Download 14865_The mechanics of the Euro

Made in Germany: The mechanics of the Euro
Some parallels between the Euro and the NAZI monetary system
For many EU countries integration has replaced the communist
prerogatives with fairy-tales about European welfare and happiness.
Dogmatically, the study of the European integration has diminished the
sensitivity of the rulers for an unfinished past. To stir the interest of our
readers we come forward with the following question: Who fathered the
idea of European Union?
From 1848 to the present, the need for raw materials and new markets
has made Germany formulate different concepts and methods on
European integration. In 1903, one of the most influential German
organization run by the economic and political elite and dominated by
the reputable liberal Friedrich Naumann, i.e. Central European Economic
Organization, delineated/formulated not only the idea of a European
Customs Union but also the clearing model. Article 4 of the programme
makes reference to the permanent necessity of integration study1. Even
nowadays, this integrative instrument seems to render politicians
immune to the social needs accompanying the single currency European
integration. But which is the faulty element in this monetary aggregate?
Where is the origin of this mechanism? The European System of Central
Banks (ESBC) mechanism of fixed exchange rates relies on a model of
monetary integration proposed by Walther Funk and Emil Puhl2, the last
Governor and vice Governor, respectively, of the Reich Central Bank. E.
Puhl devised and supported a multilateral clearing system between
Germany and the European countries. Consequently, we could establish
some similar elements common to “the balance mechanism” of the Euro
zone and the German clearing system.
In Europe, the establishment of different models of monetary cooperation
starting with 1940, at the outbreak of WW II, made Germany’s voice heard
distinctly. Following the Versailles Treaty, Germany’s acute need for
foreign currency made the experts of the Reich Central Bank to develop
new models of monetary cooperation in Europe that would not be
1
Wolf Julius, Ein mitteleuropäischer Wirtschaftsverein, In. Zeitschrift für Sozialwissenschaft
1903
2
Entwurf zu einem Kurzreferat des Herrn Vizepräsident Puhl über das „multilaterale Clearing“
für eine Presseveranstaltung (Auslandspresse) der Rechsregierung am 12.12.1040.
currency dependant. The clearing agreement model was a good
instrument to eliminate Germany’s chronic lack of foreign currency3. A
new type of European commerce was created that could ensure the raw
material for the German industry as well as an expending market without
resorting to /tapping the domestic currency reserves necessary for war
compensations. From the outset, Hjalmar Schacht, the Governor of the
Reich Central Bank those days, recommended that Germany include
derogatory clauses with the aim of delivering smaller amounts of goods
than those stipulated initially. Therefore, a crediting with foreign assets
was achieved indirectly and, at the same time, Germany succeeded in
self-financing by making the national banks of the clearing partner
countries pay their exports in national currency in spite of the fact that
the importers’ payments in national currency were smaller.(As a
consequence of the diminish in the amount of German transfer)
As a consequence, inflation related to clearing represented a key element
in the development of the entire exploitation model and was perceived as
an indirect taxation of the partner countries and lead to the
impoverishment of their population.
For our purpose, we should spell out what Maastricht Stability Pact
represents. Walther Funk specified that the success of a European
monetary system depends on the fixed rate rule and this system alone
can ensure Germany a trade surplus by protecting the German economy
from de currency devaluation of the commercial partners. Moreover, Funk
states that the fixed rate system represents an inflationary threat for
Germany which ask for the partner countries to adopt the German
stability criteria. Known as the Maastricht criteria, they include a wide
range of fiscal policy to limit inflation and overall public debt.
Both in the clearing method and the ESBC the financial instruments
represent the principal means by which the monetary sterilization of the
German trade surplus is achieved. Starting from the Reich Central Bank
watchword (German price and wages stability constitute an attractive
anchor for the clearing partners) Funk mentions that such a monetary
cooperation can predetermine a rise in price in the associated countries
3
Walther
Funk:
„Neuaufbau
der
europäischen
Wirtschaft“,
Sitzung
im
Reichswirtschaftsministerium, 22. Juli 1940; Abschrift: Künftige europäische Währungsordnung.
Zur Rede von
Reichsminister Funk, in: NZZ 11.7.1944; Zum deutschen Plan einer
intereuropäischen Clearinganleihe, in: NZZ 24.7.1944; Deutschland und die internationalen
Währungspläne, in: NZZ 31.7.1944
but not necessarily a rise in their living standard. In this line of thought,
Funk considers that Germany can be supplied with raw material and
agricultural products from the south-Eastern Europe. The price rise in the
clearing partner countries due to the favorable price used in Germany,
seriously affected their economy and deteriorated the long-term trade
relations. The decrease of the economic competitiveness lead to an
increase of the clearing system with Germany and consolidated their
dependence on the German hegemony.
The increase in trade with Germany (based in particular agricultural
products and oil export from Eastern European countries), trade financed
indirectly through inflation (as shown above) together with the strategy to
combat inflation with fiscal instruments generated a systematic
exploitation of the respective country (in Eastern Europe the fiscal
instruments, particularly the indirect taxation, allowed a sterilization of
the German trade surplus).
Consequently, nothing prevents us from considering that, from the
financial perspective, there is no difference between the current German
trade surplus and that arising from the conduct of clearing operations.
The price increase in the associated countries had no correspondence in
a comparable situation in Germany. What do we observe in the ESBC? In
recent years, rising prices in countries such as Greece, Spain Portugal
reduced economic competitiveness and upset their trade balance. This
effect is induced indirectly by a real depreciation of German price which
constitutes a central element in the current crisis.
The expansion of the German intra-Community trade has generated a
German trade surplus. The Reich monetary administration did not intend
a monetary union based on the German mark because it could not fight
effectively the inflationary danger4. The ESBC model is tributary to the
German one because it relies on a monetary union based on substitution
and not fusion. The current architecture of the ESCB, characterized by a
system of national central banks NCB (simply called operating on the
principal of decentralization of operations, allows a precise policy of
sterilization of German trade surplus against the Greek, Spanish,
Portuguese, Romanian or Italian taxpayer.
4
Entwurf zu einem Kurzreferat des Herrn Vizepräsident Puhl über das „multilaterale Clearing“
für eine Presseveranstaltung (Auslandspresse) der Reichsregierung am 12.12.1040.
Walter Funks last attempt, to issue a German clearing bond in order
secure the country’s debts at the end of the WW II, as he called
“internationalization of debts” somehow has much in common with the
project saving the Euro with € 500bn, making a large community, the
entire EU and the IMF guaranteeing, for the debt of the PIIGS5, € 535bn
held by German banks.
Dr. Radu Golban
5
Portugal, Ialy, Ireland, Greece, Spain