by Sebastian Mallaby
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.