If the purpose of the euro was to bind Europe's tribes together and serve as catalyst for political union, EU elites must have been chastened by the outpouring of anti-German feeling in the Greek parliament last week.
The Left called for war damages for Axis occupation and accused German banks of playing a "wretched game of profiteering at the expense of the Greek people".
Mainstream New Democracy was no nicer. "How does Germany have the cheek to attack us over our finances when it has still not paid compensation for Greece's war victims? There are still Greeks weeping for lost brothers," said ex-minister Margaritis Tzimas.
This is deeply hurtful to Germany, a vibrant democracy that has played its difficult part in Europe for 60 years with dignity. No country could have done more to overcome its demons. It has paid the EU bill, and paid again, rarely grumbling.
Yet a decade of monetary union has created such a wide and self-perpetuating gap between North and South that everything in EU affairs is poisoned. German-Greek relations are the worst in my lifetime.
Nobel economist Paul Krugman said there is no point blaming any one country for this "Euromess". "Europe's policy elite bears the responsibility," he said. "It pushed hard for the single currency, brushing off warnings that exactly this sort of thing might happen, although even eurosceptics never imagined it would be this bad." Actually, we did, Professor. Thanks anyway.
EMU is slowly suffocating boom-bust states trapped in debt deflation, acting in the same perverse and destructive fashion as the Gold Standard in the 1930s.
Gold rules were simple: surplus states loosened, deficit states tightened. This preserved equilibrium. World War One shattered the system. The US was not ready to take the guiding role from Britain.
The dollar was undervalued in the 1920s. America ran vast surpluses, like China today. So did France, which re-pegged too low. Both drained the world's bullion. Yet neither loosened: the Fed because Chicago liquidationists ran amok; the Banque de France because its post-War brush with hyperinflation was still fresh.
Adjustment fell entirely on deficit states such as Britain. They had to tighten into the downturn, feeding debt deflation. Global demand imploded on itself until the entire system collapsed. In the end, the US and France were victims of their obduracy, but that was not clear in 1930, or 1931, except to Keynes.
This is the story of Euroland. The North is in surplus, the South in deficit. Germany's current account surplus was 6.4pc of GDP in 2008, Holland's 7.5pc. Club Med deficits topped 14pc for Greece, and 10pc for Iberia. The gap has narrowed since but remains structural.
This is an intra-EMU version of China's surplus with the West. But at least China is doing something about it with a fiscal blitz and 30pc growth in the money supply.
Germany has banned budget deficits, implying a fiscal squeeze next year. IG Metall has agreed to a pay freeze, undercutting Spanish and Italian unions yet again. How can Club Med close a 30pc gap in unit labour costs against deflating Germany?
Brussels is enforcing an EU-version of Pierre Laval's deflation decrees in 1935, the policy that tipped France's Third Republic over the edge. It has ordered Greece to cut the deficit by 10pc of GDP in three years or face the whip under Article 126.9. Spain must squeeze 8pc. France next?
The European Central Bank is letting deflation run its course. Business credit is falling at a 2.3pc rate, while M3 money continues to contract. Frankfurt says demand for loans has slackened, so this does not matter. We will find out.
German growth fell to zero in the fourth quarter as state stimulus faded. Italy turned negative again. Spain never left recession. This recovery has `L-shaped' all over it.
Dr Krugman said EMU had lured Spain into a debt bubble and left the country exposed to an "asymmetric shock" with no defence. "If Spain had had its own currency, that currency might have appreciated during the real estate boom, then depreciated when the boom was over. Since it didn't and doesn't, however, Spain now seems doomed to suffer years of grinding deflation and high unemployment." He wants higher inflation to rescue eurozone deflators from their trap. So does the IMF, implicitly. But who in Europe will or can take that decision?
Albert Edwards from Société Générale said governments should use their powers over the exchange rate under Article 219 to force a change in policy. "The politicians should take matters into their own hands and instruct the ECB to drive the euro lower," he said.
That can happen only once France thinks the dangers of Laval policies outweigh the dangers of defying Bundesbank orthodoxy. Until then EMU will be an instrument of slow deflation torture.
The Left called for war damages for Axis occupation and accused German banks of playing a "wretched game of profiteering at the expense of the Greek people".
Mainstream New Democracy was no nicer. "How does Germany have the cheek to attack us over our finances when it has still not paid compensation for Greece's war victims? There are still Greeks weeping for lost brothers," said ex-minister Margaritis Tzimas.
This is deeply hurtful to Germany, a vibrant democracy that has played its difficult part in Europe for 60 years with dignity. No country could have done more to overcome its demons. It has paid the EU bill, and paid again, rarely grumbling.
Yet a decade of monetary union has created such a wide and self-perpetuating gap between North and South that everything in EU affairs is poisoned. German-Greek relations are the worst in my lifetime.
Nobel economist Paul Krugman said there is no point blaming any one country for this "Euromess". "Europe's policy elite bears the responsibility," he said. "It pushed hard for the single currency, brushing off warnings that exactly this sort of thing might happen, although even eurosceptics never imagined it would be this bad." Actually, we did, Professor. Thanks anyway.
EMU is slowly suffocating boom-bust states trapped in debt deflation, acting in the same perverse and destructive fashion as the Gold Standard in the 1930s.
Gold rules were simple: surplus states loosened, deficit states tightened. This preserved equilibrium. World War One shattered the system. The US was not ready to take the guiding role from Britain.
The dollar was undervalued in the 1920s. America ran vast surpluses, like China today. So did France, which re-pegged too low. Both drained the world's bullion. Yet neither loosened: the Fed because Chicago liquidationists ran amok; the Banque de France because its post-War brush with hyperinflation was still fresh.
Adjustment fell entirely on deficit states such as Britain. They had to tighten into the downturn, feeding debt deflation. Global demand imploded on itself until the entire system collapsed. In the end, the US and France were victims of their obduracy, but that was not clear in 1930, or 1931, except to Keynes.
This is the story of Euroland. The North is in surplus, the South in deficit. Germany's current account surplus was 6.4pc of GDP in 2008, Holland's 7.5pc. Club Med deficits topped 14pc for Greece, and 10pc for Iberia. The gap has narrowed since but remains structural.
This is an intra-EMU version of China's surplus with the West. But at least China is doing something about it with a fiscal blitz and 30pc growth in the money supply.
Germany has banned budget deficits, implying a fiscal squeeze next year. IG Metall has agreed to a pay freeze, undercutting Spanish and Italian unions yet again. How can Club Med close a 30pc gap in unit labour costs against deflating Germany?
Brussels is enforcing an EU-version of Pierre Laval's deflation decrees in 1935, the policy that tipped France's Third Republic over the edge. It has ordered Greece to cut the deficit by 10pc of GDP in three years or face the whip under Article 126.9. Spain must squeeze 8pc. France next?
The European Central Bank is letting deflation run its course. Business credit is falling at a 2.3pc rate, while M3 money continues to contract. Frankfurt says demand for loans has slackened, so this does not matter. We will find out.
German growth fell to zero in the fourth quarter as state stimulus faded. Italy turned negative again. Spain never left recession. This recovery has `L-shaped' all over it.
Dr Krugman said EMU had lured Spain into a debt bubble and left the country exposed to an "asymmetric shock" with no defence. "If Spain had had its own currency, that currency might have appreciated during the real estate boom, then depreciated when the boom was over. Since it didn't and doesn't, however, Spain now seems doomed to suffer years of grinding deflation and high unemployment." He wants higher inflation to rescue eurozone deflators from their trap. So does the IMF, implicitly. But who in Europe will or can take that decision?
Albert Edwards from Société Générale said governments should use their powers over the exchange rate under Article 219 to force a change in policy. "The politicians should take matters into their own hands and instruct the ECB to drive the euro lower," he said.
That can happen only once France thinks the dangers of Laval policies outweigh the dangers of defying Bundesbank orthodoxy. Until then EMU will be an instrument of slow deflation torture.
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