A change of German view?


     Yesterday morning I attended a breakfast seminar. Professor Henkel from Germany told us how he had been a keen exponent of the Euro in the 1990s. As Head of the German equivalent of the CBI he had come to the UK to urge our membership of the currency.

        He has recently  published a book explaining why he  thinks he was wrong. He now sees the force of criticisms of the scheme which we sceptics put forward at the time. He is worried about the future of the single currency, and is now urging his fellow countrymen and women to think again.

 He believes the best fix would be for Germany, Finland, Austria and Holland to leave the Euro and create a new stronger currency, which would revalue against the Euro. France would remain as the leader of the Euro group, and that currency could devalue against more successful economic areas, relieving some of the competitive pressures.

He thinks the formation of a transfer union, sending more grants and gifts to the poorer areas, the more likely outcome of EU deliberations.   He thinks the German people will grow increasingly unhappy about this, whilst most of their elite leadership will remain fully behind the Euro project.

He thinks the Euro is now worsening German relationships with the weaker countries. He finds resentment of German government lectures on the need for belt tightening in countries like Greece. He thinks the guarantees and support for Euroland now add up to €5000 for every man, woman and child in Germany.

All the time France and germany disagree about the solution, and all the time there are big differences of view between Germany and the European Central Bank, the ride will be rough for the single currency.


  1. WanderingStar
    July 13, 2011

    I’m not sure that a gleeful ‘I told you so’ is a helpful response to the current difficulties in the Eurozone. I am a regular reader on this site and while your views are cloaked in a veil of moderation, those of the majority of the regular posters are not. I’m not sure what purpose is served by stoking up more rabidly anti-european views. Where do all these arguments logically lead? To an isolationist state of warm beer, cricket on the village green and a Midsummer Murders ethnic mix??? This is 2011, not 1951.

    1. Mike Stallard
      July 13, 2011

      No, you haven’t quite got it.

      I was in Peterborough today and there were more ladies in veils and a lot more black faces than there actually are in Dubai. We went past two mosques. This is my home town where I lived in the 1950s. We had a good lunch with lots of other people at Chimichanga’s which, of course, is fajitas and pica de gallo etc.
      So no this is not about warm beer and cricket at all.

      What it is about is who governs us in a time when government is into even the tiniest details of how you live.

      Do we want to be governed by an unelected quango in far away Europe? People who are not under any sort of control, (like elections, real parliament, press or even, would you believe it, any form of auditing of their books and expenses)? Do we want our law, built up over centuries, to be replaced by half trained foreign judges instead of juries working out a law that is made by the unelected people above?

      You may have heard of the privacy of the family courts here being seriously under fire. If justice is not fair, then injustice comes along like a lion and eats people – usually the wrong people. Extradition anyone?

      Or do we want to be as self sufficient as, say, the Australians or the people of Southern Sudan? Or the people of Singapore? Free to make our own mistakes?

      The tree of liberty needs constant care and attention and, perhaps, our blood.

    2. forthurst
      July 13, 2011

      “while your views are cloaked in a veil of moderation” (Unpleasant and potentially libellous etc-ed), aren’t you?

    3. MickC
      July 13, 2011

      The “anti-european” views are not at all anti-european, just anti-large and non democratic, unaccountable government. And they are not stirred up by anything other than common sense.

      If the UK withdrew from the EU, there is no sensible reason why it would become isolationist. Lke all economically viable countries, it would have to trade with the world at large to survive. Certainly it used to, being the premier trading nation prior to the Great War which disrupted the world system of the time.

      As for “warm beer and cricket on the lawn”, surely that is a choice for the people to make individually-but given the generally cosmopolitan tastes of modern Britain, it seems unlikely to be a majority choice.

      1. uanime5
        July 14, 2011

        Incorrect. Most anti-European views are precisely that, mainly by people who don’t understand how the EU works or what it does.

        The UK isn’t a superpower and we can’t dictate who we trade with. If we leave the EU we shouldn’t be surprised if they refuse to trade with us and the economy collapses because of it.

        1. forthurst
          July 14, 2011

          “Most anti-European views are precisely that, mainly by people who don’t understand how the EU works or what it does.”

          “”The European status quo has become untenable, yet it should still be possible to mobilize a “silent majority” in favour of further advance toward a united Europe, said George Soros, the billionaire investor.

          Writing in the Financial Times, Soros said the euro was from the start an incomplete currency, in the sense that it had a central bank but no treasury, and its architects thought, wrongly, that markets would correct their own excesses; hence they set up rules designed to stop only public-sector excesses.”

          I am part of the ‘silent majority’ who thnks that (Eurocrats and enthusiasts-ed) should have no role in determining my future.

