Back to Deutschmark? REPORT

Transcription

1 Back to Deutschmark? REPORT

2 2 Back to Deutschmark? Back to Deutschmark? Analysis of Pro and Cons of Germany s withdrawal from the European Monetary Union Introduction When the euro was introduced in 1999, the promises of the politicians were full-bodied: With the euro, a new economic boom should start in Germany and Europe. The common currency will be, thanks to the Maastricht Treaty's convergence criteria, as strong as the German Mark. The European Central Bank (ECB) should focus their policy on maintaining monetary stability alone. Financial support of the rich for the benefit of low-performing euro countries would never be. Only a decade later, the European Monetary Union (EMU) is in an existential crisis. EMU is kept alive just by billions of Euros in bailouts and loans to over-indebted member states. A significant part of the financial burden and risks has to be shouldered by German taxpayers. The bail-out ban is already worthless. The ECB has taken leave from the agreed policy of stability and purchased government bonds in large scale to save the indebted countries in the euro zone from bankruptcy. This monetary policy does not only increase the liabilitiy risk for Germany, but also the inflation peril. The savings and reserve assets for retirement of millions of people are thus threatened. As if that was not enough, there is a growing body of opinion demanding a pooling of all debts in the euro area and a stricter control over the budgets of member states through a central authority located in Brussels. Should these proposals be translated into fact, this would result not only in the increase of interest burden in Germany, but would also deprive the national parliaments of their powers and pave the way for a unitary European state. Many experts have warned, in good time before, of a failure of the euro. For the EMU an unstable currency area was created, forcing 17 economies in a common monetary policy corset. Although member states differ considerably in their economic situation and inflation rates there is the same monetary policy throughout the euro zone. Moreover the underdeveloped countries were deprived of the chance to devalue their currencies in order to boost the national industry by increasing exports. This has led to rising budget deficits and a drop in tax revenues. To improve their competitiveness, the crisis countries should cut the wages of the working people und social spending significantly. But this is difficult to implement domestically. There has been an increasing awareness that the euro has failed. Mores voices are joining those who demand an end to the risky rescue operations in the European single currency and advocate a return to national currencies in Europe. For Germany this would mean the re-introduction of the Deutschmark. This demand is opposed by the political and economic elites who want to avoid the return to the German mark for various reasons. In the public debate they warn representatives of established parties and corporate lobbyists of the consequences that a resolution of the European monetary union would bring to Germany itself. The present study deals with the most common arguments of the euro advocates and critically scrutinises the matters for the objections to a new edition of D-Mark.

3 Back to Deutschmark? 3 Argument 1: The euro is stronger than the D-Mark Politicians always claim that the euro is stronger than the earlier German mark because inflation is lower today than it was at D-mark times. This seems to be plausible at first glance: while in the last 30 years, before the introduction of the euro, on average the prices rose by 3.3 percent per year, in the period between 1999 and 2011 it only rose by 1.7 percent. But the argument falls short because in the high-growth decades after the Second World War, not only in Germany but also in most other industrialized nations in the world, a strong price inflation was recorded. The reasons were the collapse of the Bretton Woods system with its fixed exchange rates and the departure from the gold standard and the rise in energy prices after the oil crisis of The D-Mark had to stay so in an inflationary environment inclined, not least by the stability-oriented monetary policy of the German Central Bank (Deutsche Bundesbank) also comparatively well. As the new millennium approached, as the single currency was launched in Europe, the price rise has slowed down due to the increased competitive pressure in the wake of globalization. Of this development, the euro has benefited, but are sure to be the cause. This is also indicated by the fact that the inflation rate in the non-euro countries likesweden, Switzerland and Denmark, has been around since the turn of the millenniumand was still lower than in the EMU countries. It has to be taken into consideration that wage growth and interest rates always were above the rate of inflation in Germany at DM times. So people saw real income growth and thus welfare gains. In contrast, wages in Germany since the introduction of the euro, have fallen in real terms, between 2000 and 2011 at about 0.8 percent. In the lower income groups, a decrease of nearly 20 percent was recorded. So the consumers have less income at their disposal despite lower inflation rates nominally, today. Victims of the euro are also savers since the credit interest due to the expansionary monetary policy of the European Central Bank (ECB) are lower than the annual inflation rate. Therefore their assets shrink. Finally, it must be questioned basically what inflation actually is. In public debate, the term is usually equated to the rise in consumer prices in contrast to classical economic theory which defines inflation as the expansion of money supply. Money supply is controlled by the European Central Bank (ECB). This liquidity in the monetary union has doubled between 2000 and In the same period the production

