last few years, as the debt crisis has engulfed Europe, the risk that has
most concerned economists has been the possibility that the so-called
'olive growing countries' of Portugal, Italy, Greece and Spain, joined by
Ireland (and known as the PIIGS) might leave, or be forced out, of the
Eurozone. The possibility that Germany may choose to leave, however, is
something that has received far less consideration. Though there can be
little doubt the euro would survive without the Greeks or the Spanish,
there is greater doubt of the euro surviving without the Germans solidly behind
it. As the world's second largest reserve currency, the collapse of the
euro would precipitate a major international monetary crisis.
It is one
of those issues that now appears lost to
history, but the Germans were not wildly enthusiastic about the euro in
the years before the common currency. I would argue they were forced to
accept the euro to obtain French support for Germany's post Cold War re-unification. In bidding Auf
Wiedersehen to its treasured deutsche mark, Germany was intent upon
making the new euro a worthy successor and, from its early days, insisted
that sound money sentiments be imbued in the European Central Bank (ECB).
recently, as the over-borrowed PIIGS appeared near to default, the German
political elite saw the opportunity to extend their political power by
means of financial 'rescue' operations. If this effort fails, which I
feel it will, the Germans may decide to go their own way.
surprisingly, austerity breeds political revulsion. This is particularly
true when the austerity has been imposed by outside powers. Voter anger
is expressed in the strong rise of non-establishment and extreme parties,
including ultra-nationalists, and in some cases Communists.
Europeans are becoming resentful of Germany and the EU. Already, the
governments of Greece, Italy and Spain have been threatened by their
voters. Notably, a pro-German government in Holland has fallen in local
elections, and French president Sarkozy is running behind in his
reelection campaign precisely because of his perceived support of German
perspective, German leaders were naïve to assume that their attempt
to impose harsh terms on wayward borrowers would be accepted by local
voters. The terms included the selection of new unelected national
leaders in Greece and Italy. They were 'approved' by Germany and
supported by the so-called 'Troika' of the ECB, the EU and the IMF. These
leaders imposed austerity in return for the key German role in the rescue
now that the German people are seeing that their hard won funds are being
squandered on people who refuse to tighten their belts, resistance in
Germany is growing.
few weeks ago, it was felt that any breakup of the Eurozone would involve
the expulsion of one or more of the weaker PIIGS members. Now, however,
the dramatic possibility of Germany leaving the Eurozone has been brought
into focus. Last week, two German members of the ECB abruptly resigned. This
move has raised eyebrows the world over.
panic that a rapidly falling euro could cause, it is possible that the
euro is being defended by means of coordinated central banking actions
and behind the scenes currency swaps. From my perspective, this may
explain the relative stability of the euro at roughly the $1.30 level. If
such coordination is occurring, it is difficult to predict how long it
may last and how effective it will be.
by world leaders as an economic, and thereby
political, glue in the march towards pan-European sovereignty, the euro
was launched without any real democratic consultation or approval. But
now after 30 years of drift towards centralization, European voters
appear to be chafing at the bit in this economic vision imposed from the
top. This political problem is a clear and present danger threatening the
future of the euro, the Eurozone and even of the EU.
the future of the euro appears to be influenced not just by debt default,
but also by the politics of bailouts and austerity.