Leading Europe

On this day -2 December - in 1804 a man originally called Nabuleone Buenoparte crowned himself Emperor in the Cathedral of Notre Dame, Paris. He grabbed the crown from the Pope, who was about to place it on Napoleon's head, on realising that he did not want even symbolically to receive the crown from anyone else. His empire was delineated as an enlargement of the monarchical France that had been toppled in 1792, but it effectively held sway over continental Europe from Gibraltar to the Russian border. After the fall of Napleon, in 1815, the old monarchies re-established their states under the tutelage of Russia at the Congress of Vienna; and in the revivified 'Congress System' that assembled in Paris in 1919 under the tutelage of the US President Woodrow Wilson a new and more subdivided set of sovereign entities was confirmed in the Treaties of Versailles and Trianon.

In 1935 Adolf Hitler began his campaign to reverse the Treaties. The Rhineland was remilitarised and Saarland was reincorporated into Germany. Attention was then focussed on incorporating Austria into 'Greater Germany' and thereafter in bringing the scattered German-speaking communities in Europe, and the territories where they were settled, also under rule from Berlin. The indigenous inhabitants who were not German would become subject peoples; and anthropological devices were bent to asserting the 'inferiority' of such people. After absolute defeat in a devastating war Germany was shrunk in size, and the scattered Germans who were able to reach the four zones of occupation - however grim the conditions in which they found themselves - were the lucky survivors.

With this experience behind them, the governments of the northern European monarchies and new regimes in the formerly fascist states that operated new Constitutions that were authorised by the victorious allies [US, the UK and France] faced a difficult future. Soviet communism had become established behind the 'iron curtain' in the middle of the continent. Defensive support from the US, and to a lesser but significant extent from the UK, was essential and came at the price of persevering with democratic institutions. Germany, in particular, took the message to heart and has developed into a genuinely democratic state whose citizens' views really counted. Thus in the euro crisis the German electorate has made clear the limits to which they are prepared to  pay for the past profligacy of countries that never met the criteria for membership of the eurozone.

The German Chancellor is called upon to lead the resolution of the euro dilemma, with foreigners asking her to lead in a direction that is not wanted by her people. She grew up in occupied East Germany; battered in school by the Communist version of German history. She has transcended those experiences and embraced democracy: and she is not prepared to impose intolerable burdens on German taxpayers at the behest of Obama, Cameron or anyone else outside the eurozone. Nor will she allow the fellow-members of the eurozone to despoil the assets that Germany has painfully accumulated since the nineteen forties. Germany wants to be a good democratic partner in Europe, not a new Reich with a wish to dominate.

A new settlement is needed for the euro: with or without retaining the fringe of spivs as members. Cameron is to visit Sarkozi today, to put down irrelevant markers: he is an impotent petitioner in relation to eurozone politics. Then over the weekend the serious talking that is scheduled to take place is likely to produce the basis for a new treaty by which the eurozone can be made manageable. That which will be defined as manageable, will probably be affordable. If Germany is to fund it, Germany must be satisfied by the new settlement. The crisis - for the moment - is a crisis of the euro: non-members depend on there being a solution that they cannot significantly influence. Eurozone members need a solution; and Germany needs it to be a democratic solution, so it must have a constitutional basis - a new Treaty. The odds are that Angela Merkel will take a modest place in proving that democracy can deliver success: that would be real leadership!

Meanwhile yesterday the Governor of the Bank of England has advised British banks to be ready for rough weather if either the success or the failure of the euro has adverse effects on non-eurozone countries. He suggested that banks should not pay bonuses, but hold the cash in their reserves. This shows a sublime ignorance that was repeated by the former Labour City Minister on the Today programme this morning. The overwhelming bulk of bonuses in 'banks' are not paid to managers or 'executives': they are paid to dealers, broadly in proportion to the purely notional return that they deliver in return for gambling in cyberspace. The more inventive and arcane are the contracts that they devise, in general, the less understood are the risks that the gambles might bring on to their firm's balance sheet. The bonuses are partly paid in shares - removing a proportion of the ownership of the firm from the other shareholders - and partly in cash that is taken from the regular business turnover of the firm. The cost of the bonuses is 'real' and obvious; the risks that the dealers' gambling incurs are unquantified and dangerous: but billions in taxation has been levied on the notional turnover of the gambling, and on the bonuses, so governments have not had any interest in terminating the problem.