“The recipe is as simple as it is hard to implement in practice: western democracies and other countries faced with high levels of debt and deficits need to cut expenditures, increase revenues and remove the structural hindrances in their economies, however politically painful," he said.
In comments that will act as a warning to governments in Athens and Rome, Schäuble wrote that progress has been made but governments now need to deliver.
“Only this course of action can lead to sustainable growth as opposed to short-term volatile bursts or long-term economic decline,” said Schäuble.
The German Finance Minister said he is not sure that fiscal pain now will mean lower growth later necessarily, but believes short-term pain is worth the long-term gain.
“An increase in consumer and investor confidence and a shortening of unemployment lines will in the medium term cancel out any short-term dip in consumption,” he said.
Schäuble promised that members of the euro zone will continue to provide “conditional financial assistance” to those who find themselves cut off from the capital markets in return for cuts in government spending and borrowing.
“There are risks to this strategy. Yet the alternative, by allowing the crisis to infect the euro zone as a whole and threaten the euro, would be riskier still," he said.
Launching a euro bond is not on the agenda for Schäuble, who worries such a move would remove the need of some member states to be accountable for their spending.
“Not only would such a step fail to durably solve the crisis by addressing only its most superficial symptoms, but it could make it worse in the medium term by removing a key incentive for the weaker members to forge ahead with much-needed reforms” said Schäuble.