There have been rumors lately that Germany has raised the possibility that they might leave the Euro. But like most of the talk coming out of Berlin in recent months it’s just that – talk. After all, why in the world would Germany ever want to leave this currency union? Although inherently flawed, there is always a great winner in single currency systems. In this case it is undoubtedly Germany. They have their lowest unemployment rate in 18 years, a booming economy, zero inflation, a monopoly on the export market in Europe and total control over the ECB.
Although their enviable position in the Eurozone (as the primary trade surplus nation) is highly favorable there are other reasons for Germany to fight for the Euro’s survival. They have a vested interested in making sure that the periphery nations do not default on debt that is held largely by German bankers. In addition, the Euro project is largely a creature of the German political regime. As I’ve frequently mentioned there is simply too much political will invested in the Euro thus far to allow it to unravel.
Those are the primary three reasons why Germany will not abandon the Euro. They have benefited enormously at the expense of the periphery nations. Germany will talk tough, but do everything in their power to ensure that this German prosperity continues. The biggest risk to the Euro and Germany is that the periphery nations begin to revolt against their German bankers & their ECB. Thus far the Germans have played their cards well. They have convinced the periphery nations that austerity is good for them and that Europe is here to help them.
Make no mistake. Germany will do everything in its power to keep the poor on their knees. After all, in a single currency system there must always be a winner and loser. Germany knows they are the winner and they will do everything they can to ensure the losers never realize this.
Well yes,- from a political point of view they have managed their own interests well, but how do you imagine they’ll counter the rising popular dissent from countries such as Ireland? After all it’s only a question of time before the taxpayer realizes that they’re are being pushed into dept slavery mostly to bail out the German banks and whoever else has money to loose. Don’t want to be to pessimistic but I see a serious risk for the reemergence of a radical political solution driven by populat consent,- such as DEFAULT!
And well honestly…. I’m not sure that would be such a bad thing – IN THE LONG RUN!!
I don’t doubt that outcome one bit. But make no mistake – Germany will try to keep this all together as long as possible. And even if there are defaults and defections the Euro will survive because Germany will continue to promote its existence as being a crucial element in the Euro story.
In fact, in the long-run it is necessary that nations like Ireland and Greece return to their own currencies. They had no business joining the Euro in the first place. But it could take several more years of austerity for their citizens to realize this.
I’m less sanguine about the euro. Either they change the structure of the agreements to accommodate the asymmetry, or radical politics will make the union untenable. European workers are not as malleable as American workers, and there is already significant social unrest in the periphery. The European workers have shown that they can bring countries to a standstill, and I have no doubt that they will if pushed to the edge, which the center seems bent on doing in order to shield their financiers. My thumb is still down.
I am still working on what I think the endgame is, but for now I find it hard to believe Germany will ever let this end. It’s just too good for them. So, what happens? Maybe we get a few defections due to political unrest (maybe Ireland and Greece?), Germany can take credit for their “haircuts”, the ECB steps up to the plate to fully back the other nations involved and they all continue along their merry way until the Euro finally bankrupts someone else.
I keep wanting to figure out a way in which they can create a central treasury, but it would requite concessions from Germany and I just don’t see that happening now. The current path still leads to default and defections I think. True unity we be great for all involved, but might take an act of God….
Germany will bailout everyone. If you can call it a bailout. They’re basically bailing themselves out because it’s their bankers that will get screwed when someone defaults. Meanwhile, they screw over the citizens by forcing austerity on them. So, it’s in Germany’s best interest to keep this whole mess pieced together. There’s no chance they’ll let it fall apart.
The only way that happens is if the periphery citizens wake up to the fact that they’re getting the raw end of this deal.
I agree that Greece and Ireland will leave, but I’m not sure it will take years. It could be much sooner than that. Some observers have pointed out the cost of leaving, but the popular anger and sense of betrayal in those countries could hasten matters considerably. Especially in Ireland which has an upcoming election. If Sinn Fein makes the “bailout” a major issue, the pressure to leave may be irresistible.
