Germany and Russia: A Parallel

March 26, 2014

Authoritarian governments in Germany and Russia during the twentieth century committed atrocities against their own people and those of surrounding countries, which were annexed.  After surrendering unconditionally in 1945, Germany lost its conquered lands and had its own territory divided and overseen initially by the allies that had won the European theater of WW2.  Greater Russia, i.e. the Soviet Union, controlled East Germany, while West Germany was nourished with Marshall Plan aid and welcomed into the the alliance of western capitalist democracies. 

The Soviet Union followed a different path, commanding international attention and respect as a military superpower but decaying economically in the absence of a market system to decide what to produce, how to produce such, and the distribution of what got made.  The West and the Soviets engaged in a competitive cold war — a virtual war with limited bloodshed — but avoided the kind of conflict that ends in decisive surrender and an imposed break-up of the loser’s territory.  Russia reverted to its initial size, relinquishing the acquired other Socialist Republics and its influence over a number of East European satellites including East Germany.  But core Russia remained intact, and the nation was not put on probation by other countries to ensure that it developed proper institutions, laws, and moral values that would be readily acceptable in the world community.

The European Monetary Union came into being for foreign policy reasons, not economic ones.  To be sure, EMU was to be a union anchored by a common currency, a single one-size-fits-all monetary policy, and fiscal and regulatory guidelines to ensure against member economies having excessively dissimilar trends in those areas where national sovereignty was maintained.  Never mind that the concept of EMU was marketed to the people of Europe as the natural next extension of economic integration, which would create beneficial economies of scale and empower the region to compete more successfully with the U.S. economy.  The main catalyst to transform the dream of a more integrated Europe into reality came when the Berlin Wall and the totalitarian Soviet-controlled East German government toppled suddenly in November 1989.  This unleashed tribal yearnings to reunite the two Germanys after 45 years of separation, but that deal required a grand agreement between the President of France, Mitterrand, and the Chancellor of Germany, Kohl.  France would allow Germany to reunite on condition that Germany be anchored economically and politically into a more United Europe.  Kohl, in particular, argued and truly believed that such an arrangement would end the nationalistic tensions that had dragged the region through two great wars in the first half of the 20th century. 

Without Kohl’s strong advocacy and support for EMU and the promise from Germany itself that EMU would make Europe a much safer continent, free from war, the plan would never have been hatched.  This is especially so because the community of economists around the world were unusually united in calling a monetary union without fiscal and banking union a flawed experiment.  Also, without the appeal of peace, more countries would have adopted Britain’s skeptical position, keeping the union’s size below critical mass.  As it was, there was great urgency to change in a hurry.  By June 1990, the Deutschmark of West Germany and Ostmark of East Germany were merged at an uncompetitive 1:1 ratio.  By October 3, 1990, a reunited Germany became reality.  And by December 1992, a treaty for economic and monetary union in Europe had been drawn up.

Neither Russia nor Germany have turned out quite as hoped.  Left to develop on its own and without the guidance of enlightened mentoring, Russia has again embraced a top-down aggressive leadership structure that rejects political dissent and confuses military strength with economic strength.  But from its membership in EMU, Germany has been able to dominate economic decision-making in Euroland, to benefit the most from the arrangement, and to achieve virtual veto power over actions that aren’t in its best own interest.  Tricked by the appeal of securing a Europe free from the threat of a militarized Germany, a number of the other members now find themselves trapped in eternal uncompetitive circumstances, depression-like rates of unemployment, and minimal, if any, economic growth.  For those nations, EMU is a roach motel.  Countries check in, but they can’t check out.  Moreover, EMU didn’t end geopolitical resentments among members.

There has been a distressing increase, too, of arrogance by defenders of the German-way-or-the-highway approach to adjudicating intra-EMU disputes.  Symptomatic of such is an Op-Ed piece in the March 26 Financial Times, penned by the former chief economist of the German Bundesbank and later the European Central Bank.  The title chosen by Otmar Issing tells volumes about an intolerance for any view but Germany’s.  Get your finances in order and stop blaming Germany correctly observes that everything that Germany seeks has been enshrined in the 1992 Maastricht Treaty and subsequent accords that tightened fiscal and other conditions.  The treaties weren’t forced on any nation at the end of a gun, and every member joined agreeing to abide.  In fact, there was coercion of a sort.  Without allowing quick German unification, the rudderless East Germany would have become a humanitarian problem for West Germany and much of the rest of Europe.  EMU offered the best deal on the table of possible outcomes from the standpoint of foreign policy but not economic sensibility.

Led by the United States and Germany, the West trusted Russia but ignored Reagan’s advice to also verify that the trust was deserving.  In fairness, that’s much easier said than done, considering that Russia kept its old borders and was not subjected to close oversight as happened in West Germany.  Under Yeltsin, oligarchical corruption was rampant, and under Putin, the dishonesty has been centralized in the government.  Since Germany hasn’t been a perfect neighbor either, it may simply be that it’s in the nature of of some countries to turn out bossy no matter what others try to do.  People aren’t intrinsically the same.  Why should that be so of nations?

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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