Analysis: Germany sees no turning back from the euro

By Stephen Brown and Andreas Rinke

BERLIN (BestGrowthStock) – Germany sees no alternative to the euro and Angela Merkel’s government believes the best way to strengthen the currency which has helped make the German economy so competitive is closer policy convergence across Europe.

But with German public support in the balance for rescuing euro partners Greece, Ireland and possibly others, it is a tough message for the domestic audience. This explains the apparently mixed messages emerging from Berlin.

Germany voices strong objections to some of the proposed solutions to the euro crisis, such as joint euro zone bonds, and Merkel’s insistence on a crisis mechanism from 2013 involving private investors has upset markets.

“But in the end Germany has a vital interest in the survival of the currency union,” Dekabank economist Andreas Scheuerle said.

While mass-selling daily Bild runs headlines like “How Long Will the Euro Hold Out?” and some pundits suggest a north-south euro divide, the crisis seems to have hardened the German establishment’s view that there is no alternative to the single currency.

The government, including the sometimes fractious members of Merkel’s center-right coalition, plus the business world and the serious media are at pains to nix any talk of Germany losing its enthusiasm for the euro or returning to the deutschemark.

Economy Minister Rainer Bruederle, from the Free Democrats, Merkel’s often uneasy coalition partners, said on Thursday reinstating national currencies in the euro area was “not realistic.”

Merkel repeats that Europe’s fate is inextricably tied to the currency shared by 16 countries and her comments on private investors needing to share in sovereign risk from 2013 reflect a belief that the euro will still be around.

Currently enjoying a much stronger economic recovery than its partners, Germany may return to pre-crisis growth levels as early as next year, largely thanks to exports.

So grumbles about the euro are slapped down with the argument that a revived deutschemark would quickly render German exports too expensive.

“The mark would be so overvalued against other currencies that our exports would be in trouble,” said Andre Schwarz of the exporters’ association BGA. “The solution is not to let the euro break up.”


The alternative to ditching, dividing or diluting the euro must then be to bring its disparate economies closer together via policy convergence or “economic government,” analysts say.

“It was a birth defect of the euro for a currency union to be created without fiscal union,” wrote Thomas Straubhaar, director of the Hamburg Institute of International Economics.

Fiscal and eventually political union would be “better than going into reverse and provoking trench warfare between north and south or Germany and France,” Straubhaar wrote in Die Welt newspaper, using language that reflects the vision of the euro as a guarantor of broader geopolitical unity in Europe.

Merkel signed up to the idea of economic government early in 2010 and the crisis seems to have strengthened this conviction.

She still pays more than lip service, though, to German objections to turning the currency union into a “transfer union” where one country — inevitably Germany — bails out the others.

One group of eurosceptic German economists say the EU treaty forbids this in a “no bailout” clause. Germany’s constitutional court will rule on the Greek and euro zone bailouts next year.

This worry partly explains Merkel’s constant need to stress tough conditions in exchange for assistance and member nations’ need to retain the right to veto each request for a rescue.

It also helps explain Germany’s rejection of the idea of joint euro zone bonds, which Eurogroup head Jean-Claude Juncker argues would improve access to credit. Germany feels this looks too much like a “transfer union” and can only happen when, or if, political union becomes a reality.

Merkel speaks of the need to show markets who is in charge, requiring what Scheuerle called a “clear, unambiguous solution that makes markets realize that the political will to keep the euro is so great that speculation and panic can be turned off.”

One solution could be a central body for economic government to monitor imbalances in euro zone finances, said Scheuerle.

(Additional reporting by Annika Breidthardt and Sarah Marsh)

(editing by Janet McBride)

Analysis: Germany sees no turning back from the euro