Yes, It Is Hurting. A Lot
Why Didn't Anybody Tell Me When the 20-Year Real Treasury Yield Went Negative Last Weekend?

Martin Wolf Reads German Bureaucrat Ludger Schuknecht, and Violates Godwin's Law

Martin Wolf:

The German response | Martin Wolf's Exchange: I fear that austerity without end will bring about a return to the unstable populist politics the European Union was designed to prevent. That could shatter the eurozone and, with it, the EU…. [R]esponsibility for preventing that outcome rests on Germany, Europe’s central power, in every sense. As Charles Kindleberger argued, in a panic, the creditworthy country has to lend freely if a fixed exchange rate system (or in this case a currency union) is to survive.

It is often forgotten, not least in Germany, that the rise of Adolf Hitler to power was preceded not by the great inflation, which occurred a decade before, but by the great depression and the austerity of Heinrich Brüning, in response. Thus, votes for the Nazi party jumped from a relatively insignificant 810,000 in 1928, to 6.4m in 1930, and 13.7m in July 1932. Deep economic collapses are dangerous.

Deep economic collapses are very dangerous. Mr Schuknecht, with his emphasis on the long term, completely ignores these dangers.  If trying to avoid such a dire outcome is “short-termism”, so be it. I think of it as trying to find a practical exit from the current trap. Without it, the eurozone may never reach the long term.

I am beginning to wonder if the biggest long-term mistakes in the construction of the EU were not the mistakes of 1949 and 1991--the second being the absorption of the German East into the Bundesrepublik rather than as a separate state within the EU (recall that western Europe already had five German dialect-speaking states already--Austria, Switzerland, the Bundesrepublik, the Netherlands, and Denmark), and the first being the creation of the Bundesrepublik itself.

If the politicians and bureaucrats of Germany insist on acting as though they are merely managing a small open economy, then, dammit, they should not they be managing small open economies--ten seems about right, with names like "Brandenburg", "Saxony", "Bavaria", "Baden-Wurtemburg", "Rhineland", "Pomerania", "Hanover", "Switzerland", "Austria", and "the Netherlands"?

If France were the hegemonic leader of Europe right now, I wonder if we would not be doing a lot better than we are…