EU: Germany’s twin euro-martyrs tell Merkel to put up or break up

The Telegraph ^ | 7/18/2012 | Ambrose Evans-Pritchard

[bruinbirdman]

The Maastricht Treaty: a disastrous step

Thilo Sarrazin is not everbody’s cup of tea. The ex-Bundesbanker and shock-jock critic of Islam in Europe loves to make mischief.

But his latest broadside against monetary union in the Frankfurter Allgemeine is spot on. The Maastricht Treaty 20 years ago was a wild lurch into strategic incoherence.

Europe’s leaders fell into the trap of Goethe’s Zauberlehrling or Sorcerer’s Apprentice, launching a currency experiment that they could not control. Now the magic word eludes them. They cover up their impotence by deflecting blame onto markets.

Mr Sarrazin said EMU has demonstrably failed. Germany must draw the proper conclusion: either abandon the euro or accept the revolutionary step towards a European superstate. Morton’s Fork has arrived, with all its fateful consequences.

Europe’s integration process stands at a parting of the ways and we must now choose between a dangerous step back on the one side and a full-blown loss of sovereignty to Europe on the other."

He said the pre-1999 system of periodic currency adjustments was much better suited to the vastly different needs of Europe’s eclectic and historic nation states (why not floating currencies, and be done with it? but let’s not quibble).

The democratic order of post-war Europe was already established long before Maastricht, as was a common security system, the free flow of goods and services, and broadly free competition. Europe was working quite nicely without a common currency, and could do so again.

The euro has nothing to do with the great issues of war and peace, as so often and so lamely asserted. The "de facto currency union" of 1914 (Gold Standard) did not stop conflict: the dollar and the peseta did not stop civil wars in the US and Spain. The linkage claimed —

[Doulos1]

What?

[BfloGuy]

The "Telegraph" is my favorite British paper, but its two flagship economics columnists are, though capable writers, unrepentant Keynesians.

My criticism of over recent months is that Germany’s political establishment blocks all solutions. It refuses to accept the federalist logic of EMU and embrace fiscal union and debt mutualization, yet at the same time it absolutely refuses to contemplate withdrawal from the euro so that other countries can recover.

As if those were the only two solutions. There is a third solution. Greece, Italy, Spain, et. al. cut spending and liberalize their labor regulations. Mr. Pritchard's philosophy discounts that completely, though. Not even worth mentioning.

For all Chancellor Merkel’s euro rhetoric about the survival of peace in Europe, she is actually behaving as if EMU were nothing more than a fixed-exchange system. It seemed for a few days as if she had agreed to a direct €100bn recap of Spanish banks from the ESM bail-out fund – and in doing so taking the first step towards a debt union – but now we learn that no such concession was in fact made at the EU summit in Brussels.

The Euro is "nothing" but a fixed-exchange system. If its members followed the rules they signed onto, a fixed-exchange system would do them very well.

I've come late to the realization that the Euro was really quite well-designed. Its success depended on the Eurozone following classical economic principles. That they haven't is no blot on the Euro -- only on them.

[BfloGuy]

Ayn Rand once wrote that people who "invest" in the lottery want -- more than the money -- to appear successful. To be able to give the impression that they have earned their wealth. It is the appearance of hard-earned success that matters to them most.

The PIIGS were similar when they signed onto the Euro. They wished to look like Germany and to be treated like Germany. They just didn't want to work for it like Germany had.

And, now, the Germans are criticized. The hatred of the good for being good.