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How Germany Benefits from the Euro in Economic Terms


According to a recent report, released in 2013 by the Bertelsmann Foundation (“How Germany Benefits from the Euro in Economic Terms”), the economic gains of remaining in the Eurozone outweigh the costs of returning to a single-German currency.

According to a recent report, released in 2013 by the Bertelsmann Foundation (“How Germany Benefits from the Euro in Economic Terms”), the economic gains of remaining in the Eurozone outweigh the costs of returning to a single-German currency.

A return to the Deutschmark would result in a decrease of Germany’s real growth by about 0.5% per year between 2013 and 2025 (which is equal to € 1.2 trillion loss, or €14,000 loss per citizen. Additionally, in this “deutschmark scenario,” the number of people out of work would increase by about 200,000, thus increasing the unemployment rate.) Even in the hypothetical scenario in which there were a 60% debt haircut in all of the four countries (Greece, Italy, Portugal and Spain), this would merely lead to a short-term and minimal decline in the real GDP growth rate of 0.05 %. Such a minimal decline can be explained by the added benefits Germany would get from exporting more to the debtor countries, which would experience more favourable economic conditions following the write-off.

In brief, the idea of a two monetary unions with one focused on countries that adhere to fiscal rigour and have economic cycles similar to those of Germany could paradoxically cause Germany to be “less German”, forcing it to renounce in part an economic model driven by exportation, whose success has  also been due over the years to the European countries that have been acquiring German exports. Without a strong European Monetary Union there can be no bright future for  Germany. Not only Germany does need the Eurozone, it also need the Eurozone’s peripheral countries to remain in it. Not only Germany needs Europe from a purely economic perspective but also from a political one. European Union architecture has been able over the years to prevent countries from being lost in world politics. A post-European Germany (like after all a post-European UK), would result in a lost Germany. Europe is part of what makes its member countries important from a global perspective, and whereas the economic costs alone of  a post-European Germany would be devastating, the political costs  could be even more damaging. Germany relies on the economic model of a social market economy, which combines elements of market capitalism with a generous welfare state and labor protection. The German economy has succeeded because it has  remained decidedly German. The main characteristics of  Germany’s economic model are the following ones: Germany’s economic model begins with the close relationship  between German banks and German industry. Banks have a close relationship with SME, which results in banks being willing to be patient and more long-term in their loans. Germany’s bank-dominated system of “patient” (long-term capital) makes it possible for firms to focus on investments generating returns only in the long term and to retain skilled workforce also during an economic downturn.

Firm internal structure:Labor also enjoys a powerful voice in the firms supervisory boards. In the largest corporations, half of all seats on the supervisory board are reserved for employee representatives. Education and training system: Germany relies on a system capable of providing firms with workers with industry-specific skills. This is ensured through vocational education, ie dual system which provides both education and vocational training (formazione professionale ). When other countries wonder why Germany’s youth unemployment is so low (just 8.1% in 2012 according to Eurostat compared with Spain’s 53.2% or Portugal 37.7 % or Italy’s 35.3%), Germans attribute it to the dual system. Inter company relations: companies tend to cultivate relations with other companies that make it easier the diffusion of new technologies among the companies.  Despite some regulatory relaxation in recent years, German workers enjoy much greater job security .  In Germany, the labour market is regulated and coordinated, and if a company’s profitability decreases the coordination between workers, employers and trade unions can bring together the interests of the parties on wage moderation. The German production structure is the result of a complex system of institutional complementarities and interdependencies which have made possible its success over the years. Many countries would benefit from imitating Germany in terms of recreating its strong comparative advantage, but there are limits. Any policymaker could in theory try to copy what Germany has accomplished. In the early 2000s, in a context of low growth and high unemployment, the then-chancellor, Schröder, a Social Democrat, embarked upon a program of profound reforms. He reduced unemployment benefits and liberalized temporary work. Then, in 2005, Chancellor Merkel raised the pension age to 67 and introduced constitutional “debt brake” to limit the structural budget deficit to 0.35% of GDP from 2016 onwards. Some reforms of the peripheral are in part inspired by the German example. But one matter is trying to advance with structural reforms to boost the economy, but another one is to excel in incremental innovation or to create institutional complementarities which give firms, unions and the state the roles that Germany has been relying on for more than a century.

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