June 3, 2011 10:12 pm

Why the euro is in the wars

The common currency was born because European leaders around 1990 were still obsessed with the second world war

One February evening in 1998 I was sitting in the offices of this very newspaper, trying to finish my daily report on the currency market. Unfortunately, it had been a quiet day. I was 150 words short. In the end, I stuck in a comment from Goldman Sachs, saying that the Greek drachma was massively overvalued.

The next day the drachma collapsed. “Piece in the FT,” a currency analyst explained to me. The Greek central bank acted fast. To general surprise, it joined the European exchange rate mechanism, a sort of forerunner of the euro. Not long afterwards Greece joined the euro itself. Today I hold up my hands and say, “Sorry.”

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Simon Kuper

But the point is that there was never much economic logic behind the euro – certainly not a euro that includes everyone from Germany to Greece. Economics wasn’t what the currency was about. Rather, the euro is a war baby. It was created because Europe was struggling to get over the second world war. Now that struggle has largely ended, and the war no longer controls our present. Consequently the euro – like much else in today’s Europe – no longer makes sense.

It’s hard to imagine now, but in 1989 Britain’s prime minister Margaret Thatcher and France’s president François Mitterrand naturally assumed that a reunified Germany would start invading Poland again. Two months before the Berlin Wall fell, the duo met in the prime-ministerial country house Chequers to swap fears. David Marsh, in his magisterial book The Euro, quotes Mitterrand’s aide Elisabeth Guigou: “Mrs Thatcher said she had spent her summer reading books about the origins of the wars of the twentieth century. She asked Mitterrand whether he feared being beaten down by reunited Germany.”

Mitterrand replied, in essence, that it would all be OK if the European Union kept Germany in check. He told Thatcher: “Without a common currency, we are all of us already subordinate to the Germans’ will.” He meant that, in practice, most European countries had to track German interest rates.

Then the Wall fell. Three weeks later, recounts Marsh, Mitterrand demanded that the Germans start serious talks on economic and monetary union in 1990. Otherwise, said Mitterrand, “we will return to the world of 1913”. Germany agreed. It sped up the euro, and got reunification in return. The general thinking was that a common currency would “bind in” a new Germany and somehow prevent Hitlerism. In any case, the euro topped off a decades-long European project aimed at “binding in” Germany.

In short, the euro was born because European leaders around 1990 were still obsessed with the war. Mitterrand himself had been both wartime collaborator and resistant. Germany’s chancellor Helmut Kohl had lost his beloved elder brother, Walter, who had left for the front in 1944 predicting, “I won’t come back.”

Thatcher’s founding memory – the emotional basis of her euroscepticism – was Britain standing alone against a perfidious Europe in 1940. Marsh has a wonderful vignette of her fishing maps out of her handbag of Germany’s prewar and postwar borders. “Pointing to Silesia, Pomerania and East Prussia, she told Mitterrand, ‘They’ll take all of that, and Czechoslovakia too.’”

In 1990, the memory of war still hung over Europe. I was studying in Germany then, and I noticed how almost every German family seemed to have its own war trauma. One of my professors told me his secretary bullied him. “But I have great respect for women,” he added. “I was raised by women. All the men had stayed in the war.”

Inevitably, much of European life then was built on memories of war. Hardly any Europeans would vote for anti-immigrant parties, because look what Hitler had done. As late as 2000, the EU imposed diplomatic sanctions on Austria after the country voted Jörg Haider’s anti-immigrant party into government. The echoes were simply too nasty. The European Central Bank, too, was a war baby. It inherited the Bundesbank’s obsession with inflation, traceable to the trauma of German hyperinflation of the 1920s that had helped create Nazism.

And then some time in the last few years, the war finally ended. Thatcher’s generation mostly died. Germany became a “normal country”. Voters no longer saw the point of a European project to bind in the Germans, and so refused to ratify the European constitution. Anti-immigrant parties stopped being called neo-Nazis, and prospered in many countries. The second world war is becoming like the American civil war: remembered by history buffs, but only vaguely by the public, and no longer studied by policymakers for lessons. When the 21-year-old British student Charlie Gilmour swung on a Union Jack flag from London’s Cenotaph war memorial last year, he was expressing the indifference of many in his generation.

The war has faded, and that changes everything. Germans are now wondering why they should pay the debts of Greeks and Portuguese. Judged on economics, it never made sense.

simon.kuper@ft.com

Simon Kuper’s latest book, ‘The Football Men’, is published by Simon & Schuster (£16.99)

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