by Ambrose Evans-Pritchard: ECB
Prepares Legal Ground for Euro Rupture as Greek Crisis Escalates
a terrible dilemma. Either Europe’s paymaster agrees to underwrite
a Greek bail-out and drops its vehement opposition to a de facto
EU economic government, treasury, and debt union, or the euro will
start to unravel, and with it Germany’s strategic investment in
the post-war order.
The spike in
yields on 10-year Greek bonds to 400 basis points above German Bunds
has been shockingly swift – a warning to Britain, too, that
markets can suddenly strike any country that takes creditors for
We can argue
over whether Greece, Portugal, or Spain are at risk of being forced
out of the euro. But there is another nagging question: whether
events will cause Germany and its satellites to withdraw, bequeathing
the legal carcass of EMU to the Club Med bloc.
This is the
only break-up scenario that makes much sense. A German exit would
allow Club Med to uphold contracts in euros and devalue with least
havoc to internal debt markets. The German bloc would enjoy a windfall
gain. The D-Mark II would be stronger. Borrowing costs would fall.
The North-South gap in competitiveness could be bridged with less
disruption for both sides.
To be sure,
Germany is happily placed in the current EMU system. By compressing
wages for a decade it has stolen a march on EMU. Critics unfairly
call this a beggar-thy-neighbour policy. It is simply the way Lutheran
society operates, in deep contrast to the way Latin society operates
– a cultural clash that should have given pause for thought
before Europe’s elites launched headlong into their adventure.
are flooding the South. In the 12 months to November, Germany-Benelux
had a current account surplus of $211bn: Spain had a deficit of
$82bn, Italy $74bn, France $57bn, and Greece $37bn. German industry
will not give up this edge lightly. However, the matter will in
the end be decided by democracy. German citizens were given a pledge
by their leaders in the 1990s that loss of the D-Mark would not
lead to monetary disorder, or leave them liable for Club Med debt.
That is the sacred contract of EMU.
said Bundesbank chief Axel Weber, "it’s not possible to tell
voters that they are bailing out another country so that it can
avoid painful austerity measures that they themselves have gone
through. Such aid, whether conditional, or – even worse –
unconditional, is counterproductive."
Dr Weber is
right on both counts. Fresh loans for Greece can achieve nothing
useful at this stage. Greece already has a public debt hurtling
towards 138pc of GDP by 2012 (Standard & Poor’s). It is already
in a debt compound spiral. The EU elites have yet to acknowledge
that Greece and much of Club Med need gifts – not loans –
akin to transfers paid to East Germany after unification, or North
Italian perma-subsidies to the Mezzogiorno.