There’s a joke going around that you may have heard, but you may not have heard why it’s funny. The joke goes, “A Greek, an Italian, and a Spaniard walk into a bar for a few drinks. Who picks up the tab? Answer: the German.” The joke’s only chance of drawing a laugh is for the outcome to be plausible. Why would the German pay the bill? Why do the more prosperous countries within the Eurozone even consider funding the deficits and debt service of the troubled nations of the periphery? Why don’t the rich simply walk away leaving the ill-conceived experiment with a common currency behind? I think there are three reasons.
The first reason is legalistic. The treaties creating and implementing the common currency were designed to be sort of like roach motels. Once a country enters the Eurozone, the only way out is to renegotiate all European Union accession treaties, which would also mean renegotiating trade agreements with the rest of the world—not an appealing prospect and not a quick one. Over the next several years, could Greece, or maybe Portugal, negotiate its way back to its old currency? Maybe, but in the meantime, someone has to pay the bill in euros.
The second reason is economic. Commentators complain about the Chinese weak-currency policy, using massive dollar purchases to keep the yuan from appreciating and thereby making exports more costly and less competitive. Others level the currency manipulation charge at the U.S. and the Fed’s quantitative easing programs. But what about Germany and its export-driven economy? What if the German currency stood alone in international exchange markets rather than representing the markets’ valuation of 17 amalgamated economies and their growth, debt, and fiscal prospects? I won’t try to guess how many dollars could theoretically be exchanged for a newly independent Deutsche mark, but I’m sure it would be more than $1.35, about what it currently takes to buy one euro. Under those conditions, someone about to trade in a Toyota for a Volkswagen might find the price difference makes buying another Corolla a more attractive option. Keeping that export machine humming will pay for quite a few rounds at the European tavern.
The third is an issue I may have mentioned before, but it’s important for history-myopic individuals to keep in mind: peace. Demographically challenged European countries might have trouble finding enough young people to fight a prolonged war, but the resolve of Europe’s major powers—notably Germany and France—to bind themselves into a political union reflects a deep awareness of how frequently war has ravaged the continent. Europeans have not lost sight of how unusual—even unique—it has been to live in peace for the nearly 65 years since the end of World War II. Some Americans may not think about policy decisions in this way, but many European leaders do.
Germany’s willingness to buy rounds and rounds of drinks will, of course, have its limits. For that reason, we can expect more tough bargaining and volatility-provoking brinksmanship as austerity negotiations continue. But the outcome is taking shape. Germany will pick up the bar bill, but the benefactors will have to become content with light beer instead of champagne.