The Tragedy of the Euro

CHAPTER FIVE Why Germany Gave Up the Deutschmark

If the Euro means so many disadvantages for Germany, how is it possible that Germany agreed to its introduction? The fact is, the majority of the population wanted to keep the Deutschmark (some polls say up to seventy percent of Germans wanted to keep the Deutschmark). Why did politicians not listen to majority opinion?

The most feasible explanation is that the German government sacrificed the Deutschmark in order to make way for reunification in 1990. When the Wall came down, unification negotiations began. The negotiators included the two Germanys and the winning allies of World War II: the UK, the US, France, and the Soviet Union.

Germany was still subject to domination. No peace treaty was signed with Germany after World War II. The Potsdam Agreement of August, 1945, stipulated that a peace treaty would be signed once an adequate government was established. But such a treaty was never signed. Germany did not enjoy full sovereignty because allies had special control rights until the commencement of the Two Plus Four Agreement in 1991.1

In 1990, the Soviet Union still had troops stationed in Eastern Germany, while the United States, France, and Great Britain commanded troops in the Western part. All four of the occupying forces were atomic powers and vastly superior to Germany militarily. Without the authorization of these four powers, a unification of Germany would not have been possible. The French and British governments in particular feared the power of a unified Germany, which could easily demand its natural place in the power structure of Europe: it is the most populated nation, the strongest economically, and it is located in the strategic heart of Europe.2

To curb this power, the Two Plus Four Agreement, or Treaty on the Final Settlement With Respect to Germany, specified that the German government had to give up all claims on the territories taken from it after World War II. Moreover, Germany had to pay twenty-one billion Deutschmarks to the Soviet Union for pulling its troops out of the Eastern part.3 The German government had to reduce the size of its military and renew its renunciation of the possession or control over nuclear, biological, and chemical weapons.

Much more feared than the German army—made up primarily of infantry destined to slow down a Soviet attack on NATO—was the Bundesbank. The Bundesbank repeatedly forced other nations to curtail their printing presses or to realign their foreign exchange rates. It seems possible, if not plausible, that Germany had to give up the Deutschmark and monetary sovereignty in exchange for unification.4 Former German President, Richard von Weizsäcker, claimed that the Euro would be “nothing else than the price of the reunification.”5 Former foreign secretary Hans-Dietrich Genscher stated upon the introduction of the Euro that the events constituted the payment of promises made by him during the process of German unification.6 Similarly, German politician Norbert Blüm stated that Germany had to make sacrifices, namely the Deutschmark, for the newly shaped Europe.7 Horst Teltschik,8 chief foreign policy adviser of Chancellor Helmut Kohl, quoted himself, telling a French journalist (three weeks after the Berlin Wall came down in 1989) that “the German Federal Government was now in a position that it had to accept practically any French initiative for Europe.”9

Kohl regarded the Euro as a question of war and peace. After reunification, Kohl wanted to construct a politically unified Europe around France and Germany. Kohl wanted to gain his place in the history books as a builder of German reunification and a political union in Europe.10 In order to succeed, he needed the collaboration of the French President, Mitterrand.

Former translator for Mitterrand, Brigitte Sauzay, writes in her memoirs that Mitterrand would only agree to the German reunification “if the German chancellor sacrificed the Mark for the Euro.”11 Jacques Attali, adviser to Mitterrand, made similar remarks in a TV interview in 1998:

It is thanks to French reticence with regard to an unconditional reunification [of Germany] that we have the common currency . . . . The common currency would not have been created without the reticence of François Mitterrand regarding German unification.

Another confirmation of these events is provided by Hubert Védrine, also a long time adviser to Mitterrand, and later his minister for foreign affairs:

The President knew to grasp the opportunity, at the end of 1989, to obtain a commitment from [German Chancellor Helmut] Kohl. [. . .] Six months later, it would have been too late: no French President would have still been in a position to obtain from a German Chancellor the commitment to introduce the common currency.12

François Mitterrand and Margaret Thatcher were horrified by the idea of a unified, “strong” Germany. Germany had to lose its keenest weapon. Neighbors were worried about a renewed German aggression. The monetary union was the solution to this threat, as Mitterrand said to Thatcher after the German unification: “Without a common currency we are all—you and we—under German rule. When they raise their interest rates, we have to follow and you do the same, even though you do not participate in our currency system. We can only join in if there is a European Central Bank where we decide together.”13

THE ROLE OF THE FRENCH GOVERNMENT

France was militarily and politically the most powerful nation on the European continent west of the Iron Curtain after World War II. France’s leaders used this leverage to gain influence over European institutions and reduce the political influence of its eternal rival Germany. Indeed, France is overrepresented in the EU in term of the size of its population and GDP in relation to Germany.14 The French government had always wanted to get rid of the influence of the Bundesbank.15 A single currency was seen as an opportunity to reinforce its position and steer Europe toward an empire led by the French ruling class. France’s own central bank was under the direct control of the government until 1993 and was used as an instrument to pay for government expenditures. The Bundesbank was a hindrance to these endeavors. The Bank of France wanted to spur growth via credit expansion. But because the more independent Bundesbank did not inflate to the same extent, France had to devaluate several times.

The Bundesbank put a break on French inflation. The Deutschmark was, in a sense, the new standard in the wake of gold. Its power came from its less inflationary stand when compared to most other European central banks. It came from its independence and resistance to calls for inflation by the German government. When the Bundesbank raised interest rates, the Bank of France had to follow suit if it did not want the Franc to depreciate and to have to realign.

From the French point of view, however, German policies were not sufficiently inflationary; French politicians opposed the lead of the Bundesbank. Though militarily weak and a loser of World War II, Germany was able to dictate interest rates and indirectly restrict French government spending: an éclat.16 Mitterrand remarked to his Council of Ministers in 1988: “Germany is a big nation that lacks some characteristics of sovereignty and enjoys a reduced diplomatic status. Germany compensates for its weakness through economic strength. The Deutschmark is in a way its atomic force.”17

Moreover, the French government held that a central bank should support its government in its actions. In the case of high unemployment, for example, the central bank should cut interest rates irrespective of inflationary pressure. In a common central bank that included the Mediterranean countries, Germany would be in the minority and French politicians could determine its course. Malta has the same vote in the ECB as Germany does, for instance, even though Germany has a GDP 500 times that of Malta. A common currency with a common central bank was a long term political aim of the French government for which it was willing to sacrifice short term ends.18

