Transcript: ‘Europe is no longer at the centre of world events’

This is the transcript of a conversation between Angela Merkel, the German chancellor, Lionel Barber, Financial Times editor, and Guy Chazan, the FT’s Berlin bureau chief, which took place on Thursday 9 January in Berlin.

Financial Times: It’s a new year, it’s a new decade, and a German presidency in the EU in 2020. Can you tell us what your priorities are, and whether there’s going to be a big German initiative?

Angela Merkel: Well, our presidency doesn’t start until the second half of the year, but of course we’re preparing for it in the government. Some issues are obvious. They’re also very difficult to solve.

Firstly, there are the negotiations with the UK on its future relationship with the European Union. We’ll be involved in this when we hold the presidency in the second half of the year, although the matter is in good hands with Michel Barnier and Ursula von der Leyen.

And we want to continue working very closely together as the EU27. That worked very well in the overall withdrawal negotiations. Naturally, I’m also very glad that we have reached an agreement on the withdrawal by now. Arrangements for the future are now of course much more important.

Secondly, we don’t have an EU budget for the post-2020 period yet. In view of the medium-term financial outlook without the UK’s contributions and with the many new tasks we have, the talks won’t be a walk in the park. It’s not certain if this can be achieved during Croatia’s presidency, so we, too, may face this topic during the German presidency.

For our part, we plan to address two foreign-policy areas. One is the first summit between all EU member states and China that will take place in Leipzig, while the other is a summit in Brussels with the members of the African Union. Essentially, these two summits reflect priorities in our global relations. After all, the new president of the commission, Ursula von der Leyen, has said that her commission should be geopolitical. I completely agree with this. And that’s why we will do a great deal of intensive groundwork on the topics to be debated at these summits.

Apart from that, everything entailed in the revolutionary changes resulting from digitalisation is naturally of the greatest importance for us, as this will determine the European Union’s competitiveness and economic strength. We need to improve in this field, or at the very least ensure that we don’t fall further behind, given the very dynamic developments in many parts of the world.

FT: I’d like to ask you about the relationship with America. We know there have been serious tensions. Thirty years ago we had a stock market crash, in 1987, we had tensions over the Iraq war. But this time it feels much more serious. My question is — is this a matter of personalities, or is there something more structural [going on]?

AM: I think it has structural causes, although the political scene is naturally also influenced by the people involved in it. But for quite some time now, we have seen how the United States’ former superpower role may not reflect how the country sees itself or that there has been a shift in this regard. President Obama already spoke about the Asian century, as seen from the US perspective. This also means that Europe is no longer, so to say, at the centre of world events. That is becoming increasingly clear. Europe’s former position at the frontline — you could say we were the interface of the cold war — came afterwards to an end. That’s why Europe needs to carve out its own geopolitical role and the United States’ focus on Europe is declining. That will be the case with any president.

For President Trump, the assumption that we are a multilateral world — a belief that has fundamentally always prevailed since the end of the second world war — is no longer such a given. At any rate, several countries, not only the United States, are redefining how they see multilateralism. They believe that they can best serve the world as a whole by looking after their own country.

I’m guided by the firm conviction that the best win-win situations occur when partnerships of benefit to both sides are put into practice worldwide. This idea is under increasing pressure.

That causes me a certain amount of concern. The order with the United Nations, as we know it today — and ultimately, the European Union is also a multilateral project — was essentially a lesson learnt from the second world war, and the preceding decades. I believe it was a very fundamental lesson. Now that there are ever fewer witnesses to the war, this order is coming under pressure. I personally believe that we should endeavour to uphold it. We need to carry out a lot of reforms. I agree with President Trump when he says, for example, that we need to reform the WTO, we need to reform the United Nations. There is no doubt whatsoever about any of that. But I do not call the world’s multilateral order into question. So there are in fact structural changes that go far beyond the present and the different interpretations of a bilateral relationship.

The result is — President Trump underlines this in particular, but it was also said before him — that we in Europe and especially in Germany need to take on more responsibility. This is very often expressed in demands for higher defence spending. We have increased our defence budget by as much as 40 per cent since 2015. This is a huge step from Germany’s perspective. When our answer to the question of when we will reach the 2 per cent target is “at the start of the 2030s”, however, then naturally this is not enough for those who are already spending 2 per cent on defence today.

Nevertheless, the transatlantic relationship remains crucial for me, particularly as regards fundamental questions concerning values and interests in the world. Which social systems can be most successful? Which ones are similar? What values do we share?

