Monday, December 6, 2010

German Exit of Euro?

Back in May, I wrote about the possible exit of Germany from the Euro. At one time, the idea of Germany leaving the Euro seemed far-fetched, but now many are weighing up the pros and cons (including the German Chancellor, Angela Merkel (according to Guardian article)

In 2011, Euro growth is forecast to be 1.5%. But, this growth is uneven. Boosted by soaring exports (15% growth in 2010) and investment, the German economy is looking robust. The peripheral areas, Greece, Spain, Ireland and Italy are all looking at a period of stagnant growth. I worry that even the feeble growth forecasts for Spain and Ireland may prove optimistic, given the policies that are being currently implemented.

I doubt Germany will leave the Euro because it would be an act of great political courage, that I can't see the EU having. But if, next year, Germany is required to bailout Spain's banks and government, it could prove to the last straw after Greece and Ireland.

If Germany leaves, (and it could possibly take some Benelux countries with it), it would be a visible two speed Europe, which many don't like the idea of. But, from all perspectives, we already have a two speed Europe. Trying to squeeze the whole of this Eurozone into a single monetary / fiscal policy will lead to continued difficulties.
Amidst all the gloom of this bleak winter, it is reassuring to see some good news - a boost for British manufacturing - helped by Sterling devaluation and strong demand from oversees. A good example, of the time lags involved in depreciation.

1 comment:

Prospective Economist said...

It is going to be interesting times, with Germany, as I plan to go live there in the near future also.