Mitterrand, France’s president from 1981 to 1995, had hated Germany in his youth and despised capitalism.19 The French patriot was a staunch defender of the socialist vision of Europe and geared his policies toward defending France against the economic superiority of its Eastern neighbor. Germany’s superiority was based on its currency. Mitterrand’s intention was to use Germany’s monetary power for the interest of the French government.20 The French government could give the Germans security guarantees in exchange for participation in Germany’s monetary power. When speaking of French short range atomic bombs that could only explode in Germany at the end of the 1980s, Mitterrand’s foreign adviser Jacques Attali, to the surprise of the German negotiators, alluded to a German atomic bomb: the Deutschmark.21 The French government tried to use its military strength to gain monetary concessions.22

With the unification of Germany, the opponents of the Deutschmark could pressure the German government to give it up. First Mitterrand wanted to block German unification altogether: “I don’t have to do anything to stop it; the Soviets will do it for me. They will never allow this greater Germany just opposite them.”23 When the Soviet Union did not stop it, Mitterrand seized the opportunity and saw in Kohl an ally of the Euro.24 He feared that once Kohl resigned, the German government could threaten the peace in Europe once again. Both politicians regarded a common currency as the means to restoring European political equilibrium after reunification. European politicians in general thought that a monetary union would control the rising power of a unified Germany. Giscard d’Estaing claimed that a failure of the monetary union would lead to a German hegemony in Europe.25

Tensions intensified when Kohl did not acknowledge the borders of the unified Germany and Poland, which had gained substantial territory from Germany after World War II. Mitterrand demanded a common currency, fearing that the world would otherwise return to its state of 1913.26 In response to this massive threat and the looming isolation between an alliance of France, Great Britain and the Soviet Union, Kohl agreed to set a date for a conference on a common currency in the second half of 1990. He even stated that the single currency would be a matter of war and peace. Kohl’s agreeing to a plan toward the introduction of a common currency at last placated France’s fear of a unified Germany.

ADVANTAGES FOR THE GERMAN RULING CLASS

The sacrifice of the Deutschmark was quite to the liking of the German ruling class. As Hans-Hermann Hoppe has pointed out, there is a ruling class in our societies that uses the state as a device for the exploitation of the rest of the population.27 The state is the monopolist of coercion and the ultimate decision maker in all conflicts in a given territory. It has the power to tax and make all manner of interventions.

The ruling class is exploitive, parasitic, unproductive, and has a strong class consciousness. It needs an ideology to justify its actions and prevent rebellion of the exploited class. The exploited class represents the majority, produces wealth, is indoctrinated into obedience to the ruling class, and has no special class consciousness.

Every state has its own ruling class and connected interest groups. Consequently, the ruling class in Germany and the ruling class in France may have more in common than the German ruling class and the exploited class in Germany. In fact, the German ruling and exploited classes have opposite interests. But there are many areas in which the French and German ruling classes are not competitors and actually may benefit from working together. Both ruling classes want power: they want to expand their power vis-à-vis their citizens. They want an ideology to prevail that favors the state and an increase in the state’s power.

Given the above considerations, it is easy to understand why the German ruling class, i.e., politicians, banks, and connected industries, especially exporters, favored the introduction of the Euro. There were many ways it could benefit from a single currency.

1.The ruling class most likely did not regret getting rid of the very conservative Bundesbank. The Bundesbank had acted several times against the interests and pleas of politicians. It raised interest rates before elections in 1969, for instance, increasing its reputation as an anti-inflation central bank worldwide. In addition, the Bundesbank did not want to follow the inflation rates of the US and stopped interventions in favor of the dollar in March of 1973. This led to the final collapse of the Bretton Woods System and fluctuating exchange rates. It also resisted the establishment of an obligation to intervene in the EMS. Bundesbankers repeatedly resisted demands made by German and foreign politicians for a reduction of interest rates. Some Bundesbankers were also sceptical about the introduction of the Euro as an instrument toward economic integration. Leading German politicians often had the burden of dealing with the discontent of their neighbors due to the uncompromising monetary stance of the Bundesbank.28

The Euro allowed German politicians to rid themselves of stubborn Bundesbankers, promising the end of the bank’s “tyranny.” More inflation would mean more power for the ruling class. German politicians would be able to hide behind the ECB and flee the responsibility of high debts and expenditures.

The Euro was a step toward the establishment of a world currency. With all currency competition eliminated, politicians would have unlimited power.29 Moreover, international monetary cooperation is easier to achieve between the Fed and the ECB than it would be between the Fed and several European central banks.

2.Certain German interest groups stood to make gains for themselves, namely, an “advancement” of European integration including the harmonization of labor, environmental and technological standards.30 Indeed, the introduction of the Euro saved the European project of a centralization of state power.

The harmonization of labor standards benefited German unionized workers. High labor standards in Germany were possible due to the high productivity of German workers. Workers in other countries such as Portugal or Greece had less capital with which to work, making them less productive. In order to compete with the German worker, the Portuguese needed lower labor standards, which reduced the cost of their labor. The lowering of labor standards—widely feared as “a race to the bottom”—threatened the high labor standards of German workers. Unionized German workers complying with high labor standards did not want to compete with Portuguese workers for whom compliance was not required. The competitive advantage gained by the harmonization of standards would give German unions leeway to extend their power and privileges.

The harmonization of environmental standards also benefited German companies because they were already the most efficient environmentally. Competing companies from other countries with lower standards had to adopt these more costly standards. Moreover, Green interests were satisfied by the imposition of German environmental standards on the rest of the European Union. German companies were leading in environmental and other technologies and profiting from this regulation. Imposing German technological standards in the EU gave German exporters a competitive advantage.

3.German exporters benefited from an inflationary Euro in a dual way. Other Eurozone countries could no longer devalue their currency to gain competitiveness. In fact, currency crises and sudden devaluations had endangered German exporters. A currency crisis also put the common market in jeopardy. With a single currency, devaluation would no longer be possible. Italian Prime Minister Romani Prodi employed this argument to convince German politicians to allow a debt-ridden Italy to join the monetary union: support our membership and we’ll buy your exports.31

In addition, budget and trade deficits of Southern countries made the Euro consistently weaker than the Deutschmark would have been. Higher German exports were compensated for by trade deficits of uncompetitive member states. As a consequence, German exporters had an advantage over countries outside the Eurozone. Increases in productivity would not translate into appreciations of the currency, at least not when compared to the Deutschmark.

