When we talk about winners and losers in Euroland as I did in yesterday’s post, the natural question is, “how can you make everybody a winner?”. And I think this is important while Euroland goes through a cyclical upswing since that’s when reforms can actually be the least painful. And there’s a whole body of work that was devoted to this during the European sovereign debt crisis.

What I want to remind you though is that what Emmanuel Macron — now seen as the driving reform agent in Europe — is looking to do is essentially re-create the German model on a European-wide scale. What Macron represents is an olive branch to the Germans from southern Europe, where he takes the lead in re-creating in France the economic model that Germany now uses — wage restraint, budgetary discipline, etc.

In return for reforms, the Germans will help take the lead in enacting Eurozone-wide institutional changes that bind Euro area countries closer together, preventing a future crisis. And the Germans see the correct sequence (Reihenfolge) as reforms first, euro-wide safety net in return. It’s a quid pro quo that Wolfgang Schäuble gave voice to when Macron was running last year.

The way I read German policy makers, “the primary goal of the German model is to minimize debt as a potential catalyst for crisis”. That’s how I put in 2014. But, of course, this is a huge undertaking. Greece has gone through the wringer to try and achieve this outcome and is still in slow growth mode. The end effect will be removing the vendor financing paradigm from the Eurozone, where countries like the Netherlands, Germany and Austria have massive current account surpluses and Southern Euroland nations have outsized deficits.

But, the whole of the euro area taking the German approach would essentially move the vendor financing model from within Europe to outside of the eurozone, to between the euro area and countries like the United States and the United Kingdom. I don’t think that is politically sustainable. Moreover, I don’t think Europe can get there before the next cyclical downturn hits and the EU’s institutional deficits create another crisis — in Italy in particular. But that’s what’s going on here.