Swimming with an Anchor: Europe and the Euro

Don't want to go into too much detail and bore all with another wonkish analysis of the increasingly disturbing crisis in Europe, but some recent events in the Old Continent are worth mentioning.

The crisis is real and gathering force. Greece is going down and going down hard. It will not be alone. I already have written at length re the single greatest flaw in the logic behind the Euro: it made cheap and unproductive Greece, Italy, Spain, and Portugal as expensive as productive Germany, and helped keep them unproductive.

Germany is a modern day economic miracle. It has an efficient, export-oriented economy while at the same time having high taxes, and a big government providing substantial and decent public benefits and services. Could Germany have been even more productive, more successful in exports, and more prosperous had it lowered taxes, reduced government, and cut public spending?  Probably, but that should not take away from the very considerable achievement of the German people in the post WWII era. Why and how have they pulled this off? Two words: German Culture.  Even East Germany was the most productive and wealthiest of the Communist bloc nations, so we should not be surprised by the success of West Germany and now just Germany.

The Germans have managed to preserve a culture of hard work, cooperation, and, frankly, relatively limited domestic spending on the luxuries of life. The typical American does live better than the typical German when measured in "stuff" acquired, e.g., house size, amount of food and electronics, number of cars and computers, etc.  Germans, however, seem to accept a lower level of individual living standards when measured by "stuff" in exchange for a fairly peaceful and harmonious society (there are exceptions, of course) which still values hard work, savings, and investment. That said, I still rather live in America where, even today, we have considerably more personal freedom and innovation than in Germany, and a greater chance to "make it," but that does not reduce my sense of admiration for what the Germans have accomplished.  They, in addition, have done this with mediocre political leadership. It is hard to think of any genuinely distinguished German leaders since the passing of  Konrad "Der Alte"Adenauer, although, I must admit, the absorption of the GDR took place more smoothly than I had predicted despite the considerable economic sacrifices it imposed on the people of western Germany.

Germany's great success, of course, led to heightened French concern and envy, and made a centerpiece of French foreign policy the effort to "control" Germany, while getting rid of the United States in Europe. The French were promoters of a host of schemes designed to keep Germany feeling guilty, and entangled in a net of agreements and commitments that would make it impossible for the German shark to swim free. As I told a pro-American and Euro-sceptic German diplomatic colleague some years ago, the French idea of Europe is a continent led by French politicians, commanding British troops, and using German money. They almost pulled it off, with the Euro being yet another stratagem to keep Germany tied up and tied down. As we have discussed at length elsewhere, the Euro is coming apart at the seams as the fake bookkeeping that kept it going is being revealed more and more every day. The Euro has survived only because of chicanery in bookkeeping, willful blindness by politicians and electorates, and, above all, by the willingness of the Germans to keep bankrolling the scheme and papering over the shortfalls and crookedness of their European "friends."

The French have one more card up their sleeves to save the Euro and the EU at the expense of the Germans. They are promoting Eurobonds that, in essence, would be backed by the full faith and credit of the German central bank and economy and allow the spendthrift nations of Europe to borrow money at the same interest rates as Germany. In other words, there would be only one issuer of bonds, and those bonds would have just one interest rate. No more preferential interest rate treatment for the more responsible Germans. If that is to be the case, then I could easily see a demand by Germany to have veto power over spending plans by the other European countries. Here, however, is where Germany's weak political leadership hobbles the Germans and contributes to the impending wreck in Europe.  Merkel's heart and head seem to be in the right place, but she has no guts. She does not seem able to stand up to the "coalition of the billing" which has formed to lay claim to the German treasury.  In addition, the unhelpful position of the US, a country which traditionally would have supported German demands for responsible spending, has further weakened Merkel. Unless Germany can say "NO" loudly and clearly, including to the foolish President of the United States, the European crisis will ensnare all of us in its anchor chain.