Some of the EU officials have suggested that what is needed is closer ties with centralized fiscal control over member nations. That may be true, but making the case for it in this environment won’t be easy. By and large the people of Europe were given little or no say about joining the EU or the Euro Union. The political elites told wonderful stories about the benefits to be gained and forced the process, but the reality has proven a lot less than advertised. In the cold light of day those elites may find that they have less credibility than they used to.
Well, I think it is true that Germany currently has no interest to leave the Euro, but it is ultimately not a single country’s decision whether the currency will survive or not. Even before, there were populist calls in Italy and other countries which tried to blaim economic ails on the Euro, and this sentiment will intensify greatly because of the current situation. It’s a very easy scapegoat for many. What’s more, remember that the exact flip-side of the current situation occured during the 2003-2007 upcycle… the rest of Europe was criticising Germany for being the sick man of Europe – and the ongoing arguement was that interest rates were too high for Germany (and too low for the boom coutnries like Spain, Italy etc.). What we have is a situation where the region is simply out of tune in its cycle, and unless we have more convergence, the currency is under serious threat. Besides, Germany can afford dropping the Euro more than many of the other countries: remember, the D-mark was a great currency, and Germany did quite well without a single currency. It was actually the periphery which had the biggest benefit due to substantially lower interest rates and much higher stability. Of course, this benefit is now being called into question, so it may just be the periphery which wants to ultimately abandon the Euro, not Germany.
I’m afraid I lack some insight into the mechanics of the Euro. Can someone explain exactly what the big benefit to Germany is with the Euro?
At first glance, Germany looks like a pretty bride, a winner of the Euro system. Booming economy, zero inflation, low unemployment, high trading surpluses. But all that glitters is not gold. Taking a deeper look under the surface, it will be figured out that the GDP declined 5% in 2009, being a direct impact on the global downturn and indicates how much Germany`s economy is down to exports only without any diversity and domestic demand. The budget deficit of 50 bn EUR in 2010 has been the highest since the reunion with east Germany 20 years ago and the national debts are set to be exceeding the threshold of 80% of GDP this year. Additionally, Germany issued guarantees for the national banks of 500 bn EUR, for the Greece rescue 20 bn EUR and for Europe 120 bn EUR. Germany a winner? Let`s go on: The wages have been declining in real terms since the single currency system was launched. While Germany`s economy is in a recovery mode and the inflation rate surged to 1,5% in November, the ECB ought to lift up interest rates linked to Germany`s huge upturn. But the Euro crisis will not allow any surging interest rates if the ECB doesn`t want to take ownership of a meltdown in Europe`s banking system. Thus, the workers in Germany with one of the highest saving rates of the entire world of 14% per capita will have to suffer inflation and lose their hard working savings due to a long period of negative real interest rates going forward. And as far as the low unemployment rate is concerned this is a direct impact on Germany`s sinking population rate and a pretty low birth rate of all mature economies of just 1,2. By 2050, the population will have a lack of 10 mn people, being liable for 1,7 tn EUR debts, huge pension claims and a prohibitively expensive health care system funded by the workforce. Does all this sound like paradise city?
I think a partial fiscal union is possible. Centralize bank regulation (and bailouts), but leave everything else to each nation.
Are Greece and Italy really better off with their own currencies in the long run? I doubt it. They mismanaged their own currencies and would again if given the opportunity.
German umemployment rate is manipulated. They made 1.5 millionen unemployed people to disappear (from statistics only!) in the last years. These people are not working again but are not accounted as unemployed anymore.
Germany’s trade is 70%+ within Europe. Germany is far more competitive than the rest Europe. A single currency benefits Germany first than any other country. China can not save Germany with the European market.
So it is plainly clear what Germany will do.
George H, I don’t agree at all that Germany benefits more than any other country. First of all, even though Germany exports 70% to the EU, it only exports around 1/3rd to Eurozone. Furthermore, that 1/3rd is not the most important 1/3rd, as growth on the margin comes from China & co and not stagnating Europe. In fact, it is not evident from statistics that the Euro introduction has given Germany any sizable export boost. Secondly, Germany has effectively had to ‘pay’ for this union. It went in at an unfavorable exchange rate, and it is the country which is the greatest net payer to union subsidies. If you want to know who gained… well, mainly it’s the periphery. Spain for example has received billions and billion in money from the EU which has given it the means to completely overhaul the coountry’s infrastructure. Also, Spain’s interest rates have gone down from like 15-20% down to low single digits, whilst average growth greatly accelerated since the euro introduction. Countries like Spain have changed from second rate backwater economies into modern first rate economies with GDP/capita to almost rival Germany/France/UK. And yes, with the crisis it now looks like these countries have lost out, but if you take the whole development since the end of the 90′s intro consideration, they have been BIG winners.
