With Tom Geoghegan about the German Model

Thomas Geoghegan
is the author of several must read articles, and a great book, Were You Born on the Wrong Continent?: How the European Model Can Help You Get a Life.



The Euro Has No Clothes

LONDON — Is the euro to the early 21st century what the League of Nations was to the early 20th: a fine idea that became a political orphan and was condemned to unravel?

As Ireland follows Greece in the great bailout domino game, and Portugal and Spain loom, the euro can no longer take its survival for granted just because its collapse would be unthinkable.

Both the League of Nations and the euro were conceived for worlds that vanished. The League emerged in 1919 from the ashes of World War I with the aim of preventing another war. But its idealism was an early victim of Hitler’s violent nationalism. Changed forces in Europe could not be checked by its covenant.

Jacques Delors’s “Report on Economic and Monetary Union,” laying out the path to a single euro currency, was presented in early 1989 just as all changed utterly.

Within months, the Berlin Wall fell, Germany was reunited, the Soviet empire imploded and Yalta’s imprisoned European nations were freed.

The report noted that “a transfer of decision-making power” from member states to the European Community (now Union) would be needed in “the fields of monetary policy and macroeconomic management.” A currency, in other words, needs a political authority: History is unequivocal about that. The euro was conceived to complete European integration.

But with the Cold War’s end, broadening of the E.U. trumped deepening. A 12-member community grew to 27. A united Germany no longer needed deliverance through Europe from Hitler’s painful legacy: Pan-Europeanism gave way to penny-counting. Ex-communist nations that had been pawns of Moscow did not want to be pawns of Brussels. A transnational currency was birthed as European federalism ebbed.


This is the backdrop to the euro’s agony, for which the latest anesthetic is the $113 billion emergency loan to Ireland.

Certainly Alan Greenspan’s easy money, the fatal collapse of any serious regulatory culture in the United States, the “new paradigm” nuttiness as the housing bubble grew and all the intoxicating pre-meltdown ka-ching provided the context for the Greek and Irish crises. Oversight went A.W.O.L.

It’s also true, and here the German Chancellor Angela Merkel is right, that the 16-member euro zone can’t carry on this way, socializing the private losses of the banking system and engaging in a kind of multi-billion-dollar shell game that does away with moral hazard. (O.K., the U.S. has done much of the same.) After the $750 billion European Financial Stability Facility that brought no stability and now Ireland, where will the next bailout come from?

No, as Merkel says, somebody’s got to take a haircut. She wants a euro zone 2.0 birthed in 2013 — and E.U. finance ministers made clear this weekend that private creditors would not escape paying after that date. Nobody’s saying it, but Merkel wants some kind of fiscal union to ensure that states henceforth adhere to strict fiscal guidelines or are punished, along with bondholders.

Politics is pushing Merkel. She’s trying to answer the baying of the Bild tabloid: “Will we have to pay for all of Europe?” Hell hath no fury like a German not getting his money’s worth. She’s also, undercover, acknowledging that Delors’ “transfer of decision-making power” is the inevitable consequence of the euro.

But how shallow, paltry and mean-spirited has this German reaction to the euro crisis been!

I don’t recall one word from Merkel about the idea of Europe, about why sacrifices for the euro are consistent with Germany’s moral debt to Europe and stake in its united future. “If the euro fails, then Europe fails,” she says. But what, pray, is Europe to the Frau Bundeskanzlerin? A burden, it seems, a conundrum — anything but an idea.

No wonder Delors addressed a withering question to Germany in October: “Are the values which we inherited from the fathers of Europe still present?” No, they’ve given way to German contempt for “euro zone sinners.” These “sinners” are not going to endure joblessness and cuts for a tick from the German headmistress.

Merkel is right to think euro zone 2.0 but morally bereft on Europe, an anti-Delors. That makes me skeptical. The Faustian bargain Germany made for unification was giving up its beloved Deutsche mark for the euro. Now the euro is Berlin’s responsibility. Germany must consume more, carp less and conceive bigger.

If it doesn’t, we’ll see euro-zone defaults and the amputation of some of the zone’s struggling extremities.

Of course, Arkansas defaulted and the dollar survived. The United States stood behind its currency.

There’s the rub. Nothing like a United States of Europe has ever been built before, a half-billion people brought together not through conquest but by the idea of “ever closer union.” In a way it’s an inspirational blueprint for mankind; and so it would be foolish to think it would go smoothly.

Yes, the League of Nations collapsed, but it did lead to the United Nations. The euro may also unravel but the idea is too good not to return in force. Between the League and the U.N. lay catastrophe. From here to euro 2.0 is not going to be pretty.

Jeffrey Herrmann, London, UK said...

While I am not an apologist for all of Merkel's policies, I can't accept your notion that German in 2010 is morally bound to make "sacrifices for the euro [that] are consistent with Germany’s moral debt to Europe."
That smacks of blood guilt. Nearly all the Nazis of the Third Reich are dead and most Germans alive today were born after the Reich collapsed. Are those Germans really obliged to pay for the sins of other living Europeans?

Niels, Denmark said...

Roger Cohen writes, "But how shallow, paltry and mean-spirited has this German reaction to the euro crisis been!"

Why is it "shallow" and "mean-spirited" to expect your partners to behave responsibly? Greece, Ireland, and the others are having problems because they took advantage of the euro and because they have not reformed their economies.

It must be frustrating to be a German. No matter what you do, people will bring up the the second world war and demand that you continue to pay for the sins of your forefathers.