          1. forthurst
            July 14, 2011

            The quote is from Bloomberg, headed, “European Unity Project Mustn’t Be Abandoned, Soros Writes in FT”.

        2. James Matthews
          July 14, 2011

          “The UK isn’t a superpower and we can’t dictate who we trade with. If we leave the EU we shouldn’t be surprised if they refuse to trade with us and the economy collapses because of it.”

          What a pathertic argument. Do you seriously believe that if we left the EU the Germans, French, Dutch Italians, et al would no longer want to sell us their goods and services? Trade barriers work both ways.

      2. APL
        July 14, 2011

        Wandering Star: ” .. rabidly anti-european views.”

        The usual not so subtle slur.

        We are not anti European, many of us choose to spend much of our free time and a significant proportion of our disposable income in Europe.

        We simply do not see the need to have domestic British affairs determined by Greeks ( who can barely run their own affairs ) in Brussels, or Portugese ( who oddly can barely run their own affairs) in Brussels, or French ( who it will shortly be revealed can barely run their own affairs ) in Brussels.

        In short we wish to fraternize with the continentals but govern ourselves. That such sentiments are considered ‘rabid’ or ‘extreme’ is really quite odd.

    4. Riddi of England
      July 13, 2011

      The rabidly anti european views to which you allude are profoundly not in play by our host JR.
      It is the desire of most Englishmen to be on good mutually beneficial trading with our neighbours because it provides a demonstrable win-win for both parties.
      What freedom loving European Nations find a trifle irksome is being formed into a chain gang of slave Regions chivied and chastised at every turn by European Commission Regulations , Directives and (in) Competences.
      It is wrong to equate Europe with the European Union.
      The former is a diverse multicultural continent with Sovereign Nations glittering each in their own way. The latter is supranational construct bent on the enslavement of its peoples ostensibly for their own good and without their agreement which is the essence of tyranny and the antithesis of freedom.
      The logical lead would not be isolationist but expansionist ,outward looking and globally inclusive.

      As it happens for me warm beer is no hardship in our “globally warmed” summer !
      Cricket on the village green … the quintisential essence of heaven on earth if you are batting !

      Even in 1851 our global Buccaneers and Traders were a polyglot band that would put even todays ethnic mix to derisory shame .
      Apart from the above I note your post with deference.

    5. StevenL
      July 13, 2011

      Warm beer and cricket on the green sounds good to me, but I’m more than happy to include our friends from the subcontinent and Caribbean in the fun.

    6. norman
      July 14, 2011

      George Osborne also used the argument that ‘I told you so’ wasn’t a policy when he approved the first Irish bailout.

      I think everyone realises that ‘I told you so’ isn’t a policy but what would be sensible would be to take note of the opinions of the people who are consistently right in their predictions so that you can be in the ‘I told you so’ camp when the next crisis hits.

    7. EJT
      July 14, 2011

      Here we see the attempt at mind control by the redefinition of language. Anti-EU ism is “rabid”. Support for what we know to be a damaging system, outside of democratic control and imposed on the British people by stealth and lies, becomes by extension is what every reasonable person must think.

    8. James Matthews
      July 14, 2011

      Nothing at all wrong with warm beer, cricket on the village green or a moncultural society, although, sadly, leaving the EU would not revive any of them and the idea that before joining the EU Britain was isolationist, or that it would be after leaving, is absurd.

  2. lifelogic
    July 13, 2011

    It is not a problem that will solve itself lend and pretend is complete madness.

    Chris Huhne in the telegraph yesterday:

    “Together these reforms will secure our energy future. They will get us off the fossil fuel hook and on to clean, green and secure energy. Crucially, they will keep bills lower than they would be if we stuck with the existing arrangements.”

    Is this man completely mad? It reminds me of the Major government’s saying there is no alternative to the ERM and if we come out of the ERM then interest rates will have to rise not fall just before we left and interest rates fell like a stone.

    There seems to have been no global warming since 1998 anyway and sun activity has reduced also – so perhaps some more CO2 would be a good thing. Certainly his absurd feed in tariffs and market distortions are mad.

  3. stred
    July 13, 2011

    Surely France and Belgium are strong enough to join the nothern group and would not want to be lumbered with the fiddlers on their own.

  4. Alison Granger
    July 13, 2011

    Why listen to a man that has already been proved wrong now advocating another currency union?
    Freely floating national currencies are a check and a counterbalance that has served well for hundreds of years unless interfered with by idealists, politicians or other trouble makers.
    Even better than freely floating currencies are those with a gold standard. It served Britain well when it rose to global superpower. However there’s no chance of a return because a gold standard prevents governments fiddling, bribing and borrowing to win votes. No way our ignoble leaders would give that up.

