On the same day that IMF Chief Lagarde warned that dangerous cycles “are now threatening the very existence of the European project,” two notable (political) economists — Niall Ferguson and Nouriel Roubini — have penned a call to action in the Financial Times. In “Berlin is ignoring the lessons of the 1930s,” they say that
We find it extraordinary that it should be Germany, of all countries, that is failing to learn from history. Fixated on the non-threat of inflation, today’s Germans appear to attach more importance to 1923 (the year of hyperinflation) than to 1933 (the year democracy died). They would do well to remember how a European banking crisis [which began the collapse of Austria's Kreditanstalt] two years before 1933 contributed directly to the breakdown of democracy not just in their own country but right across the European continent.
Later, Ferguson and Roubini add that
Germans must understand that bank recapitalisation, European deposit insurance and debt mutualisation are not optional; they are essential to avoid an irreversible disintegration of Europe’s monetary union. If they are still not convinced, they must understand that the costs of a eurozone break-up would be astronomically high – for themselves as much as anyone.
After all, Germany’s prosperity is in large measure a consequence of monetary union. The euro has given German exporters a far more competitive exchange rate than the old Deutschmark would have. And the rest of the eurozone remains the destination for 42 per cent of German exports. Plunging half of that market into a new Depression can hardly be good for Germany.
It is unlikely to be a coincidence that Lagarde’s, Ferguson’s and Roubini’s utterances come on the same day as President Obama’s first-ever Eurozone-focused press conference.
Something is happening or will soon happen. Time is getting short. Seemingly everyone except the Germans has concluded that German policy is leading to a European economic collapse.