Blame Germany Too!

Everyone is blaming Greece and the rest of the PIGS but let’s take a look at who benefited the most from the formation of a currency club that was supposedly too large to begin with.

The Euro has depreciated against the US Dollar by about 15% since it’s 2011 peak of almost 1.5 Dollars for every Euro. Many have argued that the Euro was overvalued for years and that currency markets are merely correcting for past discrepancies. Even during the Euro’s heyday, the imbalances between Europe’s rich north and “poor” south benefited the likes of Germany who were effectively working with an undervalued currency, whereas Greece had to deal with an overvalued currency. This was a boon for German exports in that they artificially deflated the price of German goods on the international market.

Now, as the Euro has lost some of its value, and the rest of the Eurozone considers kicking Greece out of the club, Germany stands to gain the most once again. As long as Germany is entwined to its poorer neighbors, its currency will be valued lower than it otherwise would have been – the more poor the country, the more likely that the Euro would be undervalued. Any depreciation in the exchange rate benefits the Deutsche economy. Germany is already the second largest exporter in the world and has recently held the top spot if only for a few months.

Furthermore, the capital rich countries of Europe’s economic core were more than eager to lend money to the peripheral countries at high interest rates – fuel to the fire! For years, Germany has been riding the wave of an undervalued currency and cheap markets for their surplus capital; and when the problems began to emerge, all fingers started to point towards the south. It seems like another case of a drug dealer blaming the user.

Germany, more than any other country, has benefited from the Eurozone’s premature expansion and subsequent fall. They should be the last to complain.

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4 thoughts on “Blame Germany Too!

  1. I don’t see how Germany would benefit from the eviction of Greece, taking into consideration the fact that they benefit from the deflated currency as long as they are there.

  2. @Amit: Greece is only part of the PIGS group. Even if Greece is evicted, that leaves Portugal, Italy and Spain (the latter two are huge economies compared to Greece) who are comparatively poorer than Germany – they will also receive a lot of the blame if and when Greece is gone.

    As long as Germany is tied to poorer countries, it is likely that its currency will be valued lower than it otherwise would have been. Being rich alone does not mean that a country will benefit from a devalued currency – the national economy must be export oriented. If a country it generally an importer of goods (like France or Italy), an undervalued currency can have the opposite effect.

    Greece is the scapegoat for a problem that was and is collective in origin. But there are plenty of other countries that Germany can wag its finger at.

  3. If Germany is the second largest exporter of goods, I doubt that having a few countries consume its products less will have much of an impact on the bottom line… especially when taking into consideration that the Euro being weaker makes Germany’s products strong worldwide.

    If I were Germany, I would say keep the weaker economies on! Here’s the interesting thing… US probably wants them out for exactly the same reason! It’s funny to think how exports make things all backwards…

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