LONDON: Chancellor Helmut Kohl has said that the economic and monetary union of Europe agreed in the Maastricht treaty is "a question of war and peace in the 21st century." Despite coming from the lips of a German leader and being delivered in Belgium -- the most war-torn country of western Europe -- the significance of these words were soon lost in the deluge of economic forecasts and monetary statistics which dominate discussion of European Monetary Union (EMU).
Even EMU opponents -- including myself -- concentrate on the economic dangers posed by monetary union. Tough budgetary criteria and deflationary policies imposed by the Maastricht treaty are blamed for aggravating Europe’s present slump, exacerbating unemployment, and threatening social stability. Moreover, they damage the fragile economies of the EU’s trading partners to the east. And there are clear dangers to the cohesion of western Europe from the likelihood that the EU will be split into two rival currency zones -- with 6 or 7 countries clustered around Germany and France belonging to EMU, while Britain, Denmark, Italy, Spain, Sweden and other economies remain outside.
Further ahead, EMU will become a huge obstacle to the transition countries seeking membership in the EU itself. Not only will they find it difficult to meet the convergence criteria (mandated low inflation and debt levels) fixed at Maastricht -- if they do join EMU they will find it hard to raise living standards to western levels, being forced to accept monetary and exchange rate policies designed primarily to stabilize prices in Germany and France.
But beyond these issues lies a fear that dare not speak its name. Clausewitz said that war is the extension of diplomacy by other means. Germany today may twist his maxim: monetary diplomacy has become the extension of war by other means.
Today, France, Belgium and others that suffered past German military aggression cannot resist an ultimatum posed by an institution almost as powerful as the old Wehrmacht: the Bundesbank. By May 1998 these countries must meet the Maastricht convergence criteria. Fail, and Germany will have the right either to prevent them from joining EMU or to abandon the project altogether. Because monetary union is deemed a precondition for European peace, governments find even the possibility of such failure too awful to contemplate.
So Germany is in a position to extract almost anything it wants from France in exchange for German agreement in May 1998 to relax the conditions for EMU. In response to German pressure, France already abandoned its longtime opposition to a common EU foreign and security policy. More French defeats -- including abolition of the national veto that General de Gaulle enshrined in the EU constitution, and the transfer of ever more sovereignty to the EU parliament (in which Germany has the largest contingent) -- loom large on the horizon..
Access every new PS commentary, our entire On Point suite of subscriber-exclusive content – including Longer Reads, Insider Interviews, Big Picture/Big Question, and Say More – and the full PS archive.
Subscribe Now
What more Germany will demand is impossible to guess. One Bundesbank director says that the constitutions of all EMU candidates should be rewritten to outlaw large government budget deficits. Because governments borrow money when they go to war, some commentators joke that this may be what Kohl means when he says that monetary union will prevent another European war.
A new French constitution is not yet an official German demand. Still, the economic sacrifices imposed on the French to qualify for monetary union are so great that President Chirac cannot let the project fail.
But the balance of power between Germany and France could shift as soon as a formal decision to go ahead with EMU is taken. When Germany starts taking the practical steps required to submerge its D-mark in a single European currency, the decision will become irrevocable and France will no longer be dependent on German goodwill. At that point many suppressed tensions and contradictions will break forth.
Perhaps the greatest of these is Germany’s expectation that monetary union will spread German influence -- not only through the European central bank to be based in Frankfurt and closely modelled on the Bundesbank, but also because political reforms will move Europe decisively in the direction of a federal state, with strong federal institutions protected from political interference, modelled on those of the Bundesrepublik, with Germany the biggest constituent part.
French elites, however, have opposing objectives. They see EMU breaking German domination of economic policy by taking key monetary decisions out of German hands. In franker moments French politicians admit that the real aim of monetary union is to gain control of the Bundesbank. For under the Maastricht treaty, Germany has only one vote on the European central bank’s governing council, meaning it will have no more power than France, Austria, or for that matter, tiny Luxembourg.
Earlier this year, French premier Alain Juppe said that monetary union would put Europe’s economic policy "clearly in the hands of elected governments." That same day, Bundesbank president Hans Tietmeyer, insisted that monetary policy would not be made by elected governments. All monetary decisions would be made by the European central bank "which will enjoy complete autonomy -- just like the Bundesbank."
Sooner or later France and other countries with political traditions different from Germany’s will break the diplomatic and economic promises they made to tempt Germany into EMU. Tensions between Germany and its European partners will intensify. Ironically, monetary union will bring back into the limelight the nationalist demagogues whom Helmut Kohl hoped to banish from Europe.
To have unlimited access to our content including in-depth commentaries, book reviews, exclusive interviews, PS OnPoint and PS The Big Picture, please subscribe
While both the American and Chinese Gilded Ages raised material standards of living for hundreds of millions of people, their endemic corruption produced radically unequal and unsustainable growth. Ultimately, both periods offer cautionary tales about unbridled crony capitalism, not models for blind emulation.
explains how corruption both drove the country's GDP growth and sowed the seeds for its current economic problems.
