Outside the Box

One Nation (under Germany)

John Mauldin

May 22, 2012

For this week's Outside the Box I want to share with you a singularly interesting conversation between Niall Ferguson and Ben Laurance, in the Sunday Times of London. What really grabbed me about it was the way Niall goes right out on a limb and yet makes such a convincing case that, when push really comes to shove, Germany will bite the federalist bullet, because it's overwhelmingly in their interest to maintain a united eurozone.

"I am not a federalist," says Ferguson. "But the costs of the single currency disintegrating are really so high and would impact so many people, that the only responsible thing for me to do is to argue urgently for the next step to a federal Europe. I see no alternative at the moment that isn't a great deal worse."

And the other option? "On the other hand — and this is the message to Angela Merkel — to use George Bush's phrase: this sucker's going down. We've reached that point."

Niall has never shied away from addressing the big questions. His latest tour de force, Civilization: The West and the Rest (just released in paperback in the UK, as Civilization: The Six Killer Apps of Western Power), demonstrates how Europe went from being a fractious, disease-ridden fourteenth-century backwater to global dominance, through the development of six "killer applications": competition, science, democracy, medicine, consumerism and the work ethic — and is now experiencing a precipitious decline (along with the rest of the West).

Are the stakes really that high? You bet. Everywhere I go, people are talking about and working hard on solutions to the issues that will make or break us in the coming decade.

I was part of a great conversation like that just a couple weeks ago, at the Casey Research conference I mentioned, down in Florida. When I'm at one of these things, I keep thinking, "I just wish a couple million of my best friends could be here, too." Well, the Casey people just told me that the CDs of the conference are shipping out this week, and so if you want the next best thing to being there, you can pick up a copy here.

There was a real whirlwind of press and media interviews last week while I was in New York. You can go to www.johnmauldin.com and look on the left side for the interviews I did with the Wall Street Journal, Bloomberg, and Yahoo Finance. I am off to Atlanta tomorrow for two nights and a few speeches and meetings, plus a lot of time to read and think (I hope!) about some of the speeches I have heard the past few weeks. It really has been a lot to try and absorb.

Your looking for answers to the big questions analyst,

John Mauldin, Editor
Outside the Box

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One nation (under Germany)

Historian Niall Ferguson tells Ben Laurance the single currency will survive and the crisis will leave Berlin heading a federal Europe

Ben Laurance
Published: 20 May 2012

Where does it all end? What will be the outcome of the financial storm battering Europe and its single currency? Can the euro be saved? And if so, what will be the long­term consequences?

The financial historian Niall Ferguson, visiting London from…

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Carl Bechgaard

May 25, 2012, 10:15 a.m.

Good article by professor Ferguson but it doesnâ??t address what seems to be the most difficult problem: Greece is a basket case. Many Greeks donâ??t pay taxes and the country has too many civil servants, who are overpaid and underworked to boot. Until the Greeks show a will to change that, can anyone believe that the populations of Germany, Holland, Finland and Austria will support them? It is one thing to help people who want to help themselves - quite another to help a nation that appears to think that it is entitled. The latest poll shows 79% of Germans opposed to euro bonds.

Robert Watkins

May 24, 2012, 5 p.m.

Will the federalization of Europe not be a license for those indebted countries to continue spending above their means? Isn’t this what happened when countries such as Greece,  first earned cheaper borrowing rates because they joined the Euro? How then can anyone think things will change and those deepest in debt will use the cheap money obtained by Euro bonds to pay back previous debt.
We already see most of the indebted countries thumbing their nose at osterity measures. Does anyone truly believe things will change once they have their hands on cheap money?

If you want WWIII, you need only federalize the European continent!

David Wooten

May 24, 2012, 12:22 a.m.

