Angela Merkel told the German Bundestag last Wednesday that in the absence of a deal on the eurozone debt crisis, “Nobody should take for granted another fifty years of peace and prosperity in Europe: if the euro fails, Europe fails”.
This perhaps encapsulates Germany’s fears, born out of experience, and it would be wrong to dismiss her statement, as many commentators have, as mere rhetoric. The whole concept of the European Coal and Steel Community, the original forerunner of the European Union, was to tie Germany and her neighbours together in a trade and political union to prevent future wars between them.
The EU has delivered peace and prosperity for Germany. It is reasonable to conclude, as Merkel does, that the destruction of the euro will reverse the political process. Post-war European politics has been largely based on these two premises. But there is a deeper point to Merkel’s statement, which has been forgotten in our modern world of fiat currencies: in history the greatest threats to peace and social stability have usually been associated with currency debasement. And here, Germany’s unhappy experience has become rooted in its people’s psyche.
Germany’s spending in the build-up and early years of the First World War was financed purely by monetary inflation, and even by 1917, 85% of the cost was paid for by new paper money. This came about as a result of the economic advice at the time, principally from Georg Knapp, who believed that money is a government product and should be free of other constraints. For the Kaiser, it was like having a modern Keynesian economist advising a government today that it has a right to finance itself through monetary inflation. It was therefore hardly surprising that an ambitious Kaiser, having been shown how to finance the expansion of Germany by attacking its neighbours, actually did so.
The social consequences of printing money are entirely supported by economic theory of the Austrian School of economists and the lessons of history. It boils down to a simple fact: any electorate can be patriotically roused for war, so long as it doesn’t have to pay for it. And that is the lie behind monetary inflation. If you print money to finance a war instead of raising taxes, for a time, no one notices the cost.
Germany has been through this lesson twice in the last century, so her people instinctively understand the chaos that results. It is the rest of Europe, with the exception perhaps of Austria, which has forgotten it. So let us state it loud and clear: sound money is the best guarantee of peace, while fiat money is a precondition for chaos.
So Angela Merkel is right, but the pressure from other euroland and G20 states will be difficult to resist. They have placed their trust in an expanded bailout fund to be supported partly by the EU’s Asian trading partners, which if it gets off the ground will do so at the expense of the dollar. The trouble will come if the European Central Bank is also expected to fund it, which so far is assumed by many but not discussed. Any major injection of ECB money into the fund will be extremely controversial in Germany, and therefore should not be taken as read.
“if the euro fails, Europe fails”
There are two implications in Merkel’s statement:
1) euro fails => EU collapses
2) EU collapses => Europe fails (and descends into war)
Much as I’d like (1) to be true, I’m not convinced that it is. After all, the EU was around for a long time before the Euro.
(2) seems patently ridiculous to me.
The economies of Europe, indeed the world, are more intertwined and interdependent than ever before. The collapse of the EU wouldn’t change this. Trade wouldn’t stop. Multinational corporations wouldn’t retreat to their ‘home’ countries.
Meanwhile, the rise of cheap international travel, especially within Europe, means that ordinary Europeans have had more contact with their fellows in other countries. With English as the lingua franca, people have studied, worked, and travelled abroad. They have forged friendships, and come to see that we have more similarities than differences. A conflict anywhere in Europe couldn’t possibly be described today as “a quarrel in a far-away country between people of whom we know nothing”.
Even if we were to feel animosity to certain countries, ordinary people just don’t have the stomach for war any more. Happily, we are out of practice. It is impossible to conceive of anyone in Britain volunteering to intervene in a continental war, as they did in WWI. Long gone are the days when anyone in Europe felt dulce et decorum est pro patria mori.
Finally, what would Total War look like these days? Is the Cold War such a distant memory? Mutually assured destruction isn’t a very attractive prospect.
The world was a very different place in 1939, and I cannot believe that Merkel doesn’t know it. Her statement is surely mere rhetoric.
In fact, it is the continued existence of the EU that risks fostering resentment and animosity in Europe. If violence comes, it will be because of the EU, not for lack of it.
I regret doubt must be directed towards the assertion that the EU delivered peace and stability to Germany. Instead I would suggest the single most important factor at the time was the opportunity for clear cut decision making, something attributable to the condition of Europe which was ruined by six years of fighting. In effect the only way was up.
That German policy makers made the right decisions, in contrast to Britain, was further helped by the fact that Europe had a guardian angel, the US, which through its military strength, the formation of NATO and other political and economic support allowed Europe to largely devote its energies to reconstruction without having to divert excess resource to other issues such as defence.
The leaves us with todays problems, which are not as Angela Merkel has it, if the Euro fails Europe will dissolve into war. That is nonsense. Instead the festering sore created by the blinkered ambitions of EU apparatchiks has created a system that can only set people against government, not people against each other.
There are several reasons in play here, firstly the peoples of Europe have been treated with contempt by both EU and national elites, a process that has seen democracy reduced to a sham. One of the prime methods of doing so was to buy acquiesence via well funded promises, fine until the money runs out, which is the fate of every order based on fantasy. Then we have the establishment of the Euro which lacked the real will to ensure that all nations who joined sung from the same hymn sheet. Sadly, inheriting the consequences are not the EU elites or even the national authorities, but instead the people who face financial stringency thanks to being led astray by those wrapped up in their own ambitions.
Europe today reminds me of the Soviet Union (there’s that word “Union” again)and the Eastern Bloc countries of the cold war era. The same end seems most probable and most desireable.