The Brussels-based Bruegel is a vaguely left-of-center, europhile think-tank based in Brussels, something that makes its publication of this new (late December) report by Ashoka Mody on the creation of the euro all the more interesting.
Here’s an extract:
Kohl single-handedly ensured the emergence of the euro in its present form. Pushed relentlessly by the French, Kohl nevertheless could, at each point in this nearly decade-long journey, have pressed the pause button. The advice from the Bundesbank and the Ministry of Finance was always to move slowly. But Kohl preempted his closest advisors. To their horror, he agreed to a definite date for the introduction of the euro at Maastricht in December 1991.
With the euro now a fait accompli, his advisors counselled—more strenuously than before—against admitting Italy into the first group of members. Kohl, however, insisted…With Italian entry, Portugal and Spain were also waived in. And the precedent ensured that Greece would be a eurozone member two years later.
As the eurozone is mired in never-ending economic distress Kohl has felt compelled to defend the concept to which he gave reality…
It was all worth it, Kohl says, because ultimately the euro was a project to promote peace. On Dec. 12, 1989, the Chancery documents report a conversation in which Kohl says to U.S. Secretary of State James Baker, “The euro is not in the German national interest, but we need friends.” A united Germany, he asserted, could not have friends and would risk disturbing the peace if it were not tied down by the euro. In his [new] book, Kohl repeats this mantra: “Due to the euro,” he says, “European unification became irreversible, and we took an important step towards a permanent guarantee of peace and freedom on our continent.”
“Irreversible” is not the language of democracy, and Kohl knew it. He later admitted to have acted “like a dictator” in forcing the currency through.
Mody:
Kohl bypassed the German citizen, knowing that the public overwhelming wished to keep the D-Mark. He wore down his economic advisors with the threat of ignoring them. And he gained a grip on his own party that made his authority almost unquestionable.
And he lied, dissembled, and concealed inconvenient truths.
So, as Der Spiegel reported in 2012:
The [official German] 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.
Mody:
The distress caused by the euro’s economic fetters is spawning mounting political discord. The discord is not accidental: it was built into the construction. German citizens, who were bypassed, now want a say. And their voice is being heard, as reflected in the recent electoral gains of the Alternative für Deutschland party. Elsewhere in the euro area, the economic stress is being cynically used to promote national fervor and even baser instincts….
If this was a project to win friends for Germany, it is not turning out that way….
Kohl’s most debilitating legacy may have been the high-minded rhetoric with which he endowed the single currency project. There was never any connection between the prosaic euro and the magnificent metaphors of peace and unity that he invoked. Europe had laid as secure a commercial basis for peace as was possible with the Treaty of Rome in 1957 through to its culmination in the Single European Act of 1986. In contrast, the euro, by its very nature, generates conflicts among the member nations.
Mody concludes that “breaking up the euro is too costly.” He’d prefer to abandon the central fiscal rules that (theoretically) bind the euro zone together “and let countries deal with their private creditors,” a solution that assumes that the some euro-zone countries would be prepared to see others go into default without coming to the rescue with a series of bailouts (that their voters back home would detest). Count me skeptical. Such a solution would also do nothing to address the imbalances created by the fact that the single currency simply cannot reflect the economic realities of 19 often very different economies. Athens is not Berlin. One size does not fit all. Far better, would be (yes, this again) to split the euro into two, “northern” and “southern,” and take it from there.
In the meantime, Greece has an election coming.
Antonis Samaras, the centre-right Greek prime minister, lost one election on December 29th. Now he will have to fight another. His New Democracy party’s candidate for president, Stavros Dimas, fell 12 votes short of the required three-fifths majority in a third and final ballot by Greece’s 300 MPs. As the constitution demands, a snap general election will now be held on January 25th. ND is trailing the far-left Syriza opposition, according to the opinion polls. Once again, the prime minister’s chances of victory look slim.
If Syriza — a fierce opponent of the fiscal discipline now being imposed on Greece by the EU, IMF, and ECB — comes to dominate the new government (and that’s the best guess at the moment), matters will become . . . interesting.