Reluctantly, Germany accepted to part with the Deutsche mark while imposing a legal and institutional infrastructure that would make the euro a clone of it. And to make sure that happened, Germany dictated the rules for the ECB — a supra-national institution and the world’s only genuinely independent monetary authority.
Born out of fear of German domination, the euro is, arguably, the only major achievement of a project that was supposed to make another French-German war an impossibility.
Still, a war by other means did happen, and France, Italy, Spain, Portugal, Ireland and Greece — 54 percent of the euro area GDP — have only the ECB to thank for rescuing them from an assault of disastrous German-imposed austerity policies.
Europe’s largest economy suffered two casualties as high-ranking German members of the ECB’s governing board stormed out in protest in February and September 2011, but the bank continued to issue abundant amounts of money by buying the euro area government bonds through open-market operations.
Germany then unsuccessfully sued at the highest German and European courts. Undeterred, Berlin still continues its guerilla warfare against the euro area central bank that is delivering economic growth and price stability while strictly adhering to its policy mandate.
In the first nine months of last year, the euro area GDP grew at an annual rate of 2.4 percent — a growth rate that was last seen 11 years ago. Even Greece managed to exit nine years of a debilitating depression, avoiding, in the process, a determined German attempt to devastate the cradle of the Western civilization by throwing it out of the monetary union.
The ECB accomplished all that while holding the headline inflation at 1.4 percent, and the core rate (consumer prices minus energy) at 1.2 percent.
With the euro area inflation well below the medium-term objective of about 2 percent, and the unemployment rate at 8.7 percent, the ECB announced last Thursday that there were “very few chances” of any interest rate increases for the rest of the year.
Punters are betting otherwise, despite the fact that inflation is well below target, a substantial further fiscal consolidation is a must, and bad loans are plaguing the banking system — all sequels of a severe recession and high unemployment in early stages of economic recovery. Indeed, fiscal restraint needs to go much further in France, Italy and Spain, and six out of 19 euro area members have to stop, and reverse, the increase of their public debt levels currently well above 100 percent of GDP.