Collective Conscious

David Frum:

Imag­ine a world in which Europe had pro­ceeded with eco­nomic uni­fi­ca­tion, but did not cre­ate the euro.

In such a world, as in our world, goods and work­ers would move freely from War­saw to Lis­bon. Europe’s inter­nal invest­ment bar­ri­ers would have largely vanished.

What then?

In such a world, Ger­many as the most pro­duc­tive econ­omy would have begun to rack up large trade sur­pluses. As those sur­pluses accu­mu­lated, the value of the Deutsche Mark would have appre­ci­ated against Europe’s other cur­ren­cies. The cost of doing busi­ness in Ger­many would rise rel­a­tive to, say, the Czech Repub­lic or Slove­nia. Investors would shift their oper­a­tions out of Ger­many. Jobs would be cre­ated out­side Ger­many and destroyed inside Germany.

The poorer Euro­pean coun­tries would face a very dif­fer­ent envi­ron­ment in our non-​​euro world.

Investors wor­ried about cur­rency risk would charge sig­nif­i­cantly higher inter­est rates to coun­tries like Greece. More expen­sive credit would have con­strained their abil­ity to run bud­get deficits.

Now back to the real world.

By fold­ing all of Europe’s cur­ren­cies into the euro, Ger­many pre­vented its neigh­bors from reduc­ing their costs — thus enhanc­ing Ger­man exports and pre­serv­ing Ger­man jobs.

In the decade from 2000 to 2010, Germany’s share of world trade rose by almost 9 per­cent (most of that being exports to other Euro­pean countries).

The same cur­rency that made Ger­man exports more com­pet­i­tive also made the exports of other Euro­pean coun­tries less com­pet­i­tive. Their shares of world trade declined over that same decade — in France’s case, by a spec­tac­u­lar 23 percent.

But the less com­pet­i­tive coun­tries did get some­thing out of the euro: Lower inter­est rates. The cur­rency arrange­ment that enabled Ger­many to sell more enabled Greece, Italy, Spain, and France to bor­row more.

Ger­many got the jobs. Greece and the oth­ers got the debts.

Amer­i­can ears may prick up with recog­ni­tion here, because the deal explic­itly struck between Ger­many and the rest of Europe in the 2000s looks a lot like the arrange­ment tac­itly accepted by the United States and China over the same period.

An arti­fi­cially cheap Chi­nese cur­rency stim­u­lated Chi­nese exports and jobs. An arti­fi­cially expen­sive Amer­i­can cur­rency stim­u­lated Amer­i­can bor­row­ing and consumption.

Amer­i­cans don’t take it very patiently when the Chi­nese present them­selves as the vir­tu­ous vic­tim of Amer­i­can extrav­a­gance. Nor should Amer­i­cans do so. It was Chi­nese cur­rency manip­u­la­tion that called forth the Amer­i­can credit bubble.

South­ern Europe faces an even starker predica­ment. Not only did the euro inhibit their job cre­ation and enable their bor­row­ing — but it also adds greatly to the dif­fi­cul­ties of repay­ing their debts. Unlike the U.S., which can at least repay in a cur­rency it con­trols, south­ern Europe must repay in a cur­rency it does not con­trol — and that is not man­aged in south­ern Europe’s interest.

Imag­ine if today’s Fed­eral Reserve gov­er­nors were jointly appointed by the gov­ern­ments of China and Saudi Ara­bia, and you get some idea of why Greeks riot in the streets.

So my friend’s joke needs to be amended.

What the Ger­man is being asked to pay for is not the drinks. He (and the other sur­plus coun­tries adjoin­ing Ger­many) are being asked to help pay for the cleanup after a party at which they had most of the fun.

Don’t worry. The Greeks and the other indebted south­ern Euro­peans will suf­fer — and are suf­fer­ing — plenty. But to ask the Greeks and the other south­ern Euro­peans to suf­fer exclu­sively is to for­get how this cri­sis was cre­ated in the first place.