For one thing, France saw interest rates rise, relative to USD, by something like 250 bp, with double digit yields on government debt. That's a huge price to pay.

Further, most all the economic activity financed by the debt which France helped pay for via that interest rate premium, happened in Germany. German jobs, German firms, German shareholders, East German beneficiaries of 1:1 conversion.

I think the word "greatly" is not out of line in this context. And for that matter, I am not alone, here's Paul Krugman, early into the Buba's tight money policy:

While a system based on German leadership did well in the 1980s, it was bound to run into trouble. Under the EMS, the Bundesbank in effect sets monetary policy for Europe; yet only Germany has a direct say in these policies. It is as if the Federal Reserve Bank of San Francisco controlled the U.S. money supply but was answerable only to California. That's fine as long as what is good for California is good for America and vice versa, but what if there's a conflict of interest?

The conflict of interest is now upon us. Reunification creates huge needs for new spending within the enlarged Germany. The International Monetary Fund forecasts that West Germany will go from a small budget surplus in 1989 to a deficit of 3.5 percent of GNP in 1991. True to form, the Bundesbank is restricting credit to offset any inflationary effects of this fiscal expansion. German interest rates have surged since the fall of the Berlin Wall last year, rising above U.S. rates for the first time in memory and driving the mark to record highs against the dollar.

This may be acceptable from Germany's point of view. But other European countries do not share in the fiscal expansion from reunification; if they go along with Germany's monetary contraction, as they must to sustain the EMS, they are threatened with recession. France's interest rates have risen as much as Germany's, and the franc has risen as much against the dollar as the mark has. It is as if, faced with a boom in California, Alan Greenspan were to focus on preventing any rise in the West Coast cost of living. By raising interest rates enough to stabilize California prices, he would plunge the rest of the U.S. into a recession. Greenspan, who answers to a national constituency, would not do this, but the Bundesbank's Karl-Otto Pohl, who runs Europe's money but answers only to Germany, would and will.

Another analogy: What would have happened if the Ronald Reagan-Paul Volcker policy cocktail of the early 1980s -- fiscal deficits coupled with tight money -- had been served up under the pre-1973 dollar standard, in which other countries pegged their currencies to ours? Everyone else would have been obliged to match our high interest rates, without the stimulus from our deficits. The result would have been a global recession -- everywhere except in the U.S.

So the question is whether the macroeconomics of German reunification -- a mix of budget deficits and high interest rates that is oddly reminiscent of early Reaganomics -- will destroy the EMS. A breakup of the EMS would hurt European unity, undoing much of the momentum from the agreement to unify markets in 1992. Yet the choices seem stark. Either Germany must concede that the Bundesbank answers to Europe, not merely to Germany, or the rest of Europe must endure a recession imposed by the tight monetary policy of a booming Germany.

And we know with hindsight, unlike Paul Krugman above, what happened. Pohl did in fact ignore the interests of the rest of Europe, and we all endured the most painful recession since World War two. And, importantly, we had no real say in the matter, if we wanted to maintain the EMS and with it, the European project.

The Hun is always either at your throat or at your feet. Winston Churchill