Saturday, 19 May 2012

The Euro: Irresistable force meets immovable object

With Greece predicted by almost everyone to be exiting the Euro soon due to the irresistable forces of global capitalism, it is worth considering the reason for why it has remained for so long, and why the European Establishment has been so slow to retreat from it's impossible position. (Note that the term 'European Establishment' is not quite the same as the European Union, courtesy of the lunatic decision to allow Christine Lagarde to become head of the IMF.)

A good deal of the reason is, as many commentators have pointed out,  the emotional attachment the European Establishment have to the Euro as a totem of the 'inevitable' flow of history towards European unity. The fear that, once that illusion is shattered, then the whole project (and their careers) will lie in ruins is plainly a very powerful one.

However, there is another reason thats bears attention: the immovable object of German culture.

Anyone who has worked has the good fortune to work in Germany will find much to admire in the Germanic way of doing things: notably the meticulous attention to detail in planning and execution, as well as the steely psychological toughness to see things through over the long term.  As the recent BBC documentary 'Eurocrash' by Robert Peston explored,  the German nation  coped magnificently with reunification through collective discipline and sacrifice over a period of 20 years after the fall of the Berlin Wall. It's doubtful that any other European nation could have achieved such a success given such huge difficulties. Certainly we in Britain, faced with our own dire economic problems and a pathetically cowardly government response, can only envy them their unity of purpose as well as their willpower.

However, all cultures have weaknesses, and the EU is now being smashed on the anvil on that same German Will. The German mentality is to plan meticulously for every eventuality, then execute 'The Plan'. However, once 'The Plan' is underway, it is essentially on railway tracks and no deviation from it can be countenanced. Difficulties will be bulldozed aside and it will be seen through, come what may. Very often this approach works, but if unforeseen and insurmountable circumstances arise, Germans often find abandonment of the held position virtually impossible.  Thus mistake is compounded and re-compounded by intransigence until total disaster overtakes it. In a recent speech, Angela Merkel showed this absolutist mentality in all it's hubris.

"If the euro fails, Europe fails. That must not happen."

But as we all know, the problem for Merkel is that Germanic stubborness to make the Euro work only has a chance of success if reflationary monetary policies are pursued and a fiscal union created between the member states. That, of course, brings the only policy likely to save the Euro in collision with  the equally tough Germanic insistence on sound money. Thus we have the grotesque situation that, irrespective of a forced Greek exit, Germany will almost certainly continue to compound it's errors and to defend the Euro with savage deflationary policies until the last peripheral European economy is totally smashed.

And smashed is not too dramatic an expression. We often tire in the media of hearing sensationalist rhetoric from politicians or commentators  about economies 'collapsing' or being 'destroyed' by this or that government policy, and Armageddon (almost) always fails to arrive. But for once the horrible  reality really seems to be matching the hype. If reports are to be believed, parts of Greece and Spain are returning to a pre-modern barter-based economy. Germany, in the meantime, continues to prosper mightily as the greatest export engine the world has ever known on the back of a cheap Euro.

As Nigel Farage has repeatedly warned, Cassandra-like,  some European states may be headed for civil war or revolution. Certainly, some of them seem to be leaving the developed world.

And they said the EU would guarantee European peace and prosperity in our time.