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The Euro is Falling Down a Gemeinschaft

Posted: 02/12/11 00:00

Gemeinschaft, translated from German as meaning a sense of community in which individuals are oriented to the large association as much as, if not more than, to their own self interest. It is this desire to maintain the eurozone as a large group of European nations which has weakened and may ultimately destroy it.

It is clear that Greece should never have been allowed to join and that the stability and convergence criteria for membership of the euro agreed in the Maastricht treaty, have been adapted to allow as many countries to stay in as possible.

The big eurozone has worked well for Germany. It has given the country an artificially low value for its currency which has allowed its exports to prosper. The reverse is of course true for countries like Italy and Spain. With this in mind, regardless of your views on the value of the project of European integration, you can see why German politicians want to keep the eurozone together. But this will surely not be at any price.

Speaking on Thursday in the European Parliament, the head of the ECB, Mario Draghi, suggested that the price for countries to stay within the eurozone will be a loss of national control on Government tax and spend, alongside measures of assistance. He said regarding the question of the ECB buying up national debts that "Other elements might follow...but the sequencing matters". He added that "a new fiscal compact would be the most important signal from euro-area governments for embarking on a path of comprehensive deepening of economic integration". This also echoes Angela Merkel's call on Wednesday for "political courage to bring the euro zone closer together."

This 'compact' would allow Germany to lock countries into an agreed programme for reform in return for staying under the safety of the protection that might be given under the eurozone umbrella. Perhaps the idea of 'eurobonds' might even return, but only for those countries that sign up. A simple message would be given with such a scheme to the eurozone members when they gather for next week's European Council, that they must adapt or leave the euro; or to follow one of the slogans of the American revolution 'unite or die'.

But will everyone be willing to take this step, and even if ministers agree, can they sell to their people this once in a lifetime transfer of power to the EU, of some of the most fundamental powers of government.

This must surely create problems in Italy where not a single elected politician sits the cabinet of their government. Some politicians in Europe are prepared to concede that this will be too much for Greece and that they will most probably leave the euro at Christmas, and if the other countries are prepared to sign up to this 'compact' that may buy some more time.

A eurozone break up may then not be in a big bang, but more like a dance of the seven veils, with countries peeling off one at a time to leave a core eurozone of Germany, Holland, Austria, a few of the other smaller economies, and you would have to imagine at almost any price France as well.

 

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