Auf Wiedersehen… Yet? Is Germany Preparing to Exit the Euro?


  • New Economic Perspectives / Marshall Auerback – A Tale of Three Germanys: Is Germany Preparing to Exit the Euro?: The Germans were willing to go into a currency union because by construction that agreement removed the weapon exchange rate depreciation from its competitors. German real wage discipline, labor productivity gains, and engineering innovation could not be undercut at the stroke of a pen. Recall that there are basically 3 Germanys:Germany #1 being the Bundesbank and “finanzkapital”, which retains huge phobias about the recurrence of Weimar-style hyperinflation, and retains an almost theological belief in “sound money”… and who were basically always antithetical to the euro as a big and broad union.  Then you had the “Europeanists”, led by Kohl who essentially argued that you solve the “German problem” by binding Germany ever more fully into a pan-European framework, the currency union being a key part of that.  The swing vote was Germany #3, Industrial Germany which bought into the idea of the currency union precisely because it locked Germany’s industrial competitors at a fixed exchange and removed the expedient of devaluation.

    It seems to me, however, that the swing vote is beginning to have 2nd thoughts, as they wrongly consider the “costs” to the country through these repeated bailouts… So far the multinationals have it good in that costs are falling disproportionately on others. That could well change if there was a “solidarity” tax imposed on profits instead of the populace.

  • The TelegraphGermany fires cannon shot across Europe’s bows;
    German President Christian Wulff has accused the European Central Bank of violating its treaty mandate with the mass purchase of southern European bonds
    :
    “I regard the huge buy-up of bonds of individual states by the ECB as legally and politically questionable. Article 123 of the Treaty on the EU’s workings prohibits the ECB from directly purchasing debt instruments, in order to safeguard the central bank’s independence,” he said… The blistering attack follows equally harsh words by the Bundesbank in its monthly report. The bank slammed the ECB’s bond purchases and also warned that the EU’s broader bail-out machinery violates EU treaties and lacks “democratic legitimacy”...The tone of language from two of Germany’s most respected institutions suggests that both markets and Europe’s political establishment have been complacent in assuming that the court would rubberstamp the EU summit deals in Brussels.
  • Financial Times / Hans-Olaf Henkel – A sceptic’s solution – a breakaway currency:Having been an early supporter of the euro, I now consider my engagement to be the biggest professional mistake I ever made. But I do have a solution to the escalating crisis.

    I have three reasons for my change of heart. First, politicians broke all promises of the Maastricht treaty. Not only was Greece let into the eurozone for political reasons, also the fundamental rule, “no member to exceed its yearly budget deficit by the equivalent of 3 per cent of gross domestic product”, was broken more than a hundred times. Mandatory punitive charges were never applied. To top it all: the “no bail-out” clause was wiped out in the wake of the first Greek rescue package.

    Second, the “one-size-fits-all” euro has turned out to be a “one-size-fits-none” currency. With access to interest rates at much lower German levels, Greek politicians were able to pile up huge debts. The Bank of Spain watched the build-up of a real-estate bubble without being able to raise interest rates. Deprived of the ability to devalue, countries in the “south” lost their competitiveness.

    Third, instead of uniting Europe, the euro increases friction. Students in Athens, the unemployed in Lisbon and protesters in Madrid not only complain about national austerity measures, they protest against Angela Merkel, the German chancellor. Moreover, the euro widens the rift between countries with the euro and those without. Of course Romania would love to join, but does anybody believe Britain or Sweden will find it attractive to join a “transfer union”? Meanwhile, dissatisfaction with the euro drags down the acceptance of the EU itself.

    Instead of addressing the true causes, politicians prescribe painkillers. The euro patient suffers from three discrete diseases: as a result of the financial crisis, many banks are still unstable; the negative effects an overvalued euro has on the competitiveness of the “south”, including Belgium and France; the huge level of debt of some eurozone countries. It would be misleading to proclaim there is an easy way out. But it is irresponsible to maintain there is no alternative. There is.

    The end result of plan “A” – “defend the euro at all cost” – will be detrimental to all.

    As a plan “B” George Soros suggests that a Greek default “need not be disorderly”, or result in its departure from the eurozone. But a Greek default or departure from the eurozone implies risks too high to take…

    That is why we need a plan “C”: Austria, Finland, Germany and the Netherlands to leave the eurozone and create a new currency leaving the euro where it is... a lower valued euro would improve the competitiveness of the remaining countries and stimulate their growth. In contrast, exports out of the “northern” countries would be affected but they would have lower inflation. Some non-euro countries would probably join this monetary union. Depending on performance, a flexible membership between the two unions should be possible.

