By Klaus-Rainer Jackisch, HR
The European common currency stands on a knife edge. The situation has never been so dire. Many citizens do not notice this because the stock markets are holding up quite well and there are no other upheavals in everyday life to be felt. But behind the scenes there are dramatic scenes. Central banks and governments have long been working on plans for an emergency: The euro zone could collapse.
In fact, it is about central questions: Will politicians succeed in saving the Euro project? Or do we have to liquidate the euro and reintroduce national currencies? In both cases there are massive costs for the taxpayers, especially the Germans. There will be no rescue for free. Nor is the settlement. The welfare losses will be substantial. Because the cart sits too deep in the mud.
Merkel threw her principles overboard
Politicians have decided to save the euro – no matter what the cost. The Chancellor has thrown her principles overboard. After pithy words in advance, she buckled on all crucial points at the EU summit last week. It was there that the final foundation stone was laid for a transfer union in which the debts of all euro states are communitized. German taxpayers pay for debts that arose in deep Calabria. You save ailing banks, for example from Galicia.
The price is very high. The financial burdens in the form of rescue packages and direct aid cannot yet be foreseen. If everything goes wrong, they amount to around two trillion (2,000,000,000,000) euros on the German side alone.
Parliament is incapacitated
Legally, the procedure is highly controversial. It is not yet clear whether the Federal Constitutional Court considers the rules to be constitutional. In fact, the resolutions curtail the sovereignty of the nation states. That is actually only possible with an amendment to the Basic Law or a referendum. Parliament is increasingly incapacitated. The sovereign, i.e. the German people, is constantly confronted with a fait accompli. The sovereign may only nod. The parliamentarians are not even given time to read through resolutions.
The turmoil in foreign policy is devastating: Franco-German friendship, one of the cornerstones of the republic, crumbles. The crisis-ridden southern states dictate more and more what is done. German taxpayers are allowed to pay.
Britain is considering the unthinkable
Members outside the eurozone rebel. In Great Britain, the previously unthinkable is being considered: a referendum on remaining in the European Union. Even the European skeptic Margaret Thatcher would not have dared to do that. All of this increases tension in the EU.
In the worst case scenario, not only does the monetary union collapse, but also the European Union. This would destroy the work of generations. From those who built Europe after the Second World War and made peace in freedom possible for decades.
Returning to Deutsche Mark would be expensive
The alternative is the reintroduction of national currencies. This scenario would also result in massive upheavals. Because nobody can believe that the return of the D-Mark would be free of charge. The changeover would certainly not take place according to the old exchange rate ratios as with the introduction of the euro, but radically for all countries at a ratio of 1: 1. After that, the new mark would appreciate massively because investors see it as a safe haven. The consequence would be a sharp rise in the price of German exports. The mainstay of the local economy would collapse. Germany would fall into recession. Unemployment would rise dramatically.
In the previous crisis states there would be devaluations. These countries could throw their goods cheaply on the world market and reduce their unemployment. At the same time, they are unlikely to repay their bailout debt. The German taxpayer would be left with huge losses.
EU failed to deepen the Union
No matter how you turn it around: The Euro project has failed in its previous form. It failed because the monetary union was first established before a political superstructure was built. At that time, the architects of the euro zone claimed that monetary union would automatically lead to political union. But the concept has failed in the almost twelve years that the euro has existed. Over the years, the EU has been concerned with enlarging but not deepening. She is now getting the receipt for this – especially from aggressive speculators in the financial markets, for whom the euro has always been a thorn in the side. Because who in the Anglo-Saxon world has liked to see that the euro, despite its weaknesses, stood up to the US dollar and denied its supremacy.
The population will pay for this failure: by digging deep into their pockets and having to massively reduce their standard of living. In Germany and in Europe.
Klaus-Rainer Jackisch regularly writes his Euroschau column at https://povareno.ru, in which he takes a look at the monthly ECB council meeting.