On an intercity train zooming through the lowlands of the German state of Lower Saxony, German Economics Minister Sigmar Gabriel talked to Handelsblatt about Germany's role in Europe and the world, the need for investment in infrastructure and the challenges posed by the shift away from nuclear power and toward green energy, known as the Energiewende. Click here for a summary of his comments.
Handelsblatt: Mr. Gabriel, is Germany ready for Donald Trump's "America First" policy?
Mr. Gabriel: Germany should act with self-confidence and not be fearful or servile. We are a highly successful, technologically-advanced export nation with many hard-working people and smart companies.
Germany is not only stable at this time, but also serves as an anchor of stability for many other countries in Europe. Mr. Trump's first speech as U.S. president shows that he is dead serious. We will have to put on some warm clothes for the chill ahead. But there is no reason for faintheartedness.
Still, German carmakers shudder at the thought of punitive tariffs. Shouldn't they move their production from Mexico to the United States?
Each company will have to decide that for itself. I would not make my long-term strategy dependent on the election of one U.S. president. Mr. Trump must simply recognize that the U.S. economy often isn’t competitive, while the German economy is. Besides, when one window closes another one opens.
What do you mean by that?
Now is the time to strengthen Europe. Only about 10 percent of our exports go to the United States, while 60 percent go to the rest of Europe. You can see the weight of our economic interests. We need to strengthen Europe, develop a common foreign and security policy, beef up investments so that we'll have the best infrastructure in the world and, most of all, develop our own Asia, India and China strategy. We don’t need "more Europe," but rather a different Europe. A Europe that takes a common position in the world. If Mr. Trump starts a trade war with Asia and South America, it will open opportunities for us.
What does that look like?
In my opinion, a Europe of 28 member states, micromanaged by the European Commission and one that does not address the big questions of a shared foreign and security policy or a shared economic and fiscal policy, has no future. The European Union that gets mired in tiny details has reached its limits.
What are the alternatives?
If Brexit means creating two rings: a core Europe with the euro zone, and then an outer ring, it will be a "Europe of two speeds.” This has been discussed before. We should take this idea seriously. Brexit could provide the decisive impulse. I think the way we discuss Great Britain's withdrawal is far too defensive. It could also increase cooperation within a group in the European Union, especially the monetary union, thereby placing a second ring around a weaker integration. That would reduce tensions in Europe and massively strengthen Europe’s core
So if a country like Poland followed Great Britain's example, it wouldn't be so bad for Europe?
There are no indications that Poland is pursuing any such plans. But there is the need for reform within the European Union, and it's already the case today that not all countries want to move forward at the same pace. We only have two ways to approach this: to continue the agonizing process of constantly searching for the lowest common denominator or to make alternatives possible.
Who are the winners and losers of Mr. Trump's new protectionist policies?
To begin with, it will be very expensive for Americans themselves. The economy doesn't function with pressure and directives from policymakers. I also see opportunities for Europe if Mr. Trump doesn't just isolate the country against China but against all of Asia. Europe should start by quickly developing a new Asia strategy. We need to take advantage of the spaces America is now clearing.
Chinese President Xi Jinping warned the United States against a trade war and brought China into play as the new protector of free trade. Do you believe him?
His words need to be followed by actions. China is currently not willing to be a fair and equal partner for investors. But if U.S. protectionism means that new opportunities are opening up for Europe throughout Asia, we should take advantage of that.
Broken campaign promises are small crimes against democracy.
Let's turn to the German economy and its ability to compete. Anyone who wants to prepare the economy for the future needs to get a handle on energy costs. How do you intend to ensure that they do not continue to rise?
You mustn't forget that we have already achieved a lot. The sum of the spot electricity price and the reallocation charge under the Renewable Energies Act has not increased since 2013, but in fact has declined from year to year. That's a success that this coalition can be proud of.
But it doesn't help a company that competes internationally with companies that pay no Renewable Energies Act reallocation charge.
Industrial bulk consumers that compete internationally are exempt from the reallocation charge. There are very clear laws governing this. And we have also managed, in lengthy negotiations with the European Commission, to make this exemption rule sustainable for the future, thereby securing industrial jobs in Germany. The European Commission wanted to abolish the rule altogether, and they had the backing of the Greens and the Left Party. In the end, we had the better arguments, and we prevailed. Now we no longer have to negotiate on this issue with the European Commission year after year. This creates planning certainty for businesses.
