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Thinking the Unthinkable on the euro crisis

From www.german-foreign-policy.com Newsletter, 12 May 2010 .

BERLIN: Following the passage of the 750 billion Euro bailout package, the debate on Germany’s leaving the EU monetary union has become more intense. Business representatives confirm that German industry, which exports heavily to other countries within the Euro zone, has up to now greatly benefited from the common currency. If an austerity program can be successfully imposed on Southern Europe, establishing a pan-European economic “model” patterned on Germany, the Euro will remain advantageous for Germany. But strong resistance is expected from Greece and other countries. If expensive transfer payments cannot be avoided, it may become necessary “to think the unthinkable” of Germany “leaving the monetary union” writes the business press.

In the long run, Germany’s withdrawal from the Euro zone is, in fact, highly probable, Swedish economics scholar Stefan de Vylder tells german-foreign-policy.com. The first insinuations about the probable consequences indicate that serious tensions can be expected in Europe.

Dr De Vylder is former professor at the Stockholm School of Economics, former chief economist at the Swedish International Development Authority and currently runs his own economic consultancy in Stockholm.

Dr Stefan de Vylder: Greece has until now been the ideal scapegoat. […]
There are a large number of culprits which either have contributed directly to the crisis or failed to warn against it, let alone do something about it […]

But from a macroeconomic perspective, the biggest single problem is Germany… the country’s huge current account surplus makes it virtually impossible for the majority of EMU countries whose international competitiveness has become eroded to solve their problems […]

If Greece were to be thrown out of the euro zone – which in the long run would be good for the country – no structural problem for the entire currency union would be solved…

[…] Although it is perfectly true that a currency union such as EMU, which by definition has a single rate of interest and a single rate of exchange, would need a far-reaching coordination of economic policies to function even moderately well… attempts to create an “economic government” within the EU would probably accelerate the road to disaster.

[…] I would be extremely surprised if today’s euro zone members are still members ten years from now. Extremely surprised… The European peoples’ sense of solidarity is at stake.

If one or several of the weaker countries were to leave the euro zone, the price they would have to pay is likely to be very high (in the short run)…

Germany does not need the euro to maintain its international competitiveness and excellent access to international credit markets. So my forecast is that Germany one day will decide that it is in the best interest of the country – and in the interest of the weaker euro zone countries as well! – to leave the currency union.

… Another scenario would be the creation of a smaller currency union between a few member states… and let the others go back to their own currencies.

… compared to defending an extremely poorly designed monetary union, I think the price would be worth paying…

For further information see: www.german-foreign-policy.com Newsletter, 12 May 2010 .


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