Ambrose: If the purpose of monetary union is to tie down a "European Germany" with silken cords, the Kohl-Mitterrand legacy has gone horribly wrong.

Germany's glistening new capital on the Spree - capped by Sir Norman Foster's Reichstag dome - is the throbbing heart of a reborn First Reich, a secular and democratic variant of the Imperium Romanum Sacrum or Hohenstaufen Empire.
Ambrose Evans-Pritchard, 1 April 2012

This hegemony is as deeply troubling to the Germans themselves as it is to the rest of Europe. They too have been swept along by an EMU process that they do not fully understand, and that has left them with a string of awful choices. 

"This is not what we aspired to," said a senior official. "The German political class has no aspiration to be number one. It is not our reflex to stick out and lead policy. We have done extremely well by not being in the forefront."

Yet, for all the rhetoric, little has changed. The austerity strategy imposed by Berlin on Europe's `Arc of Depression' - against the better judgement of the European Commission, the OECD, International Monetary Fund, and informed economic opinion across the globe - has not been modified in the slightest even though economic contraction has proved deeper than expected in every single victim country.

Mr Schäuble talks of reducing debt in a "growth-friendly manner" but that is exactly what he forbids. He has embraced to the Puritan doctrine of "expansionary fiscal contraction" taught in German universities - but almost nowhere else in the world - which in its extreme form posits that a return to fiscal probity brings its own reward, even without the cushion of devaluation and monetary stimulus.

Germany went through its own austerity in the early part of the last decade while others were living high on the hog, and the memory understandably rankles. But as ex-Chancellor Gerhard Schroder says to deaf ears, he had to break the EU stability pact with deficits above 3pc of GDP at that time in order to cushion the pain of deep labour reform. Fiscal slippage was politically necessary, even in Germany.

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