Germany has been the principal beneficiary
of the euro, and for this reason ought to show
solidarity with eurozone members in crisis. Once
the eurozone is back on its feet, Germany will be
the main beneficiary again. This is the familiar
view of Germany’s position in the eurozone, which
is simple enough. The truth, alas, it is not.
Those who think that Germany has profited
greatly from the euro almost always rest their
case on Germany’s export surpluses. The euro
created economic stability; it eliminated exchange
rate risks; appreciated less than the Deutschmark
would have, and thus aided German exports. But has
the euro benefited Germany more than other
countries?
It is true that between 1998
and 2011, German exports grew by
117%, according to the
German Statistical Office. But if the euro was so
vital to Germany's external trade, then the
increase in exports to eurozone members would have
been greater than the increase to other countries.
In fact, the reverse is the case.
According to my calculations, based upon
the same source, German exports rose most - by
154% - to the rest of the world; by 116% to
non-euro EU members; and least of all, 89%, to
other eurozone members. In 1998, the eurozone
still accounted for 45% of all German exports; in
2011 that share had declined to 39%. These trends
are continuing, and the importance of the eurozone
countries as markets for German goods and services
is falling, not rising. The eurozone remains very
important to Germany's export trade, but it is
hardly the motor of growth.
It might be
objected that the euro benefited Germany more by
making German exports more competitive outside the
eurozone than by promoting trade within the
eurozone. However, the euro has remained strong
against the US dollar until very recently, and the
dollar is by far the most important currency for
international trade. And it is far from clear
whether, until very recently, the Deutschmark
would have performed much more strongly against
other currencies than the euro. Further, demand
elasticity for many German exports is not simply a
function of price. Germany's exports grew most to
non-European economies, and the strongest growth
occurred in industries of particular German
strength. And finally, Sweden which is outside the
eurozone and thus did not benefit from currency
stability within nor from alleged low price
exports to other markets, recorded export growth
which, as a percentage of GDP, significantly
surpassed the increase in German exports.
During the euro era, German inward
investment also took a marked turn for the worse.
Between 1995 and 2008, Germany saved more than
most, yet it exhibited the lowest net investment
rate of all OECD countries. On average, from 1995
to 2008, 76% of aggregate German savings (private,
governmental and corporate) were invested abroad.
As Hans-Werner Sinn of the Ifo Institute
has demonstrated, Germany experienced massive
capital exports in the years before the eurozone
crisis - capital that fueled an unprecedented
economic boom in the southern eurozone, especially
in real-estate markets there. German capital
exports to the Anglo-Saxon countries and France
also rose markedly up to about 2008.
Between 1995 (the year when the details
for monetary union were finalized) and 2011,
Germany had the second-lowest growth rate in GDP
among all European countries, according to
Eurostat. It might be argued that in the
mid-1990s, Germany was experiencing the immediate
and most severe aftershocks of reunification.
However, growth was equally below the European/EU
average for the period 1998 to 2011: Germany grew
at the average annual rate of 1.4%, compared to
1.7% for France, 2% for the Netherlands and 1.6%
for the eurozone as a whole.
The
performance of the German economy seems even less
impressive in the wider European and
trans-Atlantic context. During the period referred
to above, Sweden grew by 2.8%, Britain by 2.1%,
and the EU as whole by 1.8%. Germany also lagged
significantly behind the United States, which grew
at an annualized 2.2%. Over the period from 1998
to 2011, only Japan, Italy, Portugal and Greece
performed worse than Germany. This is not the
performance of a euro-winner.
Germany's
relative economic performance within the eurozone
only began to improve in 2006. Nonetheless, its
GDP growth rate between 2006 and 2011 remained
below that of Sweden and Austria, and broadly in
line with the Netherlands, Finland and the United
States.
During the first decade of the
euro, again according to Eurostat, German
unemployment tended to be higher, at times
markedly higher, than the eurozone average. It
then began to decline to levels well below the
eurozone average, although it is rarely noted that
it remains significantly higher than the
unemployment rate in Austria, the Netherlands,
Switzerland and Japan.
