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Simple Choices

Helmut Kohl - Chancellor of Germany (1982–1998...

Helmut Kohl – Chancellor of Germany (1982–1998) and architect of German Reunification – M.A. 1956; Ph.D. 1958 (Photo credit: Wikipedia)

Well Oscar Lafontaine is talking the talk again. Having brought Europe together in one if the greatest social experiments in modern history, he is now set on dismantling the euro, in what would be an equally brave experiment. Hopefully he won’t turn around in 15 years time and want to reverse again. Isn’t it great to have leaders with such flitting vision!

Germany has been a big winner in Europe and will continue to be going forward, for a host of political, social and economic reasons. It is true to say that Germans have managed their affairs prudently, and have not over-borrowed, like many of their EU partners. However, Germany has not been a passive spectator in the entire fiasco that has unfolded. It was the chief designer of the Euro and it impressed on the EU/ECB a standard of rigorous inflation control, that was ill suited to the peripheral countries. German investors were happy to invest in the periphery when the gains to be made exceeded the more modest gains in their homeland. Germany was at the forefront of insisting that Ireland not “burn the bondholders” in the appalling Anglo Irish Bank scandal, – an insistence that has done more to destroy the Irish state than any other single issue in the current crisis.

Germany also gains substantially from the current low inflation, recessionary environment, which sees capital flows into German bonds, and German Funds. Germany as a major production driver of the EU gains more than most by the tariff-free environment that it can sell its goods and services into.

By contrast, if Mr Lafontaine gets his (new) way, and the Euro breaks up, the German exports are likely to be the first casualty, as the peripheral markets are lost to the stronger Deutschmark. So no one escapes. We all sink or swim together.

In some ways the breakup of the Euro, will be the answer to the problems of the periphery. The peripheral countries will be allowed to devalue, and a certain amount of relaxed inflation targets, will help deal with the debt problems. Debt will be nominalised in the new devalued currencies as there will be no Euro as standard. This alone will do what Governments failed to do when the crisis hit. The periphery will have hopefully learned the lessons of the last few years in respect to fiscal control.

The subtitle of this blog “The Living History of the Breakup of Europe”, is more of an observational title than an aspirational one.  We need to get some straight thinking if Europe is to stay together, or indeed even if its not. What we are going through is a transformational change that will either make us stronger or our continent will succumb to partisan nationalism again.

There are only two ways to proceed, and those are integration or dissolution.

If we are to proceed along the integrationist strategy then we need to deal with all the sovereign debt and deficit funding in the system. This cannot be done with pure austerity, which is an attack on the viability of nations, but rather with a program of development akin to the Marshall Plan

First page of the Marshall Plan

First page of the Marshall Plan (Photo credit: Wikipedia)

, which provided vision beyond the pure economics, or even the unification program for Germany, which did likewise.

If Europe is to integrate then it should do just that. To see the issue as purely economic and fiscal will ensure the breakup of Europe. There is no leader in Germany the equivalent of Helmut Kohl, who was prepared, on both Europe and on German unification, to grasp the hand that history had dealt him, and play it with vision. The only vision we see now is accountancy, and the longer this visionary stupor persists, the more the spectre of nationalism will rise and the more inevitable will be the break up of Europe.

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