I would put it like this: an awareness of Germany’s and Europe’s interest in good relations with the United States has grown. Conversely, the United States’ need to look after Europe has declined. These relations are thus in our interest, and if they are in our interest, then naturally we need to play our part.

FT: Can we still talk about the concept of the west? Does it still exist?

AM: I think what one associates with “the west” is a very Euro-transatlantic-centred worldview. When people in China speak about the western part of their country then they are talking about the less developed regions. This always sounds rather strange to us because the way we see the world, we are used to the west being the better-developed part of it.

One can say that there are shared democratic principles; that the individual has a certain role to play in society; that there is a firm understanding of the Enlightenment, the importance of facts and of science, of the distinction between facts and opinions, as we see in the op-ed articles and reports in your paper; and that all of these things need to be redefined in view of the great technological revolution caused by digitalisation. Our entire cultural work on legislation, the centuries-long development to achieve what we now regard as our constitution or principles, must now be translated to the digital world, too. That’s why we are at a very crucial point of our development.

If one sees it like this, I think one can say today that western democracies still exist.

FT: So we can? It still exists, the west?

AM: Yes. The west is not a closed entity. I just defined the west largely in terms of certain ideas about society and the role of the individual in these societies. However, it’s an open system. If others want to adopt this way of life, we will not turn them away. What is generally described as the west — certain social values, the monopoly on the use of force, free elections — still exists and is worth continuing to fight for.

However, it does not go unchallenged, and it is thus up to us to show that this system can create prosperity, ideally for all members of a society. We don’t always succeed and we see a lot of dissatisfaction, tension, upheaval. This raises the question time and again of what role the individual should play and how their rights should be safeguarded, how the majority sees all this. We need to face up to this rivalry between systems.

FT: Ursula von der Leyen has spoken of a geopolitical Europe; President Macron has spoken of a sovereign Europe. What does Europe need to do to make that concept real?

AM: In my opinion, the priority is Europe’s economic strength. Europe must have the crucial technological capabilities and develop the necessary mechanisms if it does not currently have such capabilities in certain sectors.

This also entails the topic of sovereignty. I believe that chips should be manufactured in the European Union, that Europe should have its own hyperscalers and that it should be possible to produce battery cells. We need to pool our strengths where we have been beaten or fallen behind in order to find the right answers to these questions.

Secondly, I said earlier on that digital transformation requires us to adapt our societies. There are very specific European answers to the questions of what happens to data and what role the individual has. I believe there is definitely support for these ideas in the world. For example, take the General Data Protection Regulation or the question of data ethics. I firmly believe that personal data does not belong to the state or to companies. Instead, it must be ensured that the individual has sovereignty over their own data and can decide with whom and for what purpose they share it.

This is a very European interpretation of how we shape the digitalisation process. Naturally, this gives rise to many questions. A key issue is that we tend to be very slow on some topics in Europe. We need to become faster. But that is in our own hands.

I advise against regarding China as an economic threat simply because it is economically successful. China has good ideas and is developing rapidly

Then there are sectors where we have to be realistic about our capabilities. We will not be autonomous in military terms in the foreseeable future. We have developed our defence capabilities together in Nato and the transatlantic partnership for 70 years now. Europe doesn’t have to aim for this autonomy across the board. But I think it’s good and right that we finally started creating a European structure for military co-operation in the European Union a few years ago.

What’s more, as a key pillar of Nato. There may be regions where we Europeans will have to be militarily active on our own. One example is terrorism in Africa, where Nato will not play a main role. Nato will continue to remain crucial for self-defence and collective defence. It’s good that there is now also a strategic working group under the Nato secretary-general, as we will need to discuss where else in the world we want to play a part, for example, as regards Afghanistan and Iraq.

In what parts of the world this should be the case can change in the coming decades. Where this will not be the case, Europe must — if necessary — be prepared to get involved. I see Africa as one example.

FT: So Nato is not brain-dead?

AM: No. What the French president raised has perhaps been resolved in that we are now all talking again about: how should Nato evolve in the coming decades? Nato is far more engaged in some fields than was perhaps the case 10 years ago. The decisions made in Wales in response to Russia’s annexation of Crimea and the conflict in eastern Ukraine have made topics such as collective defence and safeguarding the flanks — the eastern flank and the southern flank — far more pressing. In this regard, Nato is more active than before. We have created completely new structures. Nato is alive and kicking.

FT: A parochial question: Brexit. You’ve spoken of the economic challenge of having Britain, a competitor, on Europe’s doorstep. How concerned are you about a Britain outside the European Union which is diverging on rules?

