As the fateful month of August approaches in Europe, the time has come for the countries of Euroland to consider reversing the procedure and timetable of World War I. That is to say, that France, Italy, Spain, and all rest of the Euro-15 should plan to invade and occupy Germany.
Of course, none of the European countries are quite the military powers that they used to be, but France has more capability than any of the others including Germany and it has an independent nuclear force. So, in alliance with the others, France should be able relatively easily to overcome Germany resistance. Recall that in World War I, the German Schlieffen plan of invasion sent German troops through neutral Belgium into France. Now, Belgium is no longer neutral and would willingly, nay, enthusiastically, open its roads and provide support for a French thrust into Germany. Recall also that the road to hostilities in World War II began with the German remilitarization of the Rhineland. Hitler sent troops in under orders to withdraw immediately if there was any sign of a French reaction. Sadly, there was no such reaction and the German troops stayed. Hitler later said it had been the most nervous night of his life. He had gambled and won.
French Prime Minister Francois Hollande and his Euroland allies could try a similar move. They could send troops into the Rhineland with orders to high-tail it out at the first sign of German resistance. But if there is no resistance, they just keep marching until they occupy the German Central Bank and the German Finance Ministry in Berlin. There they direct the German officials to agree to support measures for a European Bank Union and a Europe-wide sharing of financial risk in conjunction with the kinds of reform and austerity measures already underway in Italy and Spain.
Okay, I know it’s whimsical and totally beyond the bounds of reality, but it points to the main problem in Europe today which is Germany, not Spain or Italy or the periphery. Sure, sure, the peripheral countries must bear their share of the burden of blame, especially, in the case of Italy, for its vastly uncompetitive labor rules and bureaucratic machinations. But the real problem here has been German exceptionalism. The Germans have forgotten that it was the United States willingness to bear the broad common risks of supporting investment to rebuild Europe after World War II that underpinned its so-called Wirtshaftswunder. They have also forgotten that it was the willingness of the rest of Europe to help bear share the cost that made it possible for them to reintegrate Eastern Germany with the Federal Republic on terms of parity for the East German Mark with the Deutsche Mark. They have also not understood that their present vaunted competitiveness has much more to do with the fact that the euro is undervalued with regard to Germany than to any of the reform measures they adopted several years ago. Most importantly, the Germans are still not understanding that as painful as providing their support to their fellow Europeans might be, the pain of a collapse of the Euro would be far greater.
Invasion of Germany is clearly a bridge too far, but someone has to be brutally frank in speaking to Germany. Perhaps Italy’s Prime Minister Mario Monti is the best placed person to do so. If the euro goes down, the consequences for Germany will not be pleasant. But the euro cannot survive without Italy. Monti thus has the potential, if he is willing to take a bit of risk (invade the Rhineland), to threaten Germany with withdrawal from the eurozone unless Germany can bring itself to act in the broad European interest (which is also the true German interest) rather than in the narrow German interest (which is not the true German interest). Of course, he does not want to withdraw and will not do so except in extremis. But the terms the Germans are presently offering are such as to create a state of extremis, and Italy must therefore consider, however reluctantly, the possibility of withdrawal. Getting this message across may be the only chance left for the euro, Euroland, and the EU.
- Just Another Panic Monday in Euroland (ritholtz.com)
- Pricing the German costs of a euro break-up (ftalphaville.ft.com)
- Germany, Greece and the Marshall Plan (economist.com)