German politicians are forcing their citizens to
finance the wasteful lifestyles of other euro-member states. This fact is
sometimes obfuscated by talk about European solidarity, maybe by invoking
70-year-old German guilt, or by some other demagoguery. But the fact remains
that Germans, through their hard work and relatively frugal lifestyle, are
financing Greece, Spain, Italy and France.
Indeed, forget about Greece or
Spain. France is set to be the main recipient of Germany's largess. Extensive
research, authored by Holger Schmieding of Berenberg Bank, found France was to
be one of the most troubled economies in Europe in terms of its budget deficit,
trade balance and other metrics.
What Germans might find
particularly vexing is that the French have done almost nothing since 2008 to
try and fix their problems. In fact, the new Socialist president, Francois
Hollande, has raised the retirement age and is making it harder for companies
to lay-off redundant employees.
But why should France behave
any differently? The rational thing to do when someone is willing to finance
your lavish lifestyle is to continue to enjoy life, and just make sure the
sucker keeps on giving. A more interesting question is why German politicians
continue to confiscate the fruit of the labor of their own citizenry and
transfer it to other countries. Think about it - politicians taking money away
from voters and giving it to non-voters! So why is Germany so adamant to keep
the euro alive? The German establishment might be concerned with an economic meltdown
of some of its EU trading partners. But a solution that involves sending money
from Germany to these states so that they can use this money to buy German
products makes no sense.
However, the scariest outcome
of a breakup of the European currency is the return of the Deutschemark. The
mark is likely to be one of the strongest currencies in the world, possibly
even stronger than the Swiss franc. The source of German prosperity is its
exports, the argument goes, but returning to the strong Deutsche mark will
inevitably cripple German exports because fewer people will be able to afford
it, and that would be the end of German prosperity.
Sounds sensible, maybe even
convincing. But it is hogwash. In fact, returning to the Deutsche mark will
significantly increase the prosperity of German citizens.
The first thing people forget
when considering the implications of a strong currency is that export is only
one side of the coin. The other side is import. Germany imports most of its raw
material: oil, gas, clothing, furniture, computers, consumer electronics,
software and, of course, outgoing tourism. The price of these goods and
services will collapse from the viewpoint of a German consumer paying with
marks.
German citizens will become a
lot richer as the purchasing power of the mark enables them to fully benefit
from years of hard work and the advantages of a strong economy.
WHAT ABOUT exports? Won't
there be mass unemployment as exports die off? There might be some decline in
exports as it becomes more expensive.
Chemicals and some other types
of products might suffer to some degree. However, remember that no-one is
buying Mercedes cars or BMWs, or even VWs, because they are cheap.
German industrial machines are
also not known for their low prices. In an economy that is based on quality and
the good reputation of its products, price tends to play a smaller part than
other factors. The decline overall in exports might be a lot lower than what
the euro fear-mongers are forecasting. Moreover, the economic reality for
Germany is even more comforting.
Exporters care less about
prices, or revenues. Rather, they are seeking profits. A strong local currency
means that costs for German producers will plummet, allowing them to demand
lower prices for their goods while still making a large profit. In actuality,
the competitiveness of German industry will remain very strong.
Therefore, the net effect of a
strong local currency is very positive for the German citizenry. There should
be nothing surprising or new about this conclusion; from the time of the Roman
Empire until the 20th century US economy, strong currencies were always a
feature of strong economies, never an impediment .
If the German politicians
really have the best interests of their citizens at heart they should turn off
the euro spigot and let their people enjoy the benefits of a strong currency
that rightfully comes with a strong economy.
And what about Greece, Italy,
Spain and France? It is time that they to start living within their means.
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