The second world war and the Holocaust were horrible and must never be forgotten, but that should not mean that Germans should pay for Greek tax evasion and Irish real estate bubbles.

flashnfantasy--frankfurt, germany said...

Summary: don't annoy the billion-dollar bankers, make the Germans pay.

But your backing is weak: Merkel is fighting for an Europe of the middle-class, obviously this is not comprehensible for a fantasy of the élite.
Yes, their is wrath going round in Europe. But if i have to choose between rage or American-style depression and paralysis, I choose rage.

CS, Munich, Germany said...

Cohen's column doesn't make much sense. Mr. Cohen thinks Chancellor Merkel is right in her demands for more accountability of members states and banks, but he doesn't like it that she refuses to combine those demands with lofty words about the European idea and the debt Germans owe to other Europeans because of WWII? Oh dear...

Bad Germans, consume more, or you will be bad Europeans. What utter nonsense!

Just getting started.... NYC said...

This is unfairly one-sided against the Germans. You have but a sentence or two on "the sinners". And you fail to acknowledge how much the Germans have already done in the spirit of Europe in the past 24 months.

What have the sinners done to make amends since all of this started? Why not expand on that?

RE Fowler, Austria said...

The EURO is not going to fail. We are not going back to counting beans at every national border, looking for cheaters. Unfortunately, we adopted parts (not all) of the so-called "American" financial system and jumped off the hard currency idea. The smiling Joseph Ackerman of the Deutsche Bank has every reason to do so. After all, he got a 5.5 billion dollar bail-out from the American taxpayer!
Angela Merkel, et al, are following the dream of a consolidated, stable Europe. It will be painful for awhile, but we will get thru it. The American idea of throwing tax-payer debt at bad investments is just plain silly. When will our Congress in Washington ever learn?


Steve, Las Vegas said...

Calling it like I see it here:

I think Mr. Cohen is taking Germany's stance much too personally.

The math and morality are on Merkel's side, and Cohen is so eager to tee off on the Germans -- for reasons he keeps close to his vest -- that he refuses to see the facts.


David, Ohio said...

Typical: The Germans bail other countries out once again, but instead of getting a "thank you" for their good deed, they get the blame along with the bill.

Greg Warner, Indonesia said...

It always surprises me that when Americans talks about the failure of the League of Nations, they do not also add that the failure of the League was completely the fault of the Republican Party of the USA which destroyed any US involvement in the League in the US Senate.

tibeau, USA said...

In the United States of America, some states pay more to the federal government than they get back, thus supporting the weaker states. The advantages of 50 united States, a common currency, military, economic zone, etc, far outweighs the inevitability that some States will be more in need than others.

Either the Europeans embrace this idea and move toward a deeper union or the EU and the euro will fail. In the United States we've been able to maintain national pride, despite occasional animosity toward the "quirks" of some of our brother States. Or is that charms not quirks :). If the Germans don't see Southern Europe as quirky and charming, but lazy and irresponsible, and charming Southern Europe doesn't make serious attempts to reduce their siesta mindset, then it ain't going to work.

Jon, Chicago said...

Hitler, Napoleon and Charlemagne all had lofty "ideas" about Europe.

The EU constitutions were mostly ratified without a direct vote. It was the megalomaniac bureaucrats much like Mr. Cohen here with their lofty ideas about Europe who rammed the EU and the euro down the throats of the people of Europe.

Merkel has the right idea.

MFF, Frankfurt, Germany said...

Clearly, the world needs a scapegoat: a bad guy. And Germany will be that bad guy, if for no other reason than the fact that in the recent 20th C it was the worst of bad guys and, today, it refuses to do what the rest of the world, for its own comfort, wants it to do. Maybe it's also, to the bigger discomfort of the world, refusing to be what the rest of the world wishes it to be. Forever guilty.

I'm getting really tired of this constant German-bashing by way of Euro-bashing. I very much doubt that the Euro will collapse, Mr. Cohen. Though doubtlessly pundits such as yourself--and nearly all Anglo-Saxon capitalism lovers--are expecting and willing it to fail. Yet in 2 years I've yet to meet a German, even the most conservative, who expects or wants the Euro to collapse. As obtuse as many, many Germans can be--and sure they can be!--I've yet to meet one who doesn't believe, in one way or another, in the concept of the Euro. In the idea of a unified Europe. They aren't that great at it, sure. And they're slow, slow movers. They can't easily grasp that in order for unity in Europe to succeed smoothly, internal unification needs to happen too. Or if they grasp it, they can't fathom it emotionally. Europe is old and divisions are old and the new takes a long time to hold.

This is the crux, though: Understand all of this, you living in the US (and I myself am an American): Europeans, for the most part (and especially Germans and the French) HAVE that time. Their heads are not wrapped up in instant gratification. They're looking at things longer-term, not now, now, now. They're thinking of unions, child benefits, retirement plans, public schools, free universities, universal health care and--let us not forget--at least 6 weeks paid vacation. Can Anglo-Saxon capitalist lovers grasp that?

You point the finger at Germany where average wages don't go up high and mighty as Americans may expect them to. But have you asked the average German? Their lives, I've already noted in 2 years, have more security than the average American can even imagine, much less hope for. They don't have debt. They don't head off to the mall 24/7. They debate and deliberate on each thing they spend, from an apple to a new house, as if they had all the time in the world. Which they do, actually, because they prize stability more than they prize the Next Big Thing. They don't, in one word, grow up with the same obsession that their 'freedom' to do whatever they want whenever they want it is way and above the stability or needs of an entire society.