    1. davidb
      July 13, 2011

      Are these not contradictory positions? The fixed exchange rate of a gold standard is not much different to the fixed exchange rate of an ERM or a Common currency.

      The crux of the issue as Mr Redwoods blog or commentators have alluded to all along, is that it is not possible for disparate economies and fiscal systems to share a currency except in a transfer union. Such a union would suit some countries, but would likely be extremely unpopular in others – ours and Germany to name only two.

  5. Mike Stallard
    July 13, 2011

    I do not think you have any idea how grateful I am for this blog.
    For some reason which I cannot fathom, the EU is almost completely unreported so people at local level never get to hear what is going on there. OK, there are specialist publications, but I for one do not know how to get hold of them. Economics (a pseudo science anyway?) revels in pseudo words which I cannot be bothered to understand or learn.
    So when I read about a top German economist talking sense, I am very grateful to him – and of course to you for reporting it so clearly.
    His diagnosis is what I suspected.

  6. JimF
    July 13, 2011

    This brings home to us that we’re not alone in being in a less-than-perfect democracy. The day that the German Government proposes a referendum on a hypothecated tax to be sent to weaker Euro members is the day the Germans have some sort of democracy.
    Is it too much to hope for some sort of referendum here on our gifts?

  7. Alex Faulconer
    July 13, 2011

    German support for the single currency is vital and without it , the Euro would not survive. An easier solution would be for each member state to revert to their former currency and stand or fall on their own merits.

  8. oldtimer
    July 13, 2011

    Did he comment on the status of the challenges made to the German Constitutional Court?

    Why is it that the EU political class gets so many things so wrong – the euro, fisheries policy, obsession with carbon tax and renewable energy to name but three?

    The same question could also be put to the British political class.

    Reply: He mentioned them but had nothing new to offer on it.

    1. lifelogic
      July 13, 2011

      You ask “Why is it that the EU political class gets so many things so wrong – the euro, fisheries policy, obsession with carbon tax and renewable energy to name but three? The same question could also be put to the British political class.”

      Because it is a fight for power and money using all the resources available to the powers that be including religion, tax payer funds, state broadcasters and manipulating peoples irrational beliefs. All done in the interests of the state sector, the politicians and bureaucrats. But bearing in mind what it is possible to rob off the tax payer or ram down their throats without too much violent or other resistance.

  9. Gary
    July 13, 2011

    They may want to think again about including Austria. Austrian banks have a massive exposure to devalued eastern europe real estate.

  10. norman
    July 13, 2011

    Does anyone know if George Osborne, in light of Irish bonds being downgraded to junk amid talks of a second bail-out, has changed his view from that of six months ago?

    Six months ago he was confidently predicting that we would make £440 million profit from our Irish bail-out (heaven knows how much we’re going to be making when you count in the Portuguese, Greek and IMF bail-outs – our projected proift must be in the billions!).

    Any tips for the 2.15 at Cheltenham, George? I fancy a flutter and so would be nice to know what not to back. Or I could just bet extravagently with other peoples money then it wouldn’t matter!

    1. lifelogic
      July 13, 2011

      Perhaps he will be honourable and pay the difference back to the country from his trust fund! More likely he will just repeat the insanity.

  11. Peter van Leeuwen
    July 13, 2011

    Herr Henkel’s idea has been around for quite some time: splitting the euro in a North and South currency (neuro and seuro). But German media are now beginning to support the idea of pooling part of the eurozone debt, which is more in line with the political dimension of the euro project.
    See: http://www.spiegel.de/international/europe/0,1518,773893,00.html
    Where the media start, the public may follow.

    1. Mark
      July 13, 2011

      Nice theory. But the reality is that PIIGS won’t simply be able to borrow and shuffle off their debts to the Germans (and doubtless the British in due course): they will find that the Germans will dictate precisely how much they can borrow, and what they can spend it on. It’s really no different than a parent company insisting on taking decisions on investment made by a subsidiary when the subsidiary seeks to borrow using the parent company’s credit rating.

  12. Caterpillar
    July 13, 2011

    [Thank you for writing something that wasn’t associated with politicians positioning themselves to tell the free press what to do. I hope the UK does not lose the WSJeurope through the the NI bashing, it is one of the few newspapers that is nearly readable.]

