and that they contribute to overcoming the crisis. The taxpayers are being made liable for gigantic amounts of money. That is why the state is accountable. In fact, ownership interest temporarily held by the state is not entirely out of the question. But none of this will affect the protection of private ownership, the constituent element of freedom and prosperity.
  • This having been said, one thing is certain: the financial power of the state has its limits. Governments as well can lose their credit standing. That is a risk we must not allow. That is why we have already entered into obligation, and this is binding upon us, to reduce the national deficit as soon as we have brought this crisis behind us. Because we cannot postpone the issue of generational equity for an indefinite period of time. We are facing a credibility test concerning the cohesiveness of our society.

As the country located in the center of Europe and as an exporting nation, we depend on free trade and we depend on as many nations as possible taking part in it. As a result, we need to take action in another arena as well:

We Germans should commit ourselves especially to bringing the ongoing negotiations on development-friendly trade facilitation to a prompt end. The Director-General of the World Trade Organization, Pascal Lamy, has informed me that eighty percent of the issues in dispute have been dealt with. All it takes now to promote world trade and thus global trust is one last effort, reasonable behavior and political decisiveness on the part of all involved. The European Union should contribute to the best of its abilities. Its future also depends on open world markets. And we must likewise energetically oppose all protectionist tendencies within the European internal market.

There are some tensions in the Euro zone. And some of our partners in Central and Eastern Europe are in an awkward position. This is the backlash of growth euphoria and the failure to implement reforms. Nonetheless, the European Union should be prepared to give aid. But it must be able to rely on our partners being willing to exercise discipline and responsibility.

In Asia, Latin America and Africa as well, more and more countries are encountering difficulties. And we are coming to realize that the global economy is substantially under-insured. The funds do not suffice that were to be provided by institutions such as the International Monetary Fund and the World Bank, which were established with emergencies such as this one in mind. A consensus seems to be developing to double the funds available to the IMF for financing purposes. That is good news. More would be better.

I would like to reiterate my suggestion that another "Bretton Woods II" conference be organized under the auspices of the United Nations, in order to promote fundamental reforms of the international economic and financial system. We need a new, well thought-out international monetary system and a political procedure for dealing with global imbalances.

The European Union can significantly contribute to the reform of international financial institutions if the member states could agree to bundle their interests at one location in the International Monetary Fund and the World Bank. The introduction of the Euro has already strengthened Europe and given it greater protection.

Augmenting one's own freedom by joining one's sovereignty to that of others - the EU should use the opportunity to transfer this principle, the basis of peace, to a new era of cooperative world policy. In the process, we will also take care to ensure that whatever people are able to decide better themselves, at home, will remain their responsibility in future.

We have reached the point at which we can come to an understanding on the joint tasks that humanity faces, and can commit ourselves to deal with them. All of us have recognized that we need to regulate globalization, we need generally accepted rules and effective institutions. This new order must ensure that global public goods like international financial stability, slowing the process of global warming and the assurance of free and fair trade are defined and safeguarded jointly by all concerned.

This is about our responsibility for global solidarity. It is about the inalienable dignity of all people. It is about a global economy in which capital serves people, and cannot become the ruler over people.

Let us understand the battle against poverty and climate change as strategic tasks to be solved by us all. As the main sources of the factors causing climate change, the industrialized nations are responsible for the people in developing countries having been hit hardest. The fight against poverty and climate change must be one.

Today, the world is asking the global social question of us. It is our obligation to find answers to it, and it is also a great opportunity. Let us prove that the North will not fail the South. The changes we need to make must be made everywhere.

As a global community, we need to have a mutual set of ethical principles. We must come to an understanding concerning the values we all share, and whose violation will not be accepted by the community. The basic principle is: in future, we intend to treat others only the way we ourselves want to be treated.

That is why we will need to very carefully scrutinize where we ourselves have used double standards. This as well will give us greater credibility.

Let me give you an example. Decades of industrial-scale fishing by the European Union have largely depleted fish stocks along the coasts of Western Africa. Today, West African fishermen can barely eke out a living with their small boats. We should not be surprised, then, that these boats are increasingly being used to transport refugees to Europe. How much more effective it would have been, more sustainable and also cheaper, to enter into a true partnership with the nations of West Africa at an early stage, to create mechanisms monitoring the depletion of fish stocks and to jointly ensure that the abundance of their fishing grounds benefits the local fishermen first and foremost.

Let me share my personal conviction with you: the humanity of our world will be measured against the fate of Africa.

We know today that building a train line across Africa would have posed less of a risk than investing funds with a reputable New York investment bank.

Let us put these newly gained insights to use. Let us verify whether what we always believed to be certain still holds true today, and let us overcome our fear of the unknown. Then we can discover how much joy can be found in the creative task of accepting responsibility for the future. I am convinced we will be able to accomplish this.

The reason is that we have already started, long ago. I am heartened to see more and more people in Germany recognize that if all of humanity wanted to live the lives we do, right away, we would need to have more than one earth. But we only have this one. It is the one that has been entrusted to us. An increasing number of people is drawing their conclusions from that knowledge and is changing their lifestyles. They have recognized that everyone can make a contribution.

Climate change is showing that the earth is growing impatient. We need to find a new balance between our needs and what our planet can sustain. This also concerns the community of nations, since the poor nations and the rich nations must now try to find common ground. Rich countries must save energy and resources and deliver the technology enabling this. Poor countries must align their economic activities with the principle of sustainability and must avoid repeating our mistakes. We need to achieve a model of prosperity that enables justice and equity to take hold everywhere.