MFF, Frankfurt, Germany said...

Thing is, what is happening today is a sign of capitalism failures. Neocon, no holds barred, unregulated, free for all American (and British) type capitalism is what has brought all of us to this point. And each and every finger-pointing critic, mostly in the US and in the UK, actually sounds like the little kid who was playing a risky game with stupid rules and is now told the game is up, so 'fess up. The little kid doesn't like it, does she? The little kid wants to go on playing, even when there may nothing left to play with.

It's time for us to stop discussing, thinking and contemplating money as if it were a real thing. It is not. It is not a tangible thing, like the trees and the mountains or even the weather. We, humans, invented money in order to deal with each other. Money is nothing more than that. In other human circumstances we may easily have invented something else, but what we have is money instead. The same thing with the system of capitalism--people, It Is Not Real. We invented it. And just as easily, we can disband it.

Bakers and investors, therefore, who are given prime space in these pages and others, as if they were somehow godlike and above human law--they have to be regulated, made to pay and ultimately stopped, too. Why do we continue to talk of 'the markets' in the same awe-struck serious way we talk of a Tsunami? Forces of nature are real and pretty often beyond our control. All we can do with nature is acknowledge it, understand it and then adapt to it. Forces of financial markets ebb and flow according to how we ourselves conceive them, depending on how much or how little we ourselves regulate them--not more. Why should we care how markets react? What we should do, instead, is set limits on them. The financial gains of a few are entirely unimportant when the results can harm every child living today and every child about to be born.

We created this system and just as easily we can change it, or create another.

If, for once, we get over our collective greed.

robert verdi, new york said...

Mr. Cohen, you're very generous with other people's money.

P Keesen, Amsterdam said...

The euro is not solely the responsibility of Germany Mr. Cohen. I am a Dutch citizen, and as a Dutchman the greatest net contributor to the EU. Like the Germans, we also dislike the idea of our taxes being spent by irresponsible governments down south. Besides the moral hazards of financing failing banks, the problem is primarily political Mr. Cohen. Northern Europe has shifted politically to the right, yet the south still lags behind. In Holland and Germany for instance, the welfare state is in the process of being dismantled. So why would its citizens agree to pay for the archaic welfare states of the South, when it own facilities are impoverished? I need to work until the age of 67. The French already strike when its government proposes to raise the pension age to 62.
I am a student of history, and I am aware how my grand-parents values and ideals are slowly fading. I agree how present generations -especially my parent’s- incorrectly perceive the achievements of the GI generation. It is the age of entitlement.
Hence I too agree with the notion of generational accounting. We must address the issue of the baby boomers spending past and future revenues.
Yet I find it petty to demand from the Germans, because of its history, a special sacrifice to uphold a monetary union. Germany is an ordinary member of the EU, only special with respects to it being the largest economy. The Union must come to a political understanding; the separate nations need to agree to combine their independent income to strive to achieve combined values. Clearly the politics to define our shared values is in constant flux. All the member states have a sovereign voice in the process.
These values are not so much about war or peace Mr. Cohen, but about the welfare state and the global economy. There will be an eventual split. Yet the EU as a league of nations can continue to exist, even after the north and south both went their separate ways.

Brian Moore, Germany said...

The moral of the story is that you cannot create a nation state without the consent of the people. Europe is a region, not a culture, language, or a common heritage; there is no European race. The idea of a super pan-European state might be a nice idea to debate about, but any attempt to create one out of thin air will always run up against this reality.

Aldonse, Paris, France said...

As a good and naive European, I have tried to understand the Irish drama. Quite simple, actually : the Irish budget was balanced but, inspired by Anglo-Saxon examples, Irish banks ran amok. They followed a crazy policy, investing blindly money from bigger foreign banks, French, German but mostly British. They became bankrupt. The British, not wanting to lose any money, demanded that the Irish government guarantee the banks, that is, that losses were transferred from foreign banks to Irish (and now European) taxpayers.The Irish government complied. The European Union came to the rescue. It suggested that the Irish increase their business tax (half of the Union level) to get resources and to avoid distorting competition. Big American companies (Google, Microsoft, etc) ordered the Irish government to let taxes at their low level. The government complied. Then the Anglo-Saxon media, Murdoch ahead of the others, kept explaining that the catastrophe was due to Ireland surrendering its independence to the EU : the Euro was the only culprit. That was swell and Wall Street was satisfied. From now on, every day, an « independent » article will describe the disintegration of the EU and the fall of the Euro. American and British attacks against the Union will have succeeded, with rumors increasing markets volatility and the opportunities to speculate. Is not life wonderful ? Except I do not believe the Union will crumble down. On the contrary, the crisis is forcing us to make a great step toward a Federal Europe. But we will have to remember to let the Anglo-Saxons and their banksters outside ...

mvonkorff, Seattle said...

The EU integrated and democratized most of Eastern Europe while the US birthed the Tea Party and Sarah Palin. The global financial crisis was made in the USA--the investment bankers in Europe drank the US Koolaid of unregulated market economics to their countries' detriment. Let's hope that they take the haircut they deserve, unlike the US where they are collecting million dollar plus bonuses again and doing nothing for our economic malaise (see John Cassidy's piece in the New Yorker). Ten years ago the Euro and the dollar were about the same, but today a Euro costs $1.31. Europeans have universal health care, decent retirement and public education systems that work, while we pay comparable amounts (when public and private contributions are combined) for systems that are seriously broken. Europe is making difficult adjustments. We are paralyzed by grid lock and radical individualism. Let's get our house in order rather than gloating about Europe's difficulties. We have made a very big mess of it over the last decade.