4 4 Back to Deutschmark? potential has increased by only about 20 percent. The fact that the loose monetary policy of the central bank has not yet found no significant increase in the cost of living is largely thanks to the pressure of international competition and the importation of cheap mass consumer goods from low-wage countries like China. This imported price stability, while dampening inflation, has also limited the scope for wage increases. The trade unions for collective bargaining, have been forced restraint, which has prevented the emergence of an inflationary wage-price spiral so fartaking also into account the internationally high savings rate prevalent in Germany. The safety-conscious Germans save their money in times of the euro crisis for a rainy day rather than consume, although reports in the mass media sometimes paint a different picture. The increase of money controlled by the ECB, which has accelerated with the onset of the euro rescue in spring 2010, has had its consequences. The effect is far less in the wallets of the consumer rather than on the financial markets. Here there has been, in recent years, a significant increase in the prices of securities, commodities and real estate. Thus, for example has the price of gold risen in euro terms from 2000 to now, by about sixfold. Such asset-inflation, caused by the expansionary monetary policy of the ECB, is in addition to the real wages and the drastic social triggered by the Hartz reforms are the real reasons why the gap between rich and poor in Germany since the beginning of the new millennium has diverged further and further. To support their argument for the strong euro, politicians like to refer to the increase in value of the European currency against the U.S. dollar. In fact, the euro has gained against the dollar since its introduction in value. The historic low was marked on At that time the conversion rate to the euro just $ Today (January 2013) the rate stands at $ 1.34, an increase of over 61 percent. But the eurodollar comparison is misleading. Because the U.S. Federal Reserve the ECB uses as a loose monetary policy, has resulted in the expansion of liquidity by means of printing money. This has been the remedy to get the problem of over-the national debt under control and stimulate the economy. This pushes the exchange rate of the U. S. currency down at the foreign exchange markets. It is therefore an error to put the euro dollar exchange rate down on the currency market to support the stability of the European unity money. More important is the value of the euro against really stable currencies like the Swiss franc, the Norwegian krone and the Australian dollar. This shows a different picture: Since its launch in January 1999, the single currency against the Norwegian krone lost over 16 percent of its value. Compared to the Canadian dollar, the euro has lost more than 24 percent against the Australian dollar, even as high as 32 percent. The Swiss franc rose in value for Euro-owners in the same period by 22 per cent (all figures as of January 2013). The price increase would have been even higher had the Swiss National Bank (SNB) not made targeted purchases of foreign exchange at the value of the euro of not less than 1.20 CHF, thereby dropping in value to protect their domestic export industry. For how long will the Swiss, still be able to hold on to this policy without risking a significant increase in consumer prices in the country? Already, the SNB has accumulated foreign exchange reserves amounting to several hundred billion euros, a significantly large amount for the relatively small Swiss central bank inventory. Conclusion: The euro is not "strong as the D-Mark", but a soft currency! With the abolition of the D-Mark, not only Germany, but also Europe have lost their anchor of stability. The takeover of the executive chair of the ECB by the former president of the Italian National Bank, Mario Draghi, could herald a "mediterranisation" of monetary policy in the euro zone, which implies a significant increase in the medium term and the consumer prices. From the perspective of the German economy, the continued weakness of the European currency is the most important reason to call for adherence to the euro. But more on that later.

5 Back to Deutschmark? 5 Argument 2: Germany benefits from the euro Representatives from politics and business always emphasize that the Euro has supposedly great economic importance for Germany. Sometimes it is even claimed that the West was the main beneficiary of the single currency. Therefore, the conclusion was that in the best interest of Germany to show solidarity with the financial crisis, countries in order to stabilize the euro and rescue the single currency from going under. The truth is different. In the first 10 years after the introduction of the common currency alongside Germany Italy had the lowest real economic growth in the euro zone. The negative trend is mainly due to the outflow of capital: During this period, two-thirds of German savings or nearly one trillion euros has been invested abroad. This money was not available for consumption and investment in the German domestic market. Conversely, there was no significant direct investment by foreign shareholders in Germany, which was considered a less attractive business location. The German savings assets were mainly in the border states of the European Monetary Union. They were enticed there, along with the elimination of exchange rate risk, due to high returns in real estate, as a result of the low interest rates due to the introduction of the euro to a building boom. Germany has therefore financed, by its billionaire capital exports, both economic growth and the credit expansion of public and private consumption, particularly in Southern Europe.. The peripheral countries of the euro area were therefore the actual beneficiaries of the euro, at least in the first decade after the currency conversion. This advantage for the Euro Southern states balance did not change until the start of the euro crisis in October 2009, when Greece laid bare the true extent of his hitherto veiled budget deficit and asked the international community for help. Investors became aware suddenly that on government bonds of EMU members delinquencies up to individual bankruptcy debtor threatened. They therefore moved their money out from the peripheral European countries. A lot of it was transferred to Germany, which is seen as a "safe haven". This influx of capital in this country has taken care of additional demand and contributed to the so vital economic recovery in recent years. That is the real reason why the German economy currently fares much better than the other euro members. The state also has benefited from the risk premiums for German bonds, and thus the interest that must be paid by the public sector for new debt, have declined considerably. Because of concerns about their capital, investors want to invest their money in safe Germany. They are therefore willing to buy German government bonds, even if only for a modest or a negative return.