4.The German political class wanted to avoid political and financial collapse.32

Many countries in Europe were on the verge of bankruptcy in the 1990s. As the ruling class did not want to lose power, it was willing to give up some control of the printing press in exchange for survival. Countries with less debt such as Germany would guarantee the confidence of creditors, so that the overall level of European debt could be maintained or even expanded. This certainly explains the interest of highly indebted countries at the verge of bankruptcy in European integration.

The ruling class can extend its power by increasing taxes, using inflation, or through higher debts. But taxes are unpopular. Inflation also becomes disruptive when at some point citizens flee into real values and the monetary system is in danger of collapse. Debts are an alternative to financing higher spending and power and they are not as unpopular as taxes. In fact, there may be a “government bonds illusion.” Citizens may well feel richer if government expenditures are financed through bonds instead of through taxes. Nevertheless, they have to be financed at some point via inflation or taxes, lest creditors close the overly indebted government’s money stream.

But why would Germany take on the role of guarantor?

Introducing the Euro and implicitly guaranteeing for the debts of the other nations came along with direct and indirect transfers of the Eurosystem.33 Bankruptcy of the European states, which would have had adverse effects on the German ruling class, could be averted, at least for some time. A collapse of one or several countries would lead to recession. Due to the international division of labor in Europe, a recession would hit big exporters and established companies even in Germany. Tax revenues would fall and the support of the population would be reduced.

Moreover, the default of a country would probably affect negatively the domestic banking system and have a domino effect on banks all over Europe, including Germany. The connectivity of the international financial system might lead to the collapse of German banks, close allies of the German ruling class, and strong supporters of a single currency. A bankruptcy in form of hyperinflation would equally negatively affect international trade and the financial system. Sovereign bankruptcies could take governments down with them.

In sum, the introduction of the Euro was not about a European ideal of liberty and peace. On the contrary, the Euro was not necessary for liberty and peace. In fact, the Euro produced conflict. Its introduction was all about power and money. The Euro brought the most important economic power tool, the monetary unit, under the control of technocrats.

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34 The UN Charter still contains enemy state clauses. The clauses allow the allies to impose measures against states such as Germany or Japan without authorization of the Security Council. “[T]he allies reserved certain powers of interventions and even the right to resume direct rule if they judged it necessary.” (Judt, Postwar, p. 147).

35 As Margaret Thatcher states on Mitterrand and herself: “[W]e both had the will to check the German juggernaut.” Quoted in Judt, Postwar, p. 639.

36 Fritjof Meyer, “Ein Marshall auf einem Sessel,” Der Spiegel 40 (1999): p. 99, http://www.spiegel.de. Germany paid sixty-three billion Deutschmarks to the Soviet Union from 1989 to 1991 (in total) in order to receive favorable treatment. Similarly Tony Judt, Postwar, p. 642, calculates that the German government transferred $71 billion to the Soviet Union from 1990 to 1994. Additional $36 billion of “tributes” flew to other former Communist governments of Eastern Europe.

37 See Kerstin Löffler, “Paris und London öffnen ihre Archive,” Ntv.de (November 6, 2010), http://n-tv.de. See also Wilhelm Nölling quoted in Hannich, Die kommende Euro-Katastrophe, p. 21: “As far as we know, these countries demanded in exchange for the agreement to reunification . . . that they could not prevent, that Germany would be captivated and to do this there is nothing better in addition to NATO and European integration than to unify also the currency.” In a speech in August 2010 historian Heinrich August Winkler, professor emeritus at Humboldt University Berlin, argued that Mitterrand feared that the European Community would turn into a Deutschmark zone implying German hegemony on the continent. The Euro was the price for the reunification. See Henkel, Rettet unser Geld!, pp. 56–58. Access to secret protocols has recently validated the thesis that Mitterrand demanded the single currency for his agreement to unification. See Mik, “Mitterrand forderte Euro als Gegenleistung für die Einheit, Spiegel online (2010), http://www.spiegel.de.

38 In Die Woche, September 19, 1997 quoted in “Die Risiken des Euro sind unübersehbar (1),” in Das Weisse Pferd – Urchristliche Zeitung für Gesellschaft, Religion, Politik und Wirtschaft (August, 1998), http://www.das-weisse-pferd.com.

39 See Henkel, Rettet unser Geld!, p. 59.

40 See Hannich, Die kommende Euro-Katastrophe.

41 Horst Teltschik, 329 Tage: Innenansichten der Einigung (Berlin: Siedler, 1991), p. 61,

42 Vaubel, “The Euro and the German Veto,” p. 83.

43 Kohl was considered a candidate for the Nobel Peace Prize several times, most recently in 2010.

44 Spiegel-Special Nr. 2/1998 quoted in Das Weisse Pferd, “Die Risiken des Euro.” For the view that the French government agreed to reunification in exchange for an agreement of the German one on the introduction of a single currency see also Ginsberg, Demystifying the European Union, p. 249. Similarly, Jonas Ljundberg “Introduction,” in The Price of the Euro, ed. Jonas Ljundberg (New York: Palgrave MacMillan, 2004), p. 10, states: “By relinquishing Bundesbank hegemony among the central banks Kohl could secure the compliance of Mitterrand for the German reunification.” In the same line, James Foreman-Peck, “The UK and the Euro: Politics versus Economics in a Long-Run Perspective,” in The Price of the Euro, ed. Jonas Ljundberg (New York: Palgrave MacMillan, 2004), p. 102, states: “Monetary union was chosen instead as part of a Franco-German deal over German reunification. The Deutschmark was traded in for a unified state. This large, united Germany needed to be acceptable to France, and monetary union was the price charged by the French government.” He adds (Foreman-Peck, p. 114): “. . . the Euro was agreed to allow more French control of European monetary policy than under the Bundesbank in return for French acceptance of German reunification.” Larsson (“National Policy in Disguise,” p. 163) states: “The EMU became an opportunity for the French to get a share of the German economic power. For the German Federal Chancellor Kohl, the EMU was an instrument to make the other EC member states accept the German reunion and consequently a larger and stronger Germany in the heart of Europe.” Judt (Postwar, p. 640) states: “The Germans could have their unity, but at a price . . . Kohl must commit himself to pursuing the European project under a Franco-German condominium [Bonn paying and Paris making the policies], and Germany was to be bound into a ‘ever-closer’ union – whose terms, notably a common European currency, would be enshrined in a new treaty.”

