The German question and the eurozone

The Telegraph suggests that Germany is the country that should abandon the euro.  The key points:

-German exports benefited from low euro (similar to China’s peg to the US dollar)
-Turning the eurozone into a transfer union would be very costly to Germany;  much more so than its absorption of the former East Germany

A paper from the Center for Eastern Studies headlined One country, two societies? Germany twenty years after reunification asserts that

“Two German societies are still functioning in parallel 20 years on after the country’s reunification”

and that

“According to a survey conducted after the reunification of Germany, most residents of the new federal states believe that the reunification and the changes it has entailed have brought them more losses than benefits”.

This supports the Telegraph’s view that if German citizens look objectively at the situation then abandonment of the euro by Germany is the correct choice.  In actuality, Germany has a full plate of issues related to its own integration remaining to be dealt with.

The CES authors propose that:

In spring 1990 the USA was the only of those four powers to support the unification of Germany, seeing this as a chance for a further weakening of the USSR and pushing it out from Germany. France and the United Kingdom feared the unification and possible rebirth of the German state’s power. In turn, the USSR correctly assumed that unification would mean the loss of a part of its zone of influence.  France’s fears were alleviated when Germany made commitments for continuing European integration, and the USSR had to deal with its internal problems.  The British Prime Minister Margaret Thatcher remained alone with her resistance and had to relinquish it.

It seems that the Eurozone project may have been primarily a political project designed to ward off a return to older balance of power calculations in European affairs.  The cost of bad investments already made by German savers and their representatives in the rest of Europe are sunk (although this is yet to be widely recognized).  Why would German citizens wish to continue to prop up a fundamentally flawed structure?

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1 Comment »

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