6 6 Back to Deutschmark? Germany has therefore only economically benefited from the single currency, as a result of their inherent design defects under economic pressure. From the German perspective, the positive trend of recent years, however, could soon come to an end. Because of its commitment to buy the government bonds of countries in crisis indefinitely if necessary, the ECB has ruled out a bankruptcy risk for the purchaser of such securities. Creditors no longer need to fear for their money when they buy bonds of these countries. The cast still from a significantly higher yield than German government bonds. This could reverse the cash flow back towards Southern Europe and thus weaken the investment activity in Germany, with adverse consequences for growth and employment. The expectation that the monetary union will boost trade in Europe, has not been met at least from the perspective of the German economy because Germany's exports to the countries of the euro zone has fallen since the start of the single currency in 1999, from 45.2 percent of all exports to only 39.3 percent in 2011 This represents just 15 percent of Germany's gross domestic product. The decline in exports is due not least to the economic weakness of the Southern EMU members who can afford less and less to buy German products. Despite common currency, the economic integration of Germany has declined with its trading partners in the euro area also. By contrast, German exports to non-european countries and here especially to Asia during the same period increased by about 6 percent, this despite the fluctuations in exchange rates, which are not in the euro zone alone From 2009 to 2011 the German foreign trade with China has increased by nearly 100 percent. In doing business with India, an increase of about 40 percent was recorded. This is not least due to the depreciation of the euro against major currencies overseas. The soft euro aids on the one hand the German industry's international business, but on the other hand requires billions in transfers for the southerners of the monetary union, which must be financed from public funds. The taxpayer will bear not only the burden of the euro bailout, but he has also indirectly subsidized the profits of exporters. This is an important reason why Germany's global companies want to retain the single currency. It is emphasized by euro supporters with pleasure that the common currency of the German economy saves exchange and hedging costs, because there are no fluctuations of exchange rates anymore. However, this cost advantage amounts to just 10 billion euros per year which is modest, not only in relation to the entire German economy to grow by around 2.5 trillion euros, but also in terms of the significant risks assumed by Germany with the euro rescue. Intra-European trade benefit German companies not primarily the Euro, but the free exchange of goods in the internal market. In addition, German exports to the southern states of the euro area largely exist only on paper, because they have not been paid by the consumer countries until now. This is reflected in the target requirements of the Deutsche Bundesbank resist against the ECB system. In fact, these are supplier credits in favor of the importers of German products, which now accounts for nearly 700 billion euros, financed by the Bundesbank. This negative balance could spread because of the poor economic situation in the southern countries of the euro zone yet. Some experts even predict that the target debt in the euro zone against Germany will exceed the magic number one trillion euro in the current year. According to the euro-critic Thilo Sarrazin that money is lost. Because of their economic weakness in the long run the crisis countries will not be in a position to generate the required current account surpluses to pay off their debts to Germany. The statement that Germany benefits from the euro is wrong in this flat-rate form. Beneficiaries of the European single currency in Germany are primarily the large export-oriented enterprises, the financial sector such as banks and insurance companies and the owners of capital. Beneficiaries of the European single currency are primarily the large export-oriented enterprises, the finance industry like banks and insurances as well as the capital owners, in this country. The export trade and industry particularly therefore, because this one reduces the cost of weak euro German goods in comparison with the Deutsche Mark in non-emu countries. This effect, however, should not be overstated. Studies show in fact that the sales success of German companies abroad are due primarily to the high quality of their products and their customer orientation. Some economists dispute the thesis of the export-promoting effect of a weak currency altogether. Besides a devaluation-driven price advantage in international trade can be dangerous, because it lets the innovation efforts of the enterprises lag behind and so in the long run weaken her competitive position at the world market. On the other hand, the hard deutsche mark practiced a permanent pressure as her foreign competitors to be out, more efficiently, more productively and more creatively on German companies. Only thus could the high exchange rate of the mark to be compensated. This pressure has largely disappeared because of the euro, which is not without consequences. If Germany shall remain a strong national economy in the long term, then we need a strong currency which isn't the euro.

7 Back to Deutschmark? 7 Profiteers of the single currency are also the banks which have gained heavy profits with euro government bonds as a new highly liquid Asset class next to the dollar bonds. The strategists of the financial institutions had overlooked at first that the debentures of euro countries are failure-prone because these can pursue no more national central bank policy embedded in the common currency room. This means actually that the governments cannot print more new money in doubt to use due liabilities.this right was changed because of the introduction of the euro to the European Central Bank. The Maastricht contract forbids one Bail-out of insolvent countries by other EMU participants just like a monetary state financing by the ECB at the same time. To turn the risk of failure off as far as possible, the finance industry endeavors eagerly to make the stability rules agreed on politically to be adhered to, one aim which is accomplished for the most part: In the context of the euro rescue loans and sureties worth a few billion are granted by the rich member countries to the structurely weak states of the monetary union. At the same time the ECB buys up bonds of the crisis countries on a considerable scale and so supports the households indirectly. But all this doesn't suffice the banks yet. They want euro bonds, such common government bonds of all EMU states and with that the pooling of debts in Europe, to exclude the bankruptcy of single members of the monetary union durably. Euro bonds in Germany would not only have a noticeable increase in interest rates and higher borrowing costs for government, industry and consumers, but would also increase the risk of liability for the Federal Republic clearly. Winners of the Euro and its rescue are also the owners of wealth that could be happy in recent years over the rising prices of securities, precious metals, commodities and real estate. The German Stock Index (DAX) improved it s performance since the highlight of the financial crisis in March 2009 by the end of 2012 to more than 100 percent. Significant gains can be reported with all other asset classes. This development is the expansionary monetary policy of the ECB to rescue the euro owed. The action has been to resort to historically low interest rates and the purchase of ailing government bonds on the capital markets for a flood of liquidity. The extra money is flowing because of the conservative lending by the commercial banks, but not in the economic cycle, as banks look for profitable investment opportunities in the capital markets. There, the prices always reach new highs despite economic outlook and a looming recession. This development is owed to the expansionist financial policy of the ECB for the rescue of the euro. This one has provided a liquidity glut with historically low interest and the purchase of washed-out government bonds on the capital markets. Because of the conservative lending by the commercial banks the extra money does not flow in the economic cycle, but looks for profitable investment opportunities in the capital markets. There, the prices always reach new highs despite single cloudy economic outlook and a looming recession.

