John Browne: Germany's War Against Keynes

John Browne is senior economist at the brokerage firm Euro Pacific Capital, based in Westport, Conn., and a former member of the British Parliament. 

As European leaders hurtle toward another make-or-break summit on the debt crisis Jan. 30, Germany’s economic leadership will again be put to the test. At the last summit in December, Berlin was unable to persuade London to back a plan to more tightly bind the economic policies of all 27 members of the European Union.

British Prime Minister David Cameron bristled at ceding any more sovereignty to the continent. But I suspect that his real fears are with German Chancellor Angela Merkel’s support for monetary discipline. Despite his austerity budget at home, Mr. Cameron nevertheless follows the Anglo-American preference for monetary easing as an economic panacea in tough times.

And it’s not just Cameron who shares this view. So do leaders such as Christine Lagarde, head of the International Monetary Fund, and Italian Prime Minister Mario Monti. In the new century, the currency printing press has replaced the machine gun as the primary weapon in European power struggles.

The Germans would never put it this way, but they’re actually in the process of building a new “empire,” an economic one that holds honest money as a cardinal virtue.

In light of history, most Europeans have been keenly unwilling to yield economic sovereignty to Germany, or more accurately, to the German way of doing things. But as Europe’s economic powerhouse, and its national lender of last resort, Germany finds itself in an unusually strong bargaining position. In fact, several key European leaders have recently said that fears of a timid Germany now outweigh fears of an emboldened Germany...