The future of the Euro and the greater EU superstate project now rests largely on German politics. The German political establishment has been keen on integration by stealth for many years. It ignored German public opinion against losing the DM, and took the country into the Euro. Now it is trying to get Germany into a transfer and money printing union against the wishes of many German electors.
Many Germans were proud of their DM. It was a symbol of resurgent economic success post war. It became the emblem of the newly democratic and peace loving Germany which emerged in the 1950s and 1960s. The electorate were told that you needed an independent central bank wedded to honest money. It did not print too much, it encouraged the state to live within its means, and ensured inflation stayed low.
That today is all put at risk by the desperate measures being discussed to save the Euro. We are told there is a possibility of a Euro 2 trillion package. This money would be available to put more capital into banks to withstand the shocks when Euro sovereigns rat on their debts. It would also be available to lend directly to those same sovereigns who might rat on their debts, hardly an inviting prospect for lenders.
The German Parliament is being asked to approve a significant slice of the Euro 440 billion fund we know about. This has been announced and will be provided by the states of Euroland. Germany, like all the others, will have to borrow her share, at her credit rating, so it can be lent out to worse risks within the Eurozone where those coutnries cannot raise their own money cheaply. Commentators agree that the Parliament will approve this, the July package. It’s another case of too little too late.
This leaves the question I asked the other day, where does the remaining £1560 billion come from to get to Euro 2 trillion?
Some hint the EFSF itself would gear up, and borrow more in its own name. This would probably be illegal, as the member states have to ratify the size of the fund.
More say it will be lent by the ECB acting alongside the EFSF. This money could in turn be borrowed by the ECB. If the ECB is to issue large quantities of Euro bonds to do this, Germany’s nightmare has come true. Euroland will in effect be using Germany’s good credit standing to raise cheap money to lend on to poor risks. That could lead to a German rating downgrade. Any other EU body doing the same has the same weakness. The UK needs to make sure it is a Euroland and not a wider EU institution that undertakes it if it happens at all.
Some hint that it could be printed. Why shouldn’t the ECB do what the Fed and the Bank of England have done? Create some money in their books and lend it on t0 governments.
None of this will be popular with many Germans. The German Parliament is being reassured that the EFSM will only be Euro 440 billion, that the German Parliament will still have the right to say Yes or No to bail outs, and that the Euro will remain a strong low inflation currency. All this is going to prove difficult to sustain as an argument when you see the options for the bigger fund.
Both the German Central Bank and the constitutional court are flexing their muscles. They object strongly to Germany’s credit rating being abused on this scale, to any idea of money printing, and to the loss of power over its own finances that these new departures would represent.
Could at the eleventh hour German democracy and independence come to save us from ill judged and ruinously expensive European integration? It’s a long shot, but it may be the best chance we have. There are Germans who oppose money printing by the ECB, oppose the ECB buying up high risk sovereign bonds to prop their price, oppose bail outs as illegal under the Treaty, and who want Greece and others to be reminded of their obligations. Are there enough of them? Can the German Central Bank and the Constitutional Court together with public opinion stop the politicians taking Germany by stealth into a transfer and money printing union?
Presumably Mrs Merkel, after winning her vote by playing down any idea of money on top of the Euro 440 billion will then elide her position to one that allows or does not block the massive gearing up of the money that will be needed to kick the can down the road for a bit longer.