8 8 Back to Deutschmark? The broad population stands opposite the few euro winners in Germany as a loser of the European single currency. It is employees, consumers and savers whom the euro has granted prosperity losses. It started with the introduction of euro notes and coins in 2002, despite all the statistical manipulations drew significant price increases for themselves. However, prices were driven by services, as well as many consumer goods. To date, the euro makes sure that the purchasing power of consumers is less than DMtimes. Because the relative weakness of the euro against other currencies like the U.S. dollar increases the cost of imports into Germany. This is especially evident in the prices of petroleum products such as gasoline and heating oil, which are denominated in dollars. They have risen markedly in recent years. If Germany still had the Deutsche Mark, the price increase would have turned out much more moderate. Because the stronger the currency of the importing country is opposite the dollar, the cheaper the purchase gets. For German consumers it is likely that even worse is to come. Most financial experts agree that the expansionist financial policy of the European Central Bank will primarily lead to a clear increase in prices in the medium termt in Germany. However, this development isn't the only consequence but from view of the euro strategists even prerequisite for the rescue of the single currency and the stabilization of EMU. Namely the strength of the German export industry have identified an important reason for the current problems. Since 2012, Germany has achieved with 169 billion euros a higher than average current account surplus, Brussels is even threatening sanctions. The underlying logic is that Germany must become economically weaker, so that the crisis states of the euro area can catch up economically. This goal can be most easily achieved by increasing prices of German goods and services, because this would dampen the demand from the foreign countries and reveal better sales possibilities for the products of the stumbling national economies in Europe. According to calculations by the Ifo Institute Munic, inflation in Germany would have to increase for a decade of about 5.5 percent per annum, so the euro crisis economies can meet the necessary adjustments without deflationary shock. And the public sector in Germany would increase inflation well situated because existing debt would lose value. So there is an interest among political elites in Germany and Europe in fueling the inflation. Then the rising prices for goods and services for everyday use would hit the general population. Victims of the euro are also workers. Because the euro exchange rate in relation to the German mark in the introduction of the common currency was too high and most of the German savings flowed in the countries of the European periphery after the start of EMU, Germany's growth was weak at the millennium. In order to strengthen the international competitiveness, the then government decided under Chancellor Gerhard Schröder not only tax breaks for companies, but also extensive social reforms known as "Agenda 2010". Its implementation has led to distortions in the labor market, which were marked by a significant expansion of precarious employment and the decline in wages, especially in the lower income segments. This is he main reason German consumers have suffered a loss of purchasing power of about one percent from 1999 to Furthermore the measures for the euro rescue will hit savers and net creditors. Because with its expansionary monetary policy by the European Central Bank has ensured that the capital market interest rates for safe investments in the core countries of the monetary union have now fallen below the rate of inflation. So investors suffer real losses if they invest their money for a rainy day. The so-called "financial repression" not only devalues the deposits of savers, but also threatens the retirement of millions of German citizens. Due to the low key interest rates in the euro zone, the suppliers of the life insurances distributed in this country cannot keep the promised guarantee interest. Therefore sharp losses will be borne by the customers. The problem of the age poverty with which the generation of the baby boomers will primarily feel confronted according to admission in the retirement age might still therefore intensify by the measures for the rescue of the single currency. For the future, the Germans are threatened by other welfare losses to a considerable extent. The German risk of liability under guarantees and loans for the euro rescue adds up, according to calculations by the Munich-based ifo Institute on currently 719 billion euros (as of 01/02/2013). This amount is payable if the GIIPS countries and Cyprus go bankrupt.