    Implementing plan “C” requires that four underlying problems are addressed separately. We must rescue banks, not countries… Second, Germany and its partners in a new currency must forgo a significant portion of their guarantees to help refinance Greece, Portugal and others. As much of this money is already lost, this is an acceptable price for an “exit ticket”. Third, there must be a new European central bank based on the Bundesbank, preferably not led by a German. The new currency should not be called the “D-Mark”. Fourth, mechanics for entry would be similar to those for getting into the euro. If it was possible to form one currency out of 17, it should also be possible to form two out of one.

    This plan will not be easy, but we need to focus on saving Europe, not the euro...

    The writer is former head of the Federation of German Industries (BDI) and has joined about 50 other business leaders in a legal challenge at Germany’s Constitutional Court against the Greece rescue package

  • New York Times / Michael Hudson [Aug. 12] – Rightly Disgusted at the Banks: A bailout, like any other government expenditure, is a tax. Someone must pay all this money. And it is unfair to tax the broad population to pay for a special interest. Instead of being a progressive tax policy, bailouts enable bad behavior by the financial elite, sticking taxpayers with the cost.Bailouts are unpopular among Europeans who see them as a tax being paid by the population as a whole to financiers at the top of the pyramid. These bankers have lived in the short run, taking large risks of capital for short-term gains to outperform their rivals. It is a game that most individuals have not played with their own savings, and they don’t think that governments should compensate banks for taking these risks.

    The bonds in question are held largely in German and French banks in Europe, and by U.S. banks… The tendency among German voters is to favor tangible investment and employment over financial speculation. Indeed, throughout Europe there is a feeling that bank executives are acquiring too much political power, pushing for regressive taxes that serve their own interests at odds with those of domestic populations.

    This in part helps explain the rise in nationalist parties throughout Europe, most noticeable a month ago when populist Finnish nationalists opposed the bailouts… But the most important reason for opposing the bailout is economic: there is growing awareness that the bailouts must fail in the end. The debt simply is too large for governments who issued the bonds to pay by taxing their populations — without forcing them into stark austerity… The problem is that the debts have grown too high to be paid without wrecking the economy. So someone will have to lose in the end. Banks bought these bonds to earn high rates of interest. They took a risk, and now want to take the money — and make taxpayers pay. This is morally repugnant.

  •  New Economic Perspectives / Marshall Auerback – To Save the Euro, Germany Has To Quit the Eurozone: When the euro was launched, leading German politicians used to argue, with evident relish (and much to the chagrin of the British in particular), that monetary union would eventually require political union. The Greek crisis was precisely the sort of event that was expected to force the pace. But, faced with a defining crisis, Ms Merkel’s government is avoiding airy talk of political union – preferring instead to force harsh economic medicine down the throats of the reluctant Greeks, Irish, Portuguese and Spanish electorates. This is becoming both economically and politically unsustainable. If the objective is to save the currency union, perhaps policy makers are looking at this the wrong way around. In the end, paradoxically, to save the European Monetary Union, the least disruptive way forward would be for the Germans, not the periphery countries, to leave.One major reason why political, and social, unification is so important is that it provides conditions under which the adjustment mechanism, to being uncompetitive, is facilitated. Labour mobility is much greater within, than between, countries. Cross-regional fiscal transfers help to smooth the adjustment process. Social and national unity makes break-away policies almost unthinkable and hence provides the cement to keep the discipline of adjustment in place.

    None of the above are, as yet, strongly anchored in the euro-zone. Nor are they likely to be in the current context…

  • The Guardian / Hans-Olaf Henkel [13 March] – Germany needs to resist the euro’s sweet-smelling poison; The only EU competition is a race to take the most. We should break away from the free-spending southern eurozone states:
    … does anyone seriously believe that Greece or Portugal can reduce their debt mountain by choking off economic growth, causing record insolvencies of corporations and inducing unemployment, thereby draining their tax base?It is argued that German industry has benefited in particular from the euro, and would suffer from the currency appreciation that might be expected under the “northern euro”. For a start, it is clear Germany has exported capital on a massive scale since the introduction of the euro – thus supporting economic growth beyond its borders. A myth has also arisen over Germany’s export surplus. In fact the dependence of German exports on eurozone countries has actually declined gradually since the introduction of the common currency (44% in 2000, to 41% in 2009).

    And while it is true that the creeping devaluation effect of today’s euro suits German exporters, one must take into account that German imports have risen even faster since the introduction of the currency. We are now the world’s second biggest exporter, but also its second biggest importer.

    German industry’s success was for decades tied to a strong and stable currency with low inflation. Seventeen currency appreciations not only strengthened the deutschmark, it kept the export industry on its toes. For how much longer will German industry allow itself to be seduced by the sweet-smelling poison of a devalued euro?

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This entry was posted in Austerity / Cutbacks, Bankers' Bailout, Budget, Civil Disobedience, Debt Default/Restructuring, ECB/IMF, Economy, EU, Euro / Sovereign Money, France, Geopolitics, Germany, Greece, Independence/Nationalism, ireland, Solutions and tagged , , , . Bookmark the permalink.

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