After the end of World War II the United States assumed the burden of restructuring Europe from the beginning. At that time, Germany was defeated -if not humiliated in the eyes of the Europeans- and entirely devastated, France was supposed to be the new prominent power in Europe, and the United States could build on the leverage they acquire after contributing fundamentally to the end of the war and the win of the Alliances. Do we have something relevant today? Are there any given comparisons looking so similar in 1950 and 2013?
The Marshall Plan was one of the biggest investment plans ever prepared in modern history. It was assumed by the United States and it was destined to first restructure the devastated European market, and then assisting on the revitalizing of the European economy, focusing on Germany, the biggest and most robust industrial country of the continent. The United States had many to earn from this effort as dollar would be the currency that would be soaring up the European market, increasing therefore the influence of the United States. In addition to that, there was also the plan that after the first steps, Bundesmark would substitute the intrusion of dollar in the European market and starting get established as the most powerful currency of the European market. French were undermined from this development as they were expecting that their currency could be the one dominating in Europe. Nonetheless, as European development and growth should also be supported by the French economy, Paris could not handle solely such a big plan, and therefore France agreed to play equal terms with Germany through the establishment of the European Coal and Steel Community (ECSC), which was lately developed into what we know as the European Community (EC), and then the European Union.
Even if it was agreed that Germany and France would be considered as primus inter pares in the European continent, in fact what was finally developed was a robust Western Germany that was constantly supported in every respect by the United States. This was the first sacrifice of France.
The second sacrifice of France came after the unification of Germany in the beginning of 1990s when the United States, after securing that the communist threat was no longer imminent in Europe after the collapse of the Soviet Union, pressed towards this development despite the deep concerns of France. The unification of Germany was invested symbolically as the unification of Europe and the win of the liberal axis led by the United States, and pragmatically as the first significant effort for Europe to set aside the nazist ghosts of the past and the legacy of Hitler, and move towards the creation of a single market that could assist the global race of dollar.
The third sacrifice of France came when the European Exchange Rate Mechanism (ERM) was established in 1979. The basic idea behind this mechanism was to reduce exchange rate variability and achieve monetary stability in Europe. In fact, ERM had empowered Bundesmark in such a degree that Germany’s currency was synonym to monetary stability in Europe. Stability was achieved in the sense that threats against the global monetary and financial crisis, mainly affecting the dollar, could be handled more efficiently as both the ERM and the European Central Bank’s reserves would be linked with Bundesmark. After all, Germany grew immensely, and the experiment of the single currency through the establishment of the European Monetary Union and Eurozone was considered to be a safe step towards a more centralized monetary system controlled by Berlin and aligned by US dollar and the Breton Woods system.
The creation of the EMU was invested with hopes that the European economy could finally work in the mutual benefit of every member-state of Eurozone. Nonetheless, Eurozone has ended up to be a privileged field for development and growth for the German economy and the member-states that are inextricably interwoven with the German economic mindset, such as Austria and Benelux. The rest of Eurozone has been trapped into a vicious circle of sovereign debt crisis and none of them seem capable for the moment to provide or at least articulate an alternative to exit the crisis, including France. This is the fourth sacrifice that France made in favor of Germany.
Nonetheless, why euro is not weakening tremendously against dollar after such a recession and austerity in Eurozone? Answers vary, but let us try to gather different variables into one single paragraph. First, while austerity engenders fears for tough social unrest, it creates a safe environment for low-cost investments with the minimum labour cost. Here comes the term “dumping”, but it is something it really does not matter for markets and investors. In this respect, while US monetary policy is not tightening up, fears against a possible fall of dollar might increase, and chances for traders to buy dollars are falling. In the contrary, euro reserves and holdings remain high, even after the recent, joint statement of the BRICS that there were no longer determined to nourish transactions using euro. Second, there is a lot of positive news since 2012 to keep euro from collapsing. In this respect, despite the constant dickering across Europe, Germany has long supported overdebted states with continuous bailout plans, managing to diminish the cost and the falling of euro in the international markets. Third, there is also the Middle East markets that as crude oil is surging, there is a growing effort for diversifying dollar holdings instead of euro holdings in order to increase stability of investment and do not let portfolios go down due to dollar’s potential fall (i.e. as crude oil prices are counted in / linked with dollar). Bottom line: everything seems to be controlled. This is the safe (?) bet of Germany.
But what if Eurozone disintegrates? It is very likely that in this scenario it will not be only Germany to lose, but also France. And this will be the fifth sacrifice of France. Let alone the chain of events in the global market and the reaction of the United States, Switzerland, the Middle East, the BRICS and so on. The bet of Germany might seem even weaker as Berlin has decided to retrieve its gold reserves from the Federal Reserves Bank in New York, which is mainly the gold accumulated during and after World War II and kept there for safety reasons. Therefore, is Eurozone disintegration close or far? Is the bet of Germany safe or not?Dimitris Rapidis