After the consummation of Brexit, the hypothetical exit of Germany from the Euro would bring about the end of the Eurozone and the gestation of a new European economic cartography that would mean the return to watertight economic compartments and the triumph of the USA by achieving the full balkanization of Europe.
By Germán Gorraiz, political analyst
Germany’s exit from the Euro?
According to Joel Kotkin in Forbes Magazine, for decades,:
“…the countries of the North (Germany, Norway, Sweden, Denmark, Holland, Finland, and the United Kingdom) have compensated for very low fertility rates and the decline in domestic demand with the arrival of immigrants and the creation of highly productive export-oriented economies”.
Thus, following the doctrine of the Schuldenbremse (debt brake) that Germany introduced in its Constitution in 2009 with the inescapable objective that “each generation pays its own expenses and does not consume the taxes that its children will pay in the form of debt”, Germany would have achieved successive economic surpluses in the last five years facilitated by negative interest rates implemented by the ECB.
However, Charles Dumas of Lombard Street Research London, argues that:
“…euro membership has encouraged Germany towards a costly mercantilist strategy at the expense of domestic consumption and productivity of the economy but now the necessary cure for the eurozone’s ills will impose higher inflation in Germany, prolonged deflationary recessions in important eurozone markets, and continued transfers of official resources to its partners”.
In 2010, the International Monetary Fund (IMF) urged the German authorities to implement policies to “stimulate domestic demand growth as this would have important beneficial spillover effects both in the Eurozone and globally”, as the growth of German domestic consumption could be Germany’s lifeline in the face of recession.
However, the German Constitution considers a budget to be balanced when a federal deficit equivalent to 0.35% of GDP is achieved, following the doctrine of the Schuldenbremse (debt brake) that Germany introduced in its Constitution in 2009 with the unavoidable objective that “each generation pays its own expenses and does not consume the taxes that its children will pay in the form of debt”.
Thus, Germany would have achieved successive economic surpluses in the last five years with a decrease in the fiscal year 2021 of 4% (surplus of about 173 billion euros) because the zero or negative interest rates implemented by the ECB required less amount for the payment of public debt (equivalent to 60% of GDP) which allowed it to accumulate reserves to face the socio-economic crisis resulting from COVID-19 with a massive boost of investments estimated at 20 billion euros to relaunch the economy.
However, the ECB’s interest rate hike combined with galloping inflation will cause real wages to stagnate in Germany, fiscal adjustments and a severe contraction of domestic consumption, which will lead to a recession in 2023, so in the words of Charles Dumas of Lombard Street Research London:
“…a return to a cherished Deutschmark would squeeze profits, boost productivity and raise real consumer incomes, because instead of lending savings surpluses to peripheral countries, Germans could enjoy better living standards at home”.
The new European mapping
The hypothetical exit of Germany from the Euro would mean the beginning of the end of the Eurozone and the gestation of a new European economic cartography that would mean the return to watertight economic compartments and the triumph of the USA in achieving the balkanization of Europe.
Thus, we will witness the reconversion of the current Eurozone into the Europe of the Six (Germany, France, Belgium, Holland, Luxembourg, and Austria), leaving the rest of the peripheral European countries (Portugal, Spain, Italy, Ireland, Greece, Slovenia, Malta, and Cyprus), gravitating in their orbital rings, being forced to return to their national currencies and suffer the subsequent depreciation of the same.
The peripheral European countries had not developed strong economies to compensate for their demographic decline, basing their economies on the so-called “Mediterranean diet” whose main ingredients were the urban boom, tourism, and domestic consumption that created excellent minimalist dishes, highly suggestive in appearance and exorbitantly priced but empty of culinary content and with an expiration date stamped on them as they were mortgaged by exorbitant Public Debts.
Consequently, the ECB’s aggressive rate hike to curb inflation will provoke a stratospheric rise in the Debt Premium of these countries as well as their financial starvation, which will translate into tax hikes, a bestial reduction in the number of civil servants, dismantling of public health care, wage cuts and maximum flexibility in the labor market.
Thus, Peter Morici, economist and professor at the University of Maryland, in declarations to the Fox channel, stated that:
“…the need for a fiscal union in the Eurozone and for the ECB to adopt a role similar to that carried out by the US Federal Reserve will not arrive in time to save the peripheral countries and considered the possibility that “these countries abandon the Euro in order to be able to print their own money and solve their problems as the United States did in the wake of the financial crisis”.
On the other hand, the decline in exports due to the contraction of domestic consumption in the EU as a result of the economic recession (trade between EU Member States accounts for 60% of their total trade volume) and the reduction of their competitiveness vis-à-vis the countries of the rest of the world (with special impact on traditional exporting countries such as Finland) could lead to the creation of a Scandinavian Federation made up of Sweden, Norway, Denmark, Finland, Latvia, Estonia, and Lithuania, which would mean a return to watertight compartments.
The rest of the countries of Central and Eastern Europe (members of the so-called emerging Europe), with the exception of Hungary, will make up the so-called “European fracking arc” that will extend from the Baltic States to the European Ukraine, passing through Poland, the Czech Republic, Slovakia, Romania and Bulgaria, which will remain gravitating in the orbit of the USA and will constitute the new Berlin Wall, with the possibility of a new conflict in the Balkans in the scenario of Cold War 2.0 between the USA and Russia.
By Germán Gorraiz, political analyst