Finally, German
wages and living standards did not rise for a
decade and a half from the mid-1990s, in sharp
contrast with southern Europe, Britain, and indeed
most of the world except Japan. Until the years
before the introduction of the euro living
standards in Germany tended to rise in part as a
result of the appreciation of the Deutschmark
which meant lower import and energy prices: German
workers enjoyed good living standards because
their salaries denominated in Deutschmarks went
further than those of their Italian or French
counterparts. To the extent to which the euro
appreciated less than the Deutschmark would have
done, the effects were probably more damaging to
living standard in Germany than they were
beneficial to German industry and its
competitiveness abroad.
Despite the
drum-beat of propaganda about Germany's economic
strength, ordinary Germans have not had much
economic joy over the past 13 years: as Charles
Dumas of the London-based Lombard Street Research
Institute has demonstrated, German real personal
disposable income per capita rose by just over 7%
from 1998 to 2011, compared to growth of 13% for
Spain and around 18% for Britain, France, and the
US. Except again for Italy, Germany has been
lagging behind every other major economy in terms
of personal disposable income and consumption.
Compared to 1998, when the initial shocks of
reunification had already been absorbed, Germany
today is a poorer country compared to many EU
members than she was then.
Perhaps most
importantly of all, at 2.1 trillion euros ($2.65
trillion) or 82% of GDP, Germany's public debt is
higher than that of most eurozone countries,
although it is lower than France's debt and
significantly lower than that of Portugal, Italy,
Ireland and Greece. The European Stability
Mechanism (ESM) would, on realistic assumptions,
increase Germany's exposure to losses in the
weaker eurozone economies by around 400 billion
euros - in extremis by more than 700 billion
euros. If other potential liabilities as an
European Central Bank shareholder, additional aid
to Greece, Ireland and Spain, and TARGET2 claims
against other eurozone central bankers are taken
into account, Germany's total exposure would
presently reach a sum of close to 1.5 trillion
euros, based in part on calculations by the Ifo
Institute in Munich. Even if only part of
Germany's total claims against other eurozone
governments had to be written off, the loss would
run into hundreds of billions of euros. Germany's
public debt would soon rise to 110% of more of
GDP, in a worse-case scenario, well beyond that.
To the extent to which Germany's public
finances are in a comparatively less disastrous
state than that of other countries, it is due to
high taxes, law disposable income and consumption
and Germans' frugality. As and when the public
finances will deteriorate, it will be as result of
the "colossal cost of Kohl" and his misconceived
"mad dash" for European monetary union,
Chancellor's Schroeder closing both eyes to the
obvious swindle preceding Greek admission to the
euro, and Merkel's inability to say "no" to her
many "faux amis" abroad. With foreign friends like
Germany's and political leadership like her own,
how would Germany need enemies?
The euro,
it seems, bled Germany of capital which then
fueled growth in southern Europe until 2008. Until
then Germany performed worse than any other
country in the eurozone and the EU except Italy.
From 2008, it began to perform better, but for the
last 15 years Germany has been one of the worst
performing economies in northern and central
Europe. Germany was the loser, not the winner of
the euro.
Since 2006, Germany has
benefited, relatively, from the loss of confidence
in southern Europe, non-European demand for German
goods, and moderately rising internal demand.
Those benefits, however, are precarious, and will
quickly be eroded and reversed by escalating
payments to Portugal, Italy, Ireland, Greece and
Spain, with potentially dramatic knock-on effects
for public finances, and internal and external
demand.
The euro crisis has pushed Germany
into an increasingly dominant position in Europe,
yet by its own past and current global standards
her economic performance during the euro years has
weakened, while 13 years of wage restraint without
the benefit of currency appreciations has meant
that ordinary citizens' welfare has fallen behind
that of many countries which were poorer than
Germany not too long ago. German politicians and
diplomats assure their Western so-called "friends"
that they are "prepared to pay, provided the Club
Med countries accept the conditions". Sadly,
Germany is in no position to pay, and the Club Med
countries are incapable of meeting Germany's
conditions. German politicians will make their
country pay - it will be to Germany's peril, and
ultimately to no one's gain.
Dr
Gunnar Beck teaches EU Law at SOAS, University
of London, is a practicing barrister and a former
legal adviser to the European Scrutiny Committee
of the House of Commons. He is the author of
The Legal Reasoning of the Court of Justice of
the EU, which will be published by HART
Publishing, Oxford, in October 2012.
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