by Sebastian Mallaby
Financial Times
November 24, 2011
Over the past 18 months, Germany has
tried every trick
to limit its contribution to the
euro bailouts. It has pushed
self-defeating austerity onto
bankrupt countries. It has
called in the International Monetary
Fund. It has tried to
pass the hat to China. It has
discovered an improbable
and futile taste for leveraging up
the European Financial
Stability Facility. But now these
tricks have uniformly failed,
and the continent approaches the
abyss – with Germany itself
suffering the humiliation of a
failed bond auction. It is time
for Germany to decide once and for
all: how much will it pay
to save Europe?
Germans can reach the sensible
answer only if they discard
the myth, widely cherished in
northern Europe, that peripheral
southern countries are the
undeserving beneficiaries of a
charitable transfer union. You can
see whence this myth comes:
the Greeks do retire in their
fifties; they did lie about their
budget deficit; and it is galling
when they demand serial bailouts.
But despite those aerial photographs
of untaxed Athenian swimming
pools, the north’s resentment of
lazy southerners is overdone.
The truth is that Germany derives
myriad benefits from the currency
union. It should pay more to save
it.
Start with a simple point about
exchange rates. Since 2009, stable
open economies from Brazil to
Switzerland have seen hot inflows of
money and upward pressure on their
currencies. If Germany had not
been tethered to the euro, its money
would have behaved like the Swiss
franc, spoiling the recent party in
its manufacturing heartland. Between
August 2009 and May 2011, German
exports jumped by 18 per cent.
A reasonable estimate suggests they
would have risen only 10 per cent
if Germany had been outside the
euro.
Conversely, if peripheral Europe had
not been tethered to the euro,
its currencies would have fallen
over the same period. Rather than
facing a financial shock and a
crisis of competitiveness, they would
have faced the first without the
second. Of course, the currency union
that makes adjustment in the
periphery so excruciating is the very
same currency union that handed
Germany its export boom. Rather
than condemning lazy southerners,
the Germans should share the loot.
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