9 Back to Deutschmark? 9 But it's not just about loans and guarantees currently in hundreds of billions that German taxpayers will be liable in case of doubt. Germany has already to mourn real losses, too. As a result of the first haircut for Greece, which was completed in March 2012, state banks had to write off debts of 14 billion euros. Private banks and insurance companies have been with another 6 billion euros to pay, what attracted because of the resulting depreciation unspecified quantifiable revenue loss for the Treasury by itself. The new Greek aid, which the German Bundestag agreed to end of November 2012 burden the federal budget because of the consolidation deferral for Athens in the years 2013 and 2014 with a total of around 1.4 billion euros for lost interest. But not enough for permanent euro bailout fund ESM, the Federal Republic make a cash contribution of 22 billion euros. All in all, are about 40 billion euros, which will no longer be used to fund public duties in Germany. Moreover, the so-called Board of Governors of the ESM may retrieve up to 167 billion euros in additional funds from the German treasury, without the Bundestag having to agree to it. If it should also come to a second debt restructuring for Greece, which is already required by some politicians and many economists considered inevitable, additional costs of up to 80 billions euro would come toward Germany alone. In a European comparison, the southern states of the monetary union are the winners of the Euro, at least until the beginning of the crisis. This is especially true for Greece, Spain and Portugal. Here the household income from 2000 to 2010 rose the most, according to the results of a study of the Swiss bank UBS. They benefited from the economic recovery, which was due to the massive inflow of foreign capital, not least from Germany. Loser of the single currency, however, the euro countries in Central Europe have been, especially Austria and Ireland, followed by Germany and France. Whose citizens have suffered a significant decline in their real living standards. Of which only the middle and lower classes were affected, while the drawers of larger incomes have made substantial capital gains. So the single currency has caused a redistribution of the social wealth namely from the north to the south of EMU and within the euro countries of below up in double regard. By the euro bailout it is German citizens who were charged the most, where the common currency has brought in recent years, the biggest drawbacks. They shall answer for the insolvent EMU states financially and safeguard the prosperity profits. This is hardly arranged for the citizens and might further have the public rejection of the common currency waxed also in Germany. Protests are expected at the latest when tax increases are necessary to be able to finance renewed debt crisis cuts for European countries. The study by UBS concludes that the accession to the European Monetary Union for most participating States was an economic failure. This applies in particular to Germany. Conclusion: The assertion Germany has been main profiteer of the euro isn't correct. Positive economic effects have adapted for the Federal Republic on the significant scale only with the beginning of the euro crisis in These advantages are contrary to the considerable expense and risk, which is the German taxpayer saddled with the euro rescue. Affected is mainly the middle class, which the euro has brought little. The real beneficiaries of the common currency have been next to exporting companies, the financial industry and the owners of capital, the countries of the European periphery. They increased their wealth with the accession to the euro area increased significantly.

10 10 Back to Deutschmark? Argument 3: The euro has nothing to do with the crisis It is emphasized by euro supporters with pleasure that the current problems in the eurozone have nothing to do with the single currency itself, but the result of high budget deficits of member countries. Therefore, politicians and the media prefer to speak of a "national debt crisis" instead of the euro crisis. But this argument is not correct. Because it was the Euro that triggered the massive debt problems in the countries of the European periphery. Example Greece: At its accession to the monetary union on January 2001, the country was in debt by 141 billion euros. In 2012 it will be about 350 billion, an increase of 148 percent. The same picture emerges for Portugal, here the national debt rose during the same period by 222 percent, from 61.6 to billion euros. Ireland and Spain had 1999, the year of their accession to EMU, little debt, and showed even a surplus in the regular household. That changed with the introduction of the Euro. Because the bonds of southern European Member States of investors were classified as similar to that of Germany, the previously high risk premiums decreased significantly in the previous softcurrency countries. With the beginning of the convergence phase immediately after the conclusion of the Maastricht Treaty in 1992, the interest of the euro-area Member States to progressively aligned to the German level. Calculated that the refinancing rate of the current crisis in the country was from 2002 to 2006 when adjusted for inflation below zero percent. The significantly lower cost of credit opened in particular southern European countries new scope. This "Euro dividend" was not, as expected by the architects of the single currency actually used for the consolidation of public finances and the modernization of the economy, and to address the competitiveness gap with the developed countries of Central Europe. Instead, the peripheral countries increased their consumption expenditure, to the expansion of public administration and new social benefits.. In the economy the cheap money triggered a credit-financed economic boom. In parallel, the indebtedness of the private households rose. A property bubble which burst with the beginning of the financial crisis in the year 2007 which considerably burdened the banks because of the payment failures accompanying that arose in Spain and Ireland. To prevent injury or even the collapse of the local financial sector, financial institutions needed to be supported with taxpayer money in the billions. In the case of Spain, the European bailouts EFSF and ESM contributed up to 100 billion euros to the bank stabilization. The employees also profited from the economic upswing as a result of the interest lowered by the euro