Those who are not part of this illustrious group bear the full burden of the costs and can run into difficulties.
It's true that there is a group of primarily mid-sized companies that fall just below the threshold values and, as a result, do not benefit from the exception rules. Although they are not energy-intensive, according to the legal definition, they still face quite substantial energy costs.
What is your advice to these companies?
We need to help them conserve energy and become even more efficient. In this legislative period, we made a lot of money available for measures to improve efficiency. Besides, we will continue to work on ways to ensure that all other costs, such as for using the networks, do not continue to rise.
The exemption from the reallocation charge is just a stopgap solution. The more companies benefit from the exceptions, the more everyone else shoulders the costs. How do you intend to further reduce the costs from the act?
The important thing, in my view, is that we have moved away from the German parliament setting prices for electricity from renewable sources, the way it did for many years. And although it was very convenient for companies in the renewable energy sector, it drove up costs for the entire economy. Now we have decided to introduce a tendering procedure, so that the bidder with the best price secures the contract. Now the market is finally sending out scarcity and price signals once again.
It’s been done this way in other countries for a long time, and the reduction in costs is significant. Why has it taken us so long to start this in Germany?
You'll have to ask the previous administrations. Of course, it would have been better if they had had the courage to tackle this issue. But unfortunately they didn't. At any rate, we have managed to change course in this legislative period. But there is also no way of speeding things up, because it takes two to three years to convert the system. Besides, the numbers from the Netherlands and Denmark have to be placed in the right context. They are prices for systems scheduled to be built in 2021 or even later than that. We too will have achieved these values by then.
Despite all efforts, the reallocation charge will remain at a high level for years to come. Wouldn't it make sense to impose the charge on fossil fuels?
If we want to meet climate goals, we will increasingly use electricity produced by renewables in transport and in buildings. We call this sector coupling. The reallocation charge is not enough to do this. We need a different solution. We have just launched a green book process and are now discussing what the right approach should be with consumer groups, businesses, unions and academia.
Energy networks are one of the things that cost the most in Germany’s energy transition. What are you doing to combat this?
We will only keep the costs under control if we get faster at expanding the networks, and if we expedite the planning and approval of such projects.
Do you believe that the electricity highways from Northern to Southern Germany will be developed in a timely manner?
I am certainly hearing from the transmission network operators that things are moving forward. The switch to buried cables is greatly helping to improve acceptance of the network expansion. Of course, it isn't possible to prevent delays here and there. But without the use of underground cables, there would be years of disputes in court, which would certainly not be any faster.
But it keeps getting more and more complex and expensive to guarantee a reliable energy supply with the existing grid. Doesn't that worry you?
It is indeed a problem that the cost of managing and operating the networks are constantly increasing. This only makes rapid network expansion all the more important. Besides, with the latest reform in northern and northeastern Germany, we have introduced a smart way of chronologically and spatially controlling volume. This is an important contribution to bringing down the costs of network operation.
The renewables industry vehemently opposes this and has accused you of harming the energy transition away from fossil fuels and nuclear energy towards renewables. How do you deal with this?
It irritated me, of course, mostly because it was clear that none of these apocalyptic scenarios will come to pass. The renewable energy associations, as well as parties like the Greens, are behaving the same way the large energy companies used to behave. There is a lot of money at stake, and it's other people's money. Lobbyists are quick to resort to apocalyptic rhetoric if you don’t take their interests more than fully into account. The important thing is not to back down, which we haven't done. We can see that the expansion of renewable energy continues, but at lower costs. And that's a good thing.
One after another, German nuclear power plants are now being decommissioned. Do we need a concept to phase out coal, and will the issue resolve itself?
I warn against supporting the fastest coal phase-out by encouraging companies to outdo each other. We don't need a competition over annual figures.
A number would make it possible to plan the phase-out.
That's too technocratic for my taste. The issue is highly political. It's simply wrong for everyone, from the Left Party to the Christian Social Union, to be talking about protecting the climate while making people in coal-mining regions feel that they are on the wrong side of history. People in coal-mining regions are doing good work, and they have kept this economy going for decades.
