...is still out of paradigm when comparing sovereign debt to conditions in the 1920s, but still has the basic refrain that is wreaking so much havoc in the EU area today: the amputation of fiscal policy from monetary policy for individual countries. I am of the opinion that centralizing monetary policy was a greater mistake than if the EU centralized fiscal policy first, but that was untenable politically at the signing of Maastricht.
By Ambrose Evans-Pritchard
Published: 6:31PM GMT 21 Feb 2010
The Left called for war damages for Axis occupation and accused German
banks of playing a "wretched game of profiteering at the expense of
the Greek people".
Mainstream New Democracy was no nicer. "How does Germany have the
cheek to attack us over our finances when it has still not paid
compensation for Greece's war victims? There are still Greeks weeping
for lost brothers," said ex-minister Margaritis Tzimas.
Interest rate cuts: Deflation harms everyone
This is deeply hurtful to Germany, a vibrant democracy that has played
its difficult part in Europe for 60 years with dignity. No country
could have done more to overcome its demons. It has paid the EU bill,
and paid again, rarely grumbling.
Yet a decade of monetary union has created such a wide and
self-perpetuating gap between North and South that everything in EU
affairs is poisoned. German-Greek relations are the worst in my
Nobel economist Paul Krugman said there is no point blaming any one
country for this "Euromess". "Europe's policy elite bears the
responsibility," he said. "It pushed hard for the single currency,
brushing off warnings that exactly this sort of thing might happen,
although even eurosceptics never imagined it would be this bad."
Actually, we did, Professor. Thanks anyway.
EMU is slowly suffocating boom-bust states trapped in debt deflation,
acting in the same perverse and destructive fashion as the Gold
Standard in the 1930s.
Gold rules were simple: surplus states loosened, deficit states
tightened. This preserved equilibrium. World War One shattered the
system. The US was not ready to take the guiding role from Britain.
The dollar was undervalued in the 1920s. America ran vast surpluses,
like China today. So did France, which re-pegged too low. Both drained
the world's bullion. Yet neither loosened: the Fed because Chicago
liquidationists ran amok; the Banque de France because its post-War
brush with hyperinflation was still fresh.
Adjustment fell entirely on deficit states such as Britain. They had
to tighten into the downturn, feeding debt deflation. Global demand
imploded on itself until the entire system collapsed. In the end, the
US and France were victims of their obduracy, but that was not clear
in 1930, or 1931, except to Keynes.
This is the story of Euroland. The North is in surplus, the South in
deficit. Germany's current account surplus was 6.4pc of GDP in 2008,
Holland's 7.5pc. Club Med deficits topped 14pc for Greece, and 10pc
for Iberia. The gap has narrowed since but remains structural.