Tuesday, July 16, 2013
For Germans There Is No Alternative to the EuroMonday
Nobody asked the German people if they wanted the euro. Now, almost 15 years after Europe introduced its common currency, a new political party has emerged to campaign for a return to the deutsche mark.
Judging by an opinion poll last month, Alternative for Germany has hit a nerve. The party has existed for less than a month, yet the poll by Infratest Dimap found that 24 percent of Germans would consider voting for it in September's federal elections. Are Germans on their way to rejecting the euro?
The answer isn't simple or well understood, which is surprising given Germany's centrality to the euro's survival and how much the global economy depends on a healthy resolution to the currency's troubles. It starts, however, with the choice that Germans were never given: whether to abolish their own currency.
In the 1990s, as preparations were under way to create the euro, Chancellor Helmut Kohl counted himself lucky that the German Constitution didn't allow for referendums. Kohl accepted the currency union because he saw it as the only way to make the reunification of East and West Germany palatable to the rest of Europe. The French, in particular, feared the new German state would be too powerful. The price they demanded was the euro, which they saw as a great leap forward in the European Union's integration.
Unpopular Euro
Had the German people been asked if they wanted the new currency, they probably would have said no, because it would have meant giving up the deutsche mark. Such a rejection would have upset the deal Europe's political elite had made on German reunification, throwing the EU into disarray.
The deutsche mark had almost mythical status in Germany. After World War II, it became both the instrument and the symbol of West Germany's astonishing economic and political comeback. East Germans, too, developed a special relationship to the d- mark, as it was often known. For them, it came to represent the affluence and freedom that they were denied as long as the country was divided.
Can this emotional attachment to the deutsche mark, combined with Germans' lack of say over its abolition, explain Alternative for Germany's rapid gain in popularity? The same Infratest Dimap poll suggests that in the Sept. 22 elections, the party could win more than the 5 percent of the vote needed to gain seats in the German parliament, taking away vital support from Chancellor Angela Merkel's coalition and perhaps producing a less pro-euro government.
A little history helps in gauging the party's support. The euro got off to a bad start in 1999. Many German shops used the switch from the deutsche mark to raise prices, giving the new currency the nickname "teuro," which translates roughly as "expensive euro." During its first months, the euro also fell sharply against the U.S. dollar, disappointing Germans who had been proud of the strength of the deutsche mark.
Since 2003, however, the euro has helped Germany transform itself from the "sick man of Europe" to the economic powerhouse it is today. Germany regained its competitiveness through Chancellor Gerhard Schroeder's tough structural policies, which combined radical labor-market reforms and a long period of moderate wage increases. Yet the country's economy also benefited from the euro, because the currency had a much lower exchange rate than the deutsche mark, giving German companies a considerable edge in global markets. Germany amassed huge trade surpluses with the economies of southern Europe, in particular.
Making Peace
As a result, by 2010 Germans had more or less made peace with their new currency. That changed with the beginning of the debt crisis, when some of the old skepticism re-emerged. The news in 2010 that Greece had been manipulating its public finance statistics for years seemed to confirm the prejudices that many Germans held against southern Europeans. Also, there were well-justified doubts about the financial viability of the rescue packages that followed and the feasibility of the reforms that Greece and other crisis countries agreed to undertake.
Protests became more vocal last summer, when the European Central Bank decided to use expansive monetary policies to support the crisis countries. Global markets welcomed ECB President Mario Draghi's move, but fiscally conservative Germans thought Europe's central bank was breeding inflation and grossly exceeding its mandate. Germany's conservative news media attacked the bailout plans, and about 200 German economists signed a public letter protesting Merkel's euro policy.
Almost a year later, economists are again leading an initiative against Merkel's policy. This time they are opposing not just bailout packages but also the euro project in general. They want to bring back the deutsche mark because they don't believe the currency union is sustainable, given the vast economic differences among its members.
Alternative for Germany is led by a University of Hamburg economics professor, Bernd Lucke. "In politics, nothing is irreversible, and least of all, the euro," Lucke said at the party's inaugural congress on April 14. He described the euro as "a historic mistake."
The party is supported by many former members of Merkel's conservative Christian Democratic Union and would steal votes from all existing parties, according to the poll data. That would strengthen those in Merkel's conservative bloc who are unhappy with her and could take away enough votes from the parties now in government to force Merkel into a coalition with the Social Democratic Party.
Yet almost the entire political establishment is committed to keeping the currency union alive. The opposition Social Democrats and the Green Party have voted for every bailout package to date. It is inconceivable for the overwhelming majority of German politicians to abandon European integration and the euro.
Faded Anger
For this to change, there would have to be wider popular dissatisfaction with the euro -- the kind of anger that existed when the currency was first born. There are no signs that this is happening now. An astonishing two-thirds of Germans say they want to keep the euro, according to an April 9 poll by the Forsa agency.
Alternative for Germany is probably just too radical for 2013. Many Germans would like the EU to adopt a tougher policy on the euro crisis, to ensure that debtor countries carry out the changes they have agreed to. But Germans understand that deutsche marks, pesetas and francs can no longer compete against Chinese yuan, U.S. dollars and Brazilian reals.
Source: Bloomberg
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