Let us jointly resolve to no longer live at the cost of others.

Climate scientists tell me that the earth needs a global system to trade pollution rights. And they also tell me that this will work better the more the rules of the market economy are applied. By instituting a market and rules, the contamination of the environment can be reduced everywhere, and quickly. And it is just as important to factor in the price of each and every good and service, to include every cost that the general public must pay - the loss of clean air and of exhaustible raw materials, the cost of waste, of noise and traffic jams.

I am convinced that if these costs are made transparent and everyone makes an effort to ensure that their economic pursuits are environmentally sound, research and science will enter the race. And that is where considerable opportunities will open up, especially for us Germans. Already, we are the global leader in environmental economics and environmental technology. Nearly two million people work in this sector, and that number will be increasing.

Ernst Ulrich von Weizsäcker, who received the German Environmental Award, described his vision of "Factor 4" several years ago. This is shorthand for doubling wealth while halving resource use. We should understand the quantum leap that we can take in terms of energy and resource productivity.

Let us, therefore, consciously decide on the next industrial revolution, this time an ecological industrial revolution. Creating good conditions for it requires the market and the state to interact intelligently. And it requires alert and critical consumers. We need a general spirit of innovation and strong ecological awareness in our society.

This is not only a task for the economy. It is a cultural challenge. Man does not live by bread alone. Ludwig Erhard knew this. To him, prosperity was not an end in itself. Prosperity was and continues to be the basis for a life that transcends it.

Let us turn Erhard's insight into a question to ourselves: how much is enough? Once the world has weathered this crisis, we will need to have answers for questions like this. We have good reason to be grateful that we can go in search of answers as self-determined individuals. And we should know that we can no longer rely mainly on economic growth as the solution to our problems and the peacemaker in our societies.

What, then, is happiness? I believe we should set ourselves new goals in our quest for fulfillment. True, this will affect our lifestyle. But in fact, the quality of our lives may improve. Thrift should become an expression of a sense of decency - not as a form of stinginess, but as a way of respecting our fellow humans and the world we live in. Democracy is more than just ensuring that material benefits accrue to people. We do not want to be good democrats only for as long as we can be sure that we are rich enough to afford it.

We no longer want to make contentment and cohesiveness in our society dependent only on a quantitative concept of "more and ever more". Our country needs to see knowledge and intelligence grow, as factors enabling us to lead better lives.

We produce the best cars of the world. But that is not enough. We must produce the best cars of the future world. The German Association of the Automotive Industry forecasts that the zero-emissions vehicle will be ready for series production in fifteen years. I believe we can be faster than that. I place great trust in the engineering capabilities of our auto manufacturers. One German manufacturer currently is facing special difficulties. That company also has great engineers. I am told that they have worked far into the future. That is where I would like to see hope for Opel. And I see it in the willingness of the employees and the board of management to work with each other, in a spirit of trust and leaving prescribed roles behind them.

The gain in knowledge and abilities we need to achieve will also make us aware of where we have failed in education and integration. We cannot afford to give up on our youth. We need each and every one of the around 70,000 young people who drop out of school in Germany each year. We must do more for the permeability of our society's strata. This is a good thing not only for those who manage to come through. It will also strengthen the dynamism and creativity of our society and give us a sense of community. Having a sense of superiority will paralyze us, just as remaining tied to the circumstances into which we were born will.

We also need to rediscover the value and the dignity of the work done by people in the service of others. Let us not fool ourselves: our factories will continue to empty themselves of people. Machines will continue to take over those tasks that they can perform better than we can. But machines cannot take over our uniquely human tasks. What is the value of the work done by a nurse helping a patient in need at night, giving him the gift of compassion? Why, for such a long time, have we turned the fields of caring for the elderly and for small children into a market for illegal employment? I am convinced that in future, work will mean people dealing with other people. Because that is a field where we cannot be replaced.

Let us bring more awareness, more empathy and care for our fellow humans into this world, into our private world and into that of others. We have all the right and all the reason in the world to commit ourselves more strongly. Because we also bear responsibility. I am sure that if we accept this, new opportunities will open up to us, and give us new answers in our search for meaning.

The way in which we have presented ourselves to the world in the past sixty years of our history is exemplary. We are filled with joy that our Germany has been reunited since twenty years now. We Germans have retained our ability to self-critque. As a nation, we have remained modest even as we were growing stronger. We look at others without cynicism, we approach them openly and as potential partners. We form a community that deals with its neighbors with peaceful intent, but nonetheless with a clear objective. Helmut Schmidt is right when he says that we should not make ourselves larger than we are.

But neither should we make ourselves smaller.

The social market economy has demonstrated that solidarity does not mean taking pity. Solidarity means helping ourselves. When the ties connecting those above to those below are firm, then this will endow society with such power that it will have the ability to deal with seemingly unsolvable problems. That is the lesson we have learned from our history. Work, capital and sustainability belong together. Here in Germany and everywhere else.

Let us not fool ourselves: the coming months will be very difficult, also for us in Germany. We will be put to the test. We will continue to hear names and wish it were in a different context: Märklin, Schiesser, Rosenthal.

We will feel powerless, and helpless, and angry. But never before has there been a time in which our fate was in our own hands as much as it is today. We have the opportunity to sustainably link freedom to responsibility in our time. This is a task of great responsibility, because our freedom is so great. Let us treat it with care. Let us show humility, before our own freedom and before that of others.

Ladies and gentlemen, look around you in this church. It speaks to us, even today, about the work of destruction that humankind can wreak. But it also tells us that we can always manage a fresh start. It is up to us.