It is difficult to comprehend that the European Central Bank cannot follow up the bold declarations of its president that it will do ‘whatever it takes’ to secure the euro with anything more dramatic than a statement that it is ‘working on a plan’. Really?
The inability of the euro authorities to turn words into action is, looked at in isolation, bizarre or even funny. The truth behind the confusion is quite simple and very plain. These authorities do not have the power to do so. The consequence of setting up a currency without all the structures, political and fiscal, to run one, is that the currency exists in form but not in fact. The reality is there is no such thing as the euro. There is the deutsche mark, somewhat devalued and by another name, run, controlled, directed and financed by Germany on its terms, to its rules, within its political preferences and according to the terms of its national constitution. All Europe is using this German currency.
The effect of this mismatch is that the countries, which prior to joining were operating much looser fiscal disciplines with currencies of much lower value, are squeezed to the point of economic stagnation, unmanageable debt and potential financial collapse. The Germans offer tea and sympathy and an austere programme of reform beyond the political capacity of shackled governments to deliver. What is needed is German money. This will not be given without the reforms. These will break the social cohesion of the errant countries. Another way would be for the ECB to print money. It hints it might, but it cannot because the Germans will not allow it to do so. The Bundesbank says no. And it is the Bundesbank, not the ECB, which is, when push comes to shove, in charge.
The euro will not go under because Germany will not let it. But southern Europe will be condemned to decades of stagnation and falling living standards as the price of trying to head off German dominance after unification by the ruse of a common currency. Instead of stripping Germany of the mark, they threw away the lire, peseta, drachma et al and joined a currency subject to exactly the same austere purity of the mark, the standards of which were beyond their reach and outside their cultural capabilities. They are faced now with the demand they become Germans in all but name.
There is only one way these more profligate countries can now escape. Instead of making declarations that they want to stay in the Euro no matter what, they need to announce they have had enough and they are going to leave. If Italy started by saying enough was enough and they were laying plans to return to the lire, the Germans might start to re-think their approach. Nothing less will have any effect.