There is a famous scene in the 1976 film, The Outlaw Josey Wales, starring Clint Eastwood as the eponymous hero. During a particularly brilliant exchange, the bounty hunter Fletcher, hot on the heels of Wales, comes out with an inspired put-down to the cowardly senator who is trying to pull the wool over his eyes.

Squinting into the sun, saloon door at his back, chewing tobacco, Fletcher disdainfully hisses: “Don’t piss down my back and tell me it’s raining.”

The expression, which is originally from South Carolina, beautifully captures the moment when someone who is being lied to turns the tables on the person who is lying to him.

When it comes to the fiscal compact, the EU is pissing down our backs and telling us that it is raining. And the fact that the government is also going with this line implies that it is party to this falsehood.

Brussels is pretending that the fiscal compact is necessary to strengthen the euro. This is nonsense. The fiscal compact has nothing to do with solving the eurozone’s problems. Let’s be clear about that. It has everything to do with reassuring the German electorate that they will not be on the hook for the internal inconsistencies of a currency union, which they were bounced into a few years ago.

When I say ‘bounced into’, I mean the Germans never wanted the euro. They were more than happy with the Deutsche Mark but the French demanded that the price of German unification in 1991 be greater EU integration. A new currency would anchor Germany into western Europe, just in case the newly-unified Germany got itchy feet again and lurched eastwards.

Throughout the 1990s, the German public was kept in the dark about what all this meant for them. In the past few years, they have woken up. But they are now told that they are on the hook. However, this is only half the story.

Germans should know that there are no free lunches, and the greatest free lunch of all was the belief that Germany could lock in a permanently cheaper exchange rate off which to export without a price. Of course, the quid pro quo of their huge trade surplus was massive inflows of money to Germany, which has to be spent somewhere.

Had they their own currency, it would have risen in response to these inflows and German exports would have become very expensive. This didn’t happen, so Germany got turbo-charged export conditions, a massive current account surplus and huge financial exposure to its neighbours because German banks re-lent this cash to the periphery of Europe.

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