But that shouldn’t deter anyone from changing their views.
Of course, the workers in question know that the importance of coal is declining. But people in the affected region are worried about structural changes. For now, our responsibility is to explain where the new prospects and the new jobs are.
The Green Party parliamentary group proposes shutting down old lignite power plants for now, and allowing the remaining power plants to continue operating until well into the next decade. How do you feel about that?
We held the debate in this legislative period, and we will gradually shut down 13 percent of lignite generating capacity. This is more than any other administration in the past has done, and it's already a massive reduction. I don't think we need to up the stakes even further now.
What is more important to you, reaching the last percentage point in climate protection goals, or preserving industrial jobs?
You can't expect me to treat climate protection as a secondary issue. After all, I served as environment minister in the past. Every day, we have to keep working to prevent climate protection from becoming the antithesis of industrial development. No one will support us if climate protection results in harming industrial development. In that case, we will achieve our climate protection goals in the end, but we'll achieve them alone because no one else will support us anymore.
Eight months before the national election, the parties are outdoing each other with campaign promises. Is Germany doing so well that we can invest, lower taxes and pay off our debts?
The Christian Democrats and the Christian Social Union promise that by reducing income tax and eliminating the solidarity surcharge, they will achieve massive tax cuts on the order of about €35 billion ($38 billion). That's 10 percent of the federal budget. On the other political side, there is a danger in making too many promises on social spending. Politicians will have to back away from all of these promises after the election, and broken campaign promises are small crimes against democracy. My advice is to exercise moderation, even in an election year. We have to reduce the burdens on families and single parents but we cannot apply the same approaches everywhere. We cannot spend the money that we urgently need for investments in education and transportation infrastructure.
Finance Minister Wolfgang Schäuble wants to use the €6 billion budget surplus to pay off debts. Isn’t it important to pay off your debts in good times?
That's a threat and not a reasonable policy. We spend far too much time talking about the 15 percent of crybabies who vote for the Alternative for Germany, for example. Instead, we should talk about those who get up every morning and go to work, but feel that they have been abandoned in a world of rising rents and the devastation of rural areas.
What does that have to do with the budget?
Mr. Schäuble once said it was "pitiful" that I called for a solidarity pact with which people with concerns like these could be supported. But he was wrong. In the end, he had to support a tripling of funds to build low-income housing. We currently face a €34 billion backlog in renovating German schools. Chancellor Angela Merkel says that Germany threatens to become a digital developing country. If that's true, why is she refusing to initiate a program to connect vocational schools to high-speed internet? I worry that we feel too secure and are gambling away the future.
Where does the country have to be in 2021?
We have to have the best digital infrastructure in the world. I have always said that our goal is to achieve this by 2025, but the faster, the better. The country has to get a grip on the housing market by 2021. People will not accept paying €2,400 in net rent for a three-room apartment in a big city. Hopefully we will have a planning law that enables us to spend the money to repair our ailing infrastructure. The Christian Democrats and the Christian Social Union don’t believe that we should invest in the country's stability. They have appointed the interior minister for 11 years, and now they are complaining about a shortage of 14,000 federal police officers. We want to change that.
As chancellor, will Ms. Merkel implement this program by 2021?
Ms. Merkel will certainly not do that. In light of Angela Merkel's dramatically poor term of office with the Free Democratic Party, I said, lightheartedly, that Ms. Merkel is only a good chancellor as long as the Social Democrats keep an eye on her.
But is keeping an eye on the chancellor good enough for the SPD?
To be honest, it's a little exhausting over time. The Christian Democrats and the Christian Social Union are so divided at the moment that they have no concept of our country's future. That's why the Social Democrats want to lead the government. Angela Merkel has done great things for the country. I don’t dispute that. But I see her party having almost nothing to confront the great challenges looming for Germany and Europe. She wants to continue resting on her laurels. That's dangerous for our country. The handling of the budget surplus is a good example of that.
Finally, the former head of VW billed the company for the cost of his koi pond. What do you say to that?
The people who approved that need to explain how that made it through the corporate audit. I have always respected Martin Winterkorn as a brilliant engineer. But apparently he has lost all sense of reality.
Mr. Gabriel, thank you for this interview.