    Well the Eurozone could have been choosier about membership early on, and although the concept of a German currency (pop’n ~85 million) adopted by a few smaller countries (pop’n ~ 30 million) sounds workable, I cannot really believe a France-Germany split without a full collapse of the Euro. But I could believe the idea being returned to in 2013-15 if France has sorted out its deficit. If the Eurozone does get re-zoned, I am not clear why the debate would be between 2 zones or 17(25?) zones. There are probably plenty of other (perhaps complicated) configurations [sovereign currencies, a bailed zone currency, a missing the 3% target but unbailed zone, and a hitting the 3% target zone] – or how about an ERM?

  13. Martyn
    July 13, 2011

    And who is to say he is wrong? I suspect, however, from what we are reading and hearing today that the situation might well deteriorate far beyond what he thinks might happen. Fortunately I have 2 wheelbarrows to go shopping with filled with £1 coins to buy a loaf of bread if the worst happens, because the madness bordering on total insanity of Cameron throwing yet more of our rapidly devaluing currency at an obviously insoluble probem is going to break us all if he carries on as he has.
    I thought Brown was totally insane, spending, borrowing, taxing, ruining pension schemes and so on and that the Conservatives would learn their lesson and avoid repeating all that. Seems I was wrong…..

    1. A.Sedgwick
      July 13, 2011

      I would go for silver dollars.

  14. Javelin
    July 13, 2011

    I think the pressure on Germany will look very much like that of a forced marriage. The expectations will be there for Germant to be “good Europeans”. The veiled threats will be there – with Trichet shrugging his shoulders – and threatening the collapse of the German economy.

    There IS a wedding day approaching for Germany. My eyes are on German politics to see if they will blink.

  15. Denis Cooper
    July 13, 2011

    Hang about – this chap Hankel now admits that his previous Grand Design was badly wrong, but that doesn’t stop him producing a new Grand Design, and we’re supposed to take him seriously?

    And arguably if we’d been stupid enough to have fallen in with his previous master plan and joined the euro, as he wanted, the present position would be even worse because the eurozone would now include a country which had been adversely affected by euro membership in a rather similar way to Ireland, but on a much larger scale and with no possibility of it being “saved” through illegal bail-outs by the other eurozone states.

    “He believes the best fix would be for Germany, Finland, Austria and Holland to leave the Euro and create a new stronger currency, which would revalue against the Euro.”

    Why should it be presumed that Finland could satisfactorily share a currency with Holland over the long term, even if the Finns wanted to be part of that new smaller currency union?

    “France would remain as the leader of the Euro group, and that currency could devalue against more successful economic areas, relieving some of the competitive pressures.”

    Would the French people have any say on this, or would it just be a case of obeying the latest orders handed down from Berlin to their Vichy government?

    And would the British people have any say on the treaty changes necessary to implement the “outcome of EU deliberations”, or would Cameron continue to pretend that it’s nothing to do with us and so we don’t get a referendum?

  16. Bernard Otway
    July 13, 2011

    NO different to subsidising the people shown on the bbc documentary called THE SCHEME
    watch it on IPLAYER,it makes no sense whatsoever,the more this is done the more likely that drastic measures TOO HORRIBLE to contemplate are taken against these people.

    1. Stuart Fairney
      July 13, 2011

      I am slightly glad and also horrified to have watched this

  17. Woodsy42
    July 13, 2011

    While it’s nice to hear of one sinner who repents it must be noted that he was spectacularly wrong first time around, how much better is his judgement now?

  18. Electro-Kevin
    July 13, 2011

    Good ideas from Professor Henkel. Will he be ignored or denounced ?

    Off topic if I may. Radio 4 reports that the UK Border Agency is being cut back by 25%. As it is they can’t cope and there is an open back door into England via Cherbourg-Ireland-Scotland. Those illegals who are apprehended are allowed free pass on condition that they promise to report to immigration on arrival. Of course none of them ever do.

    When asked for numbers the minister in charge declined to give details stating that the situation was ‘fluid’ – in other words he hasn’t a clue.

    On the ground we can tell these numbers must be vast.

    Is there any situation that the Tories aren’t capable of making worse ?

    1. Mark
      July 13, 2011

      Cut the numbers issuing visas, and take all visa issuing back in house. That would cut immigration significantly.

  19. Martin Adamson
    July 13, 2011

    All very reasonable and sensible, but the problem is that France would rather turn the whole continent into a scorched earth of rubble and blasted heath than find itself in the Losers’ League.

  20. forthurst
    July 13, 2011

    The best thing for Germany to do would be to leave the Euro and let other countries make their own decisions; his new position is no more than a fig leaf to disguise the fact that he was wrong, wrong, wrong: the Euro is a theory like communism which only functions within the confines of a cloister. Let’s hope the Germans get restive at being asked to bail out less successful countries in perpetuity.

    Is that E5000 figure per anum?

