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America Should Bet on Berlin, Not the Basket Cases

The alternative to letting the nominal wealth of Spain sink to its fair value is to make the Germans poorer. As I wrote June 18 in Asia Times:

The alternative is to place a de facto wealth tax on the frugal and industrious northern Europeans, by extending Germany's (and Holland's) balance sheet until the euro weakens drastically, raising the cost of imported goods for the Germans. It is unfair to tax German wealth in order to maintain the wealth of the rest of Europe, and the Germans won't like it.

Why should America want to prop up the fictitious wealth of the Spanish by making the Germans poorer? What possible purpose can that serve? America should be strengthening our alliance with Germany, rather than badgering the Germans to bail out the basket cases. We share a fundamental interest with the Germans -- containing Russian influence. The European community will shrink to a smaller and more prosperous core. We should be more concerned with strengthening NATO. Economics isn't always a positive sum game. The slow and terrible decline of Spain during the 16th and 17th centuries was good news for the Dutch, who opened their doors to talented immigrants from all over Europe (notably the Spanish and Portuguese Jews). There are plenty of smart Spaniards, and a lot of them (along with a lot of smart Greeks) will be working in Germany.

There just aren't enough Europeans to go around. Europe's working-age population will shrink by a third by mid-century. There are plenty of prospective immigrants from Africa and the Middle East, but few of them are educated and many of them are culturally unassimilable.

Exhibit 1: Europe's working age population (15-59) shrinks by a third while population over 65 doubles 

Source: United Nations World Population Prospects (Constant Fertility Scenario)

Exhibit 2: America's working population grows but retired population grows faster 

Source: United Nations World Population Prospects (Constant Fertility Scenario)

Germany's biggest economic problem is a shortage of skilled labor, and that likely will be solved the way it was solved in the 17th century after the Thirty Years War: through immigration. America should bet on the winners, provided that the winners share our democratic values and our strategic interests.