Why the Euro cannot survive with Germany at its centre
Richard Conquest
Germany has benefitted more than any other country in the Eurozone since the launch of the Euro in 2002, according to the latest Bruges Group research.
The Euro has effectively become a German currency empire which is draining the resources of the Eurozone’s smaller economies. The harm that German policy is causing is so severe that the Mediterranean-Rim countries are caught in a debt trap where their economies are suffering, they are incurring debt and must then impose austerity measures which further weaken their economies. Yet their economies will not grow so long as the Euro helps German manufacturers dominate the Eurozone.
When the Single Currency was introduced on 1st January 1999 the 11 countries committed themselves to economic and monetary union, and irrevocably fixed the exchange rates of their currencies (Greece joined later).
This eventually resulted in the impossible task of the ECB, for example, having to dictate a common exchange rate for Germany, with the second largest current account surplus in the world, and Spain, with the second largest trade deficit in the world.
Because of Germany’s influence over the ECB, it ends up requiring it to impose an inappropriate interest rate policy upon the Eurozone - an exchange rate which in essence suits the German economy but which many Eurozone economies are finding it increasingly difficult to live with.
The document, entitled German Economic Policy and the Euro 1999-2010 reports that since the launch of the Euro currency on 1st January 2002:
The German economy has grown faster than any other country in the Eurozone
Germany has been by far the largest exporting nation within the Eurozone
In the last 3 (recorded) years alone, Germany has run up massive trade surpluses with the other Eurozone countries averaging €100 billion per year
The ECB’s exchange rate policy favours German interests
Germany entered the euro at too low a rate of exchange, cementing its historic economic advantage and to the disadvantage of countries with smaller economies such as Greece and Ireland
The siting of the ECB in Frankfurt enabled Germany to influence policy regarding the Euro in its own interests
The political dimension
But so determined were the Eurozone’s leaders to force through the creation of the Euro for political reasons that they failed to think through properly what were to become the disastrous economic consequences of the Euro’s fixed rate exchange system in 2010.
The political aim was to foster a sense of common identity among Europe's citizens, and to give new momentum to European integration.
E.g. Romano Prodi, who was the President of the European Commission at the time pronounced: “The common currency is not an economic decision, it is a political decision”. This was an opinion held by many European leaders at the time.
Even today, there is a continued yearning for further European integration among the Eurozone’s political class. This suggests that they have still not understood that the problems within the Eurozone stem from the deliberate conduct of German economic policy, via the ECB, and the effect of the huge disparity between their own economies and that of Germany?
One exception is Christine Lagarde, the Minister of Economic Affairs, Finances and Industry of Germany’s greatest ally, France. In an interview with the Financial Times on 15th March 2010 she complained about German policy causing increasingly serious imbalances within the Eurozone and called on it to alleviate the problem it was causing.
“[Could] those with surpluses [Germany] do a little something? It takes two to tango. It cannot just be about enforcing deficit principles….I’m not sure it is a sustainable model for the long term and for the whole of the group. Clearly we need better convergence.”
Admission of advantage by German elite
Even Germany’s elite now openly acknowledge the economic advantage accorded to Germany by its membership of the Euro. Multi-millionaire German industrialist, Frank Asbeck, says of the Eurozone crisis:
“From a German standpoint we don’t see any crisis ….Germany is the industrial heart of Europe and as long as the Euro is weak, I think for Germany, it is a good situation.” *
And respected German economist Klaus Schweinsberg says:
“The big winner of the Eurozone is German industry…the view of the German industrialists is that … it makes us relatively more competitive within the Eurozone. [The German economy] “has boomed to such an extent that Germany can afford to pay off the debts of Greece, Ireland and Portugal and should do so to preserve its export markets in those countries.” *
Whatever is decided however, the conclusion of the report is clear: that so far the German economy has been the overwhelming winner of the Euro era.
* BBC Radio 4, 14th January 2011