Germany
14 November 2012
Die Zeit
Hamburg
The
18th century architect Balthasar Neumann, once portrayed on German 50
mark notes, surrounded by characters from other former national
currencies.
Antonio
What would happen if Germany left the euro? Economist
Gustav Horn of the Hans-Böckler Foundation, which has close ties to
trade unions, speculates on what would happen in the days following a
German exit from the euro – and on what Germany's most popular
euro-critic, Thilo Sarrazin, might also say. Excerpts.
A what-if: What would happen if Germany were to leave the euro, as the investor George Soros is calling for?
Let’s say that, by a two-thirds majority, the German Parliament votes
to leave the euro and reintroduce the German mark. Only the Greens vote
against it. The exchange rate is set at one to one. The Bundesbank
president leaves the ECB’s Governing Council with immediate effect.
The financial and foreign exchange markets are the first to react to
Germany’s decampment. From the remainder of the monetary union, a great
amount of liquidity flows into Germany. The new currency abruptly
appreciates by 50 percent against the euro, and one mark now costs 1.50
euros.
The assets invested in Germany lose – in euro terms – much of their
value. At the same time, the value of German state guarantees for the
euro rescue fund sharply decreases. Initially, the risks to the public
finances recede.
Around 200 German economists celebrate Germany's regained freedom. Thilo Sarrazin goes on a popular TV political talk show hosted by Günther Jauch to explain that Germany does not need the euro.
In the rest of the eurozone, the financial market are rocked by
turmoil. The ECB, which has relocated its headquarters from Frankfurt to
Paris immediately after Germany’s withdrawal, announces unlimited bond
purchases, which allows the ECB bankers swiftly to reassure the stock
markets.
German cars become too expensive
At the same time, they will pay back Germany’s deposits in the ESM
with printed euros. Calculated in marks, these meanwhile have lost a
third of their value. The Bundesbank therefore takes some hefty losses,
and German government debt balloons accordingly.
After a few weeks of relief over the escape from the crisis, several
major car manufacturers declare that their sales figures in the new
eurozone have nose-dived. German cars have become too expensive for the
other Europeans. The automakers bring in short-time work and cut jobs.
A little later, the Confederation of Employers declares that
Germany's economy is no longer competitive and urges wage restraint on
the German unions. After one quarter, the Federal Statistical Office
announces that Germany's current balance of payments surplus has halved
because exports to the remaining eurozone have plunged. Thilo Sarrazin
goes on the popular TV political talk show hosted by Anne Will to say:
“Germany is doing well even without the euro. Its revenues have not
dropped.”
In the rest of the eurozone, the countries in crisis gain more time
to build up their savings. The other countries also increase their
deposits in the ESM bailout fund to compensate for the absence of
Germany.
Sharp rise in unemployment
The fiscal pact is suspended and replaced by a stability pact. This
commits the countries to comply with an inflation target in order to
avoid current account imbalances. The ESM is transformed into a European
Monetary Fund (EMF). Countries that record large current account
surpluses or deficits must cede a portion of their income tax revenue to
the EMF.
Germany's current account balance has now evened out, thanks to the
sharp decline in exports. Germany's economy is going through a sharp
slump. The export industry finds itself in recession and pushes though
sweeping job cuts. Domestically, the economy, hit by higher interest
rates, also begins to lose momentum. In the remainder of the eurozone,
however, the economic situation gradually stabilises. Thilo Sarrazin
goes on the political talk show hosted by Frank Plasberg to say: “That
has nothing to do with the euro.”
Volkswagen announces that it is shifting much of its car production
to the remainder of the eurozone, saying “The German market is too small
for our production, and we need greater exchange-rate security.” The
value of VW stock jumps steeply. BMW and Daimler confirm similar plans.
Against a backdrop of falling tax revenues, the debt brake forces job
cuts in the public sector. Wage negotiations lead to an increase of just
half a percent.
A year after leaving the euro, Germany has landed in a deep recession
with a sharp rise in unemployment. Meanwhile, domestic demand is
plummeting, as the low wage increases and the job cuts are now pushing
down consumption. At the same time, more and more companies are
announcing job relocations to the eurozone, the U.S. or Asia.
Greece and Spain are on the go
The Frankfurt Stock Exchange has lost much of its significance; the
Paris Stock Exchange, in contrast, has gained in influence. Financial
capital is flowing out of Germany. The rise in the value of the mark has
come to a standstill.
The eurozone has now stabilised and shows at least weak economic
growth. In particular, exports from the crisis countries – to Germany,
above all – have risen. VW is planning to expand its facilities in Spain
and is contemplating building another plant in Greece.
After two years, the growth in the remaining eurozone is once again
significantly higher than two percent. The economic output in Germany,
however, has stagnated, and unemployment stays high.
Around 200 German economists publish a dramatic appeal for Germany to
increase its competitiveness. The German labour market is too
inflexible, the wages too high and the benefits far too lavish. Two
years after exiting from the euro, write the economists, Greece and
Spain are on the go, while the German economy is limping.
Thilo Sarrazin goes on the TV political show hosted by Maybrit Illner
to explain, “I never recommended getting out of the eurozone, but you
will allow that I did have the right to say that we do not need the
euro.”
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