Maastricht: Union that Foresaw its Failure but Closed its Eyes

As the global financial and economic crisis drags on, European regulators and policy-makers are continuing in their attempts to find a path from crisis towards stability, while balancing the public interests of independent sovereign nations desirous of a deeper financial, economic, political and fiscal union. Concurrent with these attempts, the media and government officials in the core of Europe are characterising the crisis as one stemming from profligate borrowing and reckless spending by peripheral Eurozone economies. Past Eurozone growth, particularly in Germany, did not come from meaningful improvements in productivity, but rather on the back of household wage reductions and industry-friendly reforms to the labour market – the Hartz reforms – which transferred wealth from the people to the banking and export-driven sectors of the economy. While German and French taxpayers are justifiably angry, their anger is largely misdirected. Rather than embracing the false narrative blaming only peripheral nations for requiring bailouts, the anger should more rightfully be directed at designers of the European Monetary Union, banks, in the core, officials and technocrats who failed to properly regulate the domestic banking, rating agencies and political leadership. With this as a backdrop, it logically follows that the German government and central bank are seeking to protect the markets for German exporters and the German banking sector. Accordingly, the German government will be forced to choose either a large share of the costs of supporting a further integration of the European Monetary Union or, alternately, the larger economic and social costs of its failure, including the massive costs of recapitalizing German banks and financial support for German industry. Either approach will lead to German debts rising markedly while its economy contracts. The costs will be astounding.