First, the direction of European economic and financial policy must change, away from pure austerity toward growth. Greece, Ireland, Portugal, Italy, and Spain have made substantial progress in stabilizing their finances. The economic and political situation in these countries, however, shows that austerity alone is not the way to resolve the crisis. On the contrary, there is a danger of half-strangling national economies with a strict policy of austerity; in Greece this is already happening.
This policy conceals significant dangers. It delegitimizes democratic politics in the nation states that find themselves faced with violent protests and the growth of populist and extremist parties. But this policy is also economically wrong for the whole European Union, because developments in these states affect other export economies. Germany sells more than 60 percent of its exports within the European Union. We would therefore be well advised to cushion harsh austerity measures with programs for growth. For instance, revenues from a tax on financial transactions, which I support, could be used for this.
Second, we need a coordinated program of European structural reform. The international competitiveness of EU states must be strengthened further, because emerging countries like Brazil, Russia, India, and China are catching up – but also because the disparities within the European Union are too large.