(…) By contrast, the European banking crisis is a real hazard that could escalate in days. Germans must understand that bank recapitalization, European deposit insurance and debt mutualization are not optional; they are essential to avoid an irreversible disintegration of Europe’s monetary union. If they are still not convinced, they must understand that the costs of an EZ break-up would be astronomically high—for themselves as much as anyone.
After all, Germany’s prosperity is in large measure a consequence of monetary union. The euro has given German exporters a far more competitive exchange rate than the old Deutschmark would have. And the rest of the EZ remains the destination for 42% of German exports. Plunging half of that market into a new Depression can hardly be good for Germany.
Ultimately, as Angela Merkel, the German chancellor, herself acknowledged last week, monetary union always implied further integration into a fiscal and political union. But before Europe gets anywhere near taking this historical step, it must first of all show it has learned the lessons of the past. The EU was created to avoid repeating the disasters of the 1930s. It is time Europe’s leaders—and especially Germany’s—understood how perilously close they are to doing just that.