AM: In my political work, I constantly say that fear is not a good guide. Instead, we need to ask what is good for us and how can we turn a particular situation to our advantage.

The UK has decided to leave the European Union and I’m sorry about that. However, we need to come to terms with this fact. If we’re honest with ourselves, it was unhappy the whole time it was a member with many of the measures to deepen the European Union, be they co-operation on internal security, the euro or Schengen. That means the UK was not on board in many areas involving further development. An “ever closer union” was never a concept of the UK’s EU membership.

I said earlier on that Europe is not competitive enough in some sectors. For example, the EU heads of state and government decided in the year 2000 that each country should spend 3 per cent of its GDP on research and development. Perhaps three or four member states currently do so. Germany is one of these countries. When I became federal chancellor, it was important to me from the outset that we increase our research and development budget. Fortunately, the German economy also increased its spending.

The EU is in danger of falling behind in some sectors. It is not necessarily still a global leader. The UK’s withdrawal from the European Union can also serve as a wake-up call for us. Looking at it from a positive angle, we need to ask ourselves which of our regulations are right and good and which ones actually are useful for us.

The UK will show us at close hand what path it will take. It will be very interesting to see how the UK believes it can fare better in the world outside the EU. If we in the EU are attractive, innovative and creative, if we’re a good place for research and education, and if we make headway with digitalisation, then the UK will come to its own conclusion on whether it might make sense to work very closely with us. Our doors are certainly open.

In other words, as it has already come to this, I think we should take an optimistic approach. We should make use of the benefits of the single market and the digital single market to achieve the banking union and to work on a project like the capital markets union. We can make Europe more attractive again. Competition can then be very productive.

FT: The bankers are desperate for capital markets union. Can you give a timetable when that might be done, because Germany’s been the one dragging [its heels].

AM: One reason we’re still slightly hesitant as regards the banking union is because our principle is that everyone first needs to reduce the risks in their own country today before we can mutualise the risks. I think this is very sensible. The market economy can only work if there are clearly defined responsibilities.

As regards the capital markets union, Germany is very open. But of course this means that all eurozone members need the same insolvency legislation or a level playing field for the risks entailed in banks, for instance. So the fact that the capital markets union does not yet exist has less to do with Germany than with the very different cultures in the various countries. But we would very much welcome a capital markets union.

FT: Just a historical point. There are some Remainers in Britain who say if only the chancellor had given David Cameron some flexibility on freedom of movement, we would all have won the referendum. Is that fair? Or is it just a total misunderstanding of how the European Union works? And I promise not to ask any more questions about Brexit!

AM: No, that is too simplistic a version of the situation. The Tories’ decision to hold a referendum in the first place came about over a period of many years. Besides, it was Tony Blair’s government that never wanted any transition periods for the right to move freely. It wanted all eastern Europeans to have immediate access to the UK labour market. And we came in for some harsh criticism because, for example, we made the Poles, our neighbours, wait for seven years before we introduced freedom of movement. The UK benefited greatly from this freedom of movement. It had a very positive impact on the labour market. A lot of work could be carried out cost effectively. But integrating children into local schools and the implications for the healthcare system were the other side of the coin. Before the referendum, I was certainly in favour of defining some aspects of freedom of movement more narrowly. But many central and eastern European countries naturally saw things differently.

It became apparent that the UK is extremely divided on the issue of EU membership and that this is also an urban-rural conflict. By the way, this conflict exists to a greater or lesser extent in all our countries. What Boris Johnson now plans to do for the UK as prime minister, namely to focus the country on a common future, is the right answer under the circumstances.

FT: Can I ask about the German economic model. There’s a lot of scepticism that this model is sustainable in the future, if one considers the challenges that Germany faces in the coming years, especially growing competition from China and the shift to electromobility. Do you worry about the future of the German economy?

AM: What do you see as the German economic model? The fact that exports are so important for us?

FT: Yes, but also this idea that cars are such a central part of Germany’s economic success, and it’s exactly cars that are facing this big Strukturwandel — structural transformation — that we are going to see in the coming years.

AM: Unlike many other EU member states, we have one great strength, one that could of course become a problem under digital transformation, although that doesn’t necessarily have to be the case. Manufacturing makes up a large part of our value-added. It still accounts for over 20 per cent of it. Many countries have around 10 per cent. The UK has not had this high percentage of manufacturing for many years now. And we don’t only make cars. We also have the machinery sector, the chemical industry and pharmaceuticals. All these industries naturally face dramatic change from digitalisation. And the car sector faces additional transformation, as climate change necessitates different drive technologies. This means we now need to transform what used to make us strong.

