An Inconvenient Truth

Germany hides the awkward truth about the euro.

Germany

Mr Kohl’s offence — the original sin, I would say, at the launch of the single currency — was to shy away from spelling out to German voters the inescapable meaning of the bargain. It still goes unsaid. In short, Germany is the biggest beneficiary of European integration. The EU supplies the democratic stability and economic certainty on which its prosperity has been built. No country has more to lose from a break-up.

These benefits, understandably, carry a price tag. As the EU’s most powerful economy, Germany bears a proportionate responsibility for the stability of the enterprise.

The mantra in Berlin continues to obfuscate. Germany, it says, will never accept a “transfer union”. In real life, of course, that horse has already bolted. The true choice is between the shadow transfer union represented by the mountain of national central bank liabilities that have built up at the ECB — so-called Target balances — and the creation of an economic union that admits the role of fiscal policy in managing economic demand.

The present catch-22 is that those with room to operate the fiscal levers — Germany and its northern neighbours — refuse to do so. Those pressing for a more expansionary stance — led by France — lack the budgetary headroom.

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