Danish PM: ‘In the last two months, we have undertaken more far-reaching decisions than perhaps in the last 50 years’
This morning, I interviewed Helle Thorning-Schmidt, the prime minister of Denmark. For the first six months of 2012, her country will hold the rotating presidency of the European Union, so Thorning-Schmidt has an unusually clear vantage point on the EU’s struggles to overcome its fiscal and economic challenges. The interview was conducted at the Center for American Progress, where Thorning-Schmidt gave a speech on the U.S.-E.U. relationship. A lightly edited transcript of our conversation follows.
Ezra Klein: In your remarks today, you say that Europe is suffering a “crisis of confidence.” Most economists I know say it’s suffering a crisis of growth and debt, and it’s not yet solved. So do you have a different take?
Helle Thorning-Schmidt: Let me be clear that I think the Europeans have acted rather fast considering we are 27 different sovereign nations. We have built a firewall. We have found a solution for private-sector investors. We have a new fiscal compact. And what we’re all looking at now and hoping is that the firewall will be sufficient to bring Greece out of the debt crisis. Do you need confidence for that? Yes. You need some good winds. You need growth in other E.U. countries. We need growth in America as well.
So do we!
But don’t get me wrong. This is a European problem and we need to solve it. But you can always discuss whether a firewall will be big enough. But this is a very big firewall.
Almost every analyst I’ve spoken to has been extremely skeptical that this package has any chance of bringing Greece out of its debt crisis. On the night it was released, the Financial Times reported on a confidential document distributed to many of the Eurozone’s finance ministers that essentially said that this package wouldn’t work. The more optimistic voices say that that’s okay, the Eurozone is muddling through this, and if more needs to be done later, it will be.
My question back would be, aren’t we all in a situation of muddling through? In the American political system in an election year, perhaps the decisionmaking system is not as fast as you wish it was. In Europe, it’s not as fast as we wish it was. But there has been a tremendous solidarity in Europe from bigger countries towards a smaller country in need of help. These are sovereign nations that have to decide this in democratically elected parliaments. So you could always discuss whether it could be twice as big. But they have acted, and they have acted fast.
In your remarks, you say “the fundamental goal is to ensure that the social market economies of Europe can be sustained.” But yesterday, speaking to the Wall Street Journal, Mario Draghi, the president of the European Central Bank, said that Europe’s social model is “already gone.” Do you disagree with him?
I don’t know how to understand that comment. But what sets Europe apart is we insist on a social model that consists of solidarity, equal opportunity and a certain amount of redistribution. Does that mean we should not change? Of course. It’s obvious to everyone that we cannot keep spending more than we make. I am all for, if the individual country needs it, austerity and consolidation. But I am also for, if the country needs it, reforming labor markets and education, and putting growth on the agenda. That’s what we are doing in my own country.
Labor market reforms are critical in the European economic discussion but almost unknown in America’s economic discussion. It’s just not a dimension of economic policy that we talk about very much. So can you explain to an American audience the role labor market reforms are playing in Europe?
I think the European countries are different when you compare to the United States. The demographic challenges will be felt very hard in Europe because we don’t have access to immigration, politically and for other reasons. That’s not the same in the U.S. You have access to almost unlimited labor. We need to find other ways to expand our labor force and we can only do that by raising the pension age, as we have done, asking people to work longer hours, and making other reforms in the labor market. I think that’s why they play such a big role in Europe and not in the U.S.
You mention that you’re trying to institute some of those reforms in Denmark. Which?
We will ask laborers to work longer hours. We haven’t decided how long it should be, but we’ll ask people to work longer hours. I believe everyone understands now that we need to tighten our belt and contribute to the solution. If austerity is applied fairly it will be accepted by a lot of people. People want to make sacrifices but they don’t want to be sacrificed. We need to have austerity and cuts but in a fair way.
Denmark says that its presidency of the European Union will be characterized by a focus on growth. So what’s the growth agenda for Europe?
It means two things. Each member states has to get their economy sorted and make sure they don’t spend more than their income. That’s part of growth because it brings interest rates down, increases investment, and so forth. And there’s labor market reform, too. But on the European level, our biggest success over the last 20 years has been the development of the internal market. And there’s some low-hanging fruit there. For an example, we don’t have a European patent system yet. We have debated that for 30 years, but we intend to finalize that.
One notable characteristic of Europe’s internal market is that it’s very unbalanced. Germany has a very devalued currency and benefits tremendously, while Greece has a very overvalued currency and is quite badly harmed. To a lot of us, it seems that a priority for the internal market should be reducing the trade deficit between Northern and Southern Europe, which would seemingly be a better way to help Southern Europe than bailouts. The German people, for instance, could start buying a lot more nice olive oil from Greece. Is there any thinking along these lines?
The basic problem for the Greek economy was a lack of balance. Within the Eurozone countries, we should have been more clear in the demands for each individual economy all along. That’s why we created the fiscal compact. Perhaps we should have had that 10 years ago. But we have mechanisms for cohesion, and we have a common budget, but it’s not the time in Europe to ask net contributors to that budget to contribute even more than they do now.
One slightly confusing element of the European system, at least for Americans, is that there is the European Union and the Eurozone, which are different. Denmark is part of the E.U. but not part of the Eurozone. But obviously your economy is very affected by what happens in the Eurozone. So what’s your role in those discussions?
We have to accept that we have a Europe which is basically what we would call a two-speed Europe. We have 17 member states inside the Eurozone and they are the ones putting up the firewall right now. So we don’t have much influence on that discussion because we are not paying for it. But we do have so much in common with the 27 members of the European Union — that’s where the internal market comes in, and it’s where Denmark will be focusing during its presidency.
In your speech today, you talk about the difficulty of getting 27 nations on the same page, but also warn that Europe will never be one nation-state. Granting that, has this crisis led to more thinking about how Europe could streamline and speed its decisionmaking processes? A system in which any one country can veto everything seems very difficult to sustain over the long term.
There’s always talk about streamlining political decisionmaking. But in the last two months, we have undertaken more far-reaching decisions than perhaps in the last 50 years. This is big, what we’ve done. And perhaps we should have acted earlier, but we have acted. So yes, European decisionmaking is not pretty. But it does work.