The Rise and ‘Potential’ Fall of Germany within the Eurozone.

Josh Walker

Content

• Brief background to the EU and the benefits of a single currency.

• The decline of the Eurozone and the drawbacks of a single currency.

• Germany’s boom and slow down within the Eurozone.

• The effects of this on the German economy.

• What’s next for Germany?

Background to the Euro.

• European Union was formed in 1957.

• EURO (€) coins and notes were installed into the cooperating countries in 2002.

• Considered the greatest achievement by the EU.

Who is Tied Into the Euro?

The Economist - http://www.economist.com/blogs/graphicdetail/2014/08/european-economy-guide

Benefits of the Single Currency.

• Fluctuation and exchange rate risks are eliminated.

• Single market is theoretically made more effective and supposedly strengthened.

• Closer cooperation.

• EC described this move as a “stable currency for the 21st

century”.

EC official website - http://ec.europa.eu/economy_finance/euro/why/index_en.htm

A ‘Stable Currency’?

• As soon as there is an economic problem, all of the countries are dragged in.

• This is shown through the financial collapse of the PIGS countries (Portugal, Ireland, Greece and Spain).

• These countries have required bailouts, as they had been borrowing more money than they effectively could banking crisis showed just how much they could not cope financially.

Greece as an Example

Showing who Greece is indebted to – graph devised in 2011.

Source: BBC News Business http://www.bbc.co.uk/news/business-15748696

How Did Germany Get So Powerful?

• Cultural reluctance to borrow money families living within their own means.

• Keeping the real interest rates stable.

• Contrasted to the feeling around the rest of Europe.

• This is seen in German businesses too - global financial crisis did not force the German businesses to slash spending keeping the economy afloat.

• Lack of borrowing has kept Germany out of the economic trouble.

Source: BBC News Business http://www.bbc.co.uk/news/business-18868704

The Tides Are Turning…

Angela Merkel – Chancellor of Germany.

The Decline of the German Economy.

TheGuardian online -http://www.theguardian.com/business/blog/live/2014/aug/14/eurozone-gdp-frances-economy-stagnates-again-live#block-53ec51e3e4b06c461acbb3d9

• They have become too powerful.

• The only economy which is keeping the Eurozone alive.

THE ONLY COUNTRY WITHIN THE EUROZONE CAPABLE OF

STOPPING IT FROM COLLAPSING COMPLETELY.

Europe’s World -http://europesworld.org/2013/10/01/the-costs-for-germany-if-the-eurozone-collapses/#.VFjOvfmsV8E

Why the minus GDP growth?

• The German economy has one of the best ratio’s of exports to GDP in the world.

6% of exports got to China China’s economy is slowing a large % of Germany’s exports to china have slumped.

• Export-based economy – EU slump has slowed down their exports – make up 40% of Germany’s exports.

• Drawbacks to both ‘export-based’ and ‘import-based’ economies.

The Economist – ‘Why the German economy is in a rut’ - http://www.economist.com/blogs/economist-explains/2014/10/economist-explains-14

What is next for Germany?

• “Saving itself into a recession.”

• Experts believe that Germany should step up their spending on infrastructure – something which they have tightened for over a decade – KEYNESIANIST APPROACH.

Boost short-term growth.

Will also work in the long-term – increase productivity.

• Stimulate the economy again – create more jobs, increase productivity (while the money is so cheap).

The Economist - http://www.economist.com/news/leaders/21625784-german-government-should-invest-money-infrastructure-not-worry-about-balancing-itsThe Local - http://www.thelocal.de/20141014/time-for-german-economy-to-change-course

References.

• “Eurozone debt web: Who owes what to whom?” – BBC News Business [accessed 02/11/2014] http://www.bbc.co.uk/news/business-15748696

• “Eurozone GDP” – TheGuardian online [accessed 02/11/2014] http://www.theguardian.com/business/blog/live/2014/aug/14/eurozone-gdp-frances-economy-stagnates-again-live#block-53ec51e3e4b06c461acbb3d9

• “German economic strength: The secrets of success” -BBC News Business [accessed 02/11/2014] http://www.bbc.co.uk/news/business-18868704

• Germany’s flagging economy – The Economist [accessed 02/11/2014] http://www.economist.com/news/leaders/21625784-german-government-should-invest-money-infrastructure-not-worry-about-balancing-its

• Should Germany start spending? – The Local [accessed 02/11/2014] http://www.thelocal.de/20141014/time-for-german-economy-to-change-course

• “Taking Europe’s pulse” – The Economist [accessed 02/11/2014] http://www.economist.com/blogs/graphicdetail/2014/11/european-economy-guide

• “The Costs for Germany if the Eurozone Collapses” – Europe’s World [accessed 02/11/2014] http://europesworld.org/2013/10/01/the-costs-for-germany-if-the-eurozone-collapses/#.VFjOvfmsV8E

• “Why the German economy is in a rut” – The Economist [accessed 02/11/2014] http://www.economist.com/blogs/economist-explains/2014/10/economist-explains-14

• “Why the euro?” – European Commission http://ec.europa.eu/economy_finance/euro/why/index_en.htm

Thank You For Listening, Are There Any Questions?