What if UK left the European Union and Germany brought back the DM?
When the European Union unexpectedly won the Nobel Peace Prize this month, the leaders ofGermany, France and Italy spoke of their pride. But the British prime minister, David Cameron, maintained an awkward silence.Before that, the British government said it wanted to exercise an opt out of an estimated 133 areas of European Union police and judicial cooperation to which it had once agreed.
And Mr. Cameron supported a plan for a new budget for countries that use the euro (which Britain does not), something that would place his nation firmly in Europe’s outer tier. The prime minister has been hinting that he could hold a referendum on Britain’s relations with the union, and one newspaper reported recently that a senior cabinet minister wants Britain to threaten openly to leave the 27-nation bloc. There was no official denial of the report. Full NYT read here.
At the same time, why not bringing back the old stability, the mighty DM?
A Golden Deutsche Mark Is Possible and Desirable
Despite the haughty pronouncements of EU officials, there is nothing that can stop a sovereign country from leaving the EMU and adopting a different monetary system. The most likely scenario would be a one-for-one redenomination of German banks’ euro-denominated accounts for deutsche marks. Thereafter, the DM would float freely in currency markets in the same way as British pounds and American dollars. The Bundesbank would be responsible for monetary policy just as it was before Germany joined the EMU. By leaving the EMU Germany would insulate itself from the consequences of the euro as a tragedy of the commons; i.e., monetary inflation by third parties would end, Germany would not experience higher prices due to the actions of third parties, and the capital-destroying transfers of wealth would end.
Yet Germany should go one step further. It should anchor the DM to gold. Germany is the world’s fourth-largest economy, behind only the United States, China, and Japan. Furthermore, Germany owns more of the world’s gold than any other entity except the United States, more than either China or Japan and more than any other European country. A prerequisite to market acceptance of any gold money would be confidence in the integrity of the sponsoring institution. Not only is the Bundesbank known for its integrity and reverence for stable money; Germany itself has a worldwide reputation for the rule of law, advanced financial architecture, and a stable political system. For these reasons, Germany would prove to the world that a gold-backed money is not only possible but desirable. Expect a cascade of similar pronouncements once Germany’s trading partners realize the importance of settling international financial transactions in the best money available — which initially at least would be a golden DM. Full Ludvig von Mises article here.