When Germany Leaves The Euro

In June I was in the South of France with a group of old university mates, one of whom is an economist and, over a pression or five in the incomparable Bar Charlot in Seillans, we asked him: ‘What’s the solution to the Eurozone debt crisis?’

“No one knows,” was his reply. Then he added, “But one day we may wake up to find Germany has gone back to the DMark.”

How would that help? Well the Euro is strong because of Germany’s industrial strength, while having a strong Euro is killing the economies of the industrially weaker Eurozone

If Germany pulls out of the Euro, the Euro will collapse in value so, effectively, giving the remaining Eurozone countries a big devaluation after which their economies will be more competitive.

Their debt will be reduced, their manufacturing bases will be revived, their banks will be a bit closer to solvency. Prosperity will return to Europe.

It will be a bit like when the UK came out of the ERM – the economic benefits were huge and immediate.

Then, last week, I saw the New York Times ran a piece along the same lines – that a German exit from the Euro could save the currency.

One thing stopping a German pull out from the Euro is the consequent rise in cost of German exports. On the other hand, if Germany went back to the DMark, it would be in control of its own currency again and could do stuff to manipulate its value.

The other thing stopping Germany pulling out of the Euro is the Eurodream – the dream of the Eurocracy that Europe should have a common currency.

Time for the Eurocracy to wake up.



  1. Yes Chris,but if Intel, TSMC and Samsung really want 450mm and EUV it would surely be more effective if they gave ASML $7.2 billion to spend on R&D rather than spending $5billion on shares and only $2.2 billion on the R&D programme.

  2. The article refers to the Eurocracy. They are the problem. Too many of them have their snouts in the trough and lord it over the rest of us. They perpetuate Charlamagne’s dream of a Europe-wide empire as attempted by Bismark, Napoleon and Hitler.

  3. Except of course in the case of boxing, where is it team GB, because boxers from the North, box for Ireland – but continue to use sterling.

  4. “all these things really piss the English off”
    They also piss off the Welsh, the Scottish and the Northern Irish. Of course no one would dare accuse you of being Anglo-Centric but as Mr Cameron says “We’re all in this together”.
    And as for “Team GB”. Apparently no one in BOA looked at their passport before deciding on this non-inclusive name. GB hasn’t existed as a separate entity since 1801 and our country got it’s current name of “United Kingdom of Great Britain and Northern Ireland” in 1927. So it’s “Team UK”

  5. The thing is, Martijn, that the people who should know how the economy works clearly don’t. As I said Bernanke claimed to understand how the 1930 crash happened – it was the fault of the Federal Reserve, he says – and yet he is in charge of the Federal Reserve at the moment and we are in the same mess again. So you see it’s not that we are second guessing people who know their stuff. Quite the reverse. The QE that is going on does nothing to help, and the people with the ideas that make sense don’t get any attention, even if they are professors of Economics.
    The existing economic models that are used to run our economies can not be made to fit the actual data. How mad is that? So the economists ignore stuff that doesn’t work for them, hardly a reasonable way to proceed.
    I could rant on the subject for a while, but don’t worry, I work in a 300mm fab.

  6. Very true Martijn, but it’s fun trying. I think anyone with the slightest curiosity would have wondered what the hell is going on at the banks these last four years. As stuff unfolds, we learn about a world which was a mystery to me before 2008 – CDSs, CDOs, rigging LIBOR etc – to me it’s a new world. I , and others, I think are trying to get our heads round it. I think to say we should only talk about semiconductors is to admit we’re only interested in semiconductors which would be a bit sad.

  7. What puzzles me most:
    I hardly hear lawyers or economist say “let’s add another pipeline to this microcontroller architecture to solve the high latency” or other attempts at technical improvements.
    However I recently see and hear pretty much everyone making suggestions on how to solve a hugely complex issue in the financial world, not being held back by lack of knowledge and/or understanding.
    Who cares what an average engineer / reporter (no offense to anyone here) thinks about the financial system? I certainly wouldn’t put any value on the opinion of a random banker on my technical design issues.

  8. I’m British but I live and work in France, so my point of view is a little less island-oriented than it might otherwise be.
    I’d love Europe to work properly, though I’m not sure that the Euro as it is currently constituted can survive.

  9. You’re absolutely right Maria, it’s better if we hang together because we’ll hang separately for sure. I think it’s the frustration of hearing so much talk and seeing so little action which makes us resort to joking about it.

  10. Am I the only non-British following this?
    I agree that Europe is currently just a bureaucratic entelechy but I think it’s the only solution we have for a better future; or do we want to be a bunch of quite irrelevant countries??
    Just look at our level of Innovation…

  11. Thanks Ian that’s a good guide. I’ve been reading Simon Johnson’s The Baseline Scenario (baselinescenario.com) which helps me understand some of this as it unfolds. One thing I do now understand is why economics is called the dismal science.

