It used to be said that when America sneezed, Europe caught a cold. Now it’s the other way round, except that Europe has done a great deal more than sneezed; it’s almost taken to its bed. The reason for this is that Europe today is, despite appearances – the world’s economic powerhouse. It has on the way to twice America’s population and accounts for well over 40% of the world’s trade. But it has mismanaged its affairs to the point where the markets have had enough.
We must not blame the markets; they are only a reflection of how the guardians of our pension funds and insurance companies view future prospects. It is their job to identify risk and so protect people’s savings. They do not worry about the Scandinavians, Swiss, Dutch, Germans, or even us (now that we are in the process of balancing our budget and bringing our deficit under control). What they look for are not fine words and good intent – welcome as they are – but action.
They have seen it from us, but they have not been getting it in any meaningful way from Europe. From bestriding the world like a colossus in the lifetime of people still alive (not many, admittedly), Europe has seen its position twice destroyed by the two German wars.
The European Project was designed to ensure that this never happened again. For 50 years, Europe has painstakingly climbed back on its feet. Its people realised that old style nationalism was not the way forward, and today it is a beacon of cooperation and prosperity admired around the world. But all this is now threatened. Ruin, recrimination and bad – if not spilt – blood faces the continent unless it acts fast and decisively
It is to Europe’s great good fortune that it has one economy big enough and strong enough to silence the markets. But the leaders of that economy must step up to the plate. While we all understand why Germany is so paranoiac about printing money, no extra notes are actually printed – it’s just an electronic exercise in today’s world. And that is the point.
Today’s world is very different from the financial circumstances which brought Hitler to power. First, we now know that beggar thy neighbour, protectionist policies are counterproductive. Second, we are a much more joined up, globalised world, with powerful computers assisting our fragile brain capacities. Third, there are the great institutions such as the World Bank, the IMF, the World Trade Organisation, G20, and many, many more which were not in place when Germany’s Weimar Republic wrestled with its horrendous problems. (Not the least of these were the foolish and ruinous Reparations imposed by the victorious Allies in the Versailles Treaty). So Germany can take a more relaxed view today.
While it is important to learn the lessons of history, it is equally important not to be spooked by them. Germany has an historic opportunity to save Europe which its previous militarism helped to destroy. Germany must realise that if its fears and parsimoniousness allow the Euro to collapse, it will be among the greatest losers; its export-dependent economy would reel under the weight of a super valued Deutschmark. Nobody would be able to afford its goods. And that’s another thing! Nobody has benefited more from the reasonably priced Euro than have the Germans.
Poor, benighted Greece, (along, I might add, with the rest of us) has indulged itself on German products and that’s part of the reason it owes so much. There’s an irony in there somewhere, surely. Another irony is that this crisis has ended a British foreign policy which has been central to it for 500 years – even propelling it into any number of pre-emptive wars – never to allow a continental power bloc to develop which would overshadow us.
When our Prime Minister and Chancellor of the Exchequer urge Germany forward into a fiscal union, of which we will not be part, they are doing just that: putting the final building blocks in place which will lead to a united Europe.
It is a measure of the extraordinary trust which has built up that they feel safe to do so. So Fritz now has his chance to be the hero of the hour. Let him look at the big picture and rise to the challenge. Europe will be forever in his debt (literally). The European Central Bank must be the vehicle of his largess. It must be beefed up to the point where it can act like the Federal Reserve or the Bank of England – the lender of last resort.
The consequence of Germany opening up the coffers on all its hard earned dosh will not be without benefit in other ways. Systems will be put in place to ensure that such a drama never happens again; the feckless will be compelled into good housekeeping; corruption will be rooted out; Spanish practices in the workplace will be curtailed and Europe will have the fiscal union which, but for the crisis, it would never have had.
South Europe, despite all these measures, will always need a little forbearance, much like the poorer regions of Britain. We northerners will have to accept that with all that heat you will never get the Club Med countries to beaver away quite like us. But if they are unable to implement the austerity requirements – and they should not be too draconian (remember Versailles) – then they should be let go.
One thing, though, is certain. Either we all do our best to all hang together or we will surely all hang separately.
How could Greece’s economy, which makes up only 2% of the Eurozone, potentially bring the whole house of cards crashing down? It is down to what the jittery markets make of it all. If they believe that the new bailout’s austerity demands (the second tranche) are unenforceable on a people who are now close to ungovernable, then they will panic, and a panicking bond market cannot be resisted. Indeed, we British had firsthand experience of this on ‘Black Wednesday’. And besides, the Greeks don’t have the stomach for more austerity: they would rather default on their debts and tell north Europe to get stuffed; they see only a future of unending misery as things stand.
As for the still fragile and barely recovering banks, there would inevitably be huge shockwaves all over again. But it’s the thought of a domino eftect on the other tottering economies of south Europe (Britain in extremis will save Ireland from going under) which is the stuff of sleepless nights. No body (neither the ECB nor IMF) can raise the sort of money needed to save the likes of Spain or Italy: it is truly a doomsday scenario which, amazingly, has got even China and India thinking they might have to step in.
The Euro is going to have to go back to the format which it originally drafted; that’s to say that only economies which can meet the five strict criteria laid down can be members. Alas, it was the failure to adhere to these requirements and the mad rush to admit anybody and everybody – and all the fudging that took place besides – which has led to the present situation. In that sense, north Europe has only itself to blame for not insisting on admission rules being sacrosanct. It is perfectly understandable that the hardworking, tax-paying, late-retiring North resents the happy-go-lucky, tax-avoiding and lets-play-the-Euro-system-with-its-cheap-loans South, which told a string of porkies about its indebtedness and then, to cap it all, wants to put its feet up early. But the South did only what most would do in the circumstances, given half a chance. Any thinking person could have seen it coming.
Watch this space!