By Marko Vidrih on The Capital
Almost unanimous indignation in France about the decision of the German Constitutional Court on May 5 was another example of misunderstanding that has been prevailing in French-German relations for many years now. This duo was once represented as the “driving force” of Europe, but today it is on the verge of collapse.
The decision of the German supreme judges came at an extremely bad time. The long-term forensic has faced a short-term outlook for a pandemic. Such high-profile clashes make history. German judges did not even have time to take into account the latest feat of the European Central Bank (at least that’s what it is in the press), that is, the Pandemic Emergency Purchase Program: it is currently valued at 750 billion euros but can be expanded to 1.5 trillion.
Be that as it may, the German judges put forward an ultimatum: the ECB must justify the redemption of government debts from 2015 within three months. In the event of a refusal, they threaten to ban the Bundesbank (that is, the German Central Bank) from participating in ECB assistance programs. This would mean an immediate increase in interest rates in Italy, Spain, Greece and even France. The euro may not survive this.
To understand the fateful essence of the situation, it is worth recalling first of all that before the advent of the euro, the Germans formed a kind of “German brand patriotism”. It was the only one available to the losers in 1945 and protected them from repeating the 1922–1923 hyperinflation that fueled Nazism. Therefore, they agreed to abandon the national currency on the condition that the new one be at least as good as their brand.
The course of the German mark in relation to other currencies and, in particular, to the dollar was indeed higher than that of the euro in recent years, but is the low-value currency really so beneficial for the country issuing it?
First of all, this country earns less per unit of export than it would have received in a strong currency.
Further, an undervalued exchange rate distorts the economy, contributing to excessive investment in export industries to the detriment of other sectors of the economy. All this increases the dependence of the economy on foreign markets, which can be fraught with catastrophe in the event of a recession on them, as we see at the moment.
Finally, the foreign trade surplus is balanced by the deficit in the balance of capital flows. This can create serious problems because it either forces to accumulate too large reserves or export more capital than is necessary in terms of return on investment.
Therefore, it’s enough to say that Germany has unfairly profited from the euro. In essence, the euro in its current form, when the ECB’s policy leads it astray, is an obstacle to the solidarity between the north and south of Europe, which is urgently needed during the pandemic, because the foggy banking and financial mechanisms, where billions declared by Mrs. Lagarde are dancing faster and faster, in fact, quietly climb into the pockets of taxpayers from the north. Those, in turn, experience only distrust and skepticism.
Author: Marko Vidrih
Featured image credit: Unsplash