SPIEGEL Interview with Gerhard Schröder 'Europe Needs to Wake Up'

In a SPIEGEL interview, former German Chancellor Gerhard Schröder, 67, discusses the German government's learning curve in the euro crisis and his idea of a United States of Europe. He also addresses allegations that his government helped set the stage for the current common currency woes.

SPIEGEL: Mr. Schröder, is the euro in mortal danger?

Schröder: No. If you look at the external value of the euro in relation to the dollar, we were once at 82 cents and are now at 1.40. The euro is not in danger. What is missing is a political concept.

SPIEGEL: But something is going fundamentally wrong with the euro at the moment.

Schröder: (Former French President Francois) Mitterand and (former German Chancellor Helmut) Kohl were pursuing two basic ideas in creating the euro. Mitterand wanted to contain Germany's economic power within Europe by means of a common currency. That couldn't work. If you create a common currency, the stronger economy will prevail. Kohl's mistake was to assume that the common currency would inevitably lead to political union. And the crisis we are currently experiencing makes it abundantly clear that you can't have a common currency without a common fiscal, economic and social policy.

SPIEGEL: You said the same thing before you became chancellor, and then you didn't pursue it.

Schröder: Europe is a very tough nut to crack. Everyone who has ever done it knows this. That's why I am also hesitant to criticize administrations now in power. I admit that I would like to have achieved more than I did. When I was in office, I would have liked to bring the European constitutional process to a satisfactory conclusion. But it didn't fail because of us.

SPIEGEL: Helmut Kohl blames you for the crisis, arguing that you were too quick to accept Greece into the euro zone. Does that mean that you are to blame for the euro debacle?

Schröder: Anyone who considers the issue fairly knows that this isn't true. At the time, it was the European Commission that felt that the conditions had been met. All the relevant groups in the European Parliament agreed to Greece's acceptance into the euro zone, as did the (center-right Christian Democratic Union) CDU and the (pro-business Free Democratic Party) FDP. Only the (conservative Christian Social Union) CSU was opposed.

SPIEGEL: The European Central Bank (ECB) is also leveling accusations against you, namely that your administration softened the criteria of the Maastricht Treaty -- that is, the Stability and Growth Pact.

Schröder: Now that's a criticism that should be taken more seriously. But one has to consider the context. The reform strengthened the growth aspect of the pact. Special burdens, like the costs of (German) reunification, were built in. But it was far more important that countries pursuing difficult structural reforms were given more latitude for growth programs. It was important for us in Germany, because we had launched the Agenda 2010 (program of structural reforms). We had a stagnating economy in Germany. We were also determined to implement the reforms, that is, to adjust the social security systems to the new conditions. Therefore, there was a need to emerge from stagnation with an economic stimulus program. In that situation, and because of the internal reforms, we were forced to emphasize the growth component of the pact. And it was ultimately successful. We did our homework as far as the Agenda 2010 was concerned, which is another reason we made it through the economic crisis more successfully than others. Now countries like France and Italy have to catch up under difficult conditions.

SPIEGEL: You say it's a tough nut to crack. But what Europe needs is speed and clout. Do you think that this Europe of 27 nations is capable of that?

Schröder: Germany and France issued a strong signal with the plan for a European economic government -- if they are serious about it -- and the corresponding powers, like a European finance minister. That's the right approach and the prerequisite for the right instrument, namely euro bonds -- if only for the reason that it creates a huge bond market, and no speculator can hope to divide this market.

SPIEGEL: Merkel is accused of being too hesitant and too contradictory.

Schröder: There is a difference between being the political leader of a European Union of six or even 10 countries and one of 27. When it comes to their economies, the 27 countries are even more diverse than was ever the case previously.

SPIEGEL: It sounds as if you were trying to protect the chancellor.

Schröder: No, but to those who are so quick to criticize, I would like to say: Couldn't you tone it down a little? It's hard work, making progress in a Europe of 27 countries. And I do give credit to the government for that, even if it's not the government I would like to see in power.

SPIEGEL: Does the federal government have a strategy?

Schröder: Now more than at the beginning. I'm critical of those who believed at the beginning that they could scrape by on the domestic political front by bashing Greece, without having to suffer on the European political front. They listened to the voice of the street. That was a big mistake. They apparently recognized this mistake. The decisions reached by Germany and France are moving in the right direction. It would be completely wrong to dispute that. For this reason, I assume that my party will also support it in the Bundestag (Germany's federal parliament), which I think is absolutely the right approach.

SPIEGEL: The experience made over the years in Europe is that many agreements are made, only to be broken when necessary. Why should anyone believe that this would ever change?

Schröder: The weakness of Maastricht and the Stability and Growth Pact was the lack of political control. Merkel and Sarkozy are now taking steps to correct this. But when taken to its logical conclusion, this mean that countries will have to give up some of their national sovereignty.

SPIEGEL: How exactly?

Schröder: The Commission or a European finance minister will have to retain the right of initiative, but the control mechanisms will have to be democratized. National parliaments cannot be expected to accept a loss of sovereignty on budgetary matters without parliamentary control mechanisms being implemented elsewhere. The decisions reached by the national parliaments must end up in the European Parliament, as the ultimate authority. A possible approach would be for the parliament to form a special committee, which would consist of the members of the euro zone and assume this control function. The transfer of such parliamentary rights to any expert committees would pose a serious risk, because it would be associated with the curtailment of democracy.

SPIEGEL: Would you entrust the European Parliament to perform this task?

Schröder: Yes, of course. This sort of parliamentary control mechanism is needed, and if the crisis results in the problems we have discussed being corrected, there is a good side to the crisis.

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