Monetary union without Germany, or more precisely without the Bundesbank: that's the prescription of Nobel laureate Franco Modigliani. The Bundesbank has already become the central bank of Europe, Modigliani argues, with its "miserable monetary policy" of high real interests in the face of low investment and rising unemployment. He would like to index central bankers' salaries to inflation and joblessness figures.
Modigliani, born in Rome in 1918, an MIT professor and winner of the Nobel prize for economics in 1985, hopes Emu will mean a new central bank "whose interests will presumably be those of Europe, not Germany. Then we will be rid of the Bundesbank as the dictator of European monetary policy".
The interest of the Bundesbank, he told Business Club Italia in London last month, is to postpone Emu as long as possible, to prolong its own survival, whereas chancellor Kohl would genuinely like to integrate.
The Bundesbankers must be "very disappointed by the Italian government, since it has proved not to be a bunch of buffoons", he continued. A monetary union without Germany isn't unthinkable, he says. Europe without Germany is two-and-a-half times Germany's size. If Bundesbankers insist on sticking to the letter of the Maastricht criteria, "why not say join without them?"
The Germans would soon realize that, surrounded by a weak euro, their exports would plummet and unemployment would rise even higher.