Letter: A Chance for Germany to Win?

Published on: 1 Jul, 2014
Updated on: 1 Jul, 2014

From Laurence Hodge

The EU heads of government, meeting in Ypres for their latest round of horse-trading, chose a venue that has powerful associations for member states but none, obviously, for the EU which has muscled its way in where it has no business to be.

The EU would no doubt describe historic enemies meeting on a battlefield as a common culture where former adversaries unite in a rejection of their individual histories in favour of some limp and bloodless administrative solidarity.

Two world wars and the hyper-inflation of the 1920s form the foundations for West Germany’s political and economic journey post 1945 and for the united Germany since 1989. The principal ingredients for Germany’s economic miracle were, first, a political consensus around Christian principles of a social market economy and second, a belief in the primacy of sound money.

Sliced into three pieces after the end of World War Two and bombed to its knees all thanks to nationalist fervour, West Germany’s relations with the outside world repudiated any hint of nationalism and found expression instead through supra-national bodies like NATO and the EEC. In broad terms these were the three planks of successive post war administrations first in Bonn and now Berlin.

The appointment of Jean-Claude Junker with the support of German Chancellor, Angela Merkel, is worrying because it demonstrates the extent to which Germany has discarded the old formula in the interests of maintaining an ever more powerful but increasingly shaky and unaccountable European Union.

Prevarication over reforms which she knows to be overdue has the ascendancy even if this means that the smash, when it comes, will be that much greater and more costly to her taxpayers.

To understand today’s situation we first need to step back a bit in time. The principle of sound money was enshrined in the independence from political control of what was to become the Deutsche Bundesbank under its first and appropriately named president, Karl Blessing.

The twenty years between 1969 and 1989 saw the Deutschmark double in value against the US Dollar from 3.86 to 1.80 while it’s performance against other currencies like Sterling to say nothing of traditionally weaker southern European currencies (many of which were not even freely convertible) was even more dramatic. Yet despite this constant appreciation of its currency, low inflation Germany continued to export and to prosper.

When the Berlin Wall came down President Mitterand of France and the German Chancellor, Helmut Kohl struck a deal under which France supported German reunification in return for Germany abandoning the Deutschmark and joining a currency union with other member states.

For Kohl, reunification was an irresistible political imperative and for Mitterand, the Deutschmark was the one thing which had always given Germany a slight edge at Europe’s top table.

Among the other countries joining the single currency, the hope and expectation was that their economies would fall into step behind Germany, that their ability to raise funds on international bond markets would increase and that they would also be able to borrow more cheaply. Germany’s then finance minister, Theo Waigel, boasted that Germany was ‘bringing the Deutschmark to Europe’.

Could the project as originally conceived have ever worked? It’s a tantalising question to which we will never have an answer.

The rules surrounding membership of the Euro were never properly applied and under Chancellor Schröder and with benign capital markets the Euro careered onwards as a political project divorced from economic discipline. Furthermore, the mechanisms designed to govern convergence and compliance, the so-called Growth and Stability Pact (which has done nothing for growth or stability) were abused first by the big players, France and Germany, well before Greece and Portugal got the idea to follow suit.

Without the authority of a Bundesbank, governments were profligate, credit was easy and consumers across the Eurozone indulged in a spree of buying which meant that German exports boomed.

It would be a mistake to think that it was only out of self-interest that Germany looked the other way. Her laxness owes as much to a resolve that goes back to 1945: it has been unthinkable for Germany to crack the whip over its neighbours. Having annexed, fought or occupied most of those countries, successive administrations have been at pains not to offend.

It’s not hard to understand why, when the imposition most recently of conditions on bail-outs for countries who would otherwise default have reawakened predictable accusations of German hegemony.

Anti-German rioting in Athens accompanied by swastika graffiti must seem a poor return to Berlin for its laissez-faire policy towards its partners in the Euro but of course no side comes out of this debacle well – the borrowers, the lenders and the bystanders like Germany are all complicit and but for Germany’s refusal to let the European Central Bank simply print money and debauch the currency like the Reichsbank did in the 1920s, the situation would be growing even more dire.As it is, there is a bill to be paid the ultimate size of which is incalculable.

Back to the present day and the Ypres meeting. Where are the central tenets of Germany’s post war dispensation in the run-up to the summit at Ypres? Financial probity has been severely compromised; the country that has striven hard not to boss its neighbours around has imposed on Greece an austerity regime from which there may be no escape; where formerly Chancellors of centre-left and centre-right could be relied on to pursue pragmatic policies domestically and internationally, Angela Merkel is inextricably caught up in short term fixes that only allow the European Union to lurch from one crisis to the next.

Mr Junker himself is something of a side show, though the fact that a man whom nobody has a positive word for is in contention at all tells you a great deal about how the EU operates. Socialist leaders, headed by François Hollande of France, have agreed to support the Junker candidacy on condition that they can put ‘their’ people into other key jobs. The current Danish prime minister (the Kinnocks’ daughter-in-law) and an Italian minister would thus take over from Van Rompuy and Ashton who are both off, leaving barely a trace behind them in our collective memories.

Part of the deal is that austerity measures affecting mainly the southern states (and France is moving further south every day) should also be relaxed although Berlin strenuously denies this element of the arrangement.

What Mrs Merkel does next is far more interesting than the election of Mr Junker. With France languishing on the sick list, Germany is in a position, unprecedented since the early 1960s, of enjoying the only place setting at the top table. She would be able to reform and restructure Europe along the rational and pragmatic lines that she applied to her own reconstruction from the late 1940s.

Her first decision must be to abandon funny money by leaving the Euro and to accept the pain that Euro-denominated assets held by German institutions and individuals would depreciate at a stroke as the Mark is reintroduced.

Germany will get a lot of stick for abandoning her Euro-zone neighbours but not more than she will get by remaining in the club and calling the shots. After all, if folk are going to daub the walls with swastikas when you’re being helpful, you might as well look to your own interests first.

Perhaps the most difficult thing for Germany to accept is that she needs to replace her reliance on the EU as a means of defining herself and look once more to a renewal of her own nationhood. A better day will have dawned when Germans can sing their national anthem with a sense of pride in their country, henceforth untainted by the irredentist pan-German hangover of the past, at one with the world within its own borders.

Laurence Hodge has lived and worked in France, Germany and further afield. He is a member of UKIP in Guildford.