>This Wille zur Macht is now backfiring. Keynes’s proposal at the Bretton Woods conference gives us good insights into what is happening. Keynes proposed to settle international trade in a supranational currency, the Bancor, issued by a world bank, which would charge an interest rate on negative and positive Bancor balances. The rationale for this apparently unfair symmetry (why force a creditor to pay interest, rather than earning it?) is that international debtors and creditors both benefit from international finance: thanks to international lending, the former can buy goods they otherwise could not afford, while the latter are able to sell goods that would otherwise remain in stock. By proposing such perishable money, a currency that by design could not be a store of value, Keynes aimed to discourage mercantilism, i.e. the temptation to hoard international assets rather than reinvesting them in the world economy, thus mitigating the potentially destabilizing properties of fixed exchange rates. The euro obtained the opposite result. Its rigidity fostered mercantilism both by helping redirect trade to the benefit of core countries, whose currency is undervalued in real terms, and by preserving the value of their net foreign assets.
>But the supposed winner of the euro game, Germany, is now at a dead end. If it wants to keep the Eurozone alive, Germany must accept the very loose monetary policies run by the ECB. Ironically, Keynes’s negative rates are coming back in disguise, putting strain on the Eurozone banking and pension systems, especially in Germany. On the other hand, a tighter monetary policy would give relief to the creditors, but for the very same reason would lead the debtor countries to immediate collapse by making it difficult to service the debt. Any illusion that fiscal expansion could solve this conundrum must reckon with the fact that the countries needing fiscal stimulus, i.e. the Eurozone peripheral countries, are the very same countries where an increase in income would bring about external deficits, again fostering the imbalances that caused the crisis.

>Germany romped to victory by manipulating the forex market (as the US Treasury recently recognised), but must now choose between losing everything at once (through the collapse of its debtors) or little by little (through zero or negative interest rates). In the long run, irrational economic choices have no winners: bad economics cannot be good politics. What should have united Europe is now dividing it. The United Kingdom is going, and continental Europe must now choose between increasing confrontation or surrender to German hegemony. The US, like any global player, must reckon with the evidence that the euro has unnecessarily revived the German question, which it was meant to prevent.
>If the US decides that it is in its best interest to deal with a politically divided, economically failing, socially unstable Europe, then supporting the euro is the best option. After all, the divide et impera (divide and rule) principle secured a former Empire some five centuries of existence. If instead the US feels that a politically and economically healthy Europe could be a key partner on the global stage, then it should promote a controlled end to the euro. Undoing the euro will be costly, though less costly than its alternative, which is protracted stagnation of the European and hence the world economy, and the growing risk of a major financial collapse. Secular stagnation and zero interest rates are not a result of some remote astrological circumstance: they are mostly the effect on the global economy of using wrong European rules to manage huge imbalances accumulated due to flawed European institutions. Although Europe is declining, it is still too big to fail without causing great trouble in the global economy.
>No matter how much political capital is invested in it, the euro will fall, as top US economists predicted. The most likely cause will be a collapse of the Italian banking system, which will take the German one with it. It is in the interest of any political power, certainly of the declining European leaders, and probably also of the US, to manage this event rather than passively await it.

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