SHARE
COPY LINK

TRADE

Unloved euro considered too valuable to ditch

The crisis rattling the euro has shaken Germans' confidence in the currency but despite the grumbling, the advantages for the world's number two exporter far outweigh the downsides, analysts and politicians say.

Unloved euro considered too valuable to ditch
Photo: DPA

At the end of June, with a fiscal crisis in Greece hammering the 16-country eurozone, a poll showed most Germans wanted to scrap the euro and bring back the beloved Deutsche mark, the emblem of their post-war economic might.

A more recent survey suggested the anti-euro faction had dropped to 36 percent, still a high proportion for Europe’s biggest economy and founding member of the European Union.

“The euro has never really been loved in Germany,” said Frank Engels, an economist at Barclays Capital, recalling it was dubbed the “teuro,” a play on the German word for “expensive,” in response to perceived rising prices.

Many Germans believe that Berlin is bailing out other eurozone nations seen as profligate at a time when Germany itself is undergoing painful austerity measures.

“More and more Germans fear they are going to have to pay for mistakes made by other countries in the euro area,” said Martin Koopmann, a political scientist.

And daily Bild, the country’s largest paper, has often railed against Germany putting its hand in its pocket, recently asking: “Are we going to have to pay for the whole of Europe?”

A former head of the German employers’ federation, Hans-Olaf Henkel, argued in a recent book “Save our money – Germany is being sold out” that the eurozone should be split between a richer north and poorer south.

However, for now at least, such voices are on the margins, although Finance Minister Wolfgang Schäuble this month warned of “the danger of an anti-euro party,” which does not yet exist.

For Engels, the advantages of the euro for Germany’s exports are clear. The common currency has “enormously lowered” the costs of trading with its main partners, the analyst said.

If the Deutsche mark were still in existence, its value would likely have soared against the currencies of other eurozone countries because it would have been seen as a “safe haven” bet on the foreign exchange markets.

But this in turn would have harmed exports, credited with pulling the German economy out of a deep recession suffered in 2009.

Conscious of growing anti-euro sentiment, German politicians have pulled out all the stops to convince their citizens of the currency’s advantages – and the dangers inherent in a possible collapse.

“If the euro fails, then Europe fails,” Chancellor Angela Merkel told parliament at the height of the crisis.

But the message is not getting through, argues Koopmann. “We need politicians who can get across the positive aspects of the euro, while explaining why, in times of crisis, you have to pay the price.”

AFP/ka

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.

ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

READ ALSO:

With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

SHOW COMMENTS