Skip to main content

Could Germany save eurozone by leaving it?

By Clyde Prestowitz and John Prout, Special to CNN
May 30, 2012 -- Updated 2350 GMT (0750 HKT)
Clyde Prestowitz and John Prout say that if Germany returned to the deutsche mark, other eurozone nations would benefit
Clyde Prestowitz and John Prout say that if Germany returned to the deutsche mark, other eurozone nations would benefit
STORY HIGHLIGHTS
  • Writers: To salvage eurozone, Germany, not Greece, should withdraw
  • They say Germany is very competitive; eurozone countries unable to catch up
  • They say Germany could improve its currency valuation, stop preventing euro bonds
  • Writers: Euro bonds could help with euro rescue; pain for Germany would be temporary

Editor's note: Clyde Prestowitz writes on globalization for ForeignPolicy.com and is president of the Economic Strategy Institute. John Prout is the former Paris-based treasurer of Credit Commercial de France.

(CNN) -- With Greece probably heading for an exit from the euro, the European and global economies may be facing disaster. However, there is still time for European leaders to reverse this destructive dynamic with one simple, outside-the-box solution: Instead of pushing Greece out of the eurozone, Germany should voluntarily withdraw and reissue its beloved deutsche mark.

The analysis of the problems of the euro and the European Union has long been upside down, focused on the debt and competitive weaknesses of the so-called peripheral countries (Greece, Italy, Spain, Portugal and Ireland) and especially of Greece. But issues of debt and competitiveness existed and were dealt with rather easily long before the euro arrived, through periodic devaluation of the currencies of the less-competitive countries against those of the more competitive countries, and especially against the deutsche mark.

The problem now is not the weaknesses of the periphery, it's the excessive competitive strength of Germany. Not only is the German economy inherently strong as a result of the high productivity of its workforce, its exports have added competitiveness because the euro is undervalued as far as Germany is concerned. Because it is the common currency of the eurozone countries, the value of the euro reflects the average of their combined competitiveness. But Germany's competitiveness is far above the average. So, for Germany, the euro is too weak. This is why Germany has been accumulating chronic trade surpluses on the scale of the Chinese.

As long as the rest of the eurozone countries are locked in the euro with Germany, the only way for them to become more competitive is to become, well, more Germanic, through austerity measures that cut government spending, reduce welfare budgets, cut wages and raise unemployment. This is, of course, what they have been doing for the past two years.

The aim has been to achieve export-led growth. But because Germany is so hypercompetitive and has been unwilling to stimulate its own economy to achieve higher consumption, its eurozone partners have not been able to increase exports to it and have had thus to compete with it in exporting to the likes of China and the United States.

That hasn't been working very well, and now the consequences of grinding austerity are beginning to tear the political and social fabric even of countries like the Netherlands, which until quite recently were enthusiastically echoing the German call for austerity and growth led by trade with countries outside the EU.

But it is not clear that the eurozone can sustain the social and political pain of austerity long enough and on the scale necessary to eventually achieve competitive parity with Germany.

The alternative is for Germany to revert to the deutsche mark. That would immediately result in appreciation of the German currency and competitive devaluation of the euro for the remaining eurozone countries. Germany would tend to buy more while selling less, and vice versa for the rest of the eurozone. The extra consumption that Germany will not deliver via stimulus policies would be automatically delivered by currency revaluation.

The single most essential element of a euro rescue has always been one form or another of a euro bond guaranteed jointly by all eurozone member countries. What the U.S. Treasury bond is to the U.S. economy, the euro bond would be to the EU. The main obstacle has been Germany's insistence that it would not guarantee payments on bonds for the benefit of other European countries.

German reversion to the deutsche mark would remove this obstacle, and with no further German opposition, the remainder of the eurozone could move ahead to establish a true euro bond, along with a unified treasury function to match the unified banking function of the European Central Bank.

Some may object that German backing would still be required for the eurozone and a euro bond to be viable. That is correct, and Germany would indeed remain committed to the eurozone for a number of reasons. It would need the eurozone more than ever to buy its increasingly expensive exports. The Bundesbank (Germany's central bank) would undoubtedly sell deutsche marks against euros to mitigate appreciation, and the resulting accumulation of euros would be invested in the new euro bonds. This in turn might inspire the European Central Bank to initiate quantitative easing programs that would stimulate the entire EU economy.

The cost to Germany of saving Europe will be a hit to exports and perhaps a temporary rise in unemployment, but a return to the deutsche mark would attract a flood of capital to Germany and thereby spur investment while holding interest rates and inflation down.

The real question is whether the cost of slower export growth and increased unemployment is less than that of paying for Greece, then Spain, etc. Somehow, the "unknown" risks of a German exit from the euro appear more manageable, more quantifiable and in some ways more familiar a challenge than endless austerity, social unrest and political polarization.

The opinions expressed in this commentary are solely those of Clyde Prestowitz and John Prout.

