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Will the Euromark be Europe’s Future?

RP's Diary

The German government is being told by everybody outside Germany – and by many inside it – to rescue the euro. It must do so, according to the critics, by expanding demand, underwriting the issue of eurobonds, taking responsibility for feckless countries like Greece, bailing out dumb bankers, and backstopping extravagant, irresponsible governments. That is said to be its duty.

This is what 99% of the commentary in the UK and non-German speaking Euro media all amounts to. Rescue us, damn it! It is in your interests and, after all, your responsibility as Germans. Don’t you remember the second world war – your job is to pay!

Viewed from Berlin, the picture looks quite different. What Mrs Merkel has grasped and few outside Germany even begin to understand is that the European Union needs Germany more than Germany needs the EU. Germany by itself is a developing economic super-power – a pocket battleship. True, it does not have the scale of the US, but it has potential, while the US is in some respects in decline. It has potential because, unlike the US, it has fiscal, monetary and political self-discipline.

Germany would be a reluctant superpower. But history could drive it in that direction. Germany could go it alone and establish a euromark, with interest rates set by a reborn Euro Bundesbank. Without the euro, Europe would have no option but to tag along behind German monetary and economic leadership. The monetary system might even work better that way – to everybody’s material benefit. Countries, banks and business would know where they stood. No more dreary, inconclusive, euro-muddle. Berlin and Frankfurt would set the rules. They would set a banking standard, a common European resolution and supervisory authority and a properly controlled financial system. Reliable monetary and banking standards would be re-established, as recommended in The Money Trap.

And that would not necessarily be worse than the ambiguous euro rules – Stability and Growth Pact, etc – that countries currently are supposed to observe.

The odds are that, given time and patience, under such conditions Germany would sort out its euro hinterland, just as it sorted out East Germany. In the end. It would take years and cost a packet. But with burgeoning trade and political links across Asia to Russia, China, India and Japan, and its technological prowess, Germany has time. France and Italy do not.

It is not just the rest of the euro area that needs to keep Germany inside the European tent. It is just as much in the interests of the UK as well.

The choice is wider even than that. The US has a vital interest in securing the future of the euro – and thus of the European Union. A loose Germany could be tempted once again to exploit its pivotal position between east and west to play the power game.

But for the single currency to deliver its benefits, its integrity must be preserved intact. Even the departure of little Greece would harm it irrevocably. A damaged single currency would doom the EU.

The US, UK, Japan and China should stop treating the euro crisis as the business of the euro area countries alone. They should stop lecturing Germany and wake up to their geo-political responsibilities – and to the risks for them of failing to keep Germany fastened securely to western Europe.

This reinforces the conclusion reached at the end of The Money Trap: a monetary and economic pact between Europe, North America, China and Japan is a condition of securing the benefits of globalization – and of a peaceful world.