I read The Tragedy of the Euro in just two sittings. What a brilliant little book it is! And to think Bagus is so young makes you wonder what he’ll be able to accomplish as he builds up experience and even more knowledge.
Anyway there are a few things that left me quite perplexed. The Chapter “Why Germany Gave Up the Deutschmark” (pp 51 and following) is probably the most crucial point.
In this chapter Bagus details how the euro was the ultimate price Germany had to pay for the Reunification. As much as I know the French political class was largely opposed to the Reunification and François Mitterand even went as far as proposing to the newly born Russian Federation a new “balance of power” in Central Europe to keep Germany in check I cannot but feel this is a bit exagerated. The old BRD (West Germany) was already a world leading economical superpower. Everybody knew how the old DDR (East Germany) was in shambles and would have been more of an hindrance than a resource: just bringing infrastuctures to Western levels was bound to be a titanic endeavor (and it was). It is also well known that Germany, just like Japan, had been “demilitarized” following WWII and posed no threat to its neighbors. Also the German political class had been much “tamed” and still is: the political system is geared up as to prevent the rise of charismatic leaders with “strange” ideas. Also Germany had signed all sorts of disarmament agreements and, much more critically, it still had large numbers of foreign troops on its soil: the French and British Armies of the Rhine, not counting the US military. The numbers have been greatly reduced but foreign troops are still in the country.
Later in the chapter Bagus seems to correct himself and say the euro was actually supported by the German ruling class. It would have allowed the industry to prosper by making exports more palatable by both monetary inflation and giving a relatively strong currency to formerly inflation happy Southern countries. It would have also allowed the German industry to become much competitive in relationship to other European countries by imposing German work and environmental standards on countries like Italy and Spain which simply didn’t have the same capital investment the Germans had. Finally the German political class would be finally be freed from the “conservatively minded” and relatively independent Bundesbank and allowed to spend and get into debt at a much higher rate. And if price inflation started to pick up it was easy to put the blame on “peak oil”, “speculators” or whoever the latest boogeyman was. In my opinion this is a much more sensible explanation: Germany benefitted immensely from the euro. People in Munchen feel the ill effects of the euro as much as those in Sevilla or Milan but, again, Hoppe’s theory of the ruling classes (also cited by Bagus) explains the French ruling class has much more in common with the German or Spanish ruling class than with the French peasantry citizens.
All in all apart from this single chapter I found the book exceptionally well concieved and throughly researched. Highly recommended!