The Fourth Reich

Germany's Euro Feint?

We are agnostic on what the outcome will be from the present European financial crisis.  But watching it unfold is exceedingly diverting.  In broad relief, the options are: either Greece leaves (or is ejected from) the Euro leading to a general break-up of the currency union, or Greece stays and the union is preserved.

If the former, the break-up will cause financial turmoil and banking failures until the respective countries hit bottom and begin to trade their way out of depression.  If the latter, European nations lose national sovereignty to a much more powerful Federal Europe, dominated by Germany. 

The intriguing question is, Who is going to blink first?  German Chancellor Merkel, or the Eurocrats?  And, beneath it all, is the German republic playing a game of poker where it finally sees an opportunity for the end-game it has long sought: a centralised European government, controlled by Germany?  As the incoming Obama administration said, never let a good crisis go to waste.


In 1995, Bernard Connolly wrote The Rotten Heart of Europe: The Dirty War for Europe's Money (London: Faber & Faber, 1995).  Connolly was a European insider.  He had been in the conference rooms and the corridors of power as the Euro was put together and came into existence as the common currency.

He pointed out that the elites in France long ago gave up on the idea of the nation state, except for the French one.  The French elites had pushed hard for European union as a way to extend "the borders of the state from the French nation to 'Europe'."  (Connolly, p.379) Only then could France retain its domestic power, and hold back the tides of globalization, international capital, and the rigours of open market competition. 

France has pushed really hard for European Union in order to extend French control and influence and to maintain and protect the French world-and-life view.  It has always seen European Union as being eventually dominated by France and French interests.  Connolly's argument was that what the elitist French technocrats were "interested in is power--first imposing their will on France and then imposing their conception of France's will on everyone else." (Ibid., p. 390)

What, however, became also very clear in the mid-nineties was that Germany had a different vision of Europe.  It saw a European Union as an extension of German values, beliefs, and principles into Europe.  Connolly wrote:

Instead, German prescriptivism  about European Union is increasingly overt, and reflects one characteristic of many Germans that their neighbours find offensive: an insistence that what Germans do is right for Germans and must therefore be right for everyone else.  German prescriptivism is a twentieth-century version of 'the white man's burden'.

While the French elite vision of Europe can reasonably be called imperialist, the German popular vision . . . is missionary-colonialist. (Ibid., p. 388)

French elites wanted a Europe controlled by them.  Germany has always wanted an Europe that thinks and acts like Germany.

With this background, the present struggles become much more sharply defined. All of Europe (including the Eurocrats) has now lined up against Germany.  Consider the following piece from the Sydney Morning Herald:

Dr Merkel is under massive pressure from Europe's Latin bloc and world leaders.  Leaks of a teleconference call last Wednesday reveal that French President Francois Hollande, Italian Prime Minister Mario Monti and US President Barack Obama launched a three-pronged attack, pressing Dr Merkel to drop Germany's veto on use of EU rescue funds for banks.

The trio repeated their demands three times with mounting tension. Each time she answered no, first in English, and then in German for precision, according to details obtained by Italy's La Repubblica. ''Germany does not want the fund to spend billions in exchange for collateral from ruined banks. I don't see why we should end up holding bits of bankrupt lenders,'' she reportedly told them.

Meanwhile the European technocrats are frenetically pushing for a "collectivization" of Greek and Spanish debt--that is, assuming the obligations of these hugely indebted nations and their banks, and spreading it across all of Europe.  This from the Guardian:

In return for yielding to the pressure to pay to save the euro, Berlin will insist on major steps towards a eurozone federation or political union with budgetary, fiscal, and scrutiny powers vested in Brussels and in the European Court of Justice, meaning vast transfers of sovereignty from member states. (Emphasis, ours)

If Germany were to accede to the demands, it will want a high price--one that it has sought all along: effective German control over other nations in Europe, via centralized European institutions which it will effectively control.  This is the spectre raised by George Soros:

In a speech in Italy at the weekend, the financier George Soros warned that Merkel had no more than three months to fix the euro, but outlined the prospect of a grim new eurozone controlled by Berlin.  "The likelihood is that the euro will survive because a breakup would be devastating not only for the periphery but also for Germany," he said. "Germany is likely to do what is necessary to preserve the euro – but nothing more.

"That would result in a eurozone dominated by Germany in which the divergence between the creditor and debtor countries would continue to widen and the periphery would turn into permanently depressed areas in need of constant transfer of payments … it would be a German empire with the periphery as the hinterland."

Merkel has made it clear all along that she want more European integration, rather than less.  But, integration of a certain kind: one where Germany calls the shots on other governments' fiscal policies, spending, taxation, inflation, and the credit-worthiness of its banks. As the Guardian reports:

Europe's leaders appear to be edging towards an ambitious and controversial new blueprint for a federalised eurozone after Paris and Brussels threw their weight behind Spain's pleas for an EU rescue of its beleaguered banks.  At the start of three weeks likely to be crucial to the survival of the euro, the new French government and the European commission voiced strong backing for a new eurozone "banking union" to save the single currency.

The plan could see vast national debt and banking liabilities pooled – and then backed by the financial strength of Germany – in return for eurozone governments surrendering sovereignty over their budgets and fiscal policies to a central eurozone authority.

German financial backing will mean that the German view of how the central eurozone will operate and the degree of national sovereignty surrendered will be at Germany's direction and call.  

The Fourth Reich.  As the Proverb warns: the borrower will have once again become the lender's slave.

We expect that this is the reason Merkel and her colleagues are hanging tough, with their "Nein" to an easy collectivization of Greek and Spanish debt.  They would accept it only if European nations are willing to pay the price: ceding national sovereignty to a German controlled Europe.  Merkel and her advisers may well believe that the time for bringing Europe under German financial and economic control is now or never.  We suspect that Germany may well emerge victorious.  We will see.