Ruppert, Germany said...

So not the politics of Mrs. Merkel is wrong, but her tone? As we know now, thanks to wikileaks, she appeared as Angela "Teflon" Merkel in a report from the Berlin US embassy, so you are in good, if somewhat undiplomatic company. Actually I prefer her unpathetic style to the elegant speeches, rarely followed by deeds, of other politicians.

You are certainly right that the Euro is only a half-baken potatoe in its present form. It was meant to be accompanied by a process leading to (more) political unity in Europe. Germany wasn't the main obstacle in this much delayed process, if you look back. Most of my countrymen are aware that Germany is profiting a lot from the Euro. There will be sufficient support for any German politician who is seeing the present crisis as a welcome opportunity to strengthen the Euro and improve the EU structures accordingly.

Expat, Innsbruck, AT said...

You and Krugman have been going on and on about the death of the euro. You argue that these nations which have insured their banks, and need to trim deficits are worse off in the euro zone with aid from Holland, Germany, France, England and other solvent nations. Its like suggesting Michigan would be better off if it left the USA and devalued its currency to avoid paying off its debts. Detroit has been suffering since the 1980s and noone in the US government seems to have much to offer it. Why shouldn't it leave? The answers are obvious. Perhaps, its not so obvious to you why small indebted nations will stay in the euro. But to me, it is. The element of free trade both within europe and between europe and the world allows small companies without much staff to compete and create products and jobs. This creates efficiencies and opens up markets previously unreachable. Tourism is also greatly simplified. And the closely related SHENGEN free travel zone of the EU all provide greatly enhanced personal freedom and economics. England has its own currency and the liquidity crunch is hurting the english dearly. They are suffering from a falling economy, devalued currency and inflation all at the same time. Plus they are having to take the same austerity measures that Greece and Ireland are doing. Tell me again how its better to out of the euro?

You seem to think that by leaving the euro and defaulting on its debt, Ireland could avoid joblessness. Not so easy as that. In the end, the whole euro zone will need to devalue a bit, mostly to match the quantitative easing the US is also performing. Each time the Fed prints more money, it finds its way into speculative bets around the world. These dollars then try to create speculative catastrophes and force the central european bank to defend its weaker members. It will end in tears for all except a few hedge fund managers.

All paper money has no clothes. They are just ways of keeping track of favors. Right now all industrial economies bet on an exponential growth curve which any junior high school student knows has to end. Welcome to the new world economy. It looks a lot like the 18th century, but without new continents to conquer. Flooding the money supply without actual growth in the economy (tangible goods and services) will only have the effect of creating speculative bubbles and eventually inflation.

Europe's slow growth and focus on personal time as opposed to consumerism might actually be a more successful strategy in such a world, provided they avoid warfare. Which if I recall, was and remains the largest destroyer of wealth and happiness.

nansilly, essen said...

I beg to differ. Ms. Merkel has consistently argued that Germany has benefited more from the Euro then any other single Eurozone country, therefore it is in Germany´s interest to support the transition to a stable and strong single currency.

A. Taras, Germany said...

And the Brits have absolutely nothing to do with the fact that, so far, a United States of Europe has not been built, right, Cohen?

Eli, Boston, MA said...

Maybe the Euro has no clothes but nudity in Europe is not a vice as it is in the puritanical USA. Beautiful lean suntan nude European bodies adorn the beaches in Portugal, Spain, France, Monaco, Italy, Slovenia, Croatia (Euro candidate), Bulgaria (Euro candidate), Romania (Euro candidate), Malta, Greece, and Cyprus.

However when it comes to overweight it is the Euro that started lean at $0.79 under Bush and eight years later by the time Obama was elected the skinny Euro had doubled in value reducing the dollar to €0.79. The emaciated American dollar lost almost half its buying power against the Euro. Furthermore the dollar now nude from its buying power does not appear to have helped with the export trade imbalance against the EU.

While the economy in Europe has been dragged down by the economic collapse that originated in the USA nobody lost their house last year because they got sick in any of the the 16 Euro zone counties or even the in any of the 27 European Union countries that have not joined the Euro yet. Only in the 50 US states people lost the houses they lived in because of illness. While the US may still have the best opportunities to become a billionaire (especially in the mad dollars of the war economy) increasingly the economic prospects for the middle classes are better in the Eurozone countries.

The question is not whether the Euro has no clothes but whether the dollar has been left with any value.

Andrew, New Jersey said...

Perhaps the German response has been "mean spirited and paltry" A) because the Germans have and always will have had a sense of superiority over everyone else, and B) because in many ways that sense of superiority is justified. They have done the hard work of liberalizing their labor markets and are still an exporting powerhouse. Unlike the US and UK, the Germans aren't being held hostage by their bankers, they actually produce things the world wants and plenty of it! While we were living well beyond our means during stock or real estate bubbles, they were still following the same same stodgy export driven policy and we were deriding them for it. A lot of the mean-spiritedness in the German response is simply exhaustion and frustration with everyone else's lack of self control. They are in the driver's seat in Europe now and I think it's for the better.

Jeremy, Arizona said...

I currently reside in Portugal and lived 13 years in Spain. I woke up one day and did not have the peseta, but Euro's.

The Euro did not fail, its policy makers did. Chancellor Merkel and the Germans are right. They are diligent, they work hard, efficiently and the country has sound economic policies fostering some of the best companies in the world.

