By Alan Philps

It was billed as a pan-European picnic, a peace demonstration in which the barbed wire on the Hungarian-Austrian border would be symbolically cut. It was the first major breach -- albeit for only a few hours -- of the Iron Curtain that had divided Europe since 1945. During the festivities, 600 East Germans took the opportunity to flee to the West.

That was in August 1989. Three months later the number of East Germans flooding over to the bright lights of the West was in the thousands as, during a night of wonder, the Berlin Wall was scaled, breached and toppled.

On September 12 of the next year, the Second World War Allies -- America, Britain, France and Russia -- signed an agreement in Moscow with the two Germanys to re-unite the divided country. The following month, East Germany was consigned to history in a spectacular blaze of fireworks.

Repairing the split at the heart of Europe was a miracle of diplomatic agility. It appeared to be a rare example of a crisis cleanly resolved.

But was it? Increasingly, researchers see a fatal link between decisions taken in the race to re-unify Germany and today's rolling cataclysm in the eurozone. Hans Kundnani, an analyst of German affairs, has encapsulated the issue thus: if the euro crisis is not solved, German reunification may ultimately lead to European disintegration.

The connection may seem far-fetched. Reunification was a long time ago. The cast of characters –Mikhail Gorbachev, the Soviet President, George H. W. Bush, the US President, and Margaret Thatcher, the British Prime Minister have all retired. The inscrutable President Francois Mitterrand of France went to his grave in 1996, leaving a trove of unanswered questions.

It was no secret that Thatcher and Mitterrand saw re-unification as a dangerous development that was likely to revive the spectre of German nationalism. Thatcher told everyone that re-unification would not happen. More subtly, Mitterrand looked for a way to bind the nascent German monster irrevocably into the power-sharing structures of the European Union.

He made it clear that France would never approve a united Germany unless Helmut Kohl, the Chancellor, sacrificed the deutsche mark and signed up to European monetary union. Kohl had no interest in giving up the German currency, symbol of its post-war recovery, and argued -- correctly as we now know -- that monetary union was unworkable without fiscal and even political union. But with re-unification at stake, he agreed.

Arguments over whether a shabby Franco-German deal paved the way for Germany's finest hour in the 20th century have sputtered from time to time. Wolfgang Schäuble, the German Finance Minister, who as head of Kohl's chancellery helped to negotiate the re-unification process, insists there was no such trade-off. The French disagree.

What is clear is that, prior to the re-unification talks, monetary union was just another European grand project on the horizon, one that Karl Otto Pöhl, the Bundesbank president, said he did not expect to see in 100 years. By the end of 1991 it was a concrete plan. Thus the euro -- once described by Kohl's successor, Gerhard Schröder, as a 'sickly premature baby' -- went into circulation in 2002.

Twenty-two years on, Germany has not become a nationalist bully -- but does history ever repeat itself so crudely? Instead, the euro, thanks to some far-sighted financial management in Berlin, has turned Germany into Europe's economic giant, fatally unbalancing the old alliance with France, which could not keep up. Without the euro, Germany's currency would have risen in value, making it harder to export its goods. With a single currency, Greeks and Spaniards have been eager to rack up debts to buy BMWs, turning themselves into economic colonies of Germany.

Argument about the origins of the euro will continue. But the iron rule of diplomacy remains: The seeds of the next crisis are to be found in the solution of the last one.


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