When George Osborne attended his first meeting of European finance ministers on Tuesday, he may well have felt a pang of pity for his Continental colleagues. True, Britain has the worst deficit and the most rampant inflation in Western Europe. True, Mr Osborne may have been outmanoeuvred over the regulation of hedge funds. But the Chancellor has a trump card: the pound sterling. When it tumbles, we can export our way back to growth. When Greece implodes, we can maintain a studied distance. All things considered, it could be worse. We could be Germany.
Germany’s dire situation today offers the most eloquent of all arguments against the concept of a single currency. A nation of skilled workers, industrious entrepreneurs and frugal savers finds itself shackled to an irresponsible mob of southern Europeans, whose interests have to be put ahead of those of German taxpayers in order to avert the collapse of a currency structure that was never set on firm foundations.
In the €710 billion ‘rescue’ unveiled two weeks ago to halt the Greek contagion from infecting the sovereign debt of Portugal and Spain, Germany will have to contribute as much as €150 billion on top of its €22 billion contribution to the earlier bailout for Greece. The response of German voters was imme-diate: they inflicted humiliating defeat on Angela Merkel’s Christian Democrats in regional elections for North Rhine-Westphalia. This is the start of a backlash gathering strength and ferocity across the country.
To pick up the German press is to realise the depth of the crisis that the euro is in. Bild Zeitung, Europe’s biggest-selling daily, praised Merkel as the Iron Chancellor when she initially refused to bail out the Greeks. It has now turned on her with a vengeance for her u-turn — accusing her of caving in to Nicolas Sarkozy. There is resentment at being bullied by the French, resentment at being the eurozone’s paymaster and resentment at having to bail out countries that have opted for a risibly easy life (Greece’s retirement age of 53 for public servants caused particular ire).
Josef Ackermann, head of Deutsche Bank, has said it is time to recognise that Greece is bankrupt and that no amount of standby funding will make any difference. Roland Koch, Premier of Hesse and increasingly a rival to Merkel within the Christian Democratic Union, has said the Greek bailout means he can’t spend money on things like kindergartens and hospitals.
Even Mrs Merkel admits that the bailout could do no more than ‘buy time’ for weak EU members to put their public finances in order — an outcome which can only ultimately be enforced by massive transfers of fiscal power to Brussels. There has long been a rumour that the German government stockpiled new Deutschmark notes in warehouses near Berlin when the euro was launched — ‘just in case’. Those rumours have been circulating again with fresh intensity in the past few weeks.
Go to any flea market in Germany and rummage among the books and old postcards and you will always find examples of Inflationsgeld — inflation money — for sale. These are the notes, denominated in billions of marks, which were issued in 1923 during the great Weimar currency collapse. For Germans, they are a reminder of an event that wiped out the savings of ordinary people and led directly to the rise of National Socialism. For such reasons, fiscal probity is of totemic importance to the modern German mindset.
The momentum of Europe’s sovereign-debt crisis is driving in one direction: towards a break-up of the euro. If that happens, it is more likely to begin with Germany withdrawing from the single currency than with the Greeks being evicted. Mr Osborne has precious little to be grateful for. But he can be thankful that this is one economic crisis where he need only sit back and watch.
Comments