Coins will ever run out of currency
70 years of currency reform: why the D-Mark is no better than the euro
Sometimes one can almost feel sorry for the euro, at least in Germany. Although they are seen as big beneficiaries of the common currency, the Germans don't really want to warm to it. Almost every second German citizen is critical of the euro, according to a survey by GfK. Almost 50 percent also still convert amounts in euros into D-Marks. And, the strongest of the three numbers, around 40 percent of Germans want the Deutsche Mark back.
For many, the mark is much more than a discarded currency that was introduced on June 21 exactly 70 years ago. It is a legend, a place of longing from a better, more manageable time. It stands for the new beginning after the Second World War, for the German reconstruction, the economic miracle. The mark stands for stability and security. At a time when the European Central Bank is flooding the markets with money, the debt crisis in the south of the continent cannot be shaken off and an international trade war is looming, that sounds tempting.
If there were marks instead of euros, so the unspoken hope, then Germany's position in the world would be stronger and more secure again. The only problem is that this is a fallacy. Germany would not strengthen itself with the D-Mark, on the contrary it would probably slide into a tangible economic crisis. This is not a journalist's thesis, but the result of extensive studies by an expert.
Ansgar Belke teaches as a professor at the University of Duisburg-Essen on macroeconomics and monetary and currency theory and publishes several financial journals. One of his own publications brought him an invitation to the Italian parliament last year. The theme of the paper: what would happen if the eurozone collapsed? Belke's answer: Nothing good, even for a comparatively strong Germany. His colleague Thomas Lux, holder of the chair for money, currency and international financial markets at the University of Kiel, sees it very similarly: "If the D-Mark were to be reintroduced, one can hardly imagine the short-term economic upheaval as dramatic enough."
A fundamental problem lies in the hoped-for strength of the D-Mark. If Germany left the euro zone and reintroduced the mark, it would appreciate within a very short time. Investors would withdraw their money from the now weakened euro zone and bring it to a strong Germany. Belke's colleague Gustav Horn from the Hans Böckler Foundation assumes an appreciation of at least 30 to 50 percent. That would make imports cheaper, but it would have dramatic consequences for exports.
When the euro appreciated against the US dollar at the beginning of the year, some companies had to lower their sales forecasts. If there were not just five percent appreciation, but actually 50 percent, German companies would no longer be competitive abroad.
This time, the effect would not only affect trading in dollars, but also other currencies. The companies would have to change their business models and probably lay off tens of thousands of people in the transition period, perhaps permanently, should they relocate their production facilities to the now much cheaper foreign countries. In addition, there would be more technical problems such as the revaluation of company assets or value adjustments and depreciation, which would have to be adjusted in view of the new currency.
And the problems went far beyond that, as Belke outlined. There are, for example, the demands of the German Bundesbank in the so-called Target2 system. As recently became known, the target balance of the Bundesbank has risen to almost one trillion euros, more precisely: to 956,000,000,000 euros. That is how much money the central banks of other European countries owe the Federal Republic of Germany. Star economist Hans-Werner Sinn therefore speaks of a “capital flight to Germany”, which was exacerbated by the unrest in Italy.
The problem: If Germany leaves the monetary union, it cannot make any formal claims against its old partners. It would then depend solely on negotiating skills whether and how much of the outstanding trillion will ever find their way to Germany. In addition, there are aid loans for crisis countries such as Greece or Italy, which Germany guarantees to more than a quarter. Belke thinks it is more than questionable that Germany would ever see this money again. After all, without Germany, the Eurozone would be severely weakened, a “rump Eurozone” that would hardly be attractive to foreign capital. The crisis states, which are still ailing, could find themselves in financial difficulties - and not be able to settle their debts. "When in doubt, guarantees are not worth much," says Belke.
In addition, if the new mark were actually to appreciate by 50 percent, the mountain of debt in the other countries would grow to one and a half times its size - and it would be all the more difficult to settle it if it had to be repaid in marks. If, on the other hand, payments were made in euros, Germany would automatically forfeit two thirds of its claims.
If the D-Mark were to be reintroduced, a financial crisis in Germany could not be ruled out, coupled with a massive economic slump, ”warns Belke. In any case, it is a very bad moment to take such a step. Belke relies on the so-called option theory, which actually deals with buying and selling stocks. Accordingly, Germany would do well not to get out of the euro, especially in times of global uncertainty. After all, the high entry costs in the euro have all already been paid and in this respect "sunk". So they cannot be reversed. And, as shown, the exit costs would be enormous.
In the greatest uncertainty, of all places, the supposed security of the Deutsche Mark would be a fatal choice.
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