Critical Point
In light of the intensification of the crisis in Portugal and Spain, the German discussion of a possible withdrawal from the European currency is becoming more accentuated. The US-American economist and former government advisor, Nouriel Roubini's prediction has caught much attention, according to which Portugal will soon be forced to seek an EU bailout, like Greece and Ireland. Lisbon is reaching the critical point. It could, as Athens and Dublin before it, continue a while longer to deny that it needs foreign support, but it will not be able to escape the pressure of the market. Roubini is predicting even greater difficulties for Spain. The country is "too big to fail and too big to save," says the economist. There is insufficient funding to consider a bailout for Madrid.[1] How this problem can be solved is totally unclear.
Evaluation
The main German media are calling for an intensive debate, with precise evaluations. "The question of how much it is worth to Germany to keep the Euro, has become one of the most difficult evaluations that a German government has ever had to confront" according to the Frankfurter Allgemeine Zeitung. But, the journal warns, it is important not to jump to hasty conclusions about a withdrawal from the common currency, in spite of all the excitement over the costly "bailout". It is still Germany that is profiting from the Euro, with 63 percent of its exports to other EU countries - more than 40 percent to Euro currency nations. Though losses would be tolerable that would be incurred through exchange rates after a reversion to national currencies, there would be the danger of a new protectionism developing, particularly in the poorer EU countries. After a complete collapse of the currency system, "it would hardly be popular in countries, such as Greece, to leave their market open for (German) exports", the Frankfurter Allgemeine predicts. Notwithstanding the growing volume of exports to Russia, China and elsewhere, this would be "a serious problem for the German export industry, and therefore, for the prosperity of this entire country."[2]
Struggling for Spheres of Influence
The Frankfurter Allgemeine also sees problems looming for foreign policy. Berlin draws "substantial advantage from the EU" explains the journal. For example the "integration (...) saves an intermediate power, such as Germany, the balance-of-power jockeying that had once been the norm on this continent", that had included a costly arms race. In addition, regardless of occasional dissention, thanks to the EU, it is possible "to enter onto the world stage as a block, whose combined significance far surpasses that of even the most important European economic power." An end to the common currency "would engender a zero hour for Europe." Predictably "the old struggles for spheres of influence and predominance, which have been buried in the EU's various committees, would soon be resumed." Common "initiatives in regards to major powers, such as the USA, Russia or China" would be unthinkable. According to the Frankfurter Allgemeine, more than any other EU nation, this would affect Germany, which seeks, to a large extent, to achieve its foreign policy objectives through Brussels. Therefore a withdrawal from the Euro should be examined down to the last detail.[3]
Two Currencies
Observers have noted that time is running out. It is not clear if Spain's collapse can be prevented or just how long it can be stalled. As alternatives to the withdrawal from the Euro, the discussion is not only focused on the creation of a European economic government, but also on the division of the Euro zone into two parts, each with its own currency - a "hard currency block" in the north, comprised of the Netherlands, the Scandinavian countries, Austria, and eventually Poland along with Germany and the weaker countries of Southern Europe with their own currency. The position of France would be unclear. Commentators contend that if France were to join the "Southern Euro", "the old antagonisms along the banks of the Rhine" would soon be revived.[4] The economist Dirk Meyer, professor at the Bundeswehr University in Hamburg, suggests that the countries, most hit by the crisis, such as Greece and Portugal, should withdraw from the EU. "For the stability-oriented countries", like Germany, it would be "a great advantage, if the weak countries would voluntarily leave the Euro realm," says Meyer, "provided this takes place in an orderly procedure and not a chaotic collapse," which, "for the time being, is not completely ruled out."[5]
Europe's Ringmaster
In conclusion, Meyer warned that the current development "can hardly be planned by policy makers."[6] Greece, for example, must cut 30 billion Euros annually from its budget, until 2013. "If this were translated into German relations, it would mean that the German national budget must save 300 billion Euros annually until 2013." This is evidently a "complete illusion." As a matter of fact, a third of the Greek austerity measures are "basically unrealistic accounting forecasts," explained the economist. Simultaneously the resistance to the austerity programs imposed by Brussels is growing rapidly. In Ireland, trade unions are now calling for nationwide strikes and civil disobedience. The protests are directed, first of all, against the government in Dublin, which bears the responsibility for the social reapportionment in the country, but is also affecting the initiator of the EU's austerity dictate. "Can Europe endure the Germans being considered the hated 'ringmasters' of a rigid currency regiment?," asked one business commentator.[7] The answer to this question, which will also be decided on the streets of Greece, Ireland and possibly other countries, will play a role in the final decision on the future of the European currency.
For more information please click here: Thinking the Unthinkable, The New German Question (I),The New German Question (III) and Management with a Crowbar.
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