Since taking power in 2014, Prime Minister Narendra Modi and his ruling Bharatiya Janata Party have stoked Hindu nationalism, hollowed out India’s democracy, and overseen an economy that is probably performing far worse than official figures suggest. And yet Modi and the BJP are genuinely popular, making them likely – though not certain – to emerge victorious when the ongoing parliamentary election concludes in June.
LONDON: Chancellor Helmut Kohl has said that the economic and monetary union of Europe agreed in the Maastricht treaty is "a question of war and peace in the 21st century." Despite coming from the lips of a German leader and being delivered in Belgium -- the most war-torn country of western Europe -- the significance of these words were soon lost in the deluge of economic forecasts and monetary statistics which dominate discussion of European Monetary Union (EMU).
Even EMU opponents -- including myself -- concentrate on the economic dangers posed by monetary union. Tough budgetary criteria and deflationary policies imposed by the Maastricht treaty are blamed for aggravating Europe’s present slump, exacerbating unemployment, and threatening social stability. Moreover, they damage the fragile economies of the EU’s trading partners to the east. And there are clear dangers to the cohesion of western Europe from the likelihood that the EU will be split into two rival currency zones -- with 6 or 7 countries clustered around Germany and France belonging to EMU, while Britain, Denmark, Italy, Spain, Sweden and other economies remain outside.
Further ahead, EMU will become a huge obstacle to the transition countries seeking membership in the EU itself. Not only will they find it difficult to meet the convergence criteria (mandated low inflation and debt levels) fixed at Maastricht -- if they do join EMU they will find it hard to raise living standards to western levels, being forced to accept monetary and exchange rate policies designed primarily to stabilize prices in Germany and France.
But beyond these issues lies a fear that dare not speak its name. Clausewitz said that war is the extension of diplomacy by other means. Germany today may twist his maxim: monetary diplomacy has become the extension of war by other means.
Today, France, Belgium and others that suffered past German military aggression cannot resist an ultimatum posed by an institution almost as powerful as the old Wehrmacht: the Bundesbank. By May 1998 these countries must meet the Maastricht convergence criteria. Fail, and Germany will have the right either to prevent them from joining EMU or to abandon the project altogether. Because monetary union is deemed a precondition for European peace, governments find even the possibility of such failure too awful to contemplate.
So Germany is in a position to extract almost anything it wants from France in exchange for German agreement in May 1998 to relax the conditions for EMU. In response to German pressure, France already abandoned its longtime opposition to a common EU foreign and security policy. More French defeats -- including abolition of the national veto that General de Gaulle enshrined in the EU constitution, and the transfer of ever more sovereignty to the EU parliament (in which Germany has the largest contingent) -- loom large on the horizon..
Subscribe to PS Digital
Access every new PS commentary, our entire On Point suite of subscriber-exclusive content – including Longer Reads, Insider Interviews, Big Picture/Big Question, and Say More – and the full PS archive.
Subscribe Now
What more Germany will demand is impossible to guess. One Bundesbank director says that the constitutions of all EMU candidates should be rewritten to outlaw large government budget deficits. Because governments borrow money when they go to war, some commentators joke that this may be what Kohl means when he says that monetary union will prevent another European war.
A new French constitution is not yet an official German demand. Still, the economic sacrifices imposed on the French to qualify for monetary union are so great that President Chirac cannot let the project fail.
But the balance of power between Germany and France could shift as soon as a formal decision to go ahead with EMU is taken. When Germany starts taking the practical steps required to submerge its D-mark in a single European currency, the decision will become irrevocable and France will no longer be dependent on German goodwill. At that point many suppressed tensions and contradictions will break forth.
Perhaps the greatest of these is Germany’s expectation that monetary union will spread German influence -- not only through the European central bank to be based in Frankfurt and closely modelled on the Bundesbank, but also because political reforms will move Europe decisively in the direction of a federal state, with strong federal institutions protected from political interference, modelled on those of the Bundesrepublik, with Germany the biggest constituent part.
French elites, however, have opposing objectives. They see EMU breaking German domination of economic policy by taking key monetary decisions out of German hands. In franker moments French politicians admit that the real aim of monetary union is to gain control of the Bundesbank. For under the Maastricht treaty, Germany has only one vote on the European central bank’s governing council, meaning it will have no more power than France, Austria, or for that matter, tiny Luxembourg.
Earlier this year, French premier Alain Juppe said that monetary union would put Europe’s economic policy "clearly in the hands of elected governments." That same day, Bundesbank president Hans Tietmeyer, insisted that monetary policy would not be made by elected governments. All monetary decisions would be made by the European central bank "which will enjoy complete autonomy -- just like the Bundesbank."
Sooner or later France and other countries with political traditions different from Germany’s will break the diplomatic and economic promises they made to tempt Germany into EMU. Tensions between Germany and its European partners will intensify. Ironically, monetary union will bring back into the limelight the nationalist demagogues whom Helmut Kohl hoped to banish from Europe.