11 Back to Deutschmark? 11 in the European periphery states. Their recorded income increases above average which considerably more dynamically developed than the work productivity. Consequently, the nominal unit labor costs rose by more than 31 per cent in Greece, Italy and Spain between 2000 and The increase amounted in Portugal to over 27 per cent while it was just 6 per cent in Germany in the same time period. Because it is no longer possible for the states in the euro zone to catch higher costs by the one-sided devaluation of her national currency, the competitiveness of the south European national economies declined considerably since the introduction of Euro. This has reduced their exports and put the profits of the enterprises under pressure. Consequently, the tax revenues of the state were reduced, which helped even more to the strong increase of the public debt of these countries than the their unsound fiscal policy. At all events the Euro hasn't caused any real convergence, that is synchronized economic developments, between the national economies of the monetary union as originally this had been expected by the politicians. The economic and social divergences have on the contrary got bigger and bigger since the introduction of the single currency and faster by the crisis of the last years because the euro is simply too strong for the border states. This is the real reason for the problems in the euro zone. The crisis countries can solve the problem of lacking competitiveness only by an internal devaluation within the European monetary union, thus reducing their costs. This requires structural reforms that need to aim for a far-reaching labor market flexibility down to the operational level, and the reduction of social benefits. Exactly this neoliberal calculus behind the euro project. The need for adjustment in the affected economies is considerable: In order to become competitive again, Greece, Portugal and Spain should lower her product prices measured against the average of the euro zone by at least 30 per cent permanently. And even France may be the second largest economy in Europe within the European internal market exist only if its products are cheaper by about 20 percent. But that does rigorous reductions of income, pensions and benefits at the expense of the citizens is required. Because of strong domestic political opposition to such cuts immediately, but at best be implemented over a longer period, which is generally estimated at least eight to ten years. Some economists talk especially to a view of Greece which might take several decades. So far, there has still been no significant price cuts to boost competitiveness in the peripheral countries. Reform efforts in the crisis countries will only succeed if the disciplining effect of the euro is not diluted. It must be excluded that the states concerned can directly or indirectly pass her debts on to other members or international institutions like ECB or IMF or come into the pleasure of a solidary financial adjustment within the monetary union. Exactly this happens in the context of the euro rescue, however. Through this the willingness to reform is weakened in the deficit countries. This applies all the more to see than the governments of these countries faced with violent protests against the austerity programs of their citizens and therefore have to fear for their power. For this reason alone, the consolidation efforts are at best short-term successes, but not be sustainable. If EU, ECB and IMF stopped financial support for the lack of reform progress, the crisis-ridden states would quickly go bankrupt und would probably leave the euro zone. According to most experts, the bankruptcy of one EMU member would cause to a domino effect. For fear of further bankruptcies investors would panically repel bonds of other deficit countries, thus increasing the financing problems of these nations. This could ultimately lead to an uncontrolled collapse of the monetary union, with unpredictable consequences for the global economy and the international financial markets. The political dream of the "United States of Europe", which will be brought about by the euro would also be its doom. Doubtless, member states like Greece and Portugal could remain members of the EMU after bankruptcy. But the problem of insufficient competitiveness of these economies would remain then as well as, the necessity to enforce cost reductions by help of a tough austerity program, alone. Without its own national currency accompanying depreciations are not possible to mitigate the social impact of the necessary reforms. For the above reasons, it would be only a matter of time before the crisis countries would suffer from growing state deficits, Then, they would have to ask the international community for financial support, again. So the solid core of the Monetary Union and especially Germany, are caught in the euro trap. Under current political premises they have no choice but to put up new rescue packages for crisis-ridden countries and to tolerate the purchase of bonds by the ECB, well knowing that this means a financing of member states not being compatible with the European Treaties. Strict austerity measures to be imposed on the recipient countries in exchange for loans and guarantees pursue primary the objective to reassure the public in donor nations. In fact, they are worthless, beacuse the countries participating in the monetary union are sovereign nations. Therefore, their budgetary and financial management can not be

12 12 Back to Deutschmark? effectively controlled from outside. Sanctions forbid themselves because they would intensify the difficult situation of the fault countries and would therefore be counter-productive. Even if Euro zone crisis countries would implement their reform programs consistently and successfully, the survival of the euro would remain endangered. After all, the common currency has not only weakened the competitiveness of member states in southern Europe, but also changed the economic structures in the three major economies of France, Italy and Spain significantly. Because the problem of lacking competitiveness of the domestic industry against trade partners such as Germany cannot be solved by currency devaluations within the EMU, but only by unpopular reforms, the governments of the countries concerned have responded with an expansion of their service sectors. In this process of deindustrialization millions of jobs have got lost permanently. Thus, not only the economic growth has been weakened, but also created a high level of structural unemployment in double-digit percentage. Therefore, a continued increase in the national debt of these countries is to be expected, even if they manage to cut their costs significantly. As long as the policy adheres to the euro without alternative Germany will be in financial obligation for the structurally depressed of the euro zone countries, only getting unfundingh promises in return. The debt countries have the creditors in their grip knowing very well that they can not be dropped by them. The monetary union created as a stability community actually has become a liability combine that will end up in a transfer union sooner or later. Given the enormous debt of GIIPS States estimates to around 3.4 trillion euros, and the resulting interest expense in the end, the guarantor Germany is threatened with financial collapse. That applies all the more so since also the major economies of EMU are economically shattered as a result of the euro introduction. Especially France governed by socialist president Francois Hollande has become an economic time bomb within the euro zone. There is the risk that these countries financing the system at present must apply for support by the rescue packages by themselves in foreseeable future. The more states call on aid, the bigger the financial burden German taxpayers have to shoulder. Being the strongest economy within the EMU Germany thus acts as lender of last resort. Conclusion: The Euro triggered and fired the crisis in Europe. The single currency has not only allowed the peripheral countries of the euro area to live beyond its means, but also has destroyed their international competitiveness. The result was a massive increase in debt in the countries concerned. Because these members of the EMU were no longer able to refinance on favorable terms in the capital markets and being threatened by bankruptcy, the international community of states and ECB intervened in violation of European treaties with assistance programmes. Because of the fundamental flaws in the euro, the EMU can not be saved from destruction, ultimately. In the light of the above it is justified to talk about a crisis of the euro.

