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The Corner

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They Knew (Of Course They Knew)



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Der Spiegel has the story:

In response to a request by SPIEGEL, the German government has, for the first time, released hundreds of pages of documents from 1994 to 1998 on the introduction of the euro and the inclusion of Italy in the euro zone. They include reports from the German embassy in Rome, internal government memos and letters, and hand-written minutes of the chancellor’s meetings.

The documents prove what was only assumed until now: Italy should never have been accepted into the common currency zone. The decision to invite Rome to join was based almost exclusively on political considerations at the expense of economic criteria. It also created a precedent for a much bigger mistake two years later, namely Greece’s acceptance into the euro zone.

Instead of waiting until the economic requirements for a common currency were met, [German Chancellor] Kohl wanted to demonstrate that Germany, even after its reunification, remained profoundly European in its orientation. He even referred to the new currency as a “bit of a peace guarantee.”

At this point World War II had been over for half a century.

Of course, financial data doesn’t play much of a role when it comes to war and peace. Italy became a perfect example of the steadfast belief of politicians that economic development would eventually conform to the visions of national leaders.

Because politicians can, of course, always shape economic reality to their will.

…[T]he Kohl administration cannot plead ignorance. In fact, the documents show that it was extremely well informed about the state of Italy’s finances. Many austerity measures were merely window dressing — either they were accounting tricks or were immediately dialed back when the political pressure subsided. It was a paradoxical situation. While Kohl pushed through the common currency against all resistance, his experts essentially confirmed the assessment of Gerhard Schröder, the center-left Social Democratic Party (SPD) candidate for the Chancellery at the time. Schröder called the euro a “sickly premature baby.”

Wait, there’s more, a lot more, such as this:

The documents that have now been released suggest that the Kohl administration misled both the public and Germany’s Federal Constitutional Court. Four professors had at the time filed a lawsuit against the introduction of the euro. The suit was “clearly without merit,” the government told the court, arguing that it would only be justified in the event of a “substantial deviation” from the Maastricht criteria, and that such a deviation was “neither recognizable nor to be expected.”

Really? Following a meeting between the chancellor, Finance Minister Theo Waigel and Bundesbank President Hans Tietmeyer, on the case before the Federal Constitutional Court, the head of the economics division at the Chancellery, Sighart Nehring, noted in mid-March 1998 that “enormous risks” were associated with Italy’s “high debt levels.” The debt structure, Nehring added, was “unfavorable” and outlays would increase considerably if interest rates rose by only a small amount.

And still Kohl pressed on.

It’s well worth reading the whole thing. As an example of the arrogance and the duplicity of a politician convinced that he knows best, it’s a textbook case. As for the consequences…



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