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.