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Italian PM: Show Me The Money

Give me the money or wreck Europe. That is Italian Prime Minister Mario Monti’s message to Germany, according to the AP:

Mario Monti told German news magazine Der Spiegel in an interview published Sunday that eurozone tensions over the past few years “bear the traits of a psychological dissolution of Europe,” adding that Europe “must work hard to contain it.”

[. . .]

“Yes, there is a front line in this area between north and south, there are reciprocal prejudices,” he said according to the interview’s German translation.

An Italian newspaper this week run a front page decrying alleged German domination of Europe, showing an image of Chancellor Angela Merkel — often criticized for insisting on austerity measures and fiscal discipline in the crisis-hit nations — alongside the headline “Fourth Reich,” alluding to a new generation of Adolf Hitler’s Nazi regime.

German media, in turn, have often criticized Greece and other southern nations, accusing them of failing to live up to their financial commitments to the 17-nation Eurozone.

Certainly, Europe is in a mess. And it’s true that without a lot of German money going directly or indirectly to the Club Med countries some very ugly things will happen. (Slovenia is the latest country on the brink of joining the bailout queue after Moody’s downgraded their credit rating last Friday.)

But all the righteous indignation, finger pointing and Nazi guilt-tripping obscures the basic reality: Germany never asked for the euro in the first place. It was France who insisted on it as the price for German unification. Germans were perfectly happy with their old and revered Deutschmarks and parted sorrowfully from them. Now somehow the failure of the European monetary union is supposed to be their fault too.

The kernel of truth in the accusations is that German banks are not guilt free. They lent a lot of money on bets that turned out to be bad, and the EU assistance going to debtor countries is in many cases a disguised bail out of German (and French and other) banks. A more honest policy, and also a better one, would have been for the German government to take responsibility and bail out its own banks to the degree necessary, ensuring that the shareholders in those banks took heavy hits.

But the French also didn’t want that to happen: France’s government may not be able to afford a bank bailout of bad French debt so there is no interest in Paris in the concept of every country taking responsibility for its own banks.

And now we have a royal mess. The Germans are furious at having to pay for a monetary union they never wanted in the first place, and the other countries are furious because the bailouts of foreign banks are coming at the expense of their living standards. Monti is absolutely right that the bad feeling on all sides is eroding the basis of the European Union as a whole.

The best choice remains some kind of orderly breakup. As we’ve suggested here before, Germany and a group of like-minded countries could leave the euro and set up a new currency (The neuro? The deuro? The new deutschemark?), letting the Club Med countries keep the euro. The euro would then rapidly fall in value, giving these countries the depreciation that might do the most to help them recover with the least pain. Afterward, the European countries that want tight money could have it, and the ones that want a looser system could have it.

The problem once again is France: it doesn’t want to be relegated to the second tier currency, and so it is likely to block any steps in this direction.

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  • Anthony

    “It was France who insisted on it as the price for German unification…. The kernal of truth in the accusations is that German banks are not guilt free.”

    This (euro crisis) has been interminable.

  • alex scipio

    While a good column, I’d note the use of certain nouns as perhaps obfuscating the real issue. Sure, one can blame the “French” and the “Germans” and the other nations for all the problems, but the fact of the matter is that no nation now using the euro allowed its citizens to vote on giving up this level of sovereignty. Those who were allowed to vote on using the euro uniformly rejected it.

    It would be more accurate to substitue “the Fench government” for every use of the term “the French,” would it not? Similarly for all other euro nations mentioned.

    It was the governments that made this mess, not the people – other than indirectly in voting for their representatives, though they don’t even do that for the EU parliament, a truly un-representative and unaccountable, undemocratic governing body. And it is becoming increasingly difficult to view any european government as “democratic” any longer.

    It seems, once again, history has shown the people to be more substantive and more accurate in their ideas and view of their own future than those who govern/rule them. It would be (very) wise for American in the Center to take notice of this prior to 6 Nov.

  • Kenny
  • Otiose8

    Once Germany’s slippery slide out of the Euro begins I doubt that they will accept any sort of currency union with another political entity after these recent experiences with trying to coordinate/persuade other sovereign countries to follow responsible fiscal policies. It won’t matter how well behaved those potential future partners are now. So it will be the German Mark or Euro.

    The harsh words we’ve been hearing in response to German reluctance to cough up the money are nothing compared to what’s coming when the Euro/pean family begins its breakup. That breakup can’t be avoided – there are just too many relatives in the family who have grown accustomed to a lifestyle beyond their means (earning power and now debt capacity) and there aren’t enough paying Germans to go around to maintain the illusion of sovereignty.

  • Kris

    “Fourth Reich”

    Well, if we’re going to bring out those tropes, who would we rather see bitter and resentful, Club Med or Germany?

  • Corlyss

    Well, there were two Reichs before the third. According to some perceptive historians, Europe’s 20th century history has been the history of attempts to recreate the first. Obviously there’s something instinctively attractive about that one that Europeans have been trying to recreate: safety, security, a common language (Latin), something that they haven’t had since those halcyon days.

  • john haskell

    Yeah the Germans never wanted it in the first place. They just went along because they were under French military occupation.

    The reality, of course, is that the French had no power to stop German reunification, and that Helmut Kohl rammed through the Euro against significant domestic opposition.

  • Snorri Godhi

    “The problem once again is France: it doesn’t want to be relegated to the second tier currency”

    Nobody in Europe wants to be relegated to a second tier currency, and that’s not because of national pride: it’s because, unlike you, Europeans are not Keynesians.

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