Could there be a German 'Marshall Plan' for Europe?

 

Bit by bit the German political elite is retreating from the position that there can be:

a) no prospect of a euro breakup;

b) no Greek default;

c) nothing but grim Maastricht-compliant orthodoxy from the European Central Bank (ECB);

d) an orderly solution to the crisis.

You can feel it happening in this Speigel article. You can see it in Herr Stark's resignation from the ECB.

In fact, ever since the Greek riots of late June - which forced German Chancellor Angela Merkel to back down completely on private sector involvement in the new, permanent bailout mechanism, after she was convinced it would cause another Lehman-style event - you can see Germany's position in retreat.

Tactical problem

Germany had good reason to be the last defender of austerity and fiscal restraint. It has the healthiest of the big economies, its banking system is broad and has withstood financial shocks. In any fiscal transfer to save the eurozone, the transfer will always be of German taxpayers' money to somewhere else.

euro coin on a map of Europe Angela Merkel says a Greek default will have a domino effect across Europe

Now its problems are threefold: one strategic; one tactical; one psychological.

The tactical problem is, can German politicians, diplomats and bankers get onto the front foot and now engage in an orderly resolution of the sovereign debt crisis? Leave aside the unpopularity this will stir inside Germany, it is a question of statecraft, not democracy.

With Juergen Stark taking his bat and ball home, the way is clear for the ECB to become a pro-active, crisis managing central bank (albeit on a wing and a prayer and with a lot of guidance, frankly, from the Fed and IMF), so does Germany continue exerting pressure against this or not?

Strategic problem: in the board rooms of the major investment banks there is only one debate going on - does the eurozone end up as a D-Mark bloc (Germany/Austria/Finland/Netherlands)?

Or a shrunken eurozone (same plus France, Slovakia, Estonia)? And on what terms are Spain and Italy "saved" to be part of what emerges?

Peripheral Europe diplomats talk darkly of a potential "crisis of democracy" - always, you understand, somewhere else, but it is a meme.

In the chancelleries of Europe, above all in Berlin, these are questions that are impossible to mention. There is a total mismatch between political expectation and what is imminent.

It reminds me - as so much of 2011 reminds me - of 1848. Metternich sneering out of the window at the irrelevant mob, a few hours before his unceremonious overthrow, Guizot unable to breathe with shock as he resigns his ministry, Thiers, prime minister for one day, suffering a bout of 19th Century Tourette's in his carriage, hounded by the masses…

'Marshall Plan'

Nobody can imagine what is about to happen. They keep conflating all potential solutions with the catastrophe itself (if the euro goes the single market goes, the euro and the EU are one project etc etc), just as the rulers of Europe convinced themselves in 1848 that to grant trial by jury and uncensored newspapers was tantamount to socialist revolution.

President Barack Obama President Obama said the eurozone is dragging the rest of the world into crisis territory

Here is the psychological problem: some German policy makers - the ones with exposure to the wider world of Anglo-Saxon and Asian capitalism - are now discussing, in the background, a German 'Marshall Plan' for Greece and southern Europe.

It flies totally in the face of the zeitgeist propagated by Bild and Der Spiegel, but, says my informant it goes like this: the Germans took millions of dollars in Marshall aid and rebuilt their country after 1945.

Could Germany, in a one-off act of expiation that puts that era behind us, do the same for southern Europe, wiping out its moral debt once and for all (for clarity here I emphasise over Marshall aid, not the war itself)?

It would need the German political class to put itself ahead of the people. If it happened it would signal Germany stepping onto the stage as a world power, eclipsing France - whose banks are in need of recapitalisation.

Centre of a maelstrom

So far Germany's instincts in this crisis have been to stick by the old rules: in a debt crisis, the lender must lose money; don't over-extend a central bank that has no tax base; bear down on inflation because that is what is says in all the treaties we have signed.

But what they stand to lose in any eurozone breakup is their market. It will be damaged cyclically and trade patterns will be restructured. The competitive advantage built into Germany's position in the eurozone will be eroded if southern Europe defaults, exits, devalues. And do they think handing large chunks of south European infrastructure to the Chinese state in some ways enhances Europe's diplomatic cohesion?

US President Barack Obama said last night the eurozone is what is dragging the rest of the world into crisis territory once again (oh, and that small matter of the US demonstrating its lack of institutional stability in the face of fiscal crisis).

What is true is that the eurozone is at the centre of a maelstrom, and that a critical event is coming, and that during that everybody's going to have to step up, do statecraft, be pro-active.

Keynes comes in for a lot of stick these days but his greatest achievement was not to design the rescue of 1930s capitalism through state intervention: it was two-fold.

It was to say:

(i) in 1919 don't punish Germany and push it into a downward economic spiral that will cause social chaos; and

(ii) in 1941: hey, fellas, what's the world going to look like when we win? Here's an idea…

 
Paul Mason Article written by Paul Mason Paul Mason Former economics editor, Newsnight

End of an era

After 12 years on Newsnight, Economics editor Paul Mason has moved on to pastures new and this blog is now closed.

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  • rate this
    0

    Comment number 57.

    Psychological, yes, it's all in the mind, because money exists now, not in hard coin, intrinsically valuable, but within computer systems, and if they were obliterated, by any manner or means, apart from mere physical destruction, then where would the elite find themselves. Wipe the slate clean, reset, start again. Life versus the dead hand of numbers. Life always wins out. This isn't war you know

  • rate this
    0

    Comment number 56.

    Your perspective is refreshing, especially by comparison with other BBC bloggers. If only the political elite could see through your lenses, but alas, we do not have the luxury of comprehending the impediment to decisive action on behalf of the general population rather than the banking system. Political leaders do not represent the people who elect them, but the architecture of global finance.

  • rate this
    0

    Comment number 55.

    David @22
    Why buy high-yield bonds, taking such risks?

    Private / institutionalised greed / temptation / compulsion
    'For' the shareholders, 'for' the bonus-earners
    Not really 'for' the collective 'us'!

    'Our' role, to socialise losses!

    Answer: align all interests with equal income-shares

    Any other idea credible?

  • rate this
    0

    Comment number 54.

    David @22
    Why buy high-yield bonds, taking such risks?

    Private / institutionalised greed / temptation / compulsion?
    'For' the shareholders, 'for' the bonus-earners
    Not really 'for' the collective 'us'!

    'Our' role, to socialise losses!

    Answer: align all interests with equal income-shares

    Any other idea credible?

  • rate this
    0

    Comment number 53.

    Anglophone @18
    "won't end well!"

    Life? True, clinging to 'freedom' to take advantage, not to trust, to vote for shades of Fear & Greed as Rulers

    Americans knew, 1860s, didn't want to be slaves, or compete with slave-wages: but despite 650,000 lives lost, fair labour still undercut

    Equality slandered, waves of immigrants each to undercut last, 
skill & work priced-out

    Dependence, debt, ruin

 

Comments 5 of 57

 

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