The facts about Germany and the eurozone
In my opinion piece this morning I lamented the poor leadership shown by the German Chancellor, Angela Merkel, throughout the eurozone crisis.
Most disappointing has been her failure to spell out to the German people just how much trade Germany does with the eurozone.
The chart below shows Germany exports much more to the eurozone than it does to the rest of the world. If the single currency breaks apart, German exporters will get hit very severely.
And this chart below, from Fathom consulting, puts that trade in figures:
Germany’s trade surplus with the eurozone (described here as EA) has, on average, been significantly larger than its trade surplus with the rest of the world over the past decade.
Also, what I didn’t get into in the column was the extent to which, by bailing out the euro periphery countries, Germany has also been bailing out its own banks. If you run a chronic trade surplus and don’t invest the funds at home (as Germany did for a decade) you inevitably export capital. Germany exported huge amounts of capital to the euro periphery. So if those nations default, Germany, as the creditor, will register a huge loss.
This graphic, from Der Spiegel, shows the exposure of German banks to Greece, Ireland, Portugal and Spain.
Ms Merkel should be explaining these economic realities to the German public so that they can make an informed choice about whether or not they want the single currency to survive.
One way or another, Germany is going to pay up. What they need to decide is whether to do it through inter-country bailouts and higher interest rates (as German interest rates reflect their guarantee of the debts of others), or through bank recapitalisations and a weaker export sector.
Rather than present this difficult choice, Ms Merkel has chosen to play for time. But as George Soros recently pointed out:
“Sometimes time actually works against you if you refuse to face the relevant issues and explain to the public what is at stake.”
The choice has to be made. And the longer Germany prevaricates about making it, the bigger the final bill will be.
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