To set the stage for an analysis of the role of Germany in the still ongoing and unsettled debt crisis of the Eurozone, let me start with a brief review of the name-giving phenomenon, the Euro. The Euro is the monetary system of the European Union. It is a regime that, together with the Stability and Growth Pact and various subsequently adopted tools to control fiscal policies and the viability of the banking system of member states, subjects them to a unitary framework of rules with which their monetary, fiscal and trade policies must comply and which also indirectly affects the leeway of their social policies. By joining the Union, all member states (with the by now no longer relevant exception of the UK) have committed themselves to adopting the single currency at some point or to put their national currency into a fixed exchange rate with the Euro, as is the case with Denmark. This commitment to the single currency is binding to all members of the group that have adopted the Euro, the Euro-group, regardless of the vast differences of their political and institutional traditions, levels of economic development and performance, and economic cultures.
1. The Euro as an ideology
The Euro is also what in the Marxist tradition is called an "ideology": A set of tendentiously mistaken perceptions of socioeconomic realities together with false hopes and promises sug-gested by the appearances these realities bring forth. As is the case with all ideology, its in-terested proponents, i. e. those who stand to benefit from the ideology being near-universally accepted as a valid belief system, must face the risk of a moment of truth when the constitu-tive misperceptions become manifest and associated hopes frustrated. For a long time prior to the adoption of the Euro regime, experts from outside of the EU, especially from representa-tives from all schools of economic thought in the USA, have voiced serious yet unheeded warnings that this moment would come sooner rather than later.
What were the promises and hopes, invoked by soothing neologisms of Euro speech such as "inclusion", "cohesion", the "European Social Model" and the "knowledge-based economy", which were invested in the single currency? One guiding idea was that of a "level playing field" that would be created by the pressure applied by the monetary regime on the relatively backward economies in the EU. The Euro was thought of as a wholesome modernizing force that would both incentivize and allow productivity laggards, together with transfers they were granted from EU structural funds (less than one per cent of the EU budget), to improve their level of economic performance so as to gradually approximate the level of the most advanced European economies. It was also thought to be a device to disempower the harsh stability regime that the German Bundesbank had executed over the economy of Europe and to replace it with a more employment-friendly alternative. The hoped-for modernization effect would be achieved by tying the hands of productivity laggards: As long as countries had national currencies and could run their national monetary policies, they were able to adjust to trade imbalances resulting from their competitive disadvantages by the often-used tool of lowering the external value of their currency, thus making exports cheaper and imports more costly. In other words, they could adjust to and live with inferior levels of productivity by modifying the external value of their currencies. Once they adopt the single currency, this option is precluded. The only way to maintain or even increase competitiveness in international trade becomes that of switching from external devaluation to "internal" devaluation, meaning the cutting of state expenditures and labor costs. The key economic variable here is that of unit costs of labor, which is a measure of economic performance that relates labor costs to labor productivity. The other indicator of how well a national economy performs is the ratio of sovereign debt to GDP. As the increase of labor productivity presupposes private and public investment (an adequate volume of which is typically unavailable in the short run), the former - wages, pensions, public services - are typically targeted as the action parameter of policies enhancing competitiveness, which also, in addition to decimating overall demand, typically exacerbates domestic political conflict and jeopardizes political stability. Also, the anticipation of declining demand may well undermine medium term investment. Due to these causal factors, the single currency can make countries economically defenceless within the radically "open" economy of the EU and its institutionalized factor mobility; this is the plain opposite of a "levelling" of the playing field of trade.
As far as national economies such as Germany with their more advanced level of productivity (as well as an institutionalized system of wage moderation) are concerned, the single currency tends to serve their further relative advancement. As long as they operate with their national currency, they are subject to a mechanism of automatic punishment from which they are freed under the single currency. For as a country increases its export surplus, the external value of its national currency will appreciate, exported goods become more expensive, foreign sales of exported goods stagnate or decline, and the export surplus becomes self-limiting. Yet not so in the case of exports that are paid for in Euro, given the fact that not every member of the Eurogroup runs a current account surplus in its trade with the world outside the Eurozone. Those who do not will indirectly help the high export performers to escape from the self-limiting effect and allow them to win further export surplus (and the attendant levels of domestic employment and economic growth) that they could never achieve on the basis of their own domestic currency. Again, the Euro sets in motion a dynamic that, in the absence of adequately sized compensatory counter-action, results in an ever more tilted rather than level playing field: The single currency regime favors highly competitive export-intensive economies and punishes productivity and competitiveness laggards.
A second promise of the single currency was the prospect of the playing field not just becom-ing more level but as a whole rising on a scale of prosperity benefitting all members. This optimistic assumption was based on the expectation that a fully integrated market of some 500 million people with the four freedoms of movement (persons, labor, capital, services) in place and tariffs as well as non-tariff trade barriers regulated away would yield a universally beneficial economic "integration dividend". As market size increases, so do the economies of scale to be reaped. With an increasing division of labor and specialization among national economies, border crossing chains of production, also facilitated by the Schengen open bor-ders regime, would further enhance productivity. The role of the common currency in this scenario would be that of a guarantor of fixed exchange rates, or rather an arrangement that makes exchange rates obsolete within the Eurozone, and hence costs and prices more reliably calculable. While some of this reasoning has become true and while there certainly has been an overall integration dividend (however hard it is to quantify), its distribution has been highly uneven in both space and time. In the middle of the 2010s, the EU has barely recov-ered from the Great Recession of 2008 and reached, on average, its pre-2008 level of GDP, but overall growth rates continue to decline, the distance between prosperous and backward economic regions within the EU is increasing (as is the income inequality within most member states) and vigorous new impulses are neither in sight nor deemed likely, according to the growing number of expert voices forecasting an age of "secular stagnation"(1) . Real demand in the Eurozone was 2 per cent lower in 2016 than it was in 2008, and total savings by far ex-ceed total investment in the "real" economy, a phenomenon now commonly referred to as "savings glut". These sobering trends all have dismal implications for the tax base of national governments and the prospects of coping with sovereign debt, for the employment situation, and for the stability of the Eurozone banking system that suffers from completely unsustain-able burdens of non-performing loans(2).
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1) Cf. Robert J. Gordon, The Rise and Fall of American Growth, Princeton: Princeton UP 2016
2) This burden is very unequally distributed, with roughly a third of it (360 bn Euro) being shared by the Italian banking system at the end of 2016.
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20 Gennaio 2017