The foreign trade balance closed in 2021 with a surplus of 173.3 billion euros – almost five percent in relation to overall economic output. The most important target countries for German exports were the USA and China, followed closely by France. The most important country of origin for imports to Germany was China, followed by the Netherlands and the USA.
A very different picture emerges when looking at the euro zone as a whole. About 38 percent of German exports went to countries in this monetary union, and 36 percent of imports came from the countries in this currency area.
German foreign trade with countries in the euro zone is thus more than twice as large as with the USA and China together. From this it follows that the German economy can only flourish if the euro zone is doing well economically.
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Germany is the fourth largest economy in the world, and no other major economy is involved in the international exchange of goods with such intensity. The foreign trade-oriented business model of the German economy was not designed on the drawing board.
Increased export orientation
On the contrary, the industrial share, which is extraordinarily high in international comparison, and the associated export orientation have developed naturally over the past 150 years. In post-war Germany, this model came under pressure due to the multiple revaluations of the D-Mark.
As a result, the international strength of the D-Mark acted as a “productivity whip” for companies producing in Germany, with the result that the German economy became one of the most competitive in the world.
This revaluation pressure is almost as old as the Federal Republic. In the early 1960s, German industry felt this for the first time, when the conservative Minister for Economic Affairs, Ludwig Erhard, tried to counteract the imported price increase in Germany by revaluing the D-Mark.
His social-democratic successor, Karl Schiller, even tried to score points during the 1969 election campaign by revaluing the D-Mark to combat inflation. Finally, in May 1971, the Deutsche Mark was floated.
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In 1978 the course was set again: Germany and France laid the foundation for the European Monetary System (EMS) and thus for the later European Monetary Union. The participating central banks committed to foreign exchange market interventions as soon as certain thresholds were exceeded or fallen below. In August 1993, however, currency speculation shattered this system as well.
Exchange rates between states
A good five years later, on December 31, 1998, the exchange rates between the individual currencies of the member states of the European Monetary Union and the euro, the future common currency, were fixed. As a result, revaluations and devaluations were effectively abolished by contract, and German industry was freed from the sword of Damocles of revaluation.
Thanks to the common currency in large parts of Europe, more than a third of German exports are now free of currency risks. And if you take the remaining nine EU countries into account, the share of German exports to this community of states is well over 50 percent.
The continued existence of the euro is in Germany’s interest.
(Photo: dpa)
In the euro crisis of 2010 to 2012, which followed the global financial crisis of 2007/2008, the resilience of the euro system was seriously tested by the financial markets for the first time. The courageous intervention of the then President of the European Central Bank (ECB), Mario Draghi, abruptly ended this speculation against the common currency – admittedly at the price of stretching the narrow mandate of the ECB.
Because according to the European treaties, this central bank is primarily committed to price stability in the currency area, while monetary state financing is strictly prohibited. With Draghi’s famous words “Whatever it takes”, the ECB assumed responsibility for the cohesion of the monetary union because politicians hesitated to coordinate their countries’ financial policies more closely in order to be able to assume this responsibility.
In the meantime, financial policy has stepped up: Germany, as the economically strongest member state, will be held accountable with rescue packages such as the ESM, the 750 billion euro reconstruction fund recently established in response to the economic upheavals of the corona pandemic and, in the future, probably also a joint deposit guarantee.
And that’s good. This is because the associated potential risks for German taxpayers are countered by the fact that the German economy, which is heavily dependent on exports, can supply the world permanently at favorable conditions.
The continued existence of the euro is in Germany’s interest
Rough estimates assume that a “new” D-Mark today would have an appreciation potential of 30 to 50 percent. German industry would have to make an enormous effort if products “made in Germany” were to be able to be sold profitably on the world market. In fact, most of Germany’s prosperity would probably melt away like snow in the spring sun.
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 German Council of Economic Experts and an adviser to several federal and foreign governments. You can find out more about the work of Professor Rürup and his team at research.handelsblatt.com.
The arguments of the euro skeptics that a single currency cannot function in the long term without a single economic and financial policy are only strengthened by these perspectives.
From a German perspective, it would therefore be foolish to leave the monetary union or dissolve it. Because the continued existence of the euro is in Germany’s very own macroeconomic and geopolitical interest.
What matters is that Europe continues to grow together politically. Transfers from Germany and the omission of a national monetary policy are the price for a very large European single market without currency risks and for a common currency with comparatively low appreciation risks.
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With the European Corona Recovery Fund, an important step towards European economic integration has been taken. However, the Ukraine crisis shows that there is still a long way to go before political integration.
Should it be possible to resolve the Ukraine conflict through negotiations, which is still the realistic alternative, this is likely to be primarily due to the foreign policies of France, Germany and, above all, the USA – and not the activities of the political leaders of the EU. Because only a European Union that speaks with one voice would be a serious negotiating partner for the old and new major global powers.
The alternative to the political integration of the EU would be the disintegration into 27 medium-sized, small and micro-states and thus a relapse into economic and geopolitical insignificance – and this alternative should really make you afraid and anxious.
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