German Economic Policy and the Euro 1999 - 2010
Germany has benefitted more than any other country in the Eurozone since the
launch of the Euro in 2002, according to the latest Bruges Group research.
The Euro has effectively become a German currency empire which is draining the
resources of the Eurozone’s smaller economies. The harm that German policy is
causing is so severe that the Mediterranean-Rim countries are caught in a debt
trap where their economies are suffering, they are incurring debt and must
then impose austerity measures which further weaken their economies. Yet their
economies will not grow so long as the Euro helps German manufacturers
dominate the Eurozone.
When the Single Currency was introduced on 1st January 1999 the 11
countries committed themselves to economic and monetary union, and irrevocably
fixed the exchange rates of their currencies (Greece joined later).
This eventually resulted in the impossible task of the ECB, for example,
having to dictate a common exchange rate for Germany, with the second largest
current account surplus in the world, and Spain, with the second largest trade
deficit in the world.
Because of Germany’s influence over the ECB, it ends up requiring it to impose
an inappropriate interest rate policy upon the Eurozone - an exchange rate
which in essence suits the German economy but which many Eurozone economies
are finding it increasingly difficult to live with.
The document, entitled German Economic Policy and the Euro 1999-2010
reports that since the launch of the Euro currency on 1st January
- The German economy has grown faster than any other country in the
- Germany has been by far the largest exporting nation within the
- In the last 3 (recorded) years alone, Germany has run up massive trade
surpluses with the other Eurozone countries averaging €100 billion per
- The ECB’s exchange rate policy favours German interests
- Germany entered the euro at too low a rate of exchange, cementing its
historic economic advantage and to the disadvantage of countries with smaller
economies such as Greece and Ireland
- The siting of the ECB in Frankfurt enabled Germany to influence policy
regarding the Euro in its own interests
The political dimension
But so determined were the Eurozone’s leaders to force through the creation of
the Euro for political reasons that they failed to think through properly what
were to become the disastrous economic consequences of the Euro’s fixed rate
exchange system in 2010.
The political aim was to foster a sense of common identity among Europe's
citizens, and to give new momentum to European integration.
E.g. Romano Prodi, who was the President of the European Commission at the
time pronounced: “The common currency is not an economic decision, it is a
This was an opinion held by many European leaders at the time.
Even today, there is a continued yearning for further European integration
among the Eurozone’s political class. This suggests that they have still not
understood that the problems within the Eurozone stem from the deliberate
conduct of German economic policy, via the ECB, and the effect of the huge
disparity between their own economies and that of Germany?
One exception is Christine Lagarde, the Minister of Economic Affairs, Finances
and Industry of Germany’s greatest ally, France. In an interview with the
Financial Times on 15th March 2010 she complained about
German policy causing increasingly serious imbalances within the Eurozone and
called on it to alleviate the problem it was causing.
“[Could] those with surpluses
[Germany] do a little something? It takes two to tango. It cannot
just be about enforcing deficit principles….I’m not sure it is a sustainable
model for the long term and for the whole of the group. Clearly we need better
Admission of advantage by German elite
Even Germany’s elite now openly acknowledge the economic advantage accorded to
Germany by its membership of the Euro. Multi-millionaire German
industrialist, Frank Asbeck, says of the Eurozone crisis:
“From a German standpoint we don’t see any crisis
….Germany is the industrial heart of Europe and as long as the Euro is weak, I
think for Germany, it is a good situation.” *
And respected German economist Klaus Schweinsberg says:
“The big winner of the Eurozone is German industry…the
view of the German industrialists is that … it makes us relatively more
competitive within the Eurozone. [The German economy] “has boomed to such an
extent that Germany can afford to pay off the debts of Greece, Ireland and
Portugal and should do so to preserve its export markets in those
Whatever is decided however, the conclusion of the report is clear: that so
far the German economy has been the overwhelming winner of the Euro era.
* BBC Radio 4, 14th January 2011
Click here to read the full report online