Germany has long had the distinction of being the largest, strongest and most stable economy in the eurozone. Not only is it the largest economy in the eurozone based on nominal GDP, but it is the fourth largest in the world. With the exception of France (which could be seeing big problems of its own), no other country comes close to its size and more importantly, the stability. Germany truly is a superstar country on what has become a bad team.
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According to the European Commission, 17 countries have adopted the euro as their currency. France uses it but the next two largest economies using the euro are Italy and Spain, respectively. Italy has the eighth-largest economy in the eurozone and Spain is somewhere between 12th and 13th. Both of these countries have adopted austerity measures in order to avoid a fate similar to that of Greece, though both economies are starting to resemble the eurozone's worst.
This presents a problem for Germany. Being the star quarterback on a losing team may cast you as the pillar of stability but after a while, you begin to grow tired of giving more than you get. Holding up the team becomes a load that is increasingly harder and harder to shoulder. You find yourself sacrificing in order to paint a picture that is a lot rosier than the reality.
Germany is becoming increasingly tired of backstopping every other euro-denominated country at the expense of its own economy. As a result, economists all over the world are asking if exiting the euro would be the best move for all concerned.
The Gatestone Institute reports that as long as Germany is part of the euro, it will spend 60 billion euros ($78 billion) or about 3% of the country's GDP in costs associated with the currency. In addition, the fact that the weaknesses of countries such as Greece, Italy and Spain have a negative effect when averaged in with Germany's strength makes the euro undervalued in the eyes of Germany. According to CNN, because of the undervaluation of the euro relative to the overachieving Germany, the country has accumulated large-scale trade surpluses.
Moreover, while many speak of Germany being an economic powerhouse, it has problems of its own. Germany's debt level is about 82% of its GDP, but after accounting for its liabilities to other European institutions, the level soars above 100%. Angela Merkel, the German Chancellor, stated recently that Germany's ability to prop up the euro is not infinite, hinting perhaps that the billions it pours into periphery countries, such as Spain and Ireland, must end.
Should Germany Secede?
Though drastic and almost inconceivable to many, some experts believe that if it would return to the Deutsche mark, not only would Germany benefit, but struggling countries may as well.
Although it would take at least 200 billion euros ($261 billion) to exit the euro, recouping that one-time cost would begin by the fourth year it is not paying 60 billion euros ($78 billion) each year. Although the country may enter a recession as a part of the exit, some believe that Germany could enact measures to prop up the economy while it adjusts to the higher value of the mark.
In addition, countries under financial pressure could benefit too. It would certainly be a shock to the global economy and without Germany, the value of the euro would instantly fall. The fall would likely be drastic but a devaluation of the currency would help increase weaker nations' trade competitiveness, according to Bloomberg.
Further, it would give some breathing room to southern European nations struggling to service their debt obligations. It would not remove the burden, but according to the New York Times, it would give them the ability to restructure their economies and collect more taxes, potentially making the countries more attractive to investors.
The Bottom Line
The chances of Germany leaving the euro are remote. With the eurozone relatively quiet at the end of 2012, talk of drastic measures has left the mainstream media for now. That does not mean that the issues of the eurozone have passed. Before the euro finds solid footing, other countries will have to find a way to make Germany a member of the team rather than the star player.