As Angela Merkel plunges into ever deeper (thoroughly deserved) unpopularity in her native country, Gerard Baker, writing in the Spectator, runs through the arguments as to why Germany (not Greece) should quit the euro. He’s right. Baker also makes the argument that the EU’s political class is clearly set on “doubling down” on Brussels’ integration project. Unfortunately, he’s right about that too, and perhaps that was always Brussels’ idea. There’s an argument to be made that, seen from the point of view of Brussels, the inherent instability of the single currency was, by inevitably leading to a crisis that would “make the case” for deeper integration, a feature, not a bug.
Another aspect of Baker’s piece is well worth noting. It is usually assumed that deeper integration (something, say, approaching a fiscal union within the the eurozone) would mean tighter budgetary discipline, but is that really so?
Any attempted fiscal union might well yield to Germany the biggest single vote in how much to raise in taxes and how to spend it. But it could still be outvoted by an alliance of smaller countries. Such a set-up would become an institutionalised mechanism by which German taxes will be siphoned off permanently to weaker European states. The nightmare for Germans is that an unholy alliance of Spanish, Greeks, Italians and Portuguese will be able to tell the good people of Bavaria exactly how much of their taxes they can spend in Bavaria and how much they must transfer to their needy cousins down south. Instead of a union in which the disciplined Germans call the tune, the system entrenches the bailout culture Berlin has insisted could never be a part of the single currency.
Interesting.
It’s worth adding, however, that Baker’s use of the term “bailout culture” is only partly fair. While it’s certainly true that the PIIGS (and above all Greece) have contributed to their own problems, it’s also true that their current difficulties were also the consequence of the mounting imbalances (whether “northern” surplus or “southern” deficit) inevitable in a monetary union where one size did not — could not — fit all. Conditions were too loose in the PIIGS, and too tight in the eurozone’s core. The result has been disaster.
Germany should walk away.