To a certain extent, the past years of growth pose a challenge for us. Let me explain what I mean. Germany emerged very quickly from the international financial crisis and achieved its pre-crisis GDP relatively soon afterwards. In part, this was thanks to intelligent labour market policy, that is, the fact that people didn’t become unemployed. After that, our order books were full for many years. And in such periods, companies — our many medium-sized enterprises — find it hard to address a fundamental technological change like digitalisation at the same time.

In my opinion, the great challenge — not for the large companies, but also for the many SMEs — is to understand what digital transformation will involve. It’s no longer enough to merely sell a product. One also needs to develop new products from the data on these products. One needs to develop very different relations between customers and manufacturers. International firms are moving into these customer-manufacturer relations as intermediaries, that is, as a platform that mediates between clients and companies. If our companies don’t manage their own data but instead store it somewhere because they don’t have the possibilities to do so themselves, then what may happen is that we in Germany will increasingly become an extended workbench because we don’t participate in key areas of new value-added. But that doesn’t have to be the case. We — and when I say “we”, I mean the state, but also companies themselves — must now hasten to take this path of digital transformation, and the changed value-added it entails.

FT: Chancellor, digitisation is the leitmotif of our conversation. Why is it that Germany doesn’t have a start-up culture? Is that something to do with the German character and culture, or is it too much regulation, and not enough attention to allowing risk?

AM: It’s not right to say that we don’t have a start-up culture in Germany. We have a growing start-up culture here in Berlin, but also in Munich, Stuttgart and other cities. We certainly have some issues with bureaucracy — there’s no question about that — and in particular, we historically have had very different financing models to the ones start-ups need. Once German start-ups have grown from a small firm into a medium-sized or large enterprise, they’re often snapped up by international companies. These firms are happy to keep the skilled German staff, but the companies are then managed from outside. Germany has improved in these financing matters, but a genuine private equity culture still needs to develop here. That is happening too slowly. But we have grasped where the problems lie.

Perhaps the main problem Germany currently faces is its lack of skilled workers. When I became federal chancellor, over 5m people were unemployed. Fortunately, unemployment is no longer our country’s main problem today. I hope things will stay that way. Everywhere you look now, we have too few skilled workers, too few software engineers, too few engineers, too few technicians, too few professors of artificial intelligence — not because of a lack of money, although some countries offer higher salaries, which is something we need to address. No, the main reason is that our country has a demographic problem.

FT: Your views on China have changed. It was a strategic partner. Now you see China more as a strategic rival, and particularly an economic rival. Are you concerned that Europe, Germany, could be caught between China and America?

AM: I see the European Union as our life insurance. Germany is far too small to exert geopolitical influence on its own, and that’s why we need to make use of all the benefits of the single market.

Can the European Union come under pressure between America and China? That can happen, but we can also try to prevent it. Unlike you, I don’t see a contradiction — one can be a strategic partner and a competitor. One can also develop a partnership between competitors. This must be based on reciprocity, on adherence to certain rules. That is precisely what we are trying to achieve in our relations with China.

We are witnessing an enormous shift in the world. In 1990, the year of German unification, China accounted for 1.7 per cent of global output. Germany accounted for 6.8 per cent and the US for 25.4 per cent. The US now accounts for 24.8 per cent, so they have retained more or less the same share; Germany accounts for 4.5 per cent and China for 16.3 per cent. As you see, China’s share rose from 1.7 to 16.3 per cent in 30 years. China’s economic production overtook Germany’s in 2007. In the first instance, this is a good thing as regards human prosperity, as more than a billion people emerged from abject poverty.

At the same time, we need to ensure that trade relations are fair. That is why we are watching very closely indeed to see how the talks between the US and China develop. We would welcome progress.

But I advise against regarding China as an economic threat simply because it is economically successful. China has good ideas and is developing rapidly. I don’t share the values of its political system. Our political order is different. It’s democratic and the individual has a very different status. Nevertheless, I have to acknowledge that China has managed to become economically successful. That’s different to what we experienced during the cold war when the economies of countries with dictatorships became ever less successful. We need to deal constructively with China’s achievements. In my opinion, complete isolation from China cannot be the answer.

FT: So you see this idea of decoupling as a dead-end? It’s never going to happen?