Spain and Portugal were not disciplined and were very irresponsible. If you are going to have room-mates, you all agree in the beginning to behave and co-inhabitant guidelines. Then life happens and someone messes up, doesn't clean, pay his or her share of the rent and groceries.

Sure, they will be helped by their flat mates once or even twice, but nobody is interested in this becoming a tendency and eventually will tell their poor flatmate, "Shape up or ship out". Why should the responsible members of the house, hard working, saving be expected to bail-out their flat mates repeatedly with no consequences or policy to ensure responsibility? They are not out partying all night, living off credit cards with no real future thought out.

All Euro zone countries are adamant about their sovereignty but they seem to not want the responsibility that comes with it. Neither Spain nor Portugal has an actual plan to return to growth. Neither country has anything considered other than austerity plans. Neither are making serious efforts to deal with the structural problems creating this mess.

Germans should be very angry at their flat-mates. Being disciplined, moving forward with difficult changes and building a sound, value-added economic model Germans are rightly tired of bailing out their euro-zone flat mates.

What good does it do to have rules with no consequences? Both governments in Spain and Portugal have lived in a state of perpetual inaction and denial regarding the crisis. Without these pending rules, a dangerous precedent is happening at German expense.

J Mancini, Dublin said...

"It’s also true, and here the German Chancellor Angela Merkel is right, that the 16-member euro zone can’t carry on this way, socializing the private losses of the banking system and engaging in a kind of multi-billion-dollar shell game that does away with moral hazard."

Merkel, Sarkozy and the ECB won't tolerate "socializing the private losses of the banking system" in the future. However, in the present case of Ireland, they are insisting that the bondholders must not take any losses, and that Irish taxpayers must repay the loan in full at 5.8% interest--even if this drives the Irish economy into a further spiral of deflation and unemployment.

More important to this story is that 60 billion euros of Ireland's debt is the product of the Fianna Fail government's "socialization" of the debt of Anglo Irish Bank. This bank, it needs to be emphasized, is not a bank that is in trouble because it gave unwise mortgages to individuals. It is a bank whose business was to give massive loans to property developers, for large and frequently ill-conceived projects. This was known to the creditors in Europe who lent to it.

A tiny circle of highly privileged and powerful individuals in Ireland and Europe are responsible for the frenzy of borrowing and lending that turned Anglo into a black hole. And yet, it is the mass of ordinary Irish people, who would have had no hope of getting a look into Anglo during the boom, who will suffer the very real consequences.

Paul Rosenberger Manhattan Beach, Ca said...

The Euro was conceived without sufficient safeguards in place to ensure its longterm success. Furthermore, it was challenged by the irresponsible investment strategies of many of the banks. The latter is eerily reminiscent of similar transgressions of US financial institutions. Hopefully, the current crisis will remedy the existing shortcomings and pave the way for long term success of the Euro.

Taking a broader and less parochial view, the Euro and the entire concept of the European Union is a huge and necessary step forward in political integration of various nationalities that previously had engaged in regrettable and disastrous military conflicts over territorial rights and national supremacy. This integration of previously mortal enemies into a cohesive entity with the potential of mutual advantages is an experiment that the entire world should applaud and potentially emulate. It represents at a regional scale the challenges that the entire world now faces.

On this larger scale we see the same challenges and problems of balancing national interests and priorities versus world wide issues of survival of mankind and the planet.

Too many of the discussions of the Euro are rooted in parochial interests and veiled hopes of the Euro's failure. This is very unfortunate. What we see here is an experiment that we should all hope to succeed, because if it fails it would be a major set back for the economic and political integration of the rest of the world which is essential to the survival of a civilized world.

Joerg Berlin, Germany said...

The sad story of the poor Irish indebted to foreign "investors" for decades to come really fades in comparison with that epic tale of "Germany’s moral debt to Europe" Roger Cohen is invoking every time he decides to disagree with something the German government does. Paneuropeanism meets Basil Fawlty -- what a weird combination!

What's good for the goose... Just as the Irish have a right to know how much interest rates they are supposed to pay on their foreign debt, Germany has a right to know at what point time exactly its "moral debt to Europe" will have been paid back, how interest rates on this moral debt are expected to develop in the near/medium/long-range future and how many bondholders are really out there (more specifically: why the heck should the bondholders of that moral debt include Ireland, Spain and Portugal?).

What Roger Cohen hasn't noticed: He is losing this argument rapidly in both the UK and the US, if Internet discussion fora are an adequate reflection of people's thoughts in these countries. It's not the slackening German commitment to the European idea that is endangering the continent, rather that commitment (including the introduction of the Euro) was nothing but a secret ploy to launch the Fourth Reich to begin with. I can post numerous relevant weblinks if you don't believe me on this one.

See, this is the beauty of "moral debt" as compared to fiscal debt: Everyone can interpret it ad infinitum and ad nausea until it fits the own political agenda, be that pro-EU or anti-EU.

robert, bruges said...

As a Belgian, I know too well what it is to live with a weak currency, the former Belgian franc. It is not true that a devaluation can save the economy, that would be too easy! This measure has to be accompanied with a stabilization of wages and prices, if not, even a chain of devaluations will further erode a national economy, undermined by too high wages and a running inflation, as it was the case in Belgium until the eighties of last century.
In Spain, wages are curtailed and there is no inflation. Last year, the euro has lost 12% of its value against the dollar, a de facto devaluation. So, I am optimistic; Spain will recover. Viva Espagna!

