Investors beware: The euro is so fraught with internal contradictions that it will inevitably be unstable.
The latest indication of this was the late November spat between the new left-leaning German government on one side and officials in the
European Central Bank
on the other.
Germany's Finance Minister
said the ECB should concentrate on growth and job creation, and not exclusively on the narrow goal of price stability.
There were howls of protest at this: The deputy chairman of the
Bavarian Christian Democrat Party
wrote to the president of the
asking him to issue a formal reprimand to the new German government for displaying attitudes "which were incompatible with the
A professor of economic law was also wheeled out to explain why "any political interference in the independence of the central bank is illegal." The leader of Germany's opposition
, accused Lafontaine of committing the same mistake as the
, the French Revolutionary terrorists whose name is associated in Germany with vicious centralization of power in state hands.
The argument has caused the markets to worry about whether the ECB will bow to political pressure or whether it will resist, pursuing hard-currency policies instead. This fear is fueled by the presence of an equally left-wing government in Paris to whose ears Lafontaine's attacks on the Bundesbank and the ECB are music.
France, after all, originally conceived the monetary union project a decade ago -- precisely in order to gain political control over European monetary policy, which it could never have as long as the Bundesbank ran it. The French finance minister has indeed declared that, with the election of a new German government, France now has the monetary union of which it always dreamed.
The only way for the markets to assess the meaning of the squabble is to examine the constitutional, legal and political structure upon which
Economic and Monetary Union
is based. The dispute has illustrated precisely what euroskeptics have been warning for years: The structure and founding ethics of EMU are fundamentally self-contradictory.
The key to understanding this lies in the mantra that Bundesbank chief
repeated at the height of the debate. The euro, he insisted, had to be an "unpolitical" currency. This is a concept that Tietmeyer has been peddling for years, and it forms the core of his thinking about the feasibility of EMU. Unfortunately it is also the core of Germany's own incoherence on the subject.
When Tietmeyer speaks of an "unpolitical" currency, he means that there should be no day-to-day interference by politicians in the setting of interest rates. Only thus, he argues, can the currency remain stable. If it becomes a political football, then long-term stability and growth will be compromised.
Naturally enough, Tietmeyer adduces the Bundesbank as an example of what he means. Unfortunately, this only shows how flawed is his understanding of the monetary constitutions over which he presides. If the German mark is stable, it is so because it is rooted in the overall stability of the German economy.
More profoundly, the currency stability associated with an independent central bank can only come to be if there is, constitutionally speaking, a settled popular and political will that monetary policy should be taken out of the daily political fray.
By contrast, the single currency project in Europe is precisely intended to seal an irrevocable
union between the currently disunited peoples of Europe.
Former German Chancellor
was famous for insisting that the single currency was a matter of war and peace in Europe. It is an absolutely central element of pro-European thinking that any interruption in European integration will make them liable to fight one another as in the past.
But a single currency cannot be simultaneously the natural outgrowth of a pre-existing economic and political stability and also a means for forging these things.
To use a currency as a crowbar by which to force into place a political union between disparate countries and different economies can never "depoliticize" currency management. On the contrary, it represents the highest degree of currency politicization imaginable.
Even the wording of the Maastricht Treaty, often thought to guarantee the independence of the ECB, contains this fundamental contradiction.
In Article 105, Maastricht says the ECB is committed to (undefined) "price stability" but also to "support
ing the general economic policies of the Community," which are outlined in Articles 2 and 3 of the treaty.
These latter articles contain commitments to every conceivable policy area, from commercial policy and employment to social cohesion and even tourism. Indeed Article 2 is best summarized as committing the EU to motherhood and apple pie.
Indeed, any investor worth his salt who is concerned about the impact of EMU on his investments should not hesitate to look these articles up to see for himself how shaky the treaty structure is.
But the Lafontaine-ECB clash over monetary policy is merely the latest example of EMU being hamstrung with politics. The now-notorious Franco-German tussle in May over who should head the ECB underlined this.
And all the major convergence criteria were infringed when countries like Germany, Belgium and Italy were admitted to EMU even though their debt figures are incompatible with what the treaty says they should be.
The Bundesbank's spring report noted the violated EMU criteria -- especially the size of the Belgian and Italian debt, which it believes will be a severe burden on EMU -- and yet limply said that the decision to admit countries was "political."
Indeed it was. Born in illegality, the single currency can only ever aspire to be a political football.
John Laughland is a London-based author of The Death of Politics: France Under Mitterand and, most recently, The Tainted Source: The Undemocratic Origins of the European Idea. He is also European director of the European Foundation, and contributes to The Wall Street Journal Europe, The Financial Times and the Times of London.
This story was originally published on Dec. 11.