January's dreadful German unemployment figure is the most politically significant euro event since the Dublin summit. Chancellor Kohl was always seen to be more powerful from abroad than he was in reality at home. He is now seen as a chancellor with a great plan for European integration and no strategy for German economic rejuvenation.
Kohl's decline won't stop the euro happening on time, but it has reduced its chances a little. More important, there will be economic and political effects for the Dm. Stand by for perverse financial market reactions. A few months ago anything that increased the chances of Emu postponement would have caused the Dm to strengthen and the fortunes of Europe's high-deficit, high-debt Southern Comfort Countries to fall. Not so now.
The Dm will stay weak because the Bundesbank will cut interest rates to boost the economy. This crisis is about German weakness, not strength. That's why the German-Italian summit last month went so swimmingly for Italy's prime minister Romano Prodi, and why Kohl had to declare glumly that, without further measures, Germany wouldn't qualify for Emu .
The reason the Dm will suffer is two-fold.