45 Both quotations are taken from Vaubel, “The Euro and the German Veto,” pp. 82–83.

46 Translated from quote in Hannich, Die kommende Euro-Katastrophe, p. 22. As Connolly, The Rotten Heart of Europe, p. 142 writes: “Leading French Socialists . . . had all implied that only the Maastricht Treaty could hold the ‘old demons’of the German character in check.”

47 See Larsson, “National Policy in Disguise.” Germany is underrepresented not only in relation to France. In the Council Germany has twenty-nine votes, the same as United Kingdom, France, and Italy that all are substantially smaller in population and GDP. Spain and Poland, with about half of the population of Germany, each have twenty-seven votes.

48 Bernard Connolly, The Rotten Heart of Europe, p. 100 writes: “In French eyes, the point of EMU, in monetary terms at least, was to get French hands on the Bundesbank.”

49 As Connolly (The Rotten Heart of Europe, p. 30) wrote commenting on developments of 1983: “French wage and budget policy had already ended up being set by Germany . . . The humiliation for the French Socialist government was near total, a sort of monetary 1940.” Trichet experienced another humiliation later. (Ibid, p. 311.)

50 Quoted in Hannich, Die kommende Euro-Katastrophe, p. 22, and Marsh, Der Euro, p. 175. Also Mitterrand’s predecessor, Valéry Giscard d’Estaing, feared a German hegemony. See Marsh, Der Euro, p. 99. See also Feldstein, “The Political Economy of the European Political and Monetary Union,” p. 28, who states that France used the EMU to bolster its influence vis-à-vis Germany.

51 Connolly, The Rotten Heart of Europe, p. 146, argues that Southern central bankers and politicians agreed to restrictive monetary policies in order to attain the long term end of the single currency and to be able to outvote Bundesbankers: “Their [Southern elites] greatest desire might be to find themselves in a position where they could overrule Schlesinger [former President of the Bundesbank], or rather his successors, but they would only ever get there if, in the meantime, the central bankers’club did not break ranks.”

52 See Marsh, Der Euro, pp. 47–50. He explicitly stated that he wanted a clean break with capitalism. (Connolly, The Rotten Heart of Europe, p. 24.)

53 See Marsh, Der Euro, p. 57. In a similar language Jacques Delors was indignant over the Bundesbank when it did not reduce interest rates in 1993 to support the franc: “Why have they declared war on us?” (Quoted in Connolly, The Rotten Heart of Europe, p. 321.)

54 Hannich, Die kommende Euro-Katastrophe, p. 22. Marsh, Der Euro, pp. 172–174

55 Similar implicit threats occurred in 1992 in a crisis of the French franc. On this occasion, Trichet called the Franco-German reconciliation into question in order to get support from Germany. When asked why the minimum reserve requirements German banks had to hold with the Bundesbank could not be increased to restrict inflationary pressures, a Bundesbanker answered: “Because if we did that the sky would be dark with the squadrons of Mirages coming across the Rhine to bomb us” (Quoted in Connolly, The Rotten Heart of Europe, p. 180.)

56 Quoted in Judt, Postwar, p. 637.

57 Bandulet, Die letzten Jahre des Euro, p. 48. Most probably, Mitterrand was only bluffing. He was not in a position to prevent the reunification even if Kohl would not have sacrificed the Mark. Neither the United States nor the Soviet Union pressured the German government to sign the Maastricht Treaty as a condition for reunification.

58 See Marsh, Der Euro, p. 263. The Italian Prime Minister Andreotti warned of a new Pan-Germanism. Netherlands’ Prime Minister Lubbers was against the reunification as was Thatcher, who took two maps of Germany out of her bag at a summit in Strasbourg. One map was Germany before, the other after World War II. She stated that Germany would take back all of its lost territories plus Czechoslovakia. See Marsh, Der Euro, p. 203. On the French preoccupation with German hegemony in Europe see also Connolly, The Rotten Heart of Europe, p. 88 or p. 384.

59 See Marsh, Der Euro, p. 202.

60 See Hans-Hermann Hoppe, “Marxist and Austrian Class Analysis,” Journal of Libertarian Studies 9 (2, 1990): pp. 79–93.

61 See Vaubel, “A Critical Analysis of EMU and of Sweden Joining It.” See also extensively Connolly, The Rotten Heart of Europe, for instance p. 205. The German government repeatedly tried to influence the Bundesbank out of political reasons.

62 For the U.S. interests pushing for a world central bank see Murray Rothbard, Wall Street, Banks, and American Foreign Policy (Auburn, Ala.: Ludwig von Mises Institute, 1995).

63 Guido Hülsmann, “Political Unification: A Generalized Progression Theorem,” Journal of Libertarian Studies 13 (1, 1997): pp. 81–96.

64 See James Neuger, “Euro Breakup Talk Increases as Germany Loses Proxy,” Bloomberg (May 14, 2010), http://www.bloomberg.com.

65 See Hülsmann,“Political Unification,” for the political centralization theorem.

66 Daniel K. Tarullo, “International Response to European Debt Problems,” Testimony Before the Subcommittee on International Monetary Policy and Trade and Subcommittee on Domestic Monetary Policy and Technology, Committee on Financial Services, U.S. House of Representatives, Washington, D.C. (May 20, 2010), http://www.federalreserve.gov. As Daniel Tarullo, member of the board of the Federal Reserve, stated: “For years many market participants had assumed that an implicit guarantee protected the debt of euro-area members.” For similar perception of the implicit bailout guarantee see John Browne, “Euro Fiasco Threatens the World,” Triblive (July 18, 2010), http://www.pittsburghlive.com, and Robert Samuelson, “Greece and the Welfare State in Ruins,” Real Clear Politics (February 22, 2010), http://www.realclearpolitics.com. This perception started to change when the debts of governments in the periphery of the EMU started to soar during the crisis. German politicians signaled problems with a bailout. At this point the yield of Greek bonds rose relative to the yield of German ones, reflecting the true risk of default.

