Despite the recent German populist and anti-EU sentiment, Berlin seems determined to work hard for the common currency of the European Union and the euro. There is no doubt that there are high principles behind this commitment, but there are also many self-interests. The German economy, and especially Germany’s elite, did very well because of the union’s relationship with the euro, not at the expense of the rest of Europe. Do not doubt that this less principled but compelling motivation can guide Berlin’s commitment.
The euro should have a generally beneficial impact on Europe as a whole. Its designers claim that this will make the European Union comparable to other powerful economies, especially the United States, Japan and China. They said that all European countries will benefit from trade growth because both people and businesses are concerned about currency fluctuations, while a lack of currency risk will keep interest rates low and give a lower credit advantage to particularly vulnerable members , Encourage more investment and economic development. Trade and economic growth will deepen economic integration, provide more diverse goods and services to the inhabitants of trade unions, and create a more unified and resilient European economy. This is not the case, of course.
To a large extent, these problems have come from the enthusiasm accompanying the direction of the euro. Greece, Spain, Portugal, and Italy, to a lesser extent, have high hopes for Greece, Spain and Portugal, who raise their value by the value of their own domestic currency, making their value far above the value that the economic fundamentals can support . This overvaluation has caused the governments and people in these countries to feel overwhelmed in their global economic purchasing power and encourage consumption and borrowing beyond their capacity to support such behavior. At the same time, the expansion of monetary value puts producers at a competitive disadvantage. In a separate currency, reality will eventually force devaluation, which will correct both issues. But once the euro is established, it is locked in the wrong pricing.
For Germany, the opposite prevails. At the time, it still suffered a single economic hardship. Its German economy is weaker than its economic fundamentals could have been. Once the value is locked above the euro, the purchasing power of German consumers will fall and is therefore more cautious than the rest of Europe. German producers also found that the pricing of the euro’s goods and services has been effectively locked below well-managed levels. International Monetary Fund data show that at the beginning of the creation of the euro, this currency distortion gave the German industry a 6% competitive advantage over the national economic fundamentals.
The eurozone has divided the euro into two categories of economy from the very beginning: producers and consumers. Greece, Spain, Portugal, Italy and other economically weaker countries and regions. The opposite is true for Germans. Since then, this disparity has certainly led to the financial crisis that plagues the periphery of Europe. In the meantime, the euro’s bias has been locked from the beginning. By virtue of allure, the Germans have infused strength for expansion and efficiency, improved their economic base and widened the gap between economic reality and the performance of the euro. The rest of Europe, especially in the periphery, did not enjoy this positive incentive. They took it for granted that productivity was neglected, and the plight of the financial crisis made investors still not optimistic about the future investment. Therefore, their fundamentals further lag behind. According to the latest statistics from the International Monetary Fund, Germany’s pricing advantage has doubled by 2017, reaching over 12%.
As the financial crisis itself is partly a product of erroneous pricing of currencies, Germany’s export advantages outpace those of Europe. As the value of the euro against the U.S. dollar, the Japanese yen and other currencies fell as a result of the crisis, the price advantage of German industry extended to the global market, which is certainly compared with the situation in Germany with independent currency to avoid the troubled Europe. To a certain extent, the devaluation of the euro should help exporters across Europe, but the original German advantage ensured that most of the benefits flowed to the producers in that country. In the past decade, the euro has fallen about 30% against the U.S. dollar and the Japanese yen, putting Japanese and U.S. producers at a disadvantage in Germany’s competition. German industry does not complain. On the contrary, China’s trade surplus has surpassed more than 8% of the entire gross domestic product.
The Berlin and German media have overturned any comment on special advantages. Of course, they deny that the country designs affairs in this way. This may be the case. None of the births in the euro expected such a result, not even the Germans. But whether Berlin’s advantages are planned or not has obviously been won. In order to continue this favorable arrangement, it has put resources in support of unions and the euro. Germany, for example, put its risk at 671 billion euros (752 billion U.S. dollars), or a quarter of its gross domestic product, by supporting Greece and other troubled European countries. It also helps the International Monetary Fund carry out such loans. Berlin claims that all this money reflects only its commitment to experimenting with the European Union. This is a great altruism.
Although this seems to benefit everyone (except German industrialists) to relax the system’s advantages, Europe does not even want to change. Its leaders talked mainly about the unification of tax and spending policies. This may reduce some of the difficulties caused by the internal pricing bias in the euro, but it will not eliminate the basic issues. Otherwise, no one in Berlin, Paris or Brussels would like to admit that there is such a distortion, let alone make adjustments to provide relief. Therefore, for the foreseeable future, the world, especially Europe, seems destined to suffer these distortions and the resulting cyclical financial panic.