The euro’s Achilles’ heel

I was a bit skeptical, because I sure wouldn’t want to trade the dollar in for some sort of international currency. And I couldn’t quite figure out why the Germans were so hot to trot on the euro.

The German people still have a collective scar from the collapse of the Deutschemark during the Weimar Republic. The hyper-inflation that bedeviled Weimar helped lead to its collapse and bring in the Nazi regime. Ever since those dark days, the German central bankers have been notoriously conservative in their monetary policy.

That conservative approach hasn’t quite been snuffed out by the euro. Look what happened when Gordon Brown and Barack Obama practically begged Angela Merkel to spend massive amounts of money on stimulus. She said, “Nein.”

But the Germans (and the French) kept pushing for a single currency, even if it included the Italians, the Greeks, the Spanish and the Portuguese. None of these countries have much of a track record when it comes to fighting inflation. They aren’t particularly good as fiscal responsibility.

So, in 2002, the euro became the only currency of Europe (unless, of course, you count the British and the Swiss, who said thanks but no thanks).

And now we have a crisis that was predicted by many in the year 2000.

The euro is in serious trouble, because the Greeks (and the Irish, and possibly Spanish) are about ready to go bankrupt. Things are so bad in Greece that the government unions are about ready to go on strike because they don’t want to deal with the spending cuts.

And the notoriously tight-fisted Germans have to bail out the Greeks, even though they really, really don’t want to.

The European Union always seemed like a very nice concept. The idea of having an EU in the first place was to somehow find a way to get the Europeans to stop invading one another. After a century of increasingly brutal wars, the Germans, the French, the English and Italians decided that working things out in a political forum was far superior to bombing, maiming and killing one another.

But getting that concept to actually work has been far more difficult. And the biggest problem was getting them to all agree on a common monetary policy.

We will see how the Germans end up bailing out the Greeks. It is a big test for the EU and a big concern for the world financial system.

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