    Reply: no, it is liabilities to date

  21. Acorn
    July 13, 2011

    Surely, the only way out of this mess is a “federal” Eurozone. One currency; one central bank; one treasury issuing one federal fiscal debt; the Eurozone bond. The Eurozone States will then have the status of an English County or any corporate entity that can’t issue its own currency or set its own interest rates. The United States of Europe, finally achieved.

    BTW. The WGA Accounts get issued today, UK PLC actually gets a proper set of accounts like any other major PLC. Watch out for accrued liabilities like public sector pensions, could sting a bit.

  22. javelin
    July 13, 2011

    There is a list on a white board on the trading floor that reads …

    Great Britain

    … as far as Italy is crossed out.

    1. StevenL
      July 13, 2011

      Do expain the significance of crossing them out for us!

      1. norman
        July 16, 2011

        I would imagine it means ‘don’t invest in these even if it is with other peoples money’

  23. Suze Doughty
    July 13, 2011

    So this German guy wishes to break links with France? Plus ca change!

    1. Andrew Smith
      July 13, 2011

      Actually that would be very significant. Read Bernard Connolly’s book again in which he describes the lengths the German Government went (and has continued to go) to accommodate France in a common currency.

      Why Germany felt so weak that it should want to merge with France I cannot imagine. It cannot have been historic guilt this time as France did quite well out of the WW2 compared with most other European nations.

  24. David John Wilson
    July 13, 2011

    This seems to resemble the ambitions of a particular dictator seventy five years ago. Would Holland, Finland and Austria accept being part of a currency which would be totally dominated by Germen interests?

    Reply: that is not a fair comment on this gentleman. No, the aim would be to proceed only by agreement.

    1. libertarian
      July 13, 2011

      As opposed to the current Euro arrangement which is er…currently dominated by….er Germany !!!

      1. davidb
        July 13, 2011

        The strong economies are Germany and the Netherlands. Both are export tigers. Their trading prowess supports the strength of the Euro. It may not be good politics to link the two, but the project’s flaw was that it was political rather than economically driven in the first place. Why was Greece ever in?

  25. Denis Cooper
    July 13, 2011

    People might like to read the Treaty establishing the European Stability Mechanism that was signed by eurogroup ministers on July 11th.

    This is only a draft I’ve found on a Finnish website:


    because I haven’t yet been able to find the official final version – the European Council website responds with “File not found”.

    Reading the general provisions, the intention seems to be to create a transnational body which not only enjoys special financial privileges but is effectively above and outside the scope of all normal law.

  26. Andrew Smith
    July 13, 2011

    Well it is nice that he has changed his mind and agreed that “we” were correct all along. But the latest news that the ECB has probably been supporting the bond markets could be very expensive.

    If it is costly for Germany, well sorry but you decided to go in and allowed others in who did not qualify and did not even try to converge with the large economies in the Euro.

    We decided to stay out but we will pay, partly through guarantees but also as shareholders in the ECB.

    “Mr Buiter, a former UK rate-setter, said the ECB can theoretically blitz €1 trillion in the debt markets without risking inflation. The bank would sink deep under water on its €5bn core capital, but that is a book-keeping detail.”

    Some “book-keeping detail” – it is likely to cost us £billions.

  27. Kenneth
    July 13, 2011

    There are German friends I know who are very uncomfortable at being effectively pushed into the leadership role of the Eurozone.

    One of the reasons many Germans liked the idea of the Europe wide ‘project’ was to smooth the spikes of Europe and to allow Germany to keep a low profile and stay peaceful.

    What worries my friends is there may come a time when some Germans may start to enjoy their widening leadership role and may relish the lecturing and finger wagging towards other countries.

    This is not what they hoped for and they want to bring back the Deutschmark before it is too late.

  28. StevenL
    July 13, 2011

    Dump the PIIGS on France says German professor? That’s the funniest thing I’ve read all week!

  29. BobE
    July 13, 2011

    My hope that the euro will fail and shut down this third attempt to unify Europe continues. I want my country back.

  30. StevenL
    July 13, 2011

    We should get Spain to join sterling, then we can export the old fogies there and save on fuel/labour/housing costs.

  31. Bernard Otway
    July 14, 2011

    I mostly feel that I have been locked up in a lunatic asylum and the key has been thrown away. BUT at my age 66 I am now capable of behaving like the sectarianists of both sides in
    Belfast,after all what have I got to lose I am already in a prison without bars,at least in a real prison I would get fed,watered and entertained and not have to pay a bbc tax.Lotsof my age feel this way, this nasty project [the EU] has taken away a pleasant retirement.Me I have a
    very nasty bucket list.

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