Thinking the Unthinkable


BERLIN (Own report) - Following the passage of the 750 billion Euro bailout package, the debate on Germany's leaving the 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, the Swedish economics scholar Stefan de Vylder tells The first insinuations about the probable consequences indicate that serious tensions can be expected in Europe.

The passage of a 750 billion Euro bailout package is being very angrily commented in Germany. According to the German media, the bailout package was part of France's plan and should not be limited to German resources being transferred to Southern Europe, but should also be a first step in the direction of creating a European economic governing body. Influential circles are demanding that a stand be taken against these efforts and that resistance be put up against French pressure. Beyond this, a debate of principles has begun around the question of the Euro's utility for Germany.

A Success Story

Representatives of companies are being unusually candid about how German industry has, so far, greatly benefited from the monetary union. About 43 percent of all German exports are sold inside the Euro zone. The common currency is not only instrumental in hindering other countries in the Euro zone from devaluating their own currency to protect their own industries against the German offensive, but, according to Juergen Hambrecht, CEO of the BASF Corp., it also saves the other costs of currency transactions. Generally speaking, from the perspective of German industry, the Euro "has enormously heightened the security of planning for investments in Europe."[1] For "companies such as BASF, who achieve a large segment of their receipts on the home market in Europe" the European monetary union is therefore "a great success story." In addition, the Euro has gained significance as a global reserve currency. Press reports on the European currency's rise in significance show that in 2009, "it had worldwide a 28 percent share of foreign exchange reserves" - a new record.[2]

Model patterned on Germany

Therefore leading business representatives, such as Juergen Hambrecht, plead for maintaining the Euro if possible. But this would demand that continuous support payments to the Southern EU countries ("transfer union") must be averted, according to Berlin. The way to avert these transfers, according to the German view of the situation, is to impose a stringent austerity policy that will balance the books of the southern EU countries with draconian budget-cutting measures. Accordingly, the German government is calling for the hardest sanctions against those countries in the Euro zone, which, in the future, violate the rules of the Euro Stability and Growth Pact.[3] Under pressure from Germany, Spain and Portugal must now initiate massive budget cuts. Berlin is also demanding the possibility of exercising direct control over national budgetary policies of the Euro nations. "If we are lucky" writes the German media, it will be possible "to impose a model patterned on the North European and German economic image."[4]


But Berlin is not sure if the expected resistance against these budgetary dictates and sanctions can be defeated. Attentively German media are reporting that in Athens, a draft law taking national budgetary decisions away from the country's parliament is creating "unrest". This law would relinquish a basic democratic right of sovereignty. Also unclear is whether the protest movement that has developed against Greece's austerity program can be repressed. "Part of the Greek problem lies in the fact that the Greeks are very skeptical toward their rulers," writes the business press.[5]

Withdraw From the Euro

If long-term transfer payments cannot be avoided, experts have come to see Germany's withdrawing from the monetary union as a probability. "If year after year, billions are not available for the German public infrastructure, because of weathering the storm for the Southern European bankruptcies," the press speculates, then "the unthinkable must be thought: a politically and economically weakened Germany, must at some time, leave the monetary union and create with France and the Benelux countries a new kernel monetary zone."[6] The Swedish economic scholar Stefan de Vylder confirmed these considerations in his talk with As de Vylder sees it, the current crisis derives not only from Greek policy mistakes, but from structural contradictions arising from the aggressive German export orientation.[7] De Vylder considers that the contradictions are practically insoluble and expects Germany to withdraw from the Euro, perhaps together with Austria, the Benelux countries and France.[8]

Centrifugal Force

The consequences of Germany's leaving the monetary union have, so far, only been insinuatively discussed. "Europe's unraveling would create an immense centrifugal force that would be impossible to bridle" according to one commentary, "up here, a rich, industrialized north, down there, a poor south, and a deeply impoverished southeast" - that "fatally brings to mind the 1990s, when the Balkans flared up in war and Europe looked on helplessly."[9] Dramatic descriptions can also be heard in Paris. Recalling German 19th and 20th Century unilateralism and attempts to integrate and tame Germany through the EU and the Euro, the French president declared on the weekend that "the Euro is Europe. Europe is peace on this continent."[10]

Please read also our interview with Stefan de Vylder.

[1] "Maastricht 2.0"; WirtschaftsWoche 10.05.2010
[2] Im Süden Euro light? WirtschaftsWoche 10.05.2010
[3] see also Germanic Stringency and Keine Denkverbote!
[4] Vorwärts, nicht zurück; WirtschaftsWoche 10.05.2010
[5] Einig in Uneinigkeit; WirtschaftsWoche 10.05.2010
[6] Im Süden Euro light? WirtschaftsWoche 10.05.2010
[7] see also The End of Sovereignty (II) and Sparen für Deutschland
[8] see also A costly mistake
[9] Vorwärts, nicht zurück; WirtschaftsWoche 10.05.2010
[10] Wie Sarkozy Merkel überrumpelte; 09.05.2010. See also Die deutsche Frage