13 Back to Deutschmark? 13 Argument 4: Banks and speculators are to blame for the crisis To distract attention from the actual causes of the failure of the euro project, politicians, media and scientists blame banks and speculators for the current crisis. They argue that the financial institutions have failed in their core task of lending to the economy and pursued risky speculative transactions instead, which led to the financial crisis in The extensive support measures being neccessary to stabilize the financial sector should have been the main reason for the sharp increase in public debt in the member countries of the European Monetary Union. This theory is not convincing in light of the crisis states of the euro zone. Their debts sharply rose long before the start of the U.S. subprime crisis in the fall of In Greece, the government deficit increased between 2000 and 2007 by nearly 70 percent, in Portugal, the increase was even almost 88 percent. A disproportionately strong rise in debt after 2007 can only find in Spain and Ireland. This is related to the fact that simultaneously with the financial crisis in the U.S. caused by the euro housing bubble burst in both countries. Of course, the charges associated with the bailout have worsened the financial situation of the euro countries. But it has to be taken into account, that the American subprime crisis was based on political erroneous decisions, too (deregulation of the finance sector, low interest rate policy for the promotion of the private property acquisition in the USA). In the EMU, the euro is primarily responsible for the debt problem, because the common currency lowered interest rates in the former soft currency countries allowing to take out new loans at better conditions than before. The claim that speculators are to blame for the funding problems of the crisis countries by driving the interest rates of government bonds is wrong, too. In truth, the rising yields for bonds are an expression of distrust of investors towards the economic and financial policies of a government. Speculators direct their attacks against highly indebted countries being unable to control their budgets. This is no irrational market behavior justifying corrective action of policy or central banks, but the concern of investors to lose their capital because of unsound fiscal policies. The attempt to manipulate the market through interventions such as the purchase of government bonds by the ECB or to sanction rating agencies because of their assessment of individual states, is ultimately doomed to failure. To improve its creditworthiness in capital markets in order to lower its refinancing cost, a country must pursue a stabilityoriented policies. That is the only way to regain confidence and to convince potential investors of its long-term solvency. Conclusion: The assertion that banks and speculators are responsible for the crisis of the European single currency is the grand delusion of the euro rescue politics. The disaster has actually been launched by the erroneous decisions of the political class. The greatest of these decisions was the introduction of the euro itself. Financial markets and credit rating agencies have perhaps accelerated the development, but not caused, however. The measures for the rescue of the single currency are a senseless and in the end unaffordable war against the markets which cannot be won.

14 14 Back to Deutschmark? Argument 5: If the euro fails, then Europe fails Proponents of the single European currency often argue that a breakup of the euro would also terminate the reconciliation process in Europe. This is to put critics into political trash. The European idea was born out of the experience of two world wars originated in Europe and costed millions of lives. The statement "If the euro fails, then Europe fails" also shows, however, that the Euro-support is about more than just the preservation of the common currency. In fact, the euro being economically useless has primarily a political function. The euro should help to transform the European Union in a superstate governed from Brussels. From the beginning the euro was not an economic, but a political project. This project was mainly driven by France to integrate the reunited Germany in Europe. This intention describes the actual flaw of the euro. A common currency does not work without a far-reaching economic integration or better a political union of the participating countries. The political elites in Europe were aware of this fact early. In a parliamentary debate on 6 November 1991 Chancellor Helmut Kohl said: "It cannot be said often enough: A political union is the indispensable counterpart to the Economic and Monetary Union. The more recent history, and not just the one of Germany, teaches us that the idea an economic and monetary union without political union can be maintained in the long run, is absurd." Kohl showed that he was in favour of the so-called "coronation theory". This theory is that at the end of the road is the economic and political unification in Europe. But the reservations of states against giving give up their sovereignty in favor of a European political union proved to be too strong. Nonetheless, the euro was introduced in 1999, but under new strategic premises: The new currency should now assume the role of an integration engine and create constraints to bring about European unity against all odds. Some critics even argue that countries such as Greece, Portugal and Italy were admitted to the EMU, even though it was known that the new members has not fulfilled the necessary convergence criteria of the Maastricht Treaty at the time of their admission. The aim was to bring about a crisis, to overcome the nation-state and to form a political union in Europe. That this assumption is not entirely unreasonable, not only revealed by various government documents, but also statements made by leading European politicians like the former president of the Euro Group, Jean-Claude Juncker. Juncker said shortly before Christmas 2012 in an interview on German television: "European integration can only come through crisis." However, the EU leaders and much of the political class in the member countries have a clear idea how to save the euro: Joint European bonds for pooling of debt, the control of national budgets by the