AM: I don’t think it would be a good idea. It would be like closing your eyes to what others are able to do. My approach is always to look at what innovations there are in the world and at how one can nurture an open exchange based on them. Naturally, China needs to adhere to the rules on intellectual property and so on, but we can certainly have enough self-belief to demand this. I sometimes have the impression that many people are simply shocked by China’s rapid economic rise. But as was the case in Germany, this rise is largely based on hard work, creativity and technical skills. We will have to come to terms with this.

We also need to understand that China sees the world from a very different angle than we do. It sees itself as a world leader for the past 2000 years apart from the last two centuries. For our part, we look at these two centuries and are amazed at what China has achieved. China, on the other hand, sees itself very differently. It regards the 200 years when it was not so strong as an aberration. From its point of view, the country is returning to its natural state, to the position in the world where it belongs. We need to accept this competition.

I for one oppose complete isolation. China would then achieve the very things we have failed to achieve in large parts of the world.

FT: But it has been quite controversial, that view. Even within your own party there are people who want Huawei to be excluded from the buildout of the 5G network.

AM: Yes, and it will continue to be a contentious issue. It’s a very complex topic. I think it is wrong to simply exclude someone per se. We need to define the security requirements; we need to diversify, that is, to have different providers so that we never make ourselves dependent on one firm; and naturally we need to give our own European providers the same level of support as China gives its firms.

We have to assert our security interests and to discuss them with our partners. There is no question about that. But at the moment it seems to me that many people are simply completely astounded by how economically successful China is. Their amazement does not only stem from the fact China does not perhaps adhere to certain rules, but also from the fact that it has skills. We need to take these skills seriously and we also need to accept fair international competition.

FT: I’ve been struck by how fundamentally attitudes in Washington have changed towards China in the past 18 months. There is a sense that this is now a strategic rival across the board. They’re cheating on IP, they’re expanding in the Pacific, they need to be challenged. And it’s really quite striking. But you’re clearly not of that view.

AM: I think that the United States has been dealing with the topic of China for a very long time already. I recall how negatively people reacted when China wanted to buy its first ports in the United States, for example. That must be 10 years ago now.

From the United States’ point of view, China has of course become an economic competitor on a grand scale. The days when China was merely a developing country are over, although there are still enormous regional differences when it comes to development.

Do we in Germany and Europe want to dismantle all interconnected global supply chains — for example, the fact that Apple devices are also manufactured in China — because of this economic competition? Are we willing to say that we no longer want any global supply chains in which China is involved? Or do we believe that we’re strong enough to define rules by which we can continue to maintain such global supply chains? My experience is that we have benefited as a whole in Germany and Europe from these global supply chains. We don’t need to hide our light under a bushel.

That’s why the trade talks between China and the United States are so important. This is another reason why it would be important to make progress on WTO reform.

FT: One last question: you’ve been in power for a bit more than 14 years. If I think of chancellors — Willy Brandt — Ostpolitik; Konrad Adenauer — Westbindung [anchoring Germany in the western alliance]; Kohl — reunification; what will your legacy be?

AM: That is not for me to say.

FT: But I am a historian. Perhaps I can judge.

AM: Yes, you’re welcome to write an op-ed piece on it. But I don’t think about my role in history. I do my job.

FT: It’s more than durchwursteln — muddling through — though?

AM: That word isn’t part of my vocabulary anyway. I firmly believe, and have repeatedly said so, that Germany and Europe should be economically strong, that we should be a good partner, that we want to support multilateralism and that Europe can be a pole that takes on its share of responsibility in a multipolar world. That’s how I see things.

If one looks at how the world has changed since 1990, Germany has done very well so far. At the same time, we have taken on a much greater amount of responsibility, when I think of our Bundeswehr missions in Africa or Afghanistan. I started out in politics at the time of Helmut Kohl. Back then, we talked about whether we should send an observation ship to the Adriatic during the time of the war in Yugoslavia.

Looking at the path Germany has taken since then, at our efforts to resolve the Ukraine conflict or to support the JCPOA [Joint Comprehensive Plan of Action on Iran], at how we take on diplomatic, and increasingly also military responsibility, then it may become more in future, but we are certainly on the right path.

FT: But these were years of crisis. You’ve been a crisis manager. You’ve also taught the Germans that there is something more than a fauler Kompromiss — a bad compromise. You’ve been able to compromise.

AM: In a world with different interests, we always need to find common ground, and obviously that will never completely reflect our own opinion. But let me repeat: you can address my place in history somewhere else. That’s not what this interview is about!

FT: Chancellor, thank you for the interview.