Mr Ferguson’s message is that the EU will continue because splitting up is just too awful to contemplate.  But right now, everything is too awful to contemplate including a Federal Europe which wouldn’t work any better than splitting up.  There is simply too much debt - and Germany alone cannot service it all much less repay it.
There is also a way of staving off doom a few years longer if the EU countries would commit their gold reserves to making the euro a gold-backed currency.  The price of gold would have to be set very high - at least 5000 euros/ounce - which could initially cause some price inflation as those holding gold would suddenly have a lot of euros and miners would go into overtime to dig up more ‘euros’.  But such a devaluation is needed due to the levels of debt and the effects would be temporary if the worst debtor nations could get their fiscals houses in order.  Without a devaluation, the suffocating levels of debt will make even a fiscal union untenable.

Glen Austin

May 23, 2012, 7:10 p.m.

So, I want to know why Germany doesn’t just leave.  It seems to me that the countries who care about a strong euro should leave themselves, and form their own currency.  It’s not “bad” if they leave and I’m sure Germans would be HAPPY to trade Euros for marks.  Then the rest of the Euro countries can devalue themselves to nothing.

Edward Ream

May 23, 2012, 2:37 p.m.

Thank you for yet another thought-provoking piece.

> Just because the costs of a Grexit are huge and damaging does not mean Europe will avoid them.

Exactly.

Ferguson indirectly alludes to a real, if hidden, danger: namely that events may proceed too quickly to fix.  It may be that nobody will be “nimble” enough to avert catastrophe.  The train wreck may seem to be happening in slow motion, but the crash will be swift and brutal when it finally happens.

I foresee extreme political instability when concerted action is most needed.  I sure hope I am wrong.

Gordon Davis Jr

May 23, 2012, 10:45 a.m.

Apparently, Europe didn’t get Mr. Ferguson’s memo.  The markets are looking pretty gloomy today and Germany has, once again, said “Nein!” to Eurobonds.  You really have to wonder how much heavy lifting Germany would be willing to do before throwing in the towel and reissuing deutchmarks.  I’m sure someone has done the math and figured out that the several trillion necessary to save the euro perifery is a bit too pricey, even for the Germans.  The beauty of it all is that it’s history in the making and we are all going to be witnesses.

jeff allen

May 23, 2012, 9:36 a.m.

Just because the costs of a Grexit are huge and damaging does not mean Europe will avoid them.

It is a continent littered with graves in the past century, graves of men who knew such conflicts would be costly and damaging.

The European dream has always been that—a dream.  It will once again become a nightmare, as it was tied to the mast of socialist democracy, a killer of hope and peace that was protected from its weaknesses at birth by a victorious USA.  Left to their own devices, Europeans cannot resist socialism’s magnet, and that always ends very badly.

Angus Davidson

May 23, 2012, 6:23 a.m.

From having long been convinced ( by yourself and other economic commentators such as Roger Bootle) that the Eurozone was a flawed concept right from the word go - Mr Ferguson’s assertions have now put me in what I would call a buggers muddle. I have to agree with Jeffrey Beth that the average man in the street would hardly agree to being dominated by Brussels (aka Berlin). I find it difficult to believe that political union by the back door is the way forward as Ferguson suggests. The most convincing argument I heard in favour of Federalism was that the only way to achieve long term monetary union is first to achieve political union and the money side would follow automatically.. Because that idea might be politically impossible, is that the reason they are trying to do it backwards? Like Mr Beth I would like to hear your views as I have come to put great faith in your judgement .

Jack Adler

May 23, 2012, 6:03 a.m.

I also thank you for the thoughtful article.  I would like to better understand what a “federalist” Europe would look like and what powers Germany would or would not have to effect the continued deficits of the periphery.  Appreciate hearing responses to this question.  Thanks

Stuart Warren 36715

May 23, 2012, 5:35 a.m.

It also doesnt take account of the animosity thats now in place between Greece and Germany. Greeks seem to be prepared to see anarchy undo the Euro its self and the Germans on the other hand imovable unless there is an agreed basis to pay present debt and to prevent adding further principle debt in the future.  i dont think either side of this confrontation anywhere near fits in to the model that Nial describes where the federalists always come out on top…..

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