Germany - Why Put Up With the Euro?

FISMA

Just wondering what your thoughts are as to why the Germans would want to put up with the continuance of the Euro.

What exactly do you see is the benefit for them?

Isn't the German economy one of the top five in the world? take out the Eurozone/EU, they would be top three.

I have just often wondered why it is that they choose to float so many European countries when they could just as easily go it alone.

Anonymous1987

Germany is the the world's second largest exporter and approximately 43% of those exports are to Eurozone countries. Being a member of the eurozone reduces transaction costs and eliminates exchange rate risk between trading partners. For trade within the EU the export figures rises to 71%:



http://online.wsj.com/article/SB10001424052748704588404575123894262968882.html

Even if Germany were to contemplate leaving the Euro, it's economic prospects are very much tied to the Eurozone and Europe.

The problem with the Eurozone is that it does not easily fit criteria for an optimal currency area: mobility of labour and other factors of production, price and wage flexibility, economic openness, and diversification in production and consumption, similarity in inflation rates, fiscal integration and political integration. At the moment fiscal integration would seem to be the most pressing issue.

FISMA

Anonymous1987 wrote: »

Germany is the the world's second largest exporter and approximately 43% of those exports are to Eurozone countries...
...The problem with the Eurozone is that it does not easily fit criteria for an optimal currency area...

Good point. I have always said that the US needs China 51% and the Chinese need the US 49%.

You cannot forget that those that export need those that import.

I am just wondering at what point do the Germans find it cost effective to go it alone.

It is one thing to take on the debt of a small nation like Ireland. However, throw in: Greece, Italy, Portugal, Spain, and other possibilities like Poland, Croatia, Serbia, Iceland, Turkey, ...

At some point, it has to make better economic sense for the Germans to go it alone. How far the EU is from that point is the question.

Andrew Purfield

Anonymous1987 wrote: »

Germany is the the world's second largest exporter and approximately 43% of those exports are to Eurozone countries. Being a member of the eurozone reduces transaction costs and eliminates exchange rate risk between trading partners. For trade within the EU the export figures rises to 71%:



http://online.wsj.com/article/SB10001424052748704588404575123894262968882.html

Even if Germany were to contemplate leaving the Euro, it's economic prospects are very much tied to the Eurozone and Europe.

The problem with the Eurozone is that it does not easily fit criteria for an optimal currency area: mobility of labour and other factors of production, price and wage flexibility, economic openness, and diversification in production and consumption, similarity in inflation rates, fiscal integration and political integration. At the moment fiscal integration would seem to be the most pressing issue.

The main problem with the eurozone is not everything you have listed as such(well it is, but its far simpler). Its simply that our economies are all so different. What is good for Germany-such as the inflation and interest rates and low wages-is bad for ireland. Ireland is an expensive economy. We need high wages. Germany needs low interest rates and can afford low wages. Ireland needs high interest rates. However I would argue that we need rid of private property altogether, but I wont wander. You get me points. Basically, as you may well know, the smaller an economy the more expensive domestic produce tends to be so what small economies could arguably need are high wages(I'm thinking like Denmark) and a heavily devalued currency(again probably like Denmark) to boost exports through cheaper goods. The extreme of this would be Vietnam where the currency is 1000th of a dollar and everything is so cheap wage levels can afford to be low. But thats a much bigger economy.

In short perhaps we should leave the euro, nationalize the gas and oil stocks as well as fisheries through the navy, and tie a currency a 10th of a euroto our economic output. At least this way, a 10th of people's savings would be saved instead of none which is what will happen very soon. Of course, like Denmark and iceland we also need higher corporation tax and higher top bands of income tax.