Prospect of a German Euro-Exit - English

Killing Europe with Words

By Juliane Mendelsohn11.07.2013Economics

Germany doesn’t need to exit the euro to jeopardize the continent’s stability. Merely talking about it will do.

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Once an idea enters the world, it comes to life and affects the way we treat those around us. Reality takes on the shape of fiction. Narratives are one type of fiction. Economic models are another. Narratives are the stories we tell about ourselves and others to justify the way we behave. Economic models are the things we build in ivory towers, and sometimes they work, but more often than not, they don’t.

A recent narrative of Europe’s future involves Germany exiting the euro: not for its own sake, but for the sake of others. As the story goes, a German exit would allow countries “on the periphery” (I still can’t get used to how offensive this term is) to utilize inflation in order to become competitive again, and regain their political self-determination and agency within the Union. I fear this idea may gain more momentum than is healthy, particularly spurred by the emergence of euro-skeptics in Germany.

No sign of tolerance or solidarity left

If austerity drove the Greek and other economies into the ground, how will a further retraction of loans and an increase of prices of all imports help them? In this case, the “miracle of inflation” would not be the result of a self-chosen, self-created, and self-determined policy: the devaluation of the ‘Southern euro’ would begin automatically the minute Germany announced its exit. Of course, these countries do need to become competitive again, politically as well as economically. In the marketplace of ideas, there is a drastic need to counterbalance the dogma currently circulating in the Troika.

It would be easy to say that a German exit is just an economic model that cannot work and so should be disregarded. But it doesn’t work like that. Even if the economics don’t work, something previously inconceivable now sits on the table. By being ‘part of the debate’, it affects the very reality in which we are immersed. People like George Soros, arguing: “Germany (…) has no right to prevent the heavily indebted countries from escaping their misery (…). If Germany is opposed to Eurobonds, it should consider leaving the euro,” are not too helpful in this respect.

We see this with austerity. Its legacy is not just one of eradicated wealth and opportunities, but also a terrible change in the way we perceive our neighbours. When Ireland’s banks went bust, the pre-crisis narrative of “Europe – land of prosperity” was still alive and the Irish crash was largely still treated as a genuine economic crisis. The narratives explaining the Greek crisis have been more hostile. The first depicted the Greeks as a lazy and irresponsible people accustomed to a system of endemic corruption – a culture irreconcilable with European integration that had to be constrained. This narrative justified the repeated implementation of harsh and violent austerity measures without qualms at the human cost. When these measures failed, there emerged the narrative of a people unwilling to cooperate, and, worst of all, incapable of governing themselves: this narrative justified Brussels’ choice to ignore the massive popular rejection of austerity from within Greece. Now, with Cyprus bust, and other countries looking perilous, there is no sign of tolerance or solidarity left.

Would Germany exit alone?

Now, the IMF has admitted to “miscalculation.” The results of austerity, having alighted the realm of fiction, are now laid out on the streets for all to see. Still, leaders across Europe remain wed to austerity. This is not the power of economic ignorance alone. It is the power of something far more human: the power to get caught up in a fairy-tale of one’s own imagination (a horrible one, like most fairy-tale are). Such is the power of narratives.

People like Jens Weidmann, president of the Deutsche Bundesbank, believe Europe’s future is less dependent on the Euro than Merkel and Draghi think. But how would the fairy-tale of Germany’s exit really play out? Would Germany exit alone? What would stop Germany from keeping vital trade partners such as the Netherlands, Belgium, Poland and Austria in its currency, whilst getting rid of all its ‘troubles’? A German exit would ultimately create a two-speed Europe. A continent defined by economic rivalry, one that failed to meet its destiny. Would there be any reason to assume the North’s solidarity with the South? For those who believe that Europe is “more than the euro,” where would this “more” feature in a Europe built only on the value of economic viability, making no exception for the struggling, the sickly or the poor?

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