The Corner

Euro-Impasse

The Daily Telegraph’s Janet Daley sums up the euro-impasse:

…To repeat (sorry, but it does seem necessary) what I have said before on these pages: however much she is beaten about the head by blowhards in Brussels, Rome, London and Washington, Angela Merkel cannot let the ECB (in effect, the Bundesbank) print money to soak up the debts of Spain, Greece or Italy. To do that would not simply be to fly in the face of her own electorate’s wishes. (What the hell, you might say – every European political leader is doing that.) It would be to contravene the constitution which was enforced upon Germany by the post-war settlement. In other words, it would be both undemocratic and illegal within the terms of the German nation state which, for all the hokum about European political union, still exists. And there it is.

This is the heart of the irreconcilable contradiction on which the euro is being broken. As everyone has been saying, in order to be viable in the face of market pressures, a genuine currency (as opposed to a pretend one) must have a “lender of last resort” – a true central bank like the US Federal Reserve System. But this is impossible within the EU because the constitutions of member states are not compatible with each other or with the principle of underwriting debt across national boundaries (as the states of the US are under their genuinely federal system). So, either the existing democratic institutions and historical principles of all EU countries must be forcibly reconciled in a Year Zero political reconstruction, or there can never be a monetary union (let alone fiscal union) that will be sustainable. This is where we are.

What would such a reconstructed political entity look like (assuming that someone in the delusional European political class should think of trying it)? Presumably it would involve wealth redistribution on an epic scale – since the most urgent problem to be remedied is the disparity between the poor, indebted states and the rich, thrifty ones. Fiscal transfers (meaning Germany pays for everybody) would be an accepted, perhaps automatic, mechanism, thus creating more or less permanent dependency of the less productive on the more productive. We have grown accustomed in Britain to this form of cross-subsidy, in which wealth produced in the South East is channelled to the North. Even within one country with a shared identity and linguistic culture, it breeds some resentment and resistance.

Applied across the boundaries of nations whose peoples have profoundly different historical experiences and social attitudes – and whose democratic institutions have been shaped by their collective memories – it would be incendiary. And it is worth saying that there is nothing invidious in this. For Germans to refuse to bend in the face of shrill demands to (as they see it) debauch the currency is a sign of conscience: an unwillingness to forget the shame and criminality into which such a process led them in the last century. It is ironic that Germany itself was one of the great drivers of economic union, and specifically of the democratic socialist model in which “the rich nations help the poor ones” as José Manuel Barroso (who seems less and less capable of remaining in touch with reality) likes to put it.

Now the “socialist” and the “democratic” sides of this utopian vision are heading for a collision: the EU can embrace wealth-redistribution wholeheartedly – with the full works of a central bank, fiscal uniformity and no nonsense about the will of the people – or it can accept the separate, and morally defensible, differences between its member states which will mean thinking seriously about other options than browbeating Germany. Generally, when given a choice, Europe ditches the democracy and keeps the socialism – so I wouldn’t get your hopes up.

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