AfD, We Gotta Sink the Euro!

It was an accident waiting to happen. German public opinion has long been shaken and frightened by experts doing their sums and totting up the financial commitments taken by Berlin in supporting rescue after rescue.

It does not matter that the cost estimates are often based on an unlikely worst-case scenario; or that the Target2 balances, described as almost apocalypse now, are also open to a more reasonable interpretation (followed, to their credit, by the Bundesbank); or that the reputed Constitutional Court in Karlsruhe has once and again made the point that government commitments in Brussels do not transgress the Constitution. This stream of home-grown scepticism has been hyperactive and accounts for the evident signs of euro-fatigue found in German media.

It lacked, however, a political outlet. The establishment is pro-European and does not encourage deviationists in their midst. They, as well as the powerful export industry, are well aware of the benefits that the euro bestows on the German economy.  But the social rumblings seem, at last, to have found their way into a new political agenda.

Enter a new party. If Chancellor Angela Merkel justified Germany’s involvement in a rescue as alternativlos, Bernd Lucke, a Hamburg professor of economics turned into mainstream politician, wants to emphasize exactly the opposite, because he believes that there is an Alternative für Deutschland, AfD. He comes on the heels of a failed Bavarian attempt to shape a Bund-wide eurosceptic party out of a typical civil association of local scope, Freie Wähler, or Free Voters. Both were maybe destined to team up, but internal strains and a number of significant desertions have dented the edge of the Freie Wähler as an effective political force.

And what is the Alternative proposed by professor Lucke? Quite simply, let us get rid of the euro. A real vote-getter. Quite a few German eurosceptics were waiting for a simple program like this to cast their vote.

Professor Lucke cannot be blamed for equivocal messages. He is not one for mincing words.  His alternative for Germany is the denial of any alternative for the eurozone. His proposal is to turn back the clock and return to national currencies. He does not go to the trouble of figuring out better ways to deal with the crisis. He shows no interest in revitalizing the euro-zone.

Now, this is regrettable. Economic policies pursued to combat the crisis are spreading recession and dimming expectations all across the zone. What we call crisis of the euro identifies now, first and foremost, with the lack of effectiveness of these policies. Extending the time-line for countries to shrink budget deficits may be a welcome flexibility, but it is the conception itself  of austerity-centered policies–in former times, official IMF wisdom–that is in need of a thorough review. From a group of respected Ökonomen, one could have wished a constructive review of the way austerity programs have been conducted so far as well as practical counter-proposals–something that neither the Commission, nor Berlin, nor the crisis countries seem capable of doing.

But AfD is in a destructive mood. They are not interested in salvaging what Europe has managed to build. Their objective is rather to pull down existing structures while looking to the past for inspiration, namely to national currencies. A bit shocking, to say the least. We joined the eurozone as a means to discipline fiscal policy and deny our politicians the instrument of devaluation as an easy way to extricate themselves from their own excesses. Now professor Lucke sees no problem in recreating a past that every so often–many readers will remember this–was shaped by chain reactions of conflicting exchange rate adjustments across Europe.

How to get there? Professor Lucke knows very well that repossession by a country of full monetary sovereignty is a process fraught with obstacles. His mantra is an orderly liquidation of the euro over several years. Readers can be forgiven for suspecting some skilful word-juggling here. Whatever the time frame, the announcement that the euro will be no more and pesetas or lire are due back must raise contradictory expectations and authorities–it is a long experience–are generally very poor in handling expectations of economic agents. Markets may well bet that the second-generation D-Mark will be stronger than defined by the 2000 parity and thus direct heavy capital flows towards Germany. Conversely, the expectation of devalued pesetas or lire will spark off capital flight from Spain or Italy. Next step, therefore, capital controls all around. Professor Lucke appears to favor a temporary, two-currency formula –euro and national. But coexistence between two different currencies may prove highly unstable. People will not stick to their pesetas or lire if given the choice to save in euros that can be transferred to Germany.

At the end of the day–or of some years–we would certainly have killed and buried the euro, but pretending that the process could be orderly lies in the realm of wishful thinking. Professor Lucke is no doubt aware of this, so he adds a practical proposal: let Southern members handle the two-currency conundrum–not Germany.

Needless to say, no one has an idea yet about the real chances for the AfD. Just a long shot, or will it be able to build a consistent political force on this populist message (right now, and much as its leaders disavow this description, AfD looks like an one-issue party)?  As a “non-established” political party, they have to develop their structure, build a wider-ranging program before July–by requirement of the electoral authority–and last but not least, tap funding sources. The peculiar dynamics of the German two-vote system adds special difficulties to electoral forecasting, in particular for newcomers, so I think it would be unwarranted to start throwing around wild guesses at this point.

My only wish was to share concerns with the readers at this preliminary stage of AfD. Things may change along the way to the German elections, although I would certainly not expect any weakening of their main message. If AfD were only moderately successful in September, i.e., if they make it into the Bundestag, their negative approach to the euro may, more or less subtly, influence the way Germany conducts euro policy in the future: much will depend on the conditions they attach to their vote-dealings. Critics of the current German leadership–at times misguided or clumsy, but always unconditionally pro-euro–will then find reason for nostalgia.