Greek crisis: And if Germany quit the euro?
27 April 2010
Germany is dragging its feet about lending money to Greece to absorb its deficit, and even threatening to expel less fiscally disciplined members from the eurozone. But the continent’s foremost economy had better keep the single currency afloat. Without the euro, Germany would be headed for disaster.
There was a time when Germans wanted to be Europeans more than to be Germans. European unification was an unshakeable goal. That time is long gone, there’s no doubt about it. With German reunification, this country has learned to be proud again. Of what though? And since then every time there’s a bill to be paid we ask: what’s in it for Germany? The Europeanists of yesteryear have long since grown used to that state of affairs.
But the current smouldering controversy over Greece, the scolding, the jingoistic undertones – that’s going too far. The arrogance of our MPs, officials and cabinet ministers who think they are entitled to denigrate the residents of Greece as stupid, unreliable and lazy is simply beyond the pale. The chancellor’s tactics, which merely invite speculators to drive interest rates up on the Greeks till there’s nowhere to go but to the wall, betray a mind-boggling irresponsibility towards the eurozone – and all for some regional elections in North Rhine-Westphalia!
Remaining eurozone would see massive export boom
This bigotry, this inability to reflect, even to ask the question whether Germany’s conduct over the euro’s 11-year stint has not aggravated tensions in the monetary union, all that makes it plain: the euro problem is not so much Greece as the alleged paragon, Germany. So go ahead and get the hell out of the euro! I feel like yelling at the neo-nationalists. Bring the bloody Deutschmark back and let France run what’s left of the eurozone. Go ahead and wallow in your smug sense of superiority! But that will be a horribly short-lived high, that’s for sure. After all, what would happen if Germany withdrew from the euro?
A currency appreciation of about 30 per cent over against the residual euro would be the upshot. A 30 per cent revaluation would give French and Italian industries, as well as those of Belgium, the Netherlands and Slovakia, a huge competitive edge on the world markets. The remaining eurozone would experience a massive export boom and, liberated from Germany, could finally grow. And since the French have a more pragmatic approach to consolidating the state budget than the Germans, because they rightly believe growth is more effective than cost-cutting in straightening out the economy, the remaining eurozone would be in for bumper years ahead.
Germany played foul, just like Greece
What about the Germans with their new mark? Their stability would be knocked for six. The appreciation of the Deutschmark would make “Made in Germany” too expensive. Exports would collapse: German companies’ sales abroad would decrease as a function of France & Co.’s export increase. It’s that simple. Unemployment would rise, as would the national debt, because more people would be dependent on benefits. Because growth, which currently comes from exports alone, would be stifled. Labour costs here would then really be too high and wage temperance the order of the day. More years of privation would lie ahead.
But even the banks and insurance companies would find themselves in dire straits with the Deutschmark. If they had to write off 30 per cent of the value of all their eurozone assets, the industry would be hit with a €200 billion loss right off the bat. Germany’s national debt would swell even higher. Why those additional €200 billion write-offs? Because since the introduction of the euro, Germans have amassed something like €600 billion in assets abroad vis-à-vis our partners in the monetary union, thanks to the high export surpluses.
So what does the story tell us? Germany played foul, just like Greece. One country increased wages too much, the other too little. The monetary union can only relieve internal tensions by working together. A €9 billion loan to Greece is peanuts compared to Germany’s go-it-alone exploits. And there can be no serious discussion of any country at all leaving – let alone being expelled – from the club.