Germany burdened by its profligate neighbours
– Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own –
It has been said that those who forget their history are condemned to repeat it. For Germany, one of the bitter ironies of the mess in Europe is that it is repeating its history precisely because its policy has been too closely focused on avoiding the same old mistakes.
From the outset, ordinary Germans were unenthusiastic about monetary union, many instinctively suspecting that somehow or other they would end up paying the bill for a ClubMed beanfeast, but the case made by their leaders, notably Chancellor Helmut Kohl, a man steeped in history but dismissive of economics, was that ever closer union with France was Germany’s manifest destiny.
With the end of the Cold War, a reunified Germany had to be locked into a wider union to prevent it ever again drifting off into its own dreams of European domination. In that sense, surrendering their beloved Deutschemark was viewed as the price that Germany had to pay for its own reunification at the end of the Cold War.
The predictable outcome is that for the third time in a century Germany is to be burdened by “reparations” – this time, not for invading its neighbours or for war crimes, but for the apparently unforgivable offence of household thrift compounded by a general preference for responsible economic policy, itself largely motivated by memories of the 1920s, when their fledgling democracy was undermined by hyperinflation. For this transgression, they may now be condemned for years, possibly decades, to pay for the overspending of their neighbours in the Euro zone, watching helplessly as their hard-earned taxes are squandered on prestige projects, ever more generous welfare payments and bloated public sector employment in Southern Europe.
The latest ideas for “solving” the problem centres on the creation of a new class of bond – we could call it a Eurobond if the word had not already been coined for use in the 1970’s Euromarkets – which would be issued to fund government spending across the Euro zone, but which would be guaranteed by all member country Governments, presumably in proportion to their shares in the European Central Bank.
As far as I can see, the main attraction of this proposal is political, insofar as it would serve to muddy the water to the maximum extent, making it almost impossible for anyone (and, in particular, for a German voter) to discover exactly how much of his tax was being poured down this bottomless Europit. Frau Merkel has rejected this “solution”, providing yet more proof that she lacks the flexibility (i.e. deviousness and cynicism) to be a major Eurostatesman (or should that be stateswoman? Or maybe statesperson?)
So far, Germans have reacted with admirable calm. The tabloid Bild headlines the story of their Chancellor’s rejection of the latest proposals “EU wants a soft Euro” beneath a picture of a melting €1 coin – hardly inflammatory stuff by any standards. But it would be unwise to push the Germans too far. For one thing, their attitudes may well harden once they start having to pay up, rather than simply sign the guarantees, as they are doing at the moment, especially if by then their economy – currently the strongest in Europe – has slowed down somewhat.
Germany is one of the few countries in Western Europe where extremist parties have so far made no electoral headway, but if the EU keeps throwing red meat to its wild beasts, we should not be surprised if they grow stronger in Germany too. The oft-repeated Euroboast to have kept the peace in Europe – one of the founding lies of the EU project – was laughable in the Cold War era, when Germany was host to hundreds of thousands of NATO and Warsaw Pact troops, and it remains so today, when the neighbours have nuclear weapons and when even conventional weapons make conflict too unthinkably awful to contemplate.
But ask yourself the question: is it possible to imagine that, without the EU, relations between the countries of Western Europe would actually be worse than they are today? I doubt it. In fact, the absolute opposite: we need NATO and the deterrent power of modern weaponry precisely so as to prevent the EU causing a European war.