Will Germany finally get what it has always wanted?
The history of the Euro over its 12 year lifespan has been mired in half-truths and obfuscation. Creating a single currency across Europe has on the face of it many attractions such as financial stability, an end to currency fluctuations and greater opportunities from trade across the region; however it requires fiscal discipline and economic convergence from each of its member nations if those potential attractions are to hold true. Back in 1999, the European public were told that each member state had carefully prepared and put their economic houses in order to allow monetary union. At the time there were many who objected saying that monetary union was not going to work without fiscal union. Nevertheless the politicians pushed ahead and the Euro was born. Now, after much papering over the cracks the uncomfortable truth is out that the southern Eurozone countries never did converge with those in the north. In economic terms Greece is nowhere near Germany and has apparently been lying about the state of its finances for many years. Those lies have enabled it to obtain billions of Euros in loans and now it is clear that it can’t pay the money back. Worse still, Greece is not alone, it has other neighbours who are also in bad shape. But as George Soros pointed out back in June, the real problems don’t lie in Greece, Italy or Spain, but with the banks in France and Germany, who have 2 trillion Euros at risk of default.
The problem is that whilst those in political and economic circles know the above to be true, with the Euro standing on the brink of collapse, politicians throughout Europe keep maintaining the same tired dogma that Greece is on course with its austerity measures and that it is the markets that are at fault.
Day by day it is becoming clearer where this crisis is headed; ultimately fiscal union is the only solution that will save the Euro. This requires the strong nations to back the weak ones financially in return for control of the purse strings. The reason that this has not already happened is purely political, rather than be honest with the public, Angela Merkel et al. continue to come up with temporary fixes that move things painfully slowly and prolong the current crisis unnecessarily.
It is now time to treat the citizens of Germany and Europe generally with respect. They need to know the truth about the crisis, just how bad it is and what will happen to their banks if they don’t work together.
Indeed the Eurozone will be arguably be a much more attractive place to invest once fiscal union takes place and Eurobonds are issued. Sovereign creditors such as China will have a huge appetite for them since the deep liquidity they will offer will enable them to diversify away from their currently massive staple of US treasury bonds. The quid pro quo for underwriting Eurobonds will ultimately be much greater German control of taxation and spending throughout Europe and ultimately is that such a bad thing compared to the current mess? The Germans are a practical race and there is no doubt they have a pedigree for managing finances. In 1863 Otto von Bismarck had a dream, which laid the foundations of his plan of a new German empire stretching across Europe and which ultimately led to World War 1. Perhaps Bismarck’s dream of a German empire will finally come to pass after all and this time without a shot being fired.
Tags: Euro, Eurozone, Greece, Germany, Italy, Spain, France, China, US