Helmut Kohl and the Euro

WASHINGTON: Helmut Kohl, the long-serving former German chancellor who died June 16th at age 87, was honored Saturday with the European Union’s first ever state funeral in Strasburg. Chancellor Merkel, Kohl’s one time protégé, French president Emmanuel Macron, and former President Bill Clinton were among those paying tribute.

Kohl will rightly be remembered for masterfully orchestrating German reunification. He will also be remembered as the German chancellor who assented to the demise of the revered D-mark and the creation of the euro (€), now the currency of 19 EU nations.

As tributes rolled in for the great man who led his country for 16 years, it was International Monetary Fund managing director Christine Lagarde who recalled Kohl’s role in creating the euro. “Kohl’s name,” she said, “will forever be associated with the deepening of the European Union and the creation of the common European currency.”

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It is easy to forget that during the heady days of 1990 after the opening of the Berlin Wall, Britain and France opposed the unification of the two Germanys. Only Kohl and the Bush administration were initially in favor.

Britain’s prime minister Margaret Thatcher complained, “We beat the Germans twice and now they’re back.” In a visit to Moscow she told Mikhail Gorbachev, “We do not want a united Germany. This would lead to a change to postwar borders, and we cannot allow that.”

France’s Francois Mitterrand was equally adamant, telling President George H.W. Bush, “I like Germany so much, I think there should be two of them!”

Ironically, Gorbachev shifted his position towards favoring unification because he was suspicious of concerted Anglo-French opposition.

The two plus four negotiations (East and West Germany plus the four allied powers from World War II) proceeded swiftly. It is an enduring tribute to Kohl that unification occurred October 3, 1990, a mere 11 months after the Wall came down.

There is debate whether Mitterrand conditioned his approval of unification to a German commitment to move ahead on monetary union, long favored by France but upon which forward movement had been glacial. Hubert Vedrine, an advisor to French president, says Mitterrand would not have agreed to reunification without German concessions on monetary union.  Currency, he says, “was the only topic that was open to debate.”

German officials reject a direct link between unification and the adoption of the euro. Theo Waigel, West German finance minister at the time, flatly says agreement on a common currency “was not a precondition for unification.”

However, Robert Zoellick, President Bush’s representative in the two plus four negotiations, credits Kohl with agreeing to link Germany politically and financially to Europe, a commitment he says was “a key element in securing French support for German unification.”

The fact is that after German unification there was rapid movement towards a common European currency. The parameters of monetary union were agreed in the Netherlands in 1991 culminating in the February 1992 Maastricht treaty.

In 1998 Kohl succeeded in getting the German parliament to vote overwhelmingly to adopt the common currency and abolish the revered deutsche mark. Cleverly, Kohl avoided a nationwide referendum knowing that monetary union would be rejected by the German public. Currency union arrived in 1999 with euro coins and notes introduced in 2002.

In 2001 Nobel winning economist Milton Friedman warned that the problem of the euro was that member countries gave up power over monetary policy to an entity not under their political control.  “The real Achilles heel (of the euro),” he said, “will prove to be political; that a system under which the political and currency boundaries do not match is bound to prove unstable.”

But despite the absence of a common fiscal authority the euro project has survived. It has weathered the Greek debt crisis and none of its member countries—including Greece—want to withdraw from it.  Opposition is arguably strongest in Germany, which has benefited greatly from the expanded trade the euro has facilitated. #

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