Continuing with the topic raised in a recent post “Germany and the euro”, an article in Bloomberg as well as a Financial Times report discuss, considering the current economic condition in Europe, how long Germany will be willing to pay for the bailouts of the other member states.
According to Rachman in the Financial Times, it is just a matter of time until the next country will announce its economic turmoil. First is was Greece, now it is Ireland that is getting a bailout from the European Union and the International Monetary Fund and most likely the next countries are going to be Portugal and Spain.
As described in previous posts (BNF1, BNF2) unattractive bond yields of countries such as Portugal and Spain already discourage investors, although those economies would desperately need the money supply to keep afloat.
Matthew Lynn in Bloomberg claims that the euro as a “single currency is the root of the crisis”. He explains that economies are too different to be managed by one central bank, thus causing incorrect interest rates. He even describes the euro as a “bankruptcy machine” creating a domino effect that won’t stop until “the euro is taken apart”.
Rachman in the Financial Times agrees that the euro as a single currency will eventually break up having Germany, the most powerful country of the European Union, as “the euro’s executioner”.
But is Germany willing take on the burden that comes along with going back to a national currency in order to prevent having to pay for the debts of other countries?
An article in The Guardian demonstrates an opposing opinion. Having Germany dropping out of the euro would help remaining members as the euro would decrease in value enhancing their competitiveness. But Germany, on the contrary, as an export focused country, could experience enormous losses in trade and investments.
Does Germany really want to risk having its companies lose their competitive advantage and letting its consumers face a chaos of reorganization?
I don’t think Germany would abandon the euro any time soon and Angela Merkel already proposed tougher sanctions on budget and borrowing for other euro-countries after 2013. However, what happens if her proposals don’t find acceptance among the other EU member states? The issue is not going to be solved shortly and discussions about the €-zone are most likely to continue.