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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