So in short, Germany is certainly NOT the big winner in the Euro. In fact, Germany did just as well with its D-Mark, which was an even more stable currency for this export nation.
BigH,
To your first point, I don’t doubt is where the growth is. That is what Germany is focusing at right now. But to think this is more important is not realistic. It is the same to believe if the U. S. can lose 50% of its export to Canada (or even Mexico) as long as it can increase export to China by 50%.
This only works if Germany can maintain roughly the same export Europe while expanding to China, which it can’t maintain if leaving the Euro.
To your second point, quite true. But is this because Germany is unfortunate? No. This is their choosing. This is exactly what China does to the United States. Big surplus exporters must also be big credit exporters because deficit importers are big debtors. If China wants the U. S. to keep buying its product without doing it reciprocally, it needs to supply credit. This is exactly what Germany has to do. To put it in another way, Germany could have chosen not to subsidize other countries. But then it won’t be able to export as much.
Another example will be the U. S. home buyers. Exactly the same. There are two sides of a coin. The only thing we now come to learn is this is not sustainable. Kind of late.
All this smells too much like a “fourth reich”, something that makes the rest of the EU “uncomfortable”.
Of equal importance is the fact that the German banks aren’t in much better shape (worse?) than American banks, which is to say hopelessly insolvent. By bailing out the whole Euro Zone, Germany perpetuates their dominant role in the EU, but at what cost? If they are forced to recognize the insolvency of their banking system, it will collapse the German economy, making EU dominance irrelevant. This would be especially onerous, if the US & UK escape the same fate; that is we keep our banking systems alive (despite being BK), while Germany and the whole EU collapse. This would end up looking like the end of WW2 all over again. Not high on anybody’s list.
Switzerland and the UK stayed out of this thing for a reason. There are rumors that France “forced” Germany to join the EMU in exchange for supporting East German unification. That doesn’t speak to a deep level of commitment to the EMU from Germany, especially now that they have to pay for the whole F&#king mess.
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There have been rumors lately that Germany has raised the possibility that they might leave the Euro. But like most of the talk coming out of Berlin in recent months it’s just that – talk. After all, why in the world would Germany ever want to leave this currency union? Although inherently flawed, there is always a great winner in single currency systems. In this case it is undoubtedly Germany. They have their lowest unemployment rate in 18 years, a booming economy, zero inflation, a monopoly on the export market in Europe and total control over the ECB.
Although their enviable position in the Eurozone (as the primary trade surplus nation) is highly favorable there are other reasons for Germany to fight for the Euro’s survival. They have a vested interested in making sure that the periphery nations do not default on debt that is held largely by German bankers. In addition, the Euro project is largely a creature of the German political regime. As I’ve frequently mentioned there is simply too much political will invested in the Euro thus far to allow it to unravel.
Those are the primary three reasons why Germany will not abandon the Euro. They have benefited enormously at the expense of the periphery nations. Germany will talk tough, but do everything in their power to ensure that this German prosperity continues. The biggest risk to the Euro and Germany is that the periphery nations begin to revolt against their German bankers & their ECB. Thus far the Germans have played their cards well. They have convinced the periphery nations that austerity is good for them and that Europe is here to help them.
Make no mistake. Germany will do everything in its power to keep the poor on their knees. After all, in a single currency system there must always be a winner and loser. Germany knows they are the winner and they will do everything they can to ensure the losers never realize this.
Well yes,- from a political point of view they have managed their own interests well, but how do you imagine they’ll counter the rising popular dissent from countries such as Ireland? After all it’s only a question of time before the taxpayer realizes that they’re are being pushed into dept slavery mostly to bail out the German banks and whoever else has money to loose. Don’t want to be to pessimistic but I see a serious risk for the reemergence of a radical political solution driven by populat consent,- such as DEFAULT!
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