• 1Roughly a year before starting to purchase government bonds, the ECB started to buy covered bonds issued by German banks. The purchases were progressive and reached €60 billion.
• 2Cash-online, “Forsa: Deutsche überwiegend gegen den Euro-Rettungsschirm.” News from June 7, 2010, http://www.cash-online.de.
• 3Shortnews.de, “Umfrage: Mehr als die Hälfte der Deutschen wollen die DM zurück haben.” News from June 29, 2010, http://shortnews.de.
• 4GRReporter, “The Social Tourism of Bankrupt Greece,” July 12, 2010, http://www.grreporter.info. In the summer of 2010, many Greek entrepreneurs did not want to serve clients participating in the state programme. The Greek government pays its bills six months late, if at all.
• 5D. Hoeren and O. Santen, “Griechenland-Pleite: Warum zahlen wir ihre Luxus-Renten mit Milliarden-Hilfe?” bild-online.de, April 27, 2010, http://bild.de.
• 6The European Communities consisted of the European Coal and Steel Community, creating a common market for coal and steel; the European Economic Community (EEC), advancing economic integration; and the European Atomic Energy Community, creating a specialist market for nuclear power and distributing it through the Community. Yet, even at the very beginning of European integration we can already appreciate the “socialist intentions” of Jean Monnet, the French intellectual father of the European Community. Monnet planned the European Community to be a supra-national rather than an inter-governmental organization [Christopher Booker and Richard North, The Great Deception: Can the European Union Survive? (London: Continuum, 2005)]. For Monnet’s tendency toward central planning see also Tony Judt, Postwar: A History of Europe since 1945 (London: Vintage, 2010, p. 70). The French government feared a German revival after World War II. The EEC assured the French privileged access to German resources (Judt, Postwar, p. 117). The integration of Germany into Europe was thought to prevent a German revolt against the conditions imposed upon it after the war. As Judt, Postwar, p. 156, writes: “[The High Authority of the EEC] above all would take control of the Ruhr and other vital German resources out of purely German hands. It represented a European solution to a—the—French problem.” Despite these political intentions behind the EEC, elements of the classical liberal tradition remained strong in the beginning.
• 7The Council of the European Union, often referred to as the “Council” or “Council of Ministers,” is constituted by one minister of each member state and should not be confused with the European Council. The European Council is composed of the President of the “Council of Ministers,” the President of the Commission, and one representative per member state. The European Council gives direction to the EU by defining the policy agenda.
• 8These important birth defects reduce the credit given to the founding fathers such as Schuman, Adenauer and others.
• 9In 1959, for instance, the British government suggested a free trade zone for all of non-communist Europe. The proposal was rejected by Charles de Gaulle.
• 10Larsson, “National Policy in Disguise,” p. 162. As Larsson writes: “The arena, in which France sought to recreate its honor and international influence was that of Western Europe. As the leading country in the EEC, France regained influence to compensate for the loss of its empire, and within an area where France, traditionally and in different ways, had sought to dominate and influence.” As Judt, Postwar, p. 153 writes: “Unhappy and frustrated at being reduced to the least of the great powers, France had embarked upon a novel vocation as the initiator of a new Europe.” “For Charles de Gaulle, the lesson of the twentieth century was that France could only hope to recover its lost glories by investing in the European project and shaping it into the service of French goals.” (p. 292) Already in 1950 the French premier, René Pleven, proposed to create a European Army as part of a European Defence Community (under the leadership of France). Even though the plan ultimately failed, it provides evidence that from the very beginning, French politicians pushed for centralization and the empire vision of Europe. An exception is French President Charles de Gaulle, who opposed a supranational European state. During the “empty chair crisis” France abandoned its seat in the Council of Ministers for six months in June 1965 in protest against an attack on its sovereignty. The Commission had pushed for a centralization of power. Yet, de Gaulle was also trying to improve the French position and leadership in the negotiations over the Common Agricultural Policy. The Commission had proposed majority voting in this area. French farmers were the main beneficiaries of the subsidies while Germany was the main contributor. Majority voting could have deprived French farmers of their privileges. Only when de Gaulle’s agricultural funding demands were accepted the policy of the empty chair ended. Many Germans including Ludwig Erhard opposed the agricultural subsidies and favored a free trade zone. (See Judt, Postwar, p. 304). Adenauer, however, would never break with France. In exchange for subsidies for French farmers, German goods gained free entry into France. It was agricultural subsidies in exchange for free trade.
• 11Roland Vaubel, “The Political Economy of Centralization and the European Community,” Public Choice 81 (1–2 1994): pp. 151–190, explains the trend toward centralization in Europe with public choice arguments.
• 12Larsson, “National Policy in Disguise,” p. 163.
• 13As Arjen Klamer, “Borders Matter: Why the Euro is a Mistake and Why it will Fail,” in The Price of the Euro, ed. Jonas Ljundberg, (New York: Palgrave MacMillan, 2004), p. 33, writes on the strategy of using the single currency as a vehicle for centralization: “The presumption was that once the monetary union was a fact, a kind of federal construction or at least a closer political union, would have to follow in order to make the monetary union work. Thus, the wagon was put in front of the horse. It was an experiment. No politician dared to face the question of what the consequences would be of failure, or of that would happen if a strong political union did not come about. The train had to go on.”
• 14Frankfurter Allgemeine Zeitung, June 1, 1996. German Foreign Minister Hans-Dietrich Genscher had proposed to absorb the Eastern European countries into the EU as fast as possible. Margaret Thatcher also called for a fast enlargement with the hope that the enlarged EU would turn into a free trade area. Fearing a free trade area and a diminishing influence, the French government opposed the early access of Eastern European countries into the EU. See Judt, Postwar, pp. 716, 719.
• 15Charles Gave, “Was the Demise of the USSR a Negative Event?” in Investors-Insight.com, ed. John Mauldin, (May 5, 2010), http://investorsinsight.com.
• 16Until today, the French government has succeeded in building a disproportionate influence in the EU. Most EU institutions are hosted by France and Belgium and modelled on the French system of governance. French is a working language in the EU, next to English. But not German, even though the Union has far more German-speaking citizens. In the weighted influence of the member states based on their population, France is overrepresented and Germany is underrepresented. In fact, Germany’s weighted influence did not increase at all after reunification. As Larsson (“National Policy in Disguise,” p. 165) writes: “In short, the EU and its predecessors are primarily of French design, which, apart from official declarations, have in many respects served the purpose of using all possible means to enlarge, or at least maintain, French political world influence, particularly in Europe.”
• 17More on the history of the Euro can be found in Chapter 9.
• 18See Roy H. Ginsberg, Demystifying the European Union. The Enduring Logic of Regional Integration (Plymouth, UK: Rowman & Littlefield, 2007), p. 249.
• 19Bandulet, Die letzten Jahre des Euro, p. 97.
• 20Baader, Die Euro-Katastrophe, p. 195.
• 21See Marsh, Der Euro, p. 287.