Gaston, San Francisco said...

Mr. Cohen seems to think that deficit spending is the solution to everyone's problems and somehow the euro is preventing this. Neither is true. First, deficits are the source of the problem and more of the same will make things worse not better, and no one wants any more American voodoo economics, thank you very much. Second, the euro obviously doesn't prevent deficit spending or we wouldn't be having this problem.

Germany's position is simple: If you want German credit to support your national debt, then you need to get your house in order so this is a onetime thing. The purpose of the bailouts is not to save the euro. The fact that a particular debt is denominated in a currency has no effect on the currency if the debtor defaults. For example, many nations around the world issue debt denominated in US dollars. If those nations cannot pay, it is because of their own economic weakness not the strength of the dollar, on which their failure to pay has no effect.

So who is helped by the bailout? Obviously the country receiving the aid in terms of its borrowing costs and stability, but also obviously the holders of the debt (banks, investors, etc, around the world). And the real motivation is the concern as to what would happen to the world financial markets if a significant default on European sovereign debt occurred. Everyone is jumpy after the American real estate debacle and the concern is to avoid another Lehman Brothers type tipping point. Countries like Greece and Ireland may not be significant by themselves, but the effect on the world market might well be, and Germany would be a big loser if there was another world-wide economic contraction. China supports US sovereign debt for the same reason.

The real problems in these national restructuring are (1) that the present holders of the debt are not being nicked (wouldn't you love to hold paper that bears an Irish interest rate, but with German credit?) and (2) the lack of solidarity, in that the brunt of the solutions are being imposed on the weak, while the rich and powerful continue business as usual; very American that. No one disputes the need for austerity; the question is how the burden can be fairly allocated. But at the end of the day, it will be allocated, fairly or not, and whether or not there is an Euro.

It would be interesting to read this column 5 years from now and compare how voodoo economics has worked for America verses austerity for Europe.

edward stachura Tivat, Montenegro said...

For once, Roger Cohen has gotten something right in one of his columns; unfortunately, he waits to the last couple of paragraphs to say it.
There is no question that the Euro zone is having problems – ironically, not with new members such as Slovakia, but with much older, foundational members such as Ireland and Greece. Euro skeptics point to these troubles as evidence that the Euro is untenable and will eventually fail, they are both short sighted and wrong.
First of all, this is not the first crisis to befall the Euro Zone. How can the critics forget Black Wednesday, 1992, when the United Kingdom pulled the Pound Sterling out of the European Exchange Rate Mechanism, a predecessor to the Euro zone? Economic foes of the EU and euro (or EMU as it was often referred to in the 90s) hailed the end of the European Money System at that time. They were obviously wrong, the process towards currency integration continued despite the loss of one of its strongest players.
The US dollar is an even better example. In essence, the US dollar represents a monetary union no different that the euro. In the late 18th century there was little or no regulation of currency in the United States, individual states were able to issue their own currencies, versions which might or might not be honored in other states. New York, for example, had its own currency, the pound, until the 1790s. These unique currencies were replaced by the dollar early in that decade; and, although the dollar has had its dips, and different banknotes were still being issued by individual banks in individual states into the 19th century - banknotes which might or might not be honored in other states - the ‘dollar zone’ has survived.
Therefore, don’t start ringing death knells for the euro 1.0 just yet. If the dollar’s history is any guide, there will be difficulties but the currency union will survive.

Susan, Germany said...

As an American living for many years in Germany, I am concerned about the amount of negative press that is currently being published by the NYT and other US publications about that country.

The Germans seem to be on the hook for much of what currently ails the rest of Europe, (not just according to you) AND are apparently plotting, along with China, to sabotage the US economy because they vocally rejected the Fed's quantitative easing. ( other colleagues, other topic)

You write: "I don’t recall one word from Merkel about the idea of Europe, about why sacrifices for the euro are consistent with Germany’s moral debt to Europe and stake in its united future." This comment is simply false and misleading, which is perhaps the reason that you added the disclaimer, "I don't recall" to the beginning of the statement...such inaccurate generalizations are just as dangerous to make today, as they were 80 years ago in Berlin.

You also write "Hell hath no fury like a German not getting his money’s worth." For years, Germans have kept their heads down, saved their money and have historically given the most money to the EU and continue to overproportionately support the current bailouts. They have not "gotten their money's worth" for many years, but have always paid into the system without complaining. Now they merely begin to question the prospect of having to provide unknown sums of bailout assistance into the future, and they are universally lambasted for it.

Sure, I get it. The Nazis almost destroyed democracy and the western world as we know it. They were nothing short of despicable and it is natural to harbor resentment for the pain and destruction that they caused. The German past is a deep and terrible wound, which modern Germans have to live with.

But Germans do want or allow their people to forget what tragedy their forefathers injected into the world. Television and the press in Germany continue to report continuously and factually on the Holocaust and Naziism. The "moral debt" which you allude to remains in the DNA of those living in Germany today. But like any wound, as time goes on the scar remains, but the pain fades, and most Germans today were born after the end of the second world war. It is unreasonable to expect Germans to remain as voiceless in the twenty first century as they understandably were throughout the twentieth.

To ask that Germans "consume more and carp less" comes across as short-sighted and condescending.

Your final wish, that they should "conceive bigger" is hardly the problem. It is that Germans for decades were not supposed to have any big ideas that could be perceived as threatening, and now that they do become more vocal, they are roundly criticized for it. I do not agree with everything German by any means, but I do hate to see half-truths published by the press. That is far more dangerous than the possible demise of the Euro.