15 Back to Deutschmark? 15 European Commission as part of a fiscal union and a European economic government as the basis of a centrally coordinated economic and financial policy from Brussels. The implementation of these proposals would ultimately end in an European state. This state has to be an authoritarian one to keep together the big number of different nations united uder its roof. It would thus be no "peace project", as claimed by the integrationists, but would bear the seeds of new and perhaps warlike conflicts in Europe in itself. The euro is the vehicle to the road in an unitary state steered by Brussels technocrats. This plan would fail if the currency union should break but not Europe as an alliance of sovereign nation states, as it was intended by the founding fathers of European integration. The thesis that a failure of the euro would have no future with the European project, is also from a historical perspective without substance. The European cooperation took place more than 40 years without a common currency. This cooperation would continue even after the end of the euro. Moreover, the cooperation works without problems within Europe also with such countries which do not belong to the monetary union. Indeed, it is the dispute about the euro and its rescue, the dividing asunder the nations of Europe and reawakens overcome resentments believed again. It is actually the discordance by the euro and his rescue which sorts out the peoples of Europe and lets resentments believed overcome long ago revive. The anti-german demonstrations in Greece and other Southern European countries highlight just the tip of the iceberg. The controversy within the euro zone are the different interests due to the crisis: The economically powerful donor nations with Germany at the lead press for tough austerity measures of the heavily mortgaged recipient countries to keep her own risks and burdens in limits from the euro rescue. By contrast, the people in the crisis states feel threatened in their material existence because of the forced austerity policy. The economies of the countries concerned, which has anyway to suffer from the strong euro already, is further weakened by the austerity policy. As a result, unemployment is rising. Under these circumstances the people resort to saving. It comes to social unrest, which lead more often to civil warlike violence, as happened most recently in Greece and Spain. In the end it could become similar to the crisis-ridden Germany in the early thirties of the last century resulting in profound political changes and the assumption of power by radical forces. Conclusion: The euro is a failure, not only economically but also politically. In an attachment to the single currency of the European cohesion built up over decades would dangerously erode sooner or later. In extreme cases, it could even lead to a relapse in the era of the nation-state conflicts before The consequences for our continent and its position in the world would be disastrous. To tackle the crisis some economists recommend to allow the insolvency of individual countries such as Greece and Portugal. Through this these countries shall be forced to leave the monetary union. Equipped with its own national currency, these former members of ECU could start an economic and financial fresh start. In the case of Greece, it even would be possible to explain the inclusion in the monetary union simply annulled because Greece had wormed its membership with incorrect data. Limited to the solvent economies, monetary union could finally become a stable community that enhances the growth and prosperity for all participating nations. However, in contrast to the situation at the beginning of the crisis there is now the risk that the insolvency of single members of the Euro-bond may cause a ripple effect. Fearing further failures in the euro area and the loss of their capital investors would sell government bonds of other troubled euro-zone countries on a large scale. This would exacerbating the refinancing problems of these member states considerably and could lead even to their bankruptcy. This development could be stopped neither by bailouts nor liquidity measures by the ECB, because the scope of the sovereign debt of these countries is too large. An uncontrolled breakup of the monetary union with significant economic and social dislocation far beyond the borders of Europe would be likely to follow. Furthermore, the bankruptcy of individual countries in the euro zone would be the admission that it has not succeeded to maintain the monetary union, despite extensive efforts by the international financial community and the ECB. The confidence of the capital markets in the euro area would dwindle massively, with the already identified consequences. Moreover, the withdrawal of individual states would barely be enough to secure the pemanent existence of the common currency. Indeed, it is not only smaller member countries such as Greece, Portugal and Ireland being in trouble. The major European economies Spain, Italy and even France, under the auspices of the Socialist Hollande are struggling with rising public debt as well. Because of their weak economies

16 16 Back to Deutschmark? the common currency is too strong for these countries, too. Therefore, also these member states will need financial helps already soon to preserve the monetary union as a whole. The cost would be substantially contributing to by Germany as the strongest economy in the euro zone. Other experts such as former BDI chief Hans-Olaf Henkel go a step further and call for the division of the monetary union into a north and a south euro.the fiscally stable countries Germany, Finland, the Netherlands, Austria and Sweden shall be united in the north euro. The remaining countries with France at the lead introduce the south Euro as a new common currency. The south Euro devalues against the north Euro increasing the competitiveness of the south Euro states. Consequently, their tax revenues due to rising exports increase. This additional financial resources can then be used to reduce the high government debt. What is plausible at first sight, turns out on closer inspection, to be a chimera that is politically difficult to implement. For the division of the euro community into two currency zones would ultimately lead to a political division of Europe. The problem here is mainly that Germany and France will participate in different currency units. But these countries form the core of the European integration. It may not be forgotten that at the beginning of the European integration there was the will of the people to overcome the Franco-German enmity that has contributed in the past wars with millions of deaths. Therefore, the much-cited Berlin-Paris axis is so important. To weaken or even damage would be fatal, regardless of how we imagine the future political cooperation in Europe. Therefore, critics are right calling the proposal of Henkel as an unhistorical one. From an economic point of view it is to be feared that the south Euro network would soon experience the same frictions as in EMU today. Because of this south euro shall include economically strong countries like France and Belgium on one hand and bankrupt states like Greece and Portugal on the other hand. In between, shattered but potent national economies national economies like Italy and Spain should be members of this combine. So the efficiency of the partners involved in the south Euro would be very different with the consequence that the common currency would prove for some members as too strong and for others than too weak. Exactly this is the main reason for the crisis of today's Euro. The imbalances in the Southern Europe region would make transfer payments sooner or later inevitable. These payments could quickly take on a similar size as today's bailouts. As the leading economy in the south Euro combine France would have to take over the role of paymaster. But France would in the long run neither willing nor able to bear this financial burden. The collapse of the south Euro would be thus pre-programmed. A splitting of today's EMU in a north and a south Euro would not solve the problems of a common European currency, but it creates a lot of new problems. In the advanced stage of the Euro crisis there are only two alternatives: Either one adheres to the single currency in her present form or the participating states return to her national currencies. A continuation of the European Monetary Union is due to the design flaws of the common currency conceivable only if the strong economies of the euro zone are ready to grant financial support to weak member countries for an indefinite period. EMU designed as a community of stability then would mutate to a liability and transfer union. The resulting risks for the donor countries would be incalculable. Even solvent nