Germany’s euro cures can’t work
Recent developments confirm that Greece was in the cross hairs of speculators not because it is an isolated black sheep, but because it is the weakest link in the eurozone. The pressure that has built up in international markets comes down to the euro’s fundamental contradictions; the champions of the common currency put the cart before the horse. A monetary union without a common fiscal policy, without a political union, cannot be on a sound footing and this is what we are paying for now. From a financial standpoint the euro is tougher than the US dollar because Washington prints to meet its needs. Yet the euro continues to lose ground. The reasons are political. The markets have their doubts about whether it will survive as a joint European currency and therefore avoid using it as a reserve currency. In order to deal with the euro crisis, German Chancellor Angela Merkel banned naked short selling of bonds. Putting the brakes on the impunity of speculators was the right thing to do, but the fact that she acted unilaterally reveals a dangerous hegemonistic mentality, and this matters because Germany’s second «cure» for getting the euro back on its feet is the imposition of iron-fisted fiscal discipline across the eurozone. The greatest problem right now is not the extravagance of certain member states, but the differences in growth between them and the competitiveness gap. Ever since the common currency was introduced it has worked in favor of the most competitive economies, and Germany is at the top of that list. In effect, Germany’s surpluses are the deficits of the European South, which gradually turned into massive debt. The weaknesses of the eurozone are gradually being revealed, highlighted by the international crisis. The common currency prevented the less competitive member states from offsetting these disadvantages. The touted method of domestic deflation, other than being very painful on a sociopolitical level, is questionable in terms of effectiveness. At some point, the countries of Southern Europe will react if they keep losing ground, while the eurozone cannot survive simply on Draconian fiscal supervision and strict punishment. What the eurozone needs is real fiscal convergence, but this demands a leap forward. Without a common fiscal policy, the monetary union will inevitably breed discord.
