While all the news comes out in the media while we wait for the EU Summit later this week, that the EU will be broken up and there is no future for the Euro, the important thing to listen to is not people who are interpreting the situation, but the main protagonists involved in the situation. Germany’s hard line Finance Minister says it clearly, if the EU breaks up Germany’s economy will collapse, causing a 10% drop in GDP and unemployment to launch. The cost for the German govt to stimulate their economy after such a collapse is 5-8 times higher than this Fiscal Pact/Eurobond/EU Centralised Budgetary Control that they are discussing now.
We need to remember that the EU is as important to Germany as it is to the PIIGS and everyone else.
By keeping the PIIGS in the EU, this ensures a depreciated EURO exchange rate against all other currencies, ensuring highly paid Germans remain in a job, in a healthy economy. Currently Germany has near record low unemployment, but a break-up of the EU would mean a severe recession in Germany of -10% GDP growth, record high unemployment and the wealth destruction that follows. Germany's Finance Minister knows this, but what he is trying to do is to get approval from the EU nations for some sort of fiscal oversight, in return for a quasi Eurobond.
Enjoy the read.
Germany fears eurozone collapse would decimate country's economy
German finance ministry projections show Berlin is far from negotiating solution to eurozone crisis from position of strength
Siobhán Dowling in Berlin
guardian.co.uk, Sunday 24 June 2012 14.52 BST
Wolfgang Schäuble, Germany's Federal Minister of Finance
Germany's finance minister, Wolfgang Schäuble, told Der Spiegel that the collapse of the euro would call into question 'many of the things we have achieved and cherish'. Photograph: Adrian Dennis/AFP/Getty Images
German finance ministry officials fear that a collapse of the eurozone would decimate the country's economy, driving thousands of companies out of business and putting an additional 2 million people out of a job.
A ministry official told Der Spiegel of the latest projections, which belie any sense that Germany, the richest and most powerful eurozone economy, is negotiating a solution to the crisis from a position of overwhelming strength.
In the first year after a breakup, the German economy would contract by 10% and the number of unemployed would soar above 5 million, the ministry predicts. Germany's current jobless figure is just under 3 million, the lowest in two decades.
Hundreds of thousands of jobs would move abroad, and thousands of companies would go bust. The country's deficit would shoot up as tax income fell and the government was forced to increase expenditure, from bailing out banks to spending more on social welfare.
"When measured against such scenarios, even an extremely costly rescue seems to be the lesser evil," a ministry official told the magazine.
Der Spiegel also cites another scenario put forward by the Swiss bank UBS, which predicts that the breakup of the euro would cost Germany far in excess of €500bn (£403bn), and up to a quarter of its entire GDP.
In an interview with the magazine, Germany's finance minister, Wolfgang Schäuble, warned of the dangers of the eurozone collapsing. "Many of the things that we have achieved and cherish would be called into question, from the common market to free travel across Europe."
"A disintegration of the EU would be absurd," he said. "The world is moving closer together, and in Europe each country would go it alone again? This cannot be, must not be and will not be."