HOW much longer will Germany want or need to be a member of the Eurozone is a question that’s been increasingly asked since the start of this financial crisis. With the stunning strength of the bounce back in Germany becoming clearer with every data series release, this is a crucial yet slow burn story that could easily catch fire and engulf the Eurozone.
GERMANY WON’T WANT TO PAY
The single currency has always been a primarily political creation, rather than an economic one. But increasingly it’s economics that will determine its future, rather than politics. Put simply, it will not be too long before Germany doesn’t need its Eurozone partners and certainly won’t want to pay for their problems any longer.
As Goldman Sachs’s Jim O’Neill pointed out to me last week, China will soon be more important to Germany as an export market than France. Berlin’s relationship with Paris, traditionally the beating heart of the EU, is already weakening. Economic realities would suggest that this process is only going to accelerate. And if Berlin is less worried about Paris, then what about its relationships with the far less important Athens, Lisbon or Dublin?
With the crisis making it clear that Germany is going to have to provide long term financial help for much of the rest of the region, one has to wonder how interested the country’s leading businesses are in footing the bill. The euro was partly created to take currency volatility out of the equation for the region’s companies and in the process lower trading costs. However, if the bulk of your trade is outside the Eurozone, then why do you need to worry about currency stability and why do you need to bail out the rest of the region?
To be fair there are some upsides to membership. Possibly the biggest one comes from the very weakness of the rest of the zone. Greece, Ireland and Portugal have all done German manufacturing a favour this year by driving the euro lower – in the process making German exports much more competitive.
However, borrowing a cheaper currency from Greece is not a sensible long-term strategy – especially from the Bundesbank’s perspective. If the German economy keeps growing, then it won’t be that long before a case could be made for higher rates. Just look at Sweden where the Riksbank has already pulled the trigger. Watch this space.
Guy Johnson co-anchors European Closing Bell weekdays on CNBC.