• 22Thus, Feldstein, “The Political Economy,” p. 38, states: “France recognizes that the institution of the EMU will evolve over time and continually presses for some political body (an ‘economic government’) to exert control over ECB. It has already made significant progress toward that end.” Mitterrrand said literally: “One hears it said that the European Central Bank will be the master of the decisions. It’s not true! Economic policy belongs to the European Council and the application of monetary policy is the task of the [European] Central Bank, in the framework of the decisions of the European Council . . . The people who decide economic policy, of which monetary policy is no more than a means of implementation, are the politicians.” Quoted in Connolly, The Rotten Heart of Europe, p. 142. See also p. 248.
• 23See Stefan Homburg, “Hat die Währungsunion Auswirkungen auf die Finanzpolitik?,” in Franz-Ulrich Willeke, ed., Die Zukunft der D-Mark. Eine Streitschrift zur Europäischen Währungsunion ( München: Olzog, 1997), pp. 93–108.
• 24See Tommaso Padoa-Schioppa, The Euro and its Central Bank (Cambridge: MIT Press, 2004), for more details on the functions and strategies of the ECB.
• 25On the irrational fear of deflation and the erroneous arguments brought forwards against it, see Philipp Bagus, “Deflation: When Austrians Become Interventionists,” Quarterly Journal of Austrian Economics 6 (4, 2003): pp. 19–35, and “Five Common Errors about Deflation,” Procesos de Mercado: Revista Europea de Economía Política 3 (1, 2006): pp. 105–123.
• 26See Roland Vaubel, “The Euro and the German Veto,” Econ Journal Watch 7 (1, 2010): p. 87.
• 27See Hans-Hermann Hoppe, “Marxist and Austrian Class Analysis,” Journal of Libertarian Studies 9 (2, 1990): pp. 79–93.
• 28See Vaubel, “A Critical Analysis of EMU and of Sweden Joining It.” See also extensively Connolly, The Rotten Heart of Europe, for instance p. 205. The German government repeatedly tried to influence the Bundesbank out of political reasons.
• 29For the U.S. interests pushing for a world central bank see Murray Rothbard, Wall Street, Banks, and American Foreign Policy (Auburn, Ala.: Ludwig von Mises Institute, 1995).
• 30Guido Hülsmann, “Political Unification: A Generalized Progression Theorem,” Journal of Libertarian Studies 13 (1, 1997): pp. 81–96.
• 31See James Neuger, “Euro Breakup Talk Increases as Germany Loses Proxy,” Bloomberg (May 14, 2010), http://www.bloomberg.com.
• 32See Hülsmann,“Political Unification,” for the political centralization theorem.
• 33Daniel K. Tarullo, “International Response to European Debt Problems,” Testimony Before the Subcommittee on International Monetary Policy and Trade and Subcommittee on Domestic Monetary Policy and Technology, Committee on Financial Services, U.S. House of Representatives, Washington, D.C. (May 20, 2010), http://www.federalreserve.gov. As Daniel Tarullo, member of the board of the Federal Reserve, stated: “For years many market participants had assumed that an implicit guarantee protected the debt of euro-area members.” For similar perception of the implicit bailout guarantee see John Browne, “Euro Fiasco Threatens the World,” Triblive (July 18, 2010), http://www.pittsburghlive.com, and Robert Samuelson, “Greece and the Welfare State in Ruins,” Real Clear Politics (February 22, 2010), http://www.realclearpolitics.com. This perception started to change when the debts of governments in the periphery of the EMU started to soar during the crisis. German politicians signaled problems with a bailout. At this point the yield of Greek bonds rose relative to the yield of German ones, reflecting the true risk of default.
• 34In reaction to the crisis, the political class has tried desperately to save the socialist project of a common fiat currency for Europe. They have been successful—at least for the time being. After intense negotiations, an unprecedented €750 billion “rescue parachute” has been created to support European governments and banks. At the same time, however, the ECB has started what many had regarded as unthinkable before: the outright purchase of government bonds, an action which undermines its credibility and independence. The public and market perception of the monetary setup of the European Monetary Union (EMU) will never be the same.
• 35Resistance to these unprecedented measures is on the rise, especially in countries with traditionally conservative monetary and budget policies. A poll in Germany showed that fifty-six percent of Germans were against the bailout fund.
• 36It is not surprising that the majority of Germans want to return to the Deutschmark. They seem to understand intuitively that they are at the losing end of a complex system. They see that they are saving and tightening their belts on a regular basis while other countries’ governments embark on wild spending sprees. A prime illustration is the “Tourism for All” programme in Greece: the poor receive government funds toward vacations. Even amid the crisis, the Greek government continues the programme, albeit reducing the number of subsidized vacation nights to two. The Greek government also upholds a more generous public pension system than Germany does. Greek workers get a pension of up to eighty percent of their average wages. German workers get only forty-six percent, a number that will fall to forty-two percent in the future. While Greeks get fourteen pension payments per year, Germans receive twelve.
• 37It is not surprising that the majority of Germans want to return to the Deutschmark. They seem to understand intuitively that they are at the losing end of a complex system. They see that they are saving and tightening their belts on a regular basis while other countries’ governments embark on wild spending sprees. A prime illustration is the “Tourism for All” programme in Greece: the poor receive government funds toward vacations. Even amid the crisis, the Greek government continues the programme, albeit reducing the number of subsidized vacation nights to two. The Greek government also upholds a more generous public pension system than Germany does. Greek workers get a pension of up to eighty percent of their average wages. German workers get only forty-six percent, a number that will fall to forty-two percent in the future. While Greeks get fourteen pension payments per year, Germans receive twelve.
• 38It is not surprising that the majority of Germans want to return to the Deutschmark. They seem to understand intuitively that they are at the losing end of a complex system. They see that they are saving and tightening their belts on a regular basis while other countries’ governments embark on wild spending sprees. A prime illustration is the “Tourism for All” programme in Greece: the poor receive government funds toward vacations. Even amid the crisis, the Greek government continues the programme, albeit reducing the number of subsidized vacation nights to two. The Greek government also upholds a more generous public pension system than Germany does. Greek workers get a pension of up to eighty percent of their average wages. German workers get only forty-six percent, a number that will fall to forty-two percent in the future. While Greeks get fourteen pension payments per year, Germans receive twelve.
• 39The two visions have been struggling with each other since the 1950s. In the beginning, the design for the European Communities adhered more closely to the classical liberal vision. The European Community consisted of sovereign states and guaranteed the four basic liberties. From the point of view of the classical liberals, a main birth defect of the community was the subsidy and intervention in agricultural policy. Also, by construction, the only legislative initiative belongs to the European Commission. Once the Commission has made a proposal for legislation, the Council of the European Union alone, or together with the European Parliament, may approve the proposal. This setup contains the seed of centralization. Consequently, the institutional setup, from the very beginning, was designed to accommodate centralization and dictatorship over minority opinions, as unanimity is not required for all decisions and the areas were unanimity rule is required have been reduced over the years.
• 40The two visions have been struggling with each other since the 1950s. In the beginning, the design for the European Communities adhered more closely to the classical liberal vision. The European Community consisted of sovereign states and guaranteed the four basic liberties. From the point of view of the classical liberals, a main birth defect of the community was the subsidy and intervention in agricultural policy. Also, by construction, the only legislative initiative belongs to the European Commission. Once the Commission has made a proposal for legislation, the Council of the European Union alone, or together with the European Parliament, may approve the proposal. This setup contains the seed of centralization. Consequently, the institutional setup, from the very beginning, was designed to accommodate centralization and dictatorship over minority opinions, as unanimity is not required for all decisions and the areas were unanimity rule is required have been reduced over the years.
• 41The two visions have been struggling with each other since the 1950s. In the beginning, the design for the European Communities adhered more closely to the classical liberal vision. The European Community consisted of sovereign states and guaranteed the four basic liberties. From the point of view of the classical liberals, a main birth defect of the community was the subsidy and intervention in agricultural policy. Also, by construction, the only legislative initiative belongs to the European Commission. Once the Commission has made a proposal for legislation, the Council of the European Union alone, or together with the European Parliament, may approve the proposal. This setup contains the seed of centralization. Consequently, the institutional setup, from the very beginning, was designed to accommodate centralization and dictatorship over minority opinions, as unanimity is not required for all decisions and the areas were unanimity rule is required have been reduced over the years.
• 42The classical liberal model is defended traditionally by Christian democrats and states such as the Netherlands, Germany, and also Great Britain. But social democrats and socialists, usually led by the French government, defend the Empire version of Europe. In fact, in light of its rapid fall in 1940, the years of Nazi occupation, its failures in Indochina, and the loss of its African colonies, the French ruling class used the European Community to regain its influence and pride, and to compensate for the loss of its empire.
• 43The classical liberal model is defended traditionally by Christian democrats and states such as the Netherlands, Germany, and also Great Britain. But social democrats and socialists, usually led by the French government, defend the Empire version of Europe. In fact, in light of its rapid fall in 1940, the years of Nazi occupation, its failures in Indochina, and the loss of its African colonies, the French ruling class used the European Community to regain its influence and pride, and to compensate for the loss of its empire.
• 44Over the years there has been a slow tendency toward the socialist ideal—with increasing budgets for the EU and a new regional policy that effectively redistributes wealth across Europe. Countless regulations and harmonization have pushed in that direction as well.
• 45The influence of the French government was now reduced. The socialist camp saw its defeat coming. A fast enlargement of the EU incorporating the new states in the East had to be prevented. A step toward a central state had to be taken. The single currency was to be the vehicle to achieve this aim. According to the German newspapers, the French government feared that Germany, after its reunification, would create “a DM dominated free trade area from Brest to Brest-Litowsk.” European (French) socialists needed power over the monetary unit urgently.
• 46The influence of the French government was now reduced. The socialist camp saw its defeat coming. A fast enlargement of the EU incorporating the new states in the East had to be prevented. A step toward a central state had to be taken. The single currency was to be the vehicle to achieve this aim. According to the German newspapers, the French government feared that Germany, after its reunification, would create “a DM dominated free trade area from Brest to Brest-Litowsk.” European (French) socialists needed power over the monetary unit urgently.
• 47The influence of the French government was now reduced. The socialist camp saw its defeat coming. A fast enlargement of the EU incorporating the new states in the East had to be prevented. A step toward a central state had to be taken. The single currency was to be the vehicle to achieve this aim. According to the German newspapers, the French government feared that Germany, after its reunification, would create “a DM dominated free trade area from Brest to Brest-Litowsk.” European (French) socialists needed power over the monetary unit urgently.
• 48As Charles Gave argued on the events following the fall of the Berlin wall:
• 49The real reason the German government, traditionally opposed to the socialist vision, finally accepted the Euro, had to do with German reunification. The deal was as follows: France builds its European empire and Germany gets its reunification. It was maintained that Germany would otherwise become too powerful and its sharpest weapon, the Deutschmark, had to be taken away—in other words, disarmament.
• 50The real reason the German government, traditionally opposed to the socialist vision, finally accepted the Euro, had to do with German reunification. The deal was as follows: France builds its European empire and Germany gets its reunification. It was maintained that Germany would otherwise become too powerful and its sharpest weapon, the Deutschmark, had to be taken away—in other words, disarmament.
• 51The Commission of the EU was responsible for monitoring the SGP. But even in the Commission there was no strong backing of the SGP. The Chairman of the European Commission, Romano Prodi, described its provisions as “stupid.” In the case of eventual infringements of the provisions of the pact, the SGP establishes that the Commission is to give recommendations to the Council for Economic and Financial Affairs (EcoFin). EcoFin is comprised of the Economics and Finance Ministers of the EU and must meet once a month. U-pon the recommendation of the Commission, EcoFin decides, with a qualitative majority, if the criteria of the SGP are being fulfiled or not, and is then to issue warnings or announce the existence of excessive deficits. EcoFin offers recommendations to reduce the deficits. If the infringing government does not follow the recommendations and continues to miss the criteria, a majority of two thirds is necessary to establish sanctions. Fines can amount to a half percent of GDP.
• 52In November 2003, EcoFin waived sanctions recommended by the Commission against France and Germany. This triggered a discussion concerning the efficacy of the SGP. The already watered-down SGP met its end on the twentieth of March, 2005. Germany violated the three percent limit on public deficits for the third time in a row in 2005. As a consequence, EcoFin watered down the SGP even more by defining several situations and expenditures that would justify a violation of the three percent limit: natural catastrophes, a falling GDP, recessions, expenditures for innovation and research, public investments, expenditures for international solidarity and European politics, and pension reforms.
• 53Politicians were quite frank about the “independence” of the ECB. François Mitterrand claimed that the ECB would execute the economic decisions of the Council of the European Union. In the conception of French politicians, the Council of the European Union controls the ECB. Fernand Herman, a Belgian member of the European Parliament, demanded that the central bank pursues the ends set by the Council and the Parliament, simultaneously guaranteeing price stability.
