Akst: German domination? Sounds dubious

Daniel Akst is a member of the Newsday editorial board.

Say what you will about the Germans, but they're nothing if not persistent.

They tried conquering Europe by armed force, but the Panzer approach backfired badly. So this time they plan to take over by means of the euro.

It might just work, at least for a while. But conquest by currency is unlikely to prove any more enduring than conquest by force of arms, if only because voters in poorer eurozone countries will sooner or later rebel -- if we even get that far. There's still a good chance the euro will fall to pieces before the Germans get to put their latest plans for continental hegemony in place.

If you're not a currency trader or an economist, you may be wondering what all the fuss is about, so here's the short version. So far, the single European currency -- the euro, launched in 1999 -- has been quite a boon to Germany, making its exports cheaper for other euro countries to buy.

At the same time, adopting a single respectable currency lowered the cost of borrowing for the eurozone's less industrious and creditworthy nations, which previously shuffled through life with their own flimsy drachmas and lira.

The availability of low-cost euro loans enabled Greece, Italy and some others to do two things. First, residents could uphold their great national tradition of not paying taxes, since their governments could borrow to cover deficit spending. And second, cheap euros could be used to buy more German stuff.

Of course, their own exports, such as they are (feta cheese? olive oil?) were made relatively more expensive because they were no longer priced in trashy drachmas and the like. Not surprisingly, Germany built up a big trade surplus. This is not so very different from China and the United States; each has its own currency, of course, but China won't let its yuan rise enough to make American imports irresistibly affordable.

Such imbalances usually involve debt; sure enough, America has plenty. As for Europe, for years the IOUs of its debtor nations have been piling up in banks all over the continent and beyond. Lately, though, investors have lost confidence in these IOUs and are demanding ever-higher interest rates to lend in Europe. This is starting to strangle the eurozone.

When something like this happens here, we unleash Ben Bernanke, whose Federal Reserve will flood the world with dollars if necessary. But the European Central Bank isn't allowed to do such things.

And that's Germany's opening.

Germany could push for a massive central bank bailout -- at this point, possibly the only thing that might work -- but it opposes any such effort. It also opposes any plan to put the financial backing of the entire eurozone behind the debts of member states.

Instead it pushed out governments in Greece and Italy in favor of leaders who would impose strict austerity that, unfortunately, will make their debts even more unpayable. Then, on Friday, Germany pushed through a plan that will supposedly impose stricter fiscal discipline on European nations. Britain, with nothing to offer but blood, sweat and relatively unfettered financial services, stood alone in opposition.

Let's be realistic. Europe needs more fiscal discipline, just as we do. But Europe is probably already in recession, which austerity will worsen. And its future cannot be secured by reducing some member states to permanent economic vassalage. Worse yet, the dubious plan announced Friday still leaves the euro teetering on the brink of gotterdammerung.

Then again, phrases like "European crisis" and "German dominance" just seem to go together, don't they?