Europe Without the Euro - English

Change the Rules, Not the Game

By Stefano Casertano20.06.2013Economics

Without the euro, Southern Europe is headed for trouble. It’s in Germany’s interest to keep the Eurozone together to prevent turmoil at its doorstep.



The argument that “the euro will never work because European economic cultures are too different” is a popular and shareable claim. But how would you react if a German (ideally someone who is active in politics) told you that Germany is better than the rest of Europe because the financial performance of Prussia has been better than that of modern Greece? Well, it happened.

Some parties in Germany, or possibly all parties in Germany, are happily turning their back to Europe and embracing something that had been banned from German public discourse for decades: the idea of a “national interest.” Obviously, all German parties since 1945 have focused on the interests of their country, but the difference is that the question of Germany and its relationship to other European countries has re-entered the world of political campaigning. It used to be a taboo; now it is a slogan. We do not need to remember why it was forbidden, but we should question where this new tendency is leading.

“We are not against Europe”

I recently attended a conference of an up-and-coming German party, the “Alternative for Germany,” whose anti-euro agenda is making it quite popular. Recent polls put it at around five percent nationally, and thus above the threshold to enter the Bundestag after the next elections in September. My colleagues in Rome urged me to go – the conference was in Erfurt, a smaller city in Eastern Germany – because they believed it was a sort of “anti-systemic and populist movement” like Italy’s own Beppe Grillo and his “Five Star Movement.”

“AfD” – as the party is known – is nothing of the sort. I was exquisitely greeted and had the chance to speak with people, mostly from the lower-middle class, mostly in their sixties. By contrast, Beppe Grillo joyously has Italian journalists kicked out of party conferences and does not speak with us “pencil pushers serving big interests.” At the AfD meeting I could see how the intellectual agenda depended on well-grounded economic claims: “We are not against Europe,” the local party activist Arndt Breustedt told me, “we are only against the euro, because southern populations are suffering terribly under it.” There are many good reasons to agree with this claim, and Italians, Spaniards, Greeks, and all the other tax-bearing people would probably nod their heads.

Nevertheless, I was surprised to hear the words of a speaker, who happened to be the main organizer of the conference: “To date, [contemporary] Greece defaulted five times; Prussia, in its long and diverse history, never did.” (You can hear an audio recording of the speech “here”: The comparison was intended to prove that Germans were able to achieve a better economic performance than Greeks, yet the reference to “Prussia” sounded odd at best. Prussia has been the cradle of German 20th century imperialism, and referring to its “diversity” is rather bizarre. Such comparisons should surely be avoided. Nevertheless, people applauded – instigated by a ringleader, but they still followed.

It is fully understandable that Germany feels disappointed by southern Europe: as Germans were going through social policy hell domestically with the social democratic reforms of the “Agenda 2010,” Greece hosted the Olympics, Spain was building sea resorts, and Italy had Berlusconi. Now Southerners complain because there is no more sugar daddy to pay for their mess – at least that’s what Germans say. But when I hear in Germany that the euro must be broken up, I cannot help thinking about something else: a subtle sense of superiority by a certain part of the German elite. Saying that “southerners are suffering terribly” because of the euro implies that southerners are not to be redeemed. If it sounds rather evangelical – sure it does! – I don’t deny it. (And since we’re talking about biblical references, a little side note: At the conference I was given a tiny bag full with “salt for the earth.”) So Germans seem to have decided that it’s better to just let the South go.

This is a choice, and as such it shall be accepted. Chancellor Angela Merkel is quietly observing how the AfD erodes the traditional political consensus about the value of the euro, but she still perseveres in her tested austerity agenda. The AfD has opened a big debate for Germany: Is the country convinced that it can succeed on its own within the new economic context? Does Germany have virtues to spend with a weaker currency?

Consider also that those southern spoiled brats will stay spoiled brats even if they switch back to their old currencies. We should not expect a fiscal miracle but, rather, defaults and currency attacks. We seem to have forgotten a lesson of the 1990s, when monetary investors rode across Europe, shortening currency positions and reaping immense profits from their speculations. If currency speculation has declined over the past fifteen years, it’s because of the euro.

Devaluation doesn’t work anymore

I’m under the impression that many people confuse problems of the Eurozone with problems that pre-dated the introduction of the euro. The common currency cleared Europe of worthless lira, peso, drachma and all the others. The biggest argument in favor of small currencies – the ability of a small country to spur exports by devaluing its currency – has lost its force because of the rise of China, which is exerting a much bigger economic influence by aggressively devaluing its own currency. Small countries simply could not compete. Japan tried devaluation – the dollar/yen exchange rate was 77.61 in September 2012 and 103.18 in May 2013 – but the result was a stock exchange rollercoaster. Imagine if Italy had tried to do the same (and Italy is even more exposed to Chinese competition than Japan). The lira would be a dead currency walking. The same goes for other “small” currencies like the peso, the drachma, or even the proposed “Southern euro.”

It seems therefore that anti-euro movements, wherever they spread, risk a reliance on the same form of economic hedonism that a cynical commenter would define as “populism.” Maybe it would have been better to avoid the euro altogether, or at least to have a different euro. But that’s a counter-factual claim. We have the euro, period. Instead of changing game, we can change its rules. Pain will be inevitable in any case. Without the euro (and thus with regained monetary independence), Italy and Spain would plummet into the same form of economic hedonism that characterizes countries like Argentina, possibly with the addition of predatory capitalism. Their monetary policies would become uncontrollable. If Italy had Berlusconi _with the euro_, just try to imagine what the country could have without the common currency! At least with the euro Berlin has legal and financial grounds to assert its will over Rome and Madrid. If Italy changed political course – and it did – it did so because of European pressure. The euro is what Germans should wish for if they believe that Italy and Spain cannot help themselves.



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