Peter Blackrock. Germany in control.

Jul 16, 2015

What is happening in the European Union and Eurozone? Clearly, there is a seismic shift underway. Here is one interpretation of what is happening.

The key driving force behind the shift is the German Finance Minister, Wolfgang Schaeuble. He is the number two in the right-wing Christian Democratic Union, behind Chancellor Angela Merkel, although many say he really calls the shots. He is 72.  He’s a nationalist. He is a fiscal conservative. He doesn’t believe Germans should keep paying for the sins of their fathers by prostrating themselves before the European Ideal. He wants to leave behind a legacy.  Time is short.  He must move fast.

His plan is to winnow out the dead-beat nations in the Eurozone (e.g. Greece) and create a Northern European Co-prosperity Sphere with close political integration and one fiscal czar. This will be a taut and terrific team under the control of a German coach and German captain.

Indeed, the main reason why Germany refuses to give Greece (or other struggling Euro-nations) serious debt relief is because debt gives Germany tremendous political control.  It can squeeze out any nation it doesn’t want on the team (e.g. Greece) and force other states to agree to greater political integration (under the German coach and captain).

In the recent negotiations over Greece’s debt, Schaeuble made it very clear that he wanted Greece to exit from the Eurozone. He was not bluffing or posturing. Indeed, he must be very surprised that the Greek Government (full of lefty types who believe much more strongly in Europe than Schaeuble does) were so desperate to accept the Carthaginian Peace on the table.

However, Schaeuble will not be denied. He knows that, if he keeps squeezing, Grexit is inevitable, sooner rather than later. Then Germany will move on to expel any other weaklings in the Eurozone. Then those nations will be off the Eurozone’s books and there will be no more bail-outs or whining about diktats from Brussels.

The French and Italians, of course, are desperate to join the first team that Schaeuble is building. That’s why, in the last few days, the French President, Francois Hollande, has started talking about greater political integration in Europe.  He can see the writing on the wall and wants to look like he led the charge to closer integration rather followed it.

The United Kingdom is a separate case. It won’t be on the new team because it has an unruly democracy and isn’t a team player. It will soon drop out of the European Union all together.

Greece should accept it will never be invited to join the first team and accept its inevitable demotion to the second division.  However, if it plays smart (and uses a pegged currency to maintain discipline) it might do rather well, eventually.

Thus ironically the Eurozone, which was originally designed to control Germany, has become an instrument of Germany control.




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