The euro was designed to assuage French fear of German power – no wonder it failed

In the second of a three-part series, The Independent’s founding editor finds that Germany’s economic relationship with its neighbours came to define the European Union

François Mitterand, the former French president, believed the single currency would help other European countries regain power lost to Germany (Getty)

I argued yesterday that, before we can decide whether to remain in the European Union (EU), or to leave it, it is important to understand what sort of thing the EU is.

In describing the early history of the European Union and its predecessors, I sought to show that it was designed largely in the interests of France. And in turn France’s decisions were driven by its fear of a resurgent Germany.

France, after all, had been invaded three times by Germany in the previous hundred years.

I ended my account with De Gaulle’s veto of Britain’s first application to become a member. At a press conference, he said: “The Treaty of Rome was concluded between six continental states, states that are, economically speaking, one may say, of the same nature. Indeed, whether it be a matter of their industrial or agricultural production, their external exchanges, their habits or their commercial clientele, their living or working conditions, there is between them much more resemblance than difference…

“England in effect is insular, she is maritime, she is linked through her exchanges, her markets, her supply lines to the most diverse and often the most distant countries; she pursues essentially industrial and commercial activities, and only slight agricultural ones.

“She has in all her doings very marked and very original habits and traditions.”

This exaggerated analysis was designed to mask the reality. What De Gaulle was really saying was that the European Economic Community –or Common Market, as the EU was then called – had not been created with Britain in mind and France wouldn’t change its nature now because, rather late in the day, Britain wanted to participate.

Or, to put it more succinctly, if Britain comes in, we may lose control.

Admittedly, the differences between Britain and its continental neighbours are profound. We are by history Protestant and ‘the Six’, the founding countries, are Catholic (with the exception of the Netherlands and parts of north Germany).

A prominent feature of our legal system is the common law, under which judges, guided by precedents, develop the law as they go along. Continental legal practice is based on Roman law.

In Britain, Parliament has been the focal point of the nation for some 800 years, whereas the parliamentary tradition on the continent is much weaker.

Finally, we have had a long attachment to free trade, sometimes fanatically so, whereas trade protection is an old habit on the continent.

As Robert Tombs, the Cambridge historian describes it in his magnificent 900-page tome, The English and their History, “In Victorian England, there was a near consensus over free trade, as much a moral as an economic policy. From the 1820s onwards, there developed a visionary programme to transform the world by means of free trade…it ran from c1850 to c1930. Britain allowed free access to its domestic markets to all, including countries such as the United States that limited British access to theirs.”

The last time that France was able to control Germany was at the time of the fall of the Berlin Wall in 1989.

In French eyes, Germany divided was reassuringly weak; Germany united would be frighteningly strong. Faced with this, the French President, François Mitterrand, came to believe that a single European currency was the only way for other European countries to regain the sovereignty they had already lost to Germany – and in particular to the German central bank, which maintained a super-strong Deutschemark.

Hans Kundnani tells in his recent book, The Paradox of German Power, how, in September 1989, the French President remarked to Thatcher that “without a common currency we are all already subordinate to the German’s will”. In due course this deal was enshrined in the Maastricht Treaty of 1992.

Thus the eurozone and the euro were created not for profound economic reasons but to assuage France’s perennial fear of German power.

With such origins, it is not surprising that it has not worked well. Nor did its invention prevent Germany gaining leadership of the European Union with France trailing behind. Rather the reverse.

It facilitated Germany’s transformation from a country with a current account deficit in trade to one with a huge surplus. Kundnani describes the steps.

German manufacturers began outsourcing production to central and Eastern Europe. The end of the Cold War, Kundnani claims, had suddenly created an arc of low wage economies with skilled workers on Germany’s borders. Increasingly, German branded manufactured goods, including automobiles, were actually produced elsewhere and merely assembled in Germany.

Much of central Europe became part of the German supply chain and this gave Germany an inbuilt competitive advantage relative to other eurozone economies.

In turn, “offshoring” put downward pressure on wages of skilled workers within Germany. The creation of the eurozone was also a benefit. It produced a credit boom (that could be spent on German goods) and since the common currency was weak compared to the Deutsche mark, German exports beyond the eurozone benefitted.

Germany’s economic nationalism emerged in a new form. This centred on Germany’s world beating exports, which replaced the deutsche mark as the symbol of German economic success.

As a result, writes Kundnani, at the end of the 2000s, there was once again a triumphalist mood in Germany.

“In particular, there was an increasing scepticism about - and even contempt for – Anglos Saxon ideas, whether about statecraft or about economics.” So more than 40 years after we joined an unbending European Union, we have ended up in a body, led by Germany, which despises us yet can influence our laws.

Michael Gove, the Justice Secretary and one of the leaders of the Leave campaign, has described what this means: “It is hard to overstate the degree to which the EU is a constraint on ministers' ability to do the things they were elected to do, or to use their judgment about the right course of action for the people of this country.

“I have long had concerns about our membership of the EU, but the experience of Government has only deepened my conviction that we need change.

“Every single day, every single minister is told: 'Yes Minister, I understand, but I'm afraid that's against EU rules'.”

Inevitably this brings to my mind the thrilling speech on plans to enter the Common Market that Hugh Gaitskell, then leader of the Labour Party, gave to his party conference in 1962: “We must be clear about this: it does mean, if this is the idea, the end of Britain as an independent European state. I make no apology for repeating it. It means the end of a thousand years of history.

“You may say ‘Let it end’ but, my goodness, it is a decision that needs a little care and thought.”

In tomorrow’s edition, I propose to devote a little care and thought to weighing up the pros and cons of remaining in the EU.