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Response to Demeter (Reply #100)

Tue May 22, 2012, 09:53 AM

102. Marshall Auerback: Today Germany Is the Big Loser, Not Greece READ THIS!

 

http://www.nakedcapitalism.com/2012/05/marshall-auerback-today-germany-is-the-big-loser-not-greece.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

Given the German electorate’s long standing aversion to “fiscal profligacy” and soft currency economics (said to lead inexorably to Weimar style hyperinflation), one wonders why on earth Germany actually acceded to a “big and broad” European Monetary Union which included countries such as Greece, Portugal, Spain and Italy. Clearly, this can be better understood by viewing the country through the prism of the Three Germanys, which we’ve discussed before:Germany 1 is the Germany of the Bundesbank: the segment of the country which to this day retains huge phobias about the recurrence of Weimar-style inflation, and an almost theological belief in sound money and a corresponding hatred of inflation. It is the Germany of “sound finances” and “monetary discipline”. In many respects, these Germans are Austrian School style economists to the core. In their heart of hearts, many would probably love to be back on an international gold standard system.

Germany 2 is the internationalist wing of the country, led by Helmut Kohl. Kohl and his successors are probably the foremost exponents of the idea that Europe can rid itself of the “German problem” once and for all if Germany firmly binds itself to a “United States of Europe” and continues to construct institutions that broadly move the EU in this direction. It is questionable whether this vision has survived significantly beyond the tenure of Helmut Kohl himself. One can see the inherent tension between these two Germanys. Bundesbank Germany would never allow vague, internationalist aspirations to dilute the goal of sound money, low inflation and fiscal discipline. One could envisage most looking askance at the Treaty of Maastricht and the corresponding threats to these ideals.

Which brings us to the key third variable in German politics: Germany 3, Industrial Germany, the Germany of Siemens, Daimler, Volkswagen, the great steel and chemical companies, the capital goods manufacturers. Clearly, these companies benefited substantially from the economic stewardship provided by institutions such as the Bundesbank, along with the broad adherence to Erhard’s social market economy. But they also recognized the benefits entailed by a completely open and integrated European market (still the largest component of their sales). Currency union, even if it meant admission of fiscal profligates such as Italy and Spain, also minimized the threat of competitive currency devaluation, given the implementation of a European wide euro (as opposed to the narrow currency zone which represented the limits of the Bundesbank’s internationalism). Industrial Germany rightly perceived that a broadly based euro zone which incorporated chronic currency devaluers such as Italy, permanently entrenched their competitive advantage. And with the support of this key component of German society, Chancellor Kohl, was able to embark on the huge institutional transformation embodied in the Maastricht Treaty.

One could argue that “Germany #3″ made a bad bet, but is this really so?

MUCH MUCH MORE MACHINATION...AND A CHILLING TAGLINE CONCLUSION:

So who holds the gun now?

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