x Abu Dhabi, UAESunday 23 July 2017

Germany should be glad the euro leaves its mark

David Crossland: Many Germans want a return to the deutsche mark, ignoring the simple fact that their country has benefited most from the adoption of a common European currency.

BERLIN // Ever since the launch of the euro 11 years ago, Germans have mourned the passing of their long-cherished deutsche mark. And with the single currency floundering in Europe's debt crisis, the yearning for a return to the rock-solid national currency that symbolised Germany's economic miracle is stronger than ever. Recent surveys show that more than 60 per cent of Germans want the deutsche mark back now.

At first glance, the sentiment is understandable. Europe's largest economy has borne the brunt of the Greek bailout and will shoulder up to ?148 billion (Dh664.07bn) of the ?750bn rescue package to protect the euro. In recent months, the sharp depreciation of the single currency has reawakened German fears of a return to the economic chaos the country went through in the 1920s and the post-war years.

Its role as European paymaster has once again led Berlin to lecture its neighbours about the need for fiscal stability. In effect, Germany has been telling the rest of Europe to become Teutonic - industrious, thrifty, cautious. However, amid all the hand-wringing and outrage in Germany about bailouts and budget laggards, public debate has ignored the simple fact that Germany has benefited more than any other nation from the adoption of the euro. Paradoxically, the benefit now is greater than ever.

Without monetary union, the deutsche mark would now be a safe haven in a fragmented European financial system and would have soared against most of the continent's other currencies in a flight to quality. At a stroke, German exports would have become 10, 20 or 30 per cent more expensive in the country's most important foreign markets such as France, the Netherlands and Italy, leading to revenue losses and job cuts on a far bigger scale than Germany has suffered in the past two years because of the financial crisis.

In addition, the current weakness of the euro against the dollar is helping Germany more than its fellow euro-zone members because of the strength of its export sector, which accounts for 45 per cent of domestic GDP, a far higher share than its European partners. German firms are happily churning out factory equipment, vehicles and chemical products that are on average 20 per cent cheaper in dollar terms than they were before the debt crisis hit.

The crisis has also pushed down German financing costs. Alarmed by the threat of defaults for Greece and other high-debt nations, fixed-income investors have been seeking shelter in German government bonds, whose yields have fallen sharply this year as a result. Berlin will save an estimated ?4bn in interest on the ?120bn in new debt it has issued since last September. Yields on German corporate debt have also been falling.

The benefits of the euro go right back to the fixing of national exchange rates with the launch of monetary union on January 1 1999. Thanks to the euro, German exports to its core markets have been unhindered by exchange rate fluctuations for more than a decade and have flourished as a result, ensuring huge trade surpluses with its neighbours. The usually meek president of the European Commission, Jose Manuel Barroso, who has until recently refrained from criticising Angela Merkel, the German chancellor, urged her in a newspaper interview last week to start explaining to Germans how the euro has made them much better off.

Mrs Merkel, under fire around Europe for her sluggish reaction to the euro crisis, seems to have got the message. "Germany, as the largest economy in the EU, has profited greatly from the euro," she said last week in Jeddah during a trip to the Gulf. "Therefore, we will do all we can for a strong euro." It was a refreshing change from her usual mantra of seeking punishment for high-debt nations. In times of economic calm and crisis, the euro has brought Germany incalculable benefits in terms of revenues, profits and jobs. There can be no doubt that by comparison, Germany's contribution to the rescue packages for Greece and the euro zone are loose change.

business@thenational.ae