To think that two and two are four/And neither five nor three/The heart of man has long been sore/And long ’tis like to be.” Anybody thinking about the economy needs to recall these lines by the English poet AE Housman. Things must add up. The question is how. People responsible for large economies cannot ignore this. A tragedy of the eurozone, especially of Germany’s role within it, is that the transition to thinking about how income and expenditure add up at eurozone and global levels has so far failed to occur.
This partly explains widespread German hostility to the policies of the European Central Bank. Yet those policies will not fundamentally change. They may have to become even more aggressive. If so, the disaffection revealed in resignations by three German officials from the ECB board, most recently Sabine Lautenschläger, and in attacks by German policymakers, will worsen. This hostility could have l ong-run consequences not dissimilar to those of three decades of Euroscepticism in the UK. It could prove catastrophic. The EU can survive without the UK, but not without Germany, its core country.
I feared that the euro would end up dividing the EU politically when it was launched some three decades ago. But there is no easy way back. It has to work. For Germans, the necessary realisation has to be that the euro is already working to their benefit, by stabilising their economy, despite its huge savings surpluses. It cannot make those surplus savings highly remunerative, too, because the market does not need them. That is what it means to be in a global “liquidity trap”, with weak investment despite ultra-low interest rates: savings are not scarce but superabundant.