James DeVries Pontoise, France said...

Abandoning the Euro would be the second mistake, and probably one of ghastly global proportions if Yugoslavia in the 1990's is any measure. The first mistake was buying into American mortgage-based derivatives as though they were real investments, typical country rubes, despite the obvious fact of their worthlessness.

John Williford Richland, Washington said...

It is good to see someone attempting to get beyond the xenophobic case of myopia, which makes us think it is all about us.

There are forces that are operating internationally, based on greed and the illusion that money, divorced from any creative productivity, can somehow produce wealth.

Thomas Friedman has been a cheerleader for the Flat Earth phenomenon, and the multinational corporations and financial industry have operated to maximize profits and to hold their own interests above that of country.

The ubiquitous nature of failing capitalism in both Europe and the U.S. ought to instruct us that certain classes of problem affect all of us. I am not entirely convinced anyone has articulated the situation clearly, nor diagnosed the etiology of our failing Western culture's disease.

We need to look at this situation with new eyes, and in a more holistic way than has been done so far.

The Flat Earth idea postulates that a rising tide will lift all boats. In the near term, however, this looks more like a zero sum problem, where the developed world will sink as the economies of emergent economies rise at doubling rates on the order of a decade.

Unless we can deal with these postindustrial challenges, things will get a good deal worse for the West, and the long term prognosis is grim.

Bob Royfills San Francisco said...

Several disparate comments:

1. Since Greece, Ireland, Portugal and Spain were all members of the twelve-nation European Community in the early 1980s, I don't quite see what the end of the Cold War has to to with this. I thought the problem was complete budgetary indiscipline in Greece and government guarantees for bad loans in Ireland.

2. It's all very well to hector the Germans but it's not all that easy to explain to German voters why they should pay for Greek deficits or Irish loans. Invoking World War II won't do. For one thing, Ireland sat that one out. A German government that defies public opinion will meet the same fate as Nancy Pelosi, say. I think this has something to do with "consent of the governed."

3. Invoking the UN as the successor to the League is, to say the least, an ill-omened way to introduce a new Euro built on the ashes of the old. The UN replicates the structural flaws of the League--the requirement for Great Power unanimity and the lack of budgetary independence; nor was any country willing to give it the basic keys to state power. Its impotence and incompetence have long since caused it to forfeit all moral authority.

MattP Brookline, MA said...

Brookline, MA

The tension always arises in a crisis between "every man for himself" and "we're all in this together." Germany, thus far, has been content to recognize the moral flaws of its fellow Europeans, while failing to recognize that it was to a great extent German investors who benefited from the run-up in real estate in places like Ireland and Spain. I hope that when Merkel says that private investors must take a haircut, she means German banks. Their demands for repayment are killing the Irish. Seems to me that 2013 is too long to wait for relief.

It's much the same in the U.S. The banks that profited enormously from the real estate bubble get shielded, and homeowners get the shaft. Meanwhile, the talking heads wag their fingers at those who "borrowed beyond their means." The truth, though, is that number of borrowers who tried to game the system and dwarfed by those who just did what they thought they were supposed to - buy into the "American Dream". Those losing their homes are not "them" - they're us.

In Europe and the U.S. debt must be restructured, and principal forgiven. Otherwise those debts will drag down more and more people, and doom us to a cycle of low demand, high unemployment, and more defaults.

Eli Boston, MA said...

Dear censor I removed the part that wearing no clothes is a summer tradition along Europe's coast from Portugal to Cyprus for lean bodied Europeans.

However the Euro that started lean at $0.79 in eight years under Bush and by the time Obama was elected the skinny Euro had fattened up and had doubled in value reducing the dollar to €0.76. The emaciated American dollar lost almost half its buying power against the Euro. Furthermore the dollar now nude from much of its buying power does not appear to have helped with the export trade imbalance against the EU.

While the economy in Europe has been dragged down by the economic collapse that originated in the USA nobody lost their house last year because they got sick in any of the the 16 Euro zone counties or even in any of the 27 European Union countries that have not joined the Euro yet. Only in the 50 US states thousands lost the houses they lived in because of illness among other reasons. While the US may still have the best opportunities to become a billionaire (especially in the mad dollars of the war economy) increasingly the economic prospects for the middle classes are better in the Eurozone countries.

The question is not whether the Euro has no clothes but whether the dollar has much value left.

Carol, UK said...

Perhaps Mr. Cohen could write another column explaining why he feels the nations of Europe, including Great Britain, should be ‘inspired’ by the prospect of giving up their sovereignty? He apparently thinks the UK, Ireland, France, Germany, and the rest should imagine themselves as Arkansas or New York, happily handing over fiscal and monetary policy to the bureaucrats in Brussels whose absurd decisions have already done so much to enrage the ‘EU citizens’ who have not been allowed to vote on a constitutional referendum. If the EU is a ‘blueprint for mankind’ then does Mr. Cohen think the U.S. government should prod and manipulate its citizens to turn the U.S. into a state within a North-South American Union? Or would he have a ‘shallow, paltry, and mean-spirited’ failure to acknowledge that the U.S. has its own ‘moral debt’, and by his logic would therefore be obligated to pay by ceasing to exist as an independent nation.

John Scherer Asperg, Germany said...

