The Euro delusion

Of course, maybe Sarkozy meant that it was madness to join the euro in the first place. In his new book “The Tragedy of the Euro” (pdf), Philipp Bagus outlines how a post-war France constructed a powerful political plan to centralize control over a unified European future. In fact, as Bagus explains in chapter 5, during the hope-filled days of German reunification, several deals were struck which placed the German state at the mercy of its French neighbors. As Helmut Kohl’s own chief foreign policy advisor relayed to a French journalist just three weeks after the Berlin Wall fell: “[T]he German Federal Government [is] now in a position that it [has] to accept practically any French initiative for Europe.”

Indeed in a sense the Deutschmark became Germany’s sacrificial lamb – an offering to a new French-controlled centralized European state. Any united Europe could not be ruled by an increasingly powerful Germany. Indeed, a reunited Germany backed by a powerful currency would be an economic powerhouse, the likes of which Europe had not seen since before World War I. As Bagus writes:

“[Then-French president] Francois Mitterand and Margaret Thatcher were horrified by the idea of a unified, ‘strong’ Germany. Germany had to lose its keenest weapon…. The monetary union was a solution to this threat.”

A German dominated Europe with a strong currency would set the state of financial affairs that other countries would largely have to follow. Much as Canada is subordinate to the United State’s interest rate and monetary policy, the French would soon find their own financial affairs subordinated by Frankfurt. Removing Germany’s source of power would assuage these fears of French submission.

There was a two-fold reason for forcing Germany into a monetary union with its less economically powerful neighbors.

First was that this currency union would allow increased “other” European participation in economic, and especially monetary, affairs. German central bankers, long known as being prudent after learning their lesson with cheap money and loose credit during the Weimar hyperinflation of 1923, would be forced into reaching agreement with other European central bankers (and politicians) for compromised monetary policy. It is well-known that many European states – Italy, Spain, Greece, even France – prepared to pay for their public debts through enabling the inflationary printing press, rather than the good old fashioned way of saving. German prudence, one of the drivers of its incredible rise from the ashes of the Second World War, would be sacrificed at the hand of its less cautious European associates. The French, as the next biggest economy, would be the new domineering European force in the absence of this strong Germany.

Second, Germany would create the financial backbone of Europe. As Sarkozy made clear as the clock struck midnight, exit from the Eurozone is not an option. Being forced to join a common currency with more proliferate countries – notably the PIIGS of today – the strong countries would all but be guaranteed to provide help to any of the weaker countries should a need arise. Today we see this being realized.

Germany is not only underrepresented in monetary and political affairs within Europe (at least relative to its size), it is overrepresented in the current bouts of bailouts. Germans funded 30 percent of Greece’s €110bn. bailout a little under a year ago. Germans put up over 27 percent of the money to save Ireland from certain disaster several months ago. In fact, while Germany “only” comprises a fifth of the European economy, it has contributed almost 30 percent of the European Financial Stability Facility established last year. With the strong countries of Europe increasingly falling by the wayside, Germany is forced to take more significant roles in these bailouts. When will the madness stop?

If Sarkozy thinks it is “madness” to leave the euro, he should think about what state of mind one must have to join it in the first place. Germany accepted, under strong European pressure to submit to their neighbors post-reunification, conditions that no sane person (or country) would have agreed to. In light of recent evidence, it was madness to join the euro.


Nicolas Sarkozy welcomed in the New Year with his annual address to nation. In addition to the sensible confirmation that he would stay committed to improving France’s finances, he added that he would also fight to keep the euro.

Giving up the euro would constitute “madness”, according to the French President, and he urged his fellow countrymen to not lose faith in the troubled currency:

“Do not believe, my dear compatriots, those who suggest that we leave the euro. The isolation of France would be madness. The end of the euro would be the end of Europe…. [I] oppose with all my strength this backward step which would make a mockery of 60 years of European construction which has brought peace and fraternity to our continent.”

Mr. Sarkozy should read his history books. Europe had a great history prior to integration; even France had its bright moments. The Enlightenment, the Renaissance, the birth of Western civilization – all seemed to occur prior to this euro-centric push for integration.

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