During a panel discussion on 3 April in Vientiane on growth in the Asian economy, I asked Tarisa Watanagase, a former governor of the Bank of Thailand, what she thought of the future of Europe’s economic and monetary union. Watanagase, who was governor in 2006-10 and previously helped clear up the 1997-98 Asian financial crisis in Thailand, answered without demur. ‘It will not be a happy ending.’
Three decades ago in Asia, she said, countries like Thailand were able to emerge from turmoil within a year, with currency devaluation a major part of the adjustment – an option not available in Europe’s fixed exchange rate system. ‘That’s very unfortunate when you’re in a crisis.’
Watanagase, who spent time at the International Monetary Fund as long ago as 1988-90, said she foresees EMU breaking down into a smaller more homogenous arrangement of like-minded countries.
Watanagase’s words reflect what serving Asian policy-makers are saying behind closed doors. They are reminiscent, too, of the latest thoughts of Mervyn King, former governor of the Bank of England, who as a retiree is freer to speak his mind on EMU.
Watanagase’s views are relevant because of two events in the last few days: the death of Hans-Dietrich Genscher, the former German foreign minister who was a legendary figure behind his county’s reunification in 1990, and renewed signs of severe problems in the eternal struggle between Greece and its creditors.
Genscher played a primary role in a series of domestic policy upheavals both before and after reunification. [see link to David Marsh obituary of Genscher in FT on 2 April]. He was also a pivotal architect of EMU, arguing as foreign minister in a position paper in February 1988 for the launch of a single currency based on an independent European Central Bank pledged to price stability.
One of the reasons for Genscher’s support for EMU was to give his liberal Free Democratic Party – traditionally the kingmaker in post-war West German governments – additional political profile compared with the Christian Democrats of his nominal boss, Chancellor Helmut Kohl. He wished to appeal, too, to the German business people backing the FDP who liked the idea of a currency fluctuation-free Europe where German exports would flourish.
Both concepts bore fruit. Genscher did his best to undermine Kohl’s ally, Gerhard Stoltenberg, the cautious finance minister, stating later, ‘Stoltenberg did not realise the importance of monetary union. Therefore it was necessary that I should go to the front line.’
Less well known was Genscher’s role, before the 1991-92 Maastricht treaty, in blocking progress towards a much-mooted European political union as part of the move to EMU. Many leading Germans, including Kohl, had said monetary union without political union was unsustainable. Yet Genscher was highly sceptical about pooling political power, memorably saying that if all European countries had had a vote on German unification, it would never have happened.
All this comes to mind when Germany is grappling with an impossible task in Greece. If Europe was a political union, the Germans would have bailed out the Greeks long ago. But then Germany would never have entered a union with a country as politically and economically disparate (some might say wayward) as Greece.
As leaked transcripts over the weekend show, the IMF appears to be asking Germany to grant much-needed Greek debt relief or to accept that the Fund will pull out of the latest bail-out programme – both politically ruinous options for Chancellor Angela Merkel.
The IMF seems to be hoping that Greece will be forced through debt repayments scheduled in coming months to agree fresh austerity that Athens itself finds unacceptable. None of this high-stakes squabbling is really new. The IMF’s board was told as long ago as July 2015 that Greece’s unsustainably high debt and shortcomings in realising reforms preclude a further IMF bail-out unless Berlin and other European creditors agreed debt relief.
The refugee crisis has lent the imbroglio a fresh edge. In the meantime, the Asians are watching Europe’s slow disintegration with fascination and horror. And the spirit of Hans-Dietrich Genscher lives on – a man who helped EMU to happen, but ensured, too, it would be well-nigh unworkable.