Return of a German nightmare

British EU exit and the unravelling of Europe

These are not propitious times to be pondering the pivotal position of Germany in the politics of European disintegration. The constellation of circumstances concerning a possible British exit from the European Union after the 23 June referendum demonstrates some unfortunate parallels with the most unstable episodes in German history.


Already unnerved by negative interest rates and the permanent outvoting of the Bundesbank in the monetary decisions of the European Central Bank, senior German officials show intense nervousness about the consequences of a UK EU departure. The concern is that this would deprive Germany of a key economic and political ally at a time of great nervousness over Europe’s future.


In particular, it would leave the Germans exposed to the combined forces of France, Italy and Spain, the biggest economies in economic and monetary union after Germany, all ill-disposed towards German interests.


This would be an unsettling rerun of the ‘nightmare of coalitions’, the feared hostile combination of European powers that haunted Otto von Bismarck, the first chancellor of united Germany, in the closing decades of the 19th century. This time, the peril comes not from outside but from inside an alliance of neighbouring states. There are some similarities to the threat to German interests outlined to Chancellor Helmut Kohl by François Mitterrand, the French president, in the weeks after the fall of the Berlin Wall in November 1989.


Two days after invoking Mitterrand’s wrath by unveiling an unexpected 10-point plan for German unity, Kohl sent Hans-Dietrich Genscher, his foreign minister – who died on 31 March – to Paris on 30 November 1989 to seek France’s consent for redrawing Europe’s architecture.


Mitterrand was implacable, telling Genscher that Germany had to prepare for serious negotiations on EMU; otherwise Germany risked a ‘triple alliance’ between France, Britain and the Soviet Union that could isolate Germany in similar fashion to the eve of the first and second world wars. ‘We will return to the world of 1913.’ Under this extreme threat, Kohl backed down. He agreed that the forthcoming Strasbourg summit would approve the start of an intergovernmental conference on EMU in the second half of 1990. This was the essential deal that launched Europe to the euro.


More than quarter of a century later, 17 years after EMU started, the specific German worry is that ECB policies focused on ultra-low or negative interest rates are impairing the solidity and solvency of German banks and insurance companies, harming the incomes and livelihoods of millions of German savers. The undermining of faith in the euro appears to resemble John Maynard Keynes’ description of the monetary processes damaging Germany in the aftermath of the first world war: ‘There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.’


The disintegrative effects of Britain leaving the EU, discussed more than once this year at the highest level of the European Central Bank, has been a big topic in the spring meetings of the International Monetary Fund and World Bank in Washington in recent days.


While Mario Draghi, the ECB president, has put forward the more hopeful scenario that a UK withdrawal from the EU could speed up the integration of the rest of the continent, most of his peers from around Europe disagree. A British exit, it is felt, could trigger anti-EU referendum campaigns in places ranging from Poland and Italy to Denmark and the Netherlands. It would also strengthen forces inside Greece calling from Athens to withdraw from EMU: instead of more European unity, a gradual process of disruptive unravelling would be the result.


David Marsh is Managing Director at OMFIF.

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