Will Germany kill the euro?

It seems like the €-zone is playing a game of dominoes: one country falls into a financial crisis and they all tumble, one after another. Is the euro as a single currency in danger?

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.

This entry was posted in Financial crisis and various bubbles to be continued, Monetary Policy and tagged , . Bookmark the permalink.

9 Responses to Will Germany kill the euro?

  1. rudi2020 says:

    Thanks for this comprehensive collection of different articles.
    Germany dropping out of the common European currency was new to me, but is quite a biggy in blogging community as this blog shows.

    This post divides between winners and loosers, and “loosers” stick to the Euro. Haha what a cenario.
    Honestly, I am not looking forward to getting the DeutschMark back.

  2. stuerzele says:

    Thank you very much for following up on this topic, it is very interesting to see what will happen in the next couple of months.
    I agree, that Germany won’t abandon the euro any time soon, as the German Exports grew since the launch of the euro. And those Exports have an increasing impact on the BIP.

    BIP Germany

    Additionally Germany has no reason to give up their powerful position within Europe.

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  4. bravenewloock says:

    I agree with both of you, one of my main reasons being Germany’s exports: 63% of them go into EU countries (http://www.spiegel.de/wirtschaft/unternehmen/0,1518,693554,00.html). Therefore, I think that the Euro is incredibly important for Germany. Check out my follow-up on Spain’s 3-year-bond auction, and it’s possible implications for the Euro.

  5. In this respect, I completely agree with you all. The EURO will stay – especially because Germany has realized multiple benefits from it.
    Have a look at this blog. This is a very drastic and even polemic view on Germany being the only winner concerning the EURO.

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