  12. If you want to try to understand the nonsense going on with the current financial crisis you could do a lot worse than reading Steve Keen’s blog. He seems to understand the current state of things a lot better than most. As he said “You need engineers to build a bridge. You don’t need economists to build an economy.”, and what we have at present is our economies controlled and guided by people using models that simply don’t match with reality.
    Ben Bernanke said that the 1930’s crash was essentially the fault of the Federal Reserve. Now we are in the first serious crisis since then, and who’s in charge of the Federal Reserve? Why, Ben Bernanke! Ooops.
    Here’s the address: http://www.debtdeflation.com/blogs/

  13. Temperamentally, one feels they would be comfortable with the Southern, fiesta-style Euro, [Anonymous]

  14. Nobody has mentioned Ireland …geographically in the north, economically somewhere south.

  15. Nice one, Stooriefit

  16. I think the majority of German finance types and even a fair number of the politicos get that, in the last decade, their industry, commerce and exchequer have grown very wealthy on the back of the artificially low value of their currency. This low value has been achieved by the spendthrift habits of their southern neighbours.
    Not only have Germans gained by having a large market for the flash cars and washing machines they make at a fixed exchange rate, they have also exported from the euro zone on the cheep because of the efforts of their good-time currency partners.
    They should at least have the decency to look embarrassed at the sight of Greeks lining up at soup kitchens.
    If Germany left the Euro it would do everyone good except Germany. So they won’t.

  17. I did rather wonder about the Belgians, Greg, as you say the beer is a major consideration. They’re borderline and can only join the Northern Euro if they accept severe penalties for stepping out of line.

  18. Poor old Belgium. The beer should really not be lost to the south. Perhaps if the Flemish were to eat their French bretheren in order to confirm their barbarian credentials.

  19. Now there’s a solution, Greg, the solid stable Northern Euro of Germany, Scandinavia, Holland and Scotland, and then a fickle flaky falling Southern Euro for the feckless Club Med countries.

  20. I like Germany to figure it out so I think they’ll be just fine. No thanks to the UK it appears who are more or less less kicked out of the EU at this point. The dodgy warm states are just going to have to change if this whole experiment is going to work. If they can’t Germany may really want to call it a day with them and concentrate on a smaller Northern EU. I’m not so sure where the UK stands though. I think the fun and games with the toff in No.10 right now and his friends in the city will probably ensure Scotland goes solo in a couple of years and would anyone then be surprised if they then jump into the Northern Euro when they finally find their footing?

  21. I’ll make sure Ed hears about this, Mr C, I’m sure it will help him when he gets awkward financial questions from The Brats.

  22. Mr M, we have a new wheeze for Ed, note this Eu statement:-
    Brussels, 10 November 2011 – For the fourth year in a row, the EU’s annual accounts have received a clean bill of health from its external auditors. As for EU spending, the overall error rate is once again below 4%. This means that the vast majority (at least 96%) of total payments made in 2010 were free from quantifiable error.
    So Ed can legally sift away 4% of his turnover, the EU has set a precedent?
    However Ed will have to counterbalance this:-
    For today the European Court of Auditors – the body charged with auditing the EU’s accounts – has presented its annual report to the European Parliament and for the 17th – yes, seventeenth – year running, it has concluded that the payments underlying the 2010 accounts are “still affected by material error”.

  23. You’re right Mr C, the Eurocracy just don’t seem to get it. The disgrace of unaudited accounts, the waste, MEPs’ expenses, the lack of accountability, transparency, honesty and democracy, the folie de grandeur of impossible grands projets and the political insensitivity like asking for a 5% increase in the Euro-budget just as austerity kicks in – all these things really piss the English off.

  24. Let’s be clear about what is happening, there is The EU and there is the Euro.
    The Euro has certainly been setup incorrectly it has not got an overall bond market which allows the worldwide financial community to speculate (or gamble) putting up borrowing rates for the Countries that spent a lot of Euros at the beginning (Ireland/Portugal/Spain/Italy) How the populations of these Countries rubbed their hands together at all the euros they were given (lent)I remember visiting Ireland and even a casual observer could detect the overspending based on property values.
    Incidentally it’s my opinion that in industrial terms we are in the euro, my Company and a lots of others had a euro account from day one, we sell EU products in euros and pay in euros, it in the UK is only £’s on the streets.
    I (and several others I think in the UK) voted for a commercial union, what we got was layers of political management and various countries trying to achieve an EU state.
    It’s too large to manage properly, and has vast waste policies.
    Let’s try to influence our politicians to take a more simplistic and practical approach, however I think this may be a lost cause?

  25. Wow El Rupester, you’re a bit of an economist. Or, I should say, a lot of an economist. I think actually the original answer of my mate, before the pressions kicked in, that no one knows the answer, is the correct one.

  26. That’s a bit simplistic…
    Yes, the DMARK would soar. And since German interest rates are already low, and Germany hates the idea of printing money (otherwise it could do so today and solve the Euro that way) then there is nothing they can do to stop it soaring). There is no way to ‘manipulate’.
    So as well as rest of Europe economy being tanked, Germany’s economy suddenly stalls as their currency soars.
    Not such a good thing.
    Remember Switzerland has now tied its currency to the Euro explressly for this reason – the SWF was getting too stong. (A paradox: everyone is talking of people leaving the Euro, and Switzerland has almost sort-of joined it !!)
    And would it help the rest of Europe?
    Well, it *is* better to be in a devalued Europe than it is to leave Euro and have to repay Euro debts in worthless New Drachma (whichj would really hurt).
    But devaluation is no panacea: if it were Britain in 1970s or Zimbabawe recently would be economic powerhouses !!
    You still need to buy oil and all imports in dollars – and they become even pricier with your rubbish currency.
    And you have lost German / ECB backing, so your debt gets a lot, lot more expensive.
    It is one of the possible outcomes. But it is no less painful than any of the other messy outcomes.

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