Back in December we pointed out the patently obvious: in the absence of an external rebalancing mechanism, i.e., a free-floating currency, the only option for the bulk of the periphery to regain competitiveness was through ongoing wage collapse and persistent localized depression. Five months later, just as predicted, Europe is in a worse shape than ever before, not only in those non-core countries where wage deflation is accelerating, but the weakness has fully spilled over to the core. Of course, none of this is rocket science, and has been quite obvious to anyone who thought for more than 15 seconds about the “future” of the Eurozone. What is surprising, however, is that with every passing day even the most staunchest supporters of the euro, in this case Oskar Lafontaine, German finance minister in 1998-1999, under whose supervision the euro was launched, are becoming the most vocal Euro-skeptics an unsound, political (capital) currency can no longer buy. Here is the Telegraph’s Ambrose Evans-Prithard dissecting the conversion of the latest europhile turned euroskeptic.
From The Telegraph
Oskar Lafontaine, the German finance minister who launched the euro, has called for a break-up of the single currency to let southern Europe recover, warning that the current course is “leading to disaster”.
“The economic situation is worsening from month to month, and unemployment has reached a level that puts democratic structures ever more in doubt,” he said.
“The Germans have not yet realised that southern Europe, including France, will be forced by their current misery to fight back against German hegemony sooner or later,” he said, blaming much of the crisis on Germany’s wage squeeze to gain export share.
Mr Lafontaine said on the parliamentary website of Germany’s Left Party that Chancellor Angela Merkel will “awake from her self-righteous slumber” once the countries in trouble unite to force a change in crisis policy at Germany’s expense.
His prediction appeared confirmed as French finance minister Pierre Moscovici yesterday proclaimed the end of austerity and a triumph of French policy, risking further damage to the tattered relations between Paris and Berlin.
“Austerity is finished. This is a decisive turn in the history of the EU project since the euro,” he told French TV. “We’re seeing the end of austerity dogma. It’s a victory of the French point of view.”
Mr Moscovici’s comments follow a deal with Brussels to give France and Spain two extra years to meet a deficit target of 3pc of GDP. The triumphalist tone may enrage hard-liners in Berlin and confirm fears that concessions will lead to a slippery slope towards fiscal chaos.German Vice-Chancellor Philipp Rösler lashed out at the European Commission over the weekend, calling it “irresponsible” for undermining the belt-tightening agenda.
Naturally, one wonders just how much of an ethical right to being disgruntled Germany has when the man who was more personally responsible for ushering in the Euro than anyone, Lafontaine’s boss, Helmut Kohl recently admitted in an interview that he acted like a dictator to bring in the euro. “I knew that I could never win a referendum in Germany,” he said. “We would have lost a referendum on the introduction of the euro. That’s quite clear. I would have lost and by seven to three.”
The interview was conducted by Jens Peter Paul, a German journalist in 2002, the year when the Deutsche Mark was replaced by euro notes and coins, but has only been published now.
In it, Mr Kohl describes adopting the euro as an emblem of the European project, which he said had prevented war on the continent. Born in 1930, Mr Kohl’s politics were shaped by his country’s history in the 1930s and 1940s; his final years in power were focused on promoting European unity.
In the interview, he said: “If a Chancellor is trying to push something through, he must be a man of power. And if he’s smart, he knows when the time is ripe. In one case – the euro – I was like a dictator … The euro is a synonym for Europe. Europe, for the first time, has no more war.”
So, in reality, it is neither Germany, nor France, nor Spain, nor Greece, but the Germans, the French, the Spanish and the Greeks , whose majority voice has been usurped by Europe’s conversion to a dictatorial regime, and who have been the most disdavantaged by said usurpation of democracy all in the name of a technocratic, banker ideal, i.e., the EUR, which serves merely to promote the interests of the few, the uber-wealthy, and leave a trail of 60% youth unemployment everywhere in its place, now that the illusion is over and the great unwind toward reality has begun.
That said, expect Lafontaine’s words to be soundly ignored, until such time as avoiding reality and kicking the can is no longer an option. Then again, that is a problem also for the US and its preoccupation with the pyramid scheme known as the stock market and the entitlement system. We expect the grand reset to impact everything at the same time. Until then, it is best to stick one’s head in the sand of course.
Add here is the full statement by Lafontaine.
Chancellor Angela Merkel’s European policy is increasingly under pressure. Not only Euro-pean Commission President Manuel Barroso, but also Enrico Letta, recently mandated by Italian President Giorgio Napolitano to form the new governnnent, have criticized her austerity policies, which have been dominant in Europe and are leading to disaster. Europe’s leaders have long been at a loss. The economic situation is worsening from month to month, and unemployment has reached a level which is increasingly undermining democratic structures.
The Germans have not yet realized that the southern Europeans, including France, will in view of the current economic misery be forced to fight back against German hegemony sooner or later. In particular, German wage dumping, which has been an infringement on the treaties from the outset of the currency union, is putting them under pressure. Merkel will wake up from her self-righteous slumber when the countries which are suffering from Ger- man wage dumping get together to force a policy switch against the crisis at the cost of Ger- man exports.
A common currency could have been sustainable if the participants had agreed on coordinated productivity-oriented wage policy. During the nineties, since I considered such a co-ordination of wages to be possible, I agreed to the establishment of the Euro. But the institutions established for that coordination, particularly the Macro-Economic Dialogue, have been circumvented by the governments. Hopes that the establishment of the euro would force rational economic behaviour on all sides, were in vain. Today, the system is out of joint.
As Hans-Werner Sinn recently wrote in the Handelsblatt, countries like Greece, Portugal or Spain would have to become 20 to 30 per cent cheaper than the EU average, in order to achieve a roughly balanced level of competitiveness, and Germany would have to become 20 per cent more expensive.
However, recent years have shown that such a policy has no chance of being implemented. A real appreciation through rising wages, which would be necessary in the case of Germany, is not possible with the German corporate associations and the neo-liberal block of parties, consisting of the CDU/CSU, the SPD, the FDP, and the Greens, which obey to them. A real depreciation through shrinking wages, which will make income losses of 20 to 30 per cent necessary in southern Europe — even in France — will lead to disaster, as we can already see in Spain, Greece and Portugal.
If real appreciations and depreciations are not possible in this way, it will be necessary to abandon the common currency and return to a system which allows for appreciations and depreciations, as was the case with the forerunner of the common currency, the European Monetary System (EMS). Basically, the point is to make possible once again controlled depreciations and appreciations through an exchange-rate regime run by the LU. For that pur¬pose, strict capital controls would be the inevitable first step, in order to regulate capital flows. After all, Europe has already taken this first step in Cyprus.
During a transition period, it will be necessary to provide aid to those countries which are certain to depreciate their currencies, in order to prop them up — including aid through intervention by the ECB, to prevent a collapse. A pre-condition for the functioning of a European monetary system would be a reform of the financial sector and its strict regulation, along the lines of the public savings banks. The casino has to be closed down.
The transition to a system allowing for controlled appreciations and depreciations should be gradual. A start could have been made in Greece and Cyprus. The experience with the European currency snake and the EMS should be considered.