• 54From the beginning there were doubts about the independence of the ECB. Its first president, Wim Duisenberg, “voluntarily” stepped down halfway through his term in order to pass the presidency on to his French successor, Jean-Claude Trichet. Before the introduction of the Euro, Trichet, an engineer by training and a statist by mentality had strongly opposed the “independence” of the ECB. From the French government’s point of view, the formal “independence” of the ECB was only the means necessary to get the German government to agree to a monetary union. If necessary, the ECB could be put into the service of politics. In fact, this was the intention of French politicians. Mitterrand announced, before France’s Maastricht referendum, that European monetary policy would not be dictated by the ECB. France imagined the ECB would ultimately be dependent on orders from the political sphere.
• 55From the beginning there were doubts about the independence of the ECB. Its first president, Wim Duisenberg, “voluntarily” stepped down halfway through his term in order to pass the presidency on to his French successor, Jean-Claude Trichet. Before the introduction of the Euro, Trichet, an engineer by training and a statist by mentality had strongly opposed the “independence” of the ECB. From the French government’s point of view, the formal “independence” of the ECB was only the means necessary to get the German government to agree to a monetary union. If necessary, the ECB could be put into the service of politics. In fact, this was the intention of French politicians. Mitterrand announced, before France’s Maastricht referendum, that European monetary policy would not be dictated by the ECB. France imagined the ECB would ultimately be dependent on orders from the political sphere.
• 56An important difference is the accountability of the two institutions. The Bundesbank managed German monetary policy directly. As the German population is very adverse to inflation it was political suicide for politicians to attempt to influence the Bundesbank toward more inflation or to threaten its independence. Higher price inflation would mean that voters punished politicians and withdrew their support for the Bundesbank. It was on the support of the German population that the power of Bundesbankers vis-à-vis politicians was founded. In contrast, if there is price inflation in the Eurozone, both Bundesbankers and German politicians could say that they opposed inflationary monetary measures but that they were just outvoted by their European colleagues. They can blame others for rising prices. And Germans cannot vote the EU Commission out of office since it is not elected by the public.
• 57The difference between the two institutions can be seen in their official functions. The Bundesbankgesetz (Constitution of the Bundesbank, 1957) establishes guaranteeing the security of the currency as the main task of the Bundesbank (Währungssicherheit), i.e., price stability. The task of the ECB is more ambitious. The Treaty of Maastricht states that its primary objective “shall be to maintain price stability.” Yet, “without prejudice of the objective of price stability, the [Eurosystem] shall support the general economic policies in the Community.” This addition is the result of pressure from the French government, which had always wanted direct political control over the printing press. This means that if official price inflation rates are low, the ECB can and actually must print money in order to support economic policies. If price inflation is low and there is unemployment, the ECB must ease its policy stand.
• 58Curiously, the ECB interprets price stability to mean rising prices. Before 2003, the ECB had a target for price inflation in a band of zero to two percent. Due to the widespread fear of deflation, central bankers want a buffer to zero. In May of 2003, the ECB showed its tendency toward inflation by raising its target to just below two percent. At the same time, the ECB reduced the importance of its monetary growth pillar. The control of monetary growth quit being an intermediate end and became an indicator for the bank’s policies.
• 59The Bundesbank’s legacy was further reduced in 2006 when the direction of the research department of the ECB passed from Otmar Issing, a German conservative, to Loukas Papademous, a Greek socialist who believes that price inflation is not a monetary phenomenon, but one caused by low unemployment. In spring 2011 the dismantlement of the Bundesbank remains continued with the demission of Axel Weber. Weber had repeatedly criticized the inflationary policy of the ECB confronting a superiority of inflationary interests under an alliance of Latin countries lead by France. When it became apparent that he would not be able to push through his Bundesbank philosophy he stepped down as President of the Bundesbank and withdraw as the frontrunner from the race for the next President of the ECB. The influence of the Bundesbank was further pushed back.
• 60The sacrifice of the Deutschmark was quite to the liking of the German ruling class. As Hans-Hermann Hoppe has pointed out, there is a ruling class in our societies that uses the state as a device for the exploitation of the rest of the population. The state is the monopolist of coercion and the ultimate decision maker in all conflicts in a given territory. It has the power to tax and make all manner of interventions.
• 61The ruling class most likely did not regret getting rid of the very conservative Bundesbank. The Bundesbank had acted several times against the interests and pleas of politicians. It raised interest rates before elections in 1969, for instance, increasing its reputation as an anti-inflation central bank worldwide. In addition, the Bundesbank did not want to follow the inflation rates of the US and stopped interventions in favor of the dollar in March of 1973. This led to the final collapse of the Bretton Woods System and fluctuating exchange rates. It also resisted the establishment of an obligation to intervene in the EMS. Bundesbankers repeatedly resisted demands made by German and foreign politicians for a reduction of interest rates. Some Bundesbankers were also sceptical about the introduction of the Euro as an instrument toward economic integration. Leading German politicians often had the burden of dealing with the discontent of their neighbors due to the uncompromising monetary stance of the Bundesbank.
• 62The Euro was a step toward the establishment of a world currency. With all currency competition eliminated, politicians would have unlimited power. Moreover, international monetary cooperation is easier to achieve between the Fed and the ECB than it would be between the Fed and several European central banks.
• 63Certain German interest groups stood to make gains for themselves, namely, an “advancement” of European integration including the harmonization of labor, environmental and technological standards. Indeed, the introduction of the Euro saved the European project of a centralization of state power.
• 64German exporters benefited from an inflationary Euro in a dual way. Other Eurozone countries could no longer devalue their currency to gain competitiveness. In fact, currency crises and sudden devaluations had endangered German exporters. A currency crisis also put the common market in jeopardy. With a single currency, devaluation would no longer be possible. Italian Prime Minister Romani Prodi employed this argument to convince German politicians to allow a debt-ridden Italy to join the monetary union: support our membership and we’ll buy your exports.
• 65The German political class wanted to avoid political and financial collapse.
• 66Introducing the Euro and implicitly guaranteeing for the debts of the other nations came along with direct and indirect transfers of the Eurosystem. Bankruptcy of the European states, which would have had adverse effects on the German ruling class, could be averted, at least for some time. A collapse of one or several countries would lead to recession. Due to the international division of labor in Europe, a recession would hit big exporters and established companies even in Germany. Tax revenues would fall and the support of the population would be reduced.