RENEE MONTAGNE, HOST:
The outcome in Italy is, of course, of huge importance to Germany. Germany is the strongest economy in the eurozone and has a deep historical interest in the euro's success. We asked the economist Nicolas Veron to remind us of Germany's role in this grand monetary experiment.
NICOLAS VERON: It was basically a political deal made at the time of German unification, and there was a feeling in Germany and outside of Germany, particularly in France probably, that this would create an imbalance in the European Union. And Germany was very strong in terms of its currency. And therefore its leaders agreed at the time that to make German unification acceptable, there needed to be more integration on the monetary side, not a domination of Europe by the Deutschmark.
MONTAGNE: So Germany at that point, back in the early '90s, and to this day, was happy to make it clear that it had no intention of dominating Europe.
VERON: You know, the weight of history in Germany is something quite unique. Germany is not only willing to please its neighbors, it is afraid of its own old demons. It knows that there have been several instances - most strikingly, of course, in the 1930s - where Germany has not been able to refrain impulses in itself. So there is an accepted need to be bound by an external framework of relationships that are an accepted limitation on what can be done at the national level.
MONTAGNE: Currently, however, Germans have been grumbling about bailing out countries like Greece or Spain. What is in it for Germany economically?
VERON: It's a complex equation because Germany gets to borrow on(ph) international markets at very low rates, because a lot of the investment that was going into non-German European sovereign bonds is now going to German bonds. This is a benefit. The other benefit, which is perhaps even more tangible, is the crisis has a downward effect on the value of the euro. And this is not a bad thing for German exporters. And as you know, Germany is a very big exporting country.
MONTAGNE: There is a lot of talk about a possible collapse of the euro. But there is one thing to talk about, say, Greece going back to the drachma, but it's a whole other ballgame to talk about Germany going back to the deutschmark.
VERON: We don't know what will happen if one country - say, Greece - leaves the eurozone.
MONTAGNE: 'Cause there's no provision for that.
VERON: There's no provision, but more importantly, we don't know what will happen from a market perspective. I am among those, and this is, I suspect, a majority of observers, certainly in Europe, who believe that if Greece were to leave the euro, you would have this chain reaction in the neighboring fragile countries that would mean a very quick end to the euro itself. And therefore Germany would get back to the deutschmark not because it would leave the eurozone but because all other countries would; then it would be the last man standing, so to say.
MONTAGNE: What is next, in your opinion, for the euro?
VERON: I believe the thinking that the eurozone could somehow muddle through and get over this crisis and return to the situation before is less and less credible. Maybe it was possible at the beginning of this crisis a year and a half ago, but I tend to believe it's no longer possible. And now when you listen to what Angela Merkel as a German chancellor has had to say in the past few days, she has hinted at this need for wider changes in the way we make policy, more European integration, more pooling of sovereignty for this crisis to be overcome, and I think she's right.
MONTAGNE: Thank you very much for joining us.
VERON: Thank you.
MONTAGNE: Nicolas Veron is with the Brussels-based think tank Bruegel, which focuses on governance and funding in Europe. He's also with the Peterson Institute for International Economics here in Washington, D.C. And this is NPR News. Transcript provided by NPR, Copyright National Public Radio.