lunes, 27 de julio de 2015

lunes, julio 27, 2015

July 22, 2015, 9:31 AM ET

How Does Euro Membership Help Germany?

By Todd Buell

 
The Greek crisis and German hostility toward a third bailout for the troubled country provide an appropriate time to examine Europe’s largest economy’s relationship to the single currency.

How does euro membership help Germany? Where might it hurt?

The relative weakness of the euro versus a hypothetical Deutschmark is an advantage for Germany. In addition to the fiscal orderliness of Germany, the currency union also includes countries like Italy, Spain, France and Greece all of which haven’t been as successful as Germany in recent years.

This weighs on the euro’s strength, which helps German exporters. As is well known, exports are a key driver of Germany’s economy. A stronger currency would almost certainly make life harder for German exporters by making products more expensive on a global market.

ING economist Carsten Brzeski says that the European Central Bank’s monetary policy has tended to have a bias toward helping weaker countries and that this policy orientation benefits exporting countries like Germany. “The currency will always be undervalued compared to a situation in which you are on your own,” he said.

He estimates that accommodative monetary policy from the ECB over the last year has added about €25 billion to Germany’s economy through the cheapening of the single currency.

Switzerland offers a glimpse of what German life might be like on its own. The small alpine nation is also a haven for investors and its currency, the franc, has strengthened considerably in recent years. It was so strong that for three-and-a-half years the country’s central bank wouldn’t let it strengthen beyond CHF1.20 to the euro. But in January the Swiss National Bank surrendered that fight and the mighty franc is now at about CHF1.05 to the euro.

And exporters aren’t happy. Swissmem, a body representing more than 1,000 of the country’s 13,000 machinery makers, said around three quarters of its member companies expect the franc’s appreciation this year to shrink profit margins by at least four percentage points.

“Almost a third of them are expecting an operating loss this year,” it said in a statement.

But euro membership isn’t everything. Economic management is also important. “Countries can thrive inside or outside the euro or go down the drain inside or outside the euro depending on the domestic policies they pursue,” said Berenberg chief economist Holger Schmieding.

It has also been argued that Germany benefits from the crisis since investors have fled to the country as a haven in the midst of concern about the finances of other eurozone states, thus making it easier for Germany to balance the books.

The IfW institute in Kiel, Germany estimated in April that Germany would save €160 billion until 2030 due to lower interest rates.

This could of course have happened even with the country outside of the bloc. For example, Switzerland can borrow at even friendlier terms than Germany. Its 10-year yield was 0.01% versus 0.71% for the German benchmark, on Wednesday morning according to Tradeweb.

But this has its own drawbacks. Heavy capital inflow in Switzerland has led to financial stability concerns, such as worries about rising house prices. While Germany has similar problems, it can point to the export benefits that go with a weaker currency, something its independent mountainous neighbor can’t do.


Neil Maclucas in Zurich contributed to this article

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