Euro Disunification

It’s not exactly the lights going out all over Europe, but it is a stern warning from Angela Merkel:The Eurozone

In a dark blue jacket reflecting the mood in and about the eurozone, Merkel abandoned her usual cautious rhetoric warned outright of a war.

“Nobody should take for granted another 50 years of peace and prosperity in Europe. They are not for granted. That’s why I say: If the euro fails, Europe fails,” Merkel said, followed by a long applause from all political groups.

“We have a historical obligation: To protect by all means Europe’s unification process begun by our forefathers after centuries of hatred and blood spill. None of us can foresee what the consequences would be if we were to fail.”


Don’t get too worried. Merkel isn’t talking about sending the Wehrmacht — I mean the Bundeswehr — into Belgium. Rather, I’m sure she’s warning more generically about some future conflict like the one in the mid-’90s in the Balkans. Only this one would be in the mid-Teens. In the Balkans.

But that’s not to say that Germany isn’t taking any preemptive defensive actions:

Dr. Pippa Malmgren, a former economic advisor to George W. Bush and a former advisor to Deutsche Bank (DB). According to Malmgren, Germany has already ordered the printing of Deutsche Marks in anticipation of a possible withdrawal from the EU.

I was about to say Germany just got caught with its hand in the piggy bank — only it’s Germany’s piggy bank, isn’t it?

Very drunk at a party at Perry de Haviland’s Chelsea flat several years ago, I made a surprisingly cogent argument about why the euro was doomed to fail. Put short: A currency can be only as extensive as labor is mobile.

Put longer: Our fifty-seven states do just fine with one currency and one monetary policy, because when California is in the dumpster, people can and do move to where the jobs are, in Texas. But the 17 members of the eurozone can’t use a single currency and a single monetary policy. Because if France goes into recession while Germany is enjoying boom times, a million Frenchmen aren’t going to pack up and head east across the Rhine.


In America, our regional differences are surprisingly enduring, given our labor mobility. But, let’s face it, our differences are cute and quaint and, in the end, not very important. A Californian can make himself into a Texan just fine. In the end, we’re all Americans. There are plenty of Yankees in the South and lots of Southerners in the West and Westerners are heading back East. It’s a mixed-up, muddled-up, shook-up country — but it works.

But a Greek can’t become a German can’t become and Irishman can’t become a Spaniard can’t become a Finn. There’s no such thing as “a European.” Regional differences matter in Europe, in ways they never mattered here, not even during the Civil War.

All it would take to sink the euro, I figured, was a recession nasty enough to make a unified monetary policy unworkable. At that point, the EU would remain, but individual national currencies would return. And without too much fuss, I’d hoped.

For real-world examples, look at the countries that tried adopting the US dollar as their own. I can think of Panama and Argentina off the top of my head; there might have been others. Both experiments ended badly. Eventually, they entered recessions, and neither country could control its own monetary policy. Nor could they borrow cheaply enough or spend with any discretion. Panama and Argentina were shackled to our policies and their ability to earn and keep our dollars — while we were booming and they were sinking. Thus ended their experiments in a single currency.


So, I imagined, would the European experiment with a single currency.

What I didn’t imagine — and bad on me for this one — was just how out-of-sync Europe’s economies could get. The PIIGS put themselves in a hole much deeper than I’d feared. And nobody but the fiercest euroskeptic thought that the PIIGS would get away for so long with, essentially, printing their own euros without permission or oversight from the ECB.

Tempers are flaring in Germany, and for good reason. The price of German reunification was giving up the Deutschmark and subsuming German interests into Europe’s. And given the horrors inflicted by Nazi Germany, that wasn’t a bad deal. But it’s sure turned sour since.

Today’s problems aside, there’s still a very strong case to be made for the EU. Germany is still too big and too powerful to float around Europe without an anchor — it’s bound to bump into something eventually, badly. There might — might — even be a case for deeper political unification. But the euro is doomed, as it was from the start. The question now is whether it goes peacefully, or as Merkel warns, violently.

P.S. Autocorrect wanted to turn “disunification” in the headline into “disinfection.”

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