Never mind Spain or Italy or even Belgium; the euro crisis has spread to Germany, which is struggling to sell its bonds. The Corner’s Mark Steyn likes to say that, if you take a quart of ice cream and a quart of dog faeces and mix ’em together, the result will generally taste more like the latter than the former. It’s true of international organizations (the context Mark uses) and it’s true of what’s happening in the euro zone.
EU leaders have spent the past year issuing sententious bromides about “avoiding contagion.” It’s an odd metaphor, since the usual defence against contagion is quarantine. Eurocrats, however, have insisted on taking Italy and Greece’s problems and making them everyone else’s. Result? The only economic havens in Europe are those outside the single currency: Switzerland, Scandinavia, and (oddly, when you consider that our deficit is higher than Portugal’s and almost as high as Greece’s) the United Kingdom.
From the beginning, the Brussels elites made it clear that, to adapt Abraham Lincoln, their paramount object was to save the Union. Never mind if that meant imposing epochal poverty and emigration on the southern members, and unprecedented tax rises on the northern. Never mind if it meant toppling the elected prime ministers of Italy and Greece and replacing them with Eurocrats (respectively a former European Commissioner and a former vice president of the European Central Bank — two perfect specimens of the people who caused the crisis in the first place). They were prepared to pay any price to keep the euro together — or, more precisely, to expect their peoples to pay, since EU employees are generally exempt from national taxation.
The alternative policy — an orderly unbundling of the euro — has never been seriously considered. Had it happened two years ago, a great deal of pain might have been avoided. If it happens now, there will be a cost, but it is still patently the least bad option.
Germany and its satellites could leave the euro tomorrow, establish a hard currency and bequeath the legal carcase of the euro to the Mediterranean states. The peripheral countries would thus devalue, price themselves into the market and receive an immediate stimulus. Their devaluation would probably be accompanied by a partial default (although not necessarily in Italy). Each state would then be free to adopt a monetary policy that suited its own conditions and, while the recovery would be painstaking, at least there would be a recovery.
Eurocrats, though, won’t countenance any challenge to their project. They remind me of the nomenklatura at the end of the 1980s. Even as the revolution overwhelms them, they carry on trotting out the old slogans — European economic government, fiscal federalism, eurobonds. Not in the hope of convincing anyone; not even in the hope of convincing themselves; but simply because they don’t know what else to do.
“Something must be done,” the economics editors of the world intone. By “something,” they mean “sufficient fiscal transfers from Germany to preserve the euro.” This, though, is to beg the question. The euro is the problem, not the solution. It is a recessionary device, whose maintenance threatens to topple large parts of the world back into recession. The quicker it is dismantled, the better for everyone.
— Daniel Hannan is author of The New Road to Serfdom: A Letter of Warning to America.