It should not be forgotten that earlier in this decade Germany went through a wrenching period with high unemployment, almost frozen & partly lower wages, reduced welfare, etc. while the economies in Ireland, Spain, and the UK were booming & others like Greece, Italy & Portugal were not making adjustments to ever increasing economic global competition from China, India, etc. Germany has a lot to thank its prior chancellor, Gerhard Schroeder with his Agenda 2010, a Social Democrat to boot. Angela Merkel and her Christian Democrats are reaping the benefits due to leaner & more flexible labour force together with a technically highly effective manufacturing base. But Germany too required all the stimulus money in the world otherwise it would not have had any takers for its products.

via fCh, MA said...

The Euro was a way for the British and French, opposing German reunification, to slow Germany down once it became a single country. When Chancellor Merkel recently said there would be a need for Euro countries to give up some sovereignty for bailouts people cried. As Thomas Geoghegan put it, the Germans have been better than most both at socialism and capitalism. You, Mr. Cohen, and others seem to criticize Germany for its not wanting to play in team Europe, yet some may argue that's an impossibility for the rules keep changing while Germans remain on the receiving end.

I guess, they all have to rethink the rules of their game, for they never took the time.

Bierbaron Germany said...

Dear Mr. Cohen,
I read an interesting article about an interesting theme, but I think you got some things wrong. The parallel representation of the League of Nations and the the Euro might be an interesting mind-wandering but it covers important points - points, you didn´t even mention. Membership in the League of Nations was based on free will, Germany was forced to join the "Euro-family" as a prize for the German unification, mostly the desire of our "French friends". Apart form that the last passage of the article implicates a dark historical determination and reminds me of the propaganda of the former chancellor Helmut Kohl who´s slogan was "Euro oder Krieg" (Euro or war). His propaganda didn´t work - in D-mark times there never was a majority "pro Euro" so the Euro must be defined as the project of the political elite of Germany who betrayed their country when they argument that the Euro is a political and economical necessity - it was not, is not and I pray to God that it will never be!

"I don’t recall one word from Merkel about the idea of Europe, about why sacrifices for the euro are consistent with Germany’s moral debt to Europe and stake in its united future. “If the euro fails, then Europe fails,” she says. But what, pray, is Europe to the Frau Bundeskanzlerin? A burden, it seems, a conundrum — anything but an idea."
This passage scared me most. As a German born to Durch migrants in the 80´s in Germany I don´t believe in "nationalized moral debt", "collective guilt" or things like that. I believe in responsibility. A political union based on the moral inferiority of one of its fundamental members has no future.
Apart from that I don´t see the argument of the "stake in its united future". When "united future" imply the European transfer-union the opposite is true. Actually Germany has the second highest tax-burden worldwide. Significant parts of the high-skilled workforce are leaving the country - they don´t see a future in working more than half a year for the down-settled pirates in Berlin. You say Germany should rescue Europe with hundreds of billions of Euros. My question: Who rescues us in Germany?


Prof.Jai Prakash Sharma Jaipur, India said...

In both the cases of failure first about the League and now with the euro, it was the US that has somehow been responsible somewhere, for if, it was the moral force of the US President Wilson that provided an impetus to the formation of the League of Nations post-I WW, then, it was because of the US backtracking, coupled with changed power configuration in Europe, that sowed the seeds of disintegration of the League of nations. Similarly, it was the US sub-prime lending crisis, leading to the housing bubble bust, financial meltdown and recession, and the spread of this contagion to Europe that brought one economy after the other in euro zone under the debt crisis, raising concern about the very future of euro and EU. However, it was the US that had the last laugh in both the situations.

Hugo Pirovano Beverly Hills said...

Cohen, as usual, gets it wrong. The Euro has clothes; but that is about it. There is little beneath those clothes, no bones, sinew, muscle. Thus the Europeans can't steer their Euro the way the US controls the Dollar, or the British the Pound. Theirs is a starched, sunny weather currency which can't be maneuvered in a storm. Nor is that the worst of it.

Europe's problem is not its money but its money habits. It has grown used to a high standard of living. Its governments mandate good wages and excellent social benefits. That has given Europeans a secure and worry free existence. And the rationale dates to the world depression of the 1930s, which ravaged not just the US. The inability of Europe's nation states to cope with the misery of hyper-inflation and mass unemployment gave oxygen to the Nazis and Communists, and to WWII. At the war's end Europe's chastened Elders resolved to thoroughly eliminate all the tinder that had set the continent on fire. They created welfare states which were to immunize Europe to new Fascist temptations and to the Cold War blandishments of the communist paradigm.

In short, the war had shown the excesses of patriotism, ethnocentrism, and nationalism. Europe's post WWII state system ceased to be based, as it had been since 1789, on a population's sense of a common language, religion, and tradition. Henceforth defense budgets were to be tiny, and the promotion of multiculturalism, racial equality, and social justice, massive. The people's loyalty to the authorities was to be achieved not by flag waving but by providing the good life. That was the altogether admirable impulse behind the EU and the Euro. It sought to secure Europe, for good, from the Nazis and the Communists.

But now with the current economic gale lashing Europe, rivets are popping. Bulkheads are shown to be thin and rusty. If Europe can't pay for the social welfare systems that have given its regimes their legitimacy, if people start taking to the streets in demand of unfunded pensions and medical benefits, then the old dangers will start pounding and will threaten to tear open the vessel.

Then it won't be, holy cow, the Euro has no clothes, but, Great God, where is the ship?

Mervyn King, The head of the Bank of England, said...

to the US ambassador, Louis Susman:
"Leaders in Germany and France have recognised that allowing monetary union to happen without corresponding political cohesion was a mistake and one that needed to be rectified."

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