Okay, that headline is a little extreme (I actually laughed out loud as I wrote it), but I am trying to think like a European politician here. Let me explain. I’ve already said what I’d do if I was a member of the peripheral countries. I’d go right up to Angela Merkel and tell her that if Germany doesn’t start giving in to some of our demands that I’d take my country, leave the Euro and default on the German bankers. Really, they should all do this in unison although Alexis Tsipras appears to be the only one actually willing to make this threat. It’s time to turn the tables on Germany and start pushing them around. That’s what this has come to.
It’s now abundantly clear that austerity is failing. And it will continue to fail until a true resolution is brought to the table. That either involves a full dissolution of the Euro (resulting in full sovereignty with the former currencies) or a push towards fiscal union. These half hearted moves that we keep seeing just aren’t going to fix the root cause of the currency crisis. The single currency system is broken. Just like the gold standard was broken. There is no reviving it in its current form. It either needs major changes like the USA did when it created a full fiscal union or it needs to be busted up so these nations can regain monetary sovereignty and floating FX.
The sad thing is, Germany likes the way things have been. As long as they can avoid having their banks defaulted on then they continue to enjoy being the trade surplus nation within the single currency and the primary beneficiary of the EMU. They have meager growth, but record low unemployment. Things are pretty good on a relative basis! So they’re holding on for dear life just hoping that something turns around and the music continues to play on. But the music is coming to an end and Germany needs to start making decisions. They either need to leave the Euro and stop holding everyone in the EMU hostage to their demands or they need to start making some concessions and moving towards fiscal union. And since it’s becoming clear that they won’t make decisions then someone has to start making decisions for them.
There’s no provision in the EU for kicking a country out (as far as I know), but that doesn’t mean they can’t create one. The peripheral nations could all unify and I am certain they’d find support from France at this point since Hollande is pushing for fiscal unity as well. Together, these countries can all start pushing Germany around. In fact, they could threaten to kick Germany out of the EMU (though they clearly don’t need to go that far!!). It sounds crazy, but that’s the last thing Germany wants. If they were kicked out of the EMU they’d not only default on trillions in Euros, but they’d have to bring back the D-mark which would be a total disaster for their economy as the D-mark would soar versus the Euro and crush their export driven economy. Ironically, it would likely result in higher debt levels for Germany as automatic stabilizers would result in more government spending as recession occurred. So they’d not only lose their trade position, but they’d end up printing more money anyhow!
Now, part of this is a bit facetious. I really don’t think they should try to kick Germany out of the EMU. But they should certainly unify more tightly and begin pushing back very aggressively. There’s much more to the EMU than Germany, but for some reason everyone is taking orders from Angela Merkel. Europe needs leaders to start walking into meetings and making very serious threats. There are millions of people held hostage in a depression due to this inaction. Someone needs to start standing up for them and recognizing that the currency union needs very serious changes and it needs them YESTERDAY.