Because what most critics of the euro overlook or ignore is that inflation in Germany has mostly been lower in the past two decades than in the D-Mark era. The surge in inflation last year did little to change that. Even a Bundesbank run by “Falken” would hardly have been able to do anything against the partly environmentally wanted and partly imported price increases.
An important and all too often overlooked argument in favor of the euro is that with its introduction, the sword of Damocles floating above the export-oriented industry disappeared in the archive of German economic history. Germany exports more than twice as much to the other countries of the euro zone as to China and the USA combined; The same applies to imports. Thanks to the euro, a good part of German trade is free of currency risks.
For German industry, the problem of upward pressure was almost as old as the Federal Republic. As early as the early 1960s, the then Minister of Economic Affairs, Ludwig Erhard, tried to counter the rise in prices in Germany by revaluing the D-Mark – and finally set a new exchange rate of four D on March 1, 1961, against massive economic opposition -Mark for one US dollar through.
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The further revaluations against the US dollar to 3.66 DM in October 1969 and 3.22 DM in December 1969 were even an election campaign topic set by the then Economics Minister Karl Schiller.
Prof. Bert Rürup is President of the Handelsblatt Research Institute (HRI) and Chief Economist of the Handelsblatt. For many years he was a member and chairman of the Advisory Council as well as an advisor to several federal and foreign governments. You can find out more about the work of Professor Rürup and his team at research.handelsblatt.com.
Nevertheless, the upward pressure on the D-Mark continued, so that in May 1971 the exchange rate of the D-Mark was released, which – as it would be called today – triggered a global financial market shock. Ultimately, the global fixed exchange rate system conceived by Bretton Woods in 1944 could no longer be maintained because the USA financed its Vietnam War via the printing press and the world was flooded with the dollar, which not only led to imported inflation in Germany. The result was that in 1973 the world moved to flexible exchange rates. “The Bundesbank had thus gained its sovereignty in monetary policy,” recalled former Bundesbank boss Karl-Otto Pöhl in 2007 in the “FAS”.
Foundation stone for the European monetary system
Regardless of this, Chancellor Helmut Schmidt and French President Giscard d’Estaing remained skeptical about free exchange rates. In 1978, at a Franco-German summit, they laid the foundation stone for the European Monetary System (EMS) and thus for the later monetary union.
The central banks involved undertook to intervene in the foreign exchange market as soon as certain thresholds were exceeded or fallen below. If exchange rates could no longer be kept within the agreed range through interventions, new central rates could be fixed. Lots of use was made of this.
Between 1979 and 1993 there were a total of 62 exchange rate adjustments on 17 dates. In August 1993, speculation on the foreign exchange market triggered a crisis in the EMS, so that the bandwidths of most EMS exchange rates had to be expanded to plus / minus 15 percent – which in fact meant the end of the fixed exchange rates.
A good five years later, on December 31, 1998, the exchange rates between the euro and the individual currencies of the member states were fixed. This means that revaluations and devaluations should, by decree, be part of history in the long run – without eliminating the causes of the exchange rate fluctuations.
In the course of the euro crisis between 2010 and 2012, the stability of the euro system was put to the test. Only the courageous intervention of the then President of the European Central Bank (ECB), Mario Draghi, with his statement “Whatever it takes” ended this speculation, but also the monetary policy autonomy of the ECB with regard to its primary goal of price stability by law. Because the actually inadmissible monetary state financing was opened up new possibilities and the coordinates of the monetary union shifted a bit in the direction of the transfer union – without this being decided by the euro states.
With new rescue packages such as the ESM and the large-scale community bonds recently issued by the EU and, in the future, probably also a joint deposit guarantee, the economically strong Germany will not least be held accountable. However, the associated costs and risks are offset by the fact that the German economy, which is heavily dependent on exports, can supply the entire world on terms that are favorable for it. Rough estimates assume that a new D-Mark today has around 30 to 50 percent appreciation potential – hardly a car and hardly a machine “made in Germany” would then be more salable on the world market.
Germany as the engine of European integration
Sure, this does not make the arguments of the euro-skeptics wrong. Due to the persistently high economic divergence, the euro area is still anything but an optimal currency area. And it is and remains correct that a single currency cannot function in the long term without a single economic and financial policy.
The only conclusion that can be drawn from this, however, is that Germany’s vital interest should be to create these prerequisites. The federal government should therefore once again become an engine of European integration. The partner France is just as ready for this as an Italy ruled solidly by Draghi.
An important step in the right direction has already been taken with the European Corona Reconstruction Fund. With greater political integration, the continued existence of the euro as a common currency will be secured. Last but not least, this should be registered with confidence in the export nation Germany.
Climate protection through international cooperation
As soon as the economic consequences of the pandemic have been overcome, the next big task awaits the international community. Because effective climate protection can only be achieved through international cooperation. For almost every state it is individually rational not to contain its CO2 emissions if it has to bear the avoidance costs alone, but has only a very small share in the benefits of such measures.
Anyone who is serious about climate protection must therefore be clear that rich, industrially strong nations have to assume a higher share of the global avoidance costs than poorer and more service-oriented economies. Here Europe should become a model for the world. How else can such gigantic global transfer payments succeed if not even the friendly states of Europe can agree on them?
Courageous political action is required. Because, unlike in economic textbooks, in the now 70-year-old European integration process, economic integration always preceded political integration and never the other way around.
The euro was and is a political project. The common currency always served as a vehicle to promote the integration of Europe with a long-term goal of the “United States of Europe” lying in the fog.
In view of the emerging bi-polarization of the world and world trade as well as the geostrategic competition between the USA and China for global supremacy, cohesion and the growing together of Europe are more important today than ever before. Because from the perspective of Washington or Beijing, one of the largest domestic markets in the world could quickly turn into 27 irrelevant small and mini-states. And such dwarfs are seldom taken seriously on the world political stage.
More: Comment: The ECB should show a clear line towards politics.