ADVERTISEMENT
Part of complete coverage on
August 31, 2014 -- Updated 1754 GMT (0154 HKT)
Carlos Moreno says atheists, a sizable fraction of Americans, deserve representation in Congress.
August 31, 2014 -- Updated 1625 GMT (0025 HKT)
Julian Zelizer says Democrats and unions have a long history of mutual support that's on the decline. But in a time of income inequality they need each other more than ever
August 31, 2014 -- Updated 0423 GMT (1223 HKT)
William McRaven
Peter Bergen says Admiral William McRaven leaves the military with a legacy of strategic thinking about special operations
August 29, 2014 -- Updated 1611 GMT (0011 HKT)
Leon Aron says the U.S. and Europe can help get Russia out of Ukraine by helping Ukraine win its just war, sharing defense technologies and intelligence
August 29, 2014 -- Updated 1724 GMT (0124 HKT)
Timothy Stanley the report on widespread child abuse in a British town reveals an institutional betrayal by police, social services and politicians. Negligent officials must face justice
August 30, 2014 -- Updated 0106 GMT (0906 HKT)
Peter Bergen and David Sterman say a new video of an American suicide bomber shows how Turkey's militant networks are key to jihadists' movement into Syria and Iraq. Turkey must stem the flow
August 28, 2014 -- Updated 1516 GMT (2316 HKT)
Whitney Barkley says many for-profit colleges deceive students, charge exorbitant tuitions and make false promises
August 29, 2014 -- Updated 1434 GMT (2234 HKT)
Mark O'Mara says the time has come to decide whether we really want police empowered to shoot those they believe are 'fleeing felons'
August 28, 2014 -- Updated 1432 GMT (2232 HKT)
Bill Frelick says a tool of rights workers is 'naming and shaming,' ensuring accountability for human rights crimes in conflicts. But what if wrongdoers know no shame?
August 29, 2014 -- Updated 0243 GMT (1043 HKT)
Jay Parini says, no, a little girl shouldn't fire an Uzi, but none of should have easy access to guns: The Second Amendment was not written to give us such a 'right,' no matter what the NRA says
August 30, 2014 -- Updated 1722 GMT (0122 HKT)
Terra Ziporyn Snider says many adolescents suffer chronic sleep deprivation, which can indeed lead to safety problems. Would starting school an hour later be so wrong?
August 29, 2014 -- Updated 1330 GMT (2130 HKT)
Peggy Drexler says after all the celebrity divorces, it's tempting to ask the question. But there are still considerable benefits to getting hitched
August 29, 2014 -- Updated 1849 GMT (0249 HKT)
The death of Douglas McAuthur McCain, the first American killed fighting for ISIS, highlights the pull of Syria's war for Western jihadists, writes Peter Bergen.
August 26, 2014 -- Updated 2242 GMT (0642 HKT)
Former ambassador to Syria Robert Ford says the West should be helping moderates in the Syrian armed opposition end the al-Assad regime and form a government to focus on driving ISIS out
August 27, 2014 -- Updated 1321 GMT (2121 HKT)
Ruben Navarrette says a great country does not deport thousands of vulnerable, unaccompanied minors who fled in fear for their lives
August 27, 2014 -- Updated 1319 GMT (2119 HKT)
Robert McIntyre says Congress is the culprit for letting Burger King pay lower taxes after merging with Tim Hortons.
August 26, 2014 -- Updated 2335 GMT (0735 HKT)
Wesley Clark says the U.S. can offer support to its Islamic friends in the region most threatened by ISIS, but it can't fight their war
August 26, 2014 -- Updated 2053 GMT (0453 HKT)
America's painful struggle with racism has often brought great satisfaction to the country's rivals, critics, and foes. The killing of Michael Brown and its tumultuous aftermath has been a bonanza.
August 26, 2014 -- Updated 1919 GMT (0319 HKT)
Rick Martin says the death of Robin Williams brought back memories of his own battle facing down depression as a young man
August 26, 2014 -- Updated 1558 GMT (2358 HKT)
David Perry asks: What's the best way for police officers to handle people with psychiatric disabilities?
August 25, 2014 -- Updated 1950 GMT (0350 HKT)
Julian Zelizer says it's not crazy to think Mitt Romney would be able to end up at the top of the GOP ticket in 2016
August 25, 2014 -- Updated 2052 GMT (0452 HKT)
Roxanne Jones and her girlfriends would cheer from the sidelines for the boys playing Little League. But they really wanted to play. Now Mo'ne Davis shows the world that girls really can throw.
August 25, 2014 -- Updated 2104 GMT (0504 HKT)
Kimberly Norwood is a black mom who lives in an affluent neighborhood not far from Ferguson, but she has the same fears for her children as people in that troubled town do
August 22, 2014 -- Updated 2145 GMT (0545 HKT)
It apparently has worked for France, say Peter Bergen and Emily Schneider, but carries uncomfortable risks. When it comes to kidnappings, nations face grim options.
ADVERTISEMENT