The speech was good for the history books. There is no way the European currency union could possibly continue in its present form, explained the speaker at Berlin’s Humboldt University in January. The fault lines in its construction “benefited only Germany”. That is why “(a continuation of) the status quo will mean an end to the euro within 10 years,” he cautioned. Emmanuel Macron could hardly have articulated his warning more starkly, but at the time it didn’t even merit a comment from Germany’s governing politicians.

Now, five months later, the speaker is the new French president, and the German chancellor, her ministers and indeed the whole population have to listen. That is why the centre-right Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU) and their coalition partner, the Social Democratic Party (SPD) are now arguing about the “fiscal integration” of the euro zone with its own budget, its own finance minister and parliamentary control, as called for by Mr. Macron. And it didn’t take long for the media – those guardians of Germany’s chauvinistic affluence, from the tabloid daily “Bild” to the weekly news magazine “Spiegel” – to issue their favourite warnings about a euro partner trying to plunder Germany’s state coffers.

But again, the discourse is not focusing on the real problem. It is not about milking the poor German taxpayer for the benefit of irresponsible foreign debtors. On the contrary, it is crucial that the Germans get to grips with the mismanagement of their own economy. Because at the core of the euro system’s instability is the unequal development of wages and inflation in member states. That was only recently shown by a study of the Bruegel Institute, Europe’s leading think tank. Its authors were able to show that it was the Germans who continually break the central rule of a currency union: adherence to a joint inflation goal. For this to happen, wages and salaries would always have to increase in line with productivity: the value of production per hour worked, plus the 2 percent inflation prescribed by the European Central Bank (ECB).

The French have adhered to this, while in Germany, since the start of the euro, wages and salaries have risen much more slowly than productivity. Companies departing the collective bargaining agreements and the unemployed being forced to accept any job offer however badly paid it may be – a decree euphemistically described as a “reform” – conspired to depress wage structures. The lower 40 percent of wage earners were hit hardest. Their real hourly wages were lower in 2015 than 20 years before, as documented by the poverty and wealth report of the federal government. In other words, a substantial part of the population has not participated in the country’s economic progress for two decades.

But this is also the reason for the German economy’s extremely high surplus in the international trade of goods and services and the corresponding deficits of other euro countries – France in particular. The Germans profit from the purchasing power of other countries, but themselves buy and invest too little in their own country, thus exporting unemployment elsewhere. The flow of capital is a mirror image of this. The countries with trade deficits pile up debts while the Germans amass correspondingly high assets abroad.

For this imbalance the chancellor and her finance minister know only one cure: everyone should act like the Germans, so they can become “competitive”, as Angela Merkel likes to put it. But that is economic nonsense. Companies should be in competition with one another, but not states, and certainly not states whithin a currency union. That can only lead to greater divisions. Whenever euro governments have actually operated this policy of reducing wages and expenditure – euphemistically called “internal devaluation” – they have succeeded in balancing their trade deficit at the cost of plunging deeper into recession and increased unemployment. So France was well within its rights to resist and Mr. Macron is right: the currency union cannot survive if it forces all members to take part in a race to the bottom with wages and prices. That can only escalate inequality and drive citizens into the arms of nationalists.

But a budget and an investment fund for the euro zone can only serve as a sticking plaster against this danger. It would be much more important to combat the German disease of the euro where it comes from. And the key to this, apart from reasonable wage increases, is to spend more on public investment in Germany. Since 2003 investment has not even been enough to halt the decay of existing infrastructure, and the state’s own capital stock has been shrinking ever since. All over the country roads, bridges, railway tracks and all the other public infrastructure have been rotting, not to mention deficiencies in the education and health systems. If federal and state governments were to seize the opportunity and put a stop to the decay with zero-interest loans, it would be a blessing for the entire euro zone. Such an investment offensive on its own, according to recent calculations by the Institute for Macroeconomics of the Hans Böckler Foundation, could lead to a sufficient increase of incomes and demand for foreign goods and services to correct current account imbalances.

If everything remains as it is, however, it would also force Mr. Macron and his government into a downward spiral of falling wages, revenues and state spending. And victory for the Front National in the next elections would be guaranteed.

This article was first published in German via “Der Tagesspiegel”.

Emmanuel Macron and the German disease

The euro is unstable because wages and inflation rates are developing unequally, a new study by the think tank Bruegel shows. And the Germans are to blame. If the euro zone disintegrates, it will happen because of German economic nationalism.

Cross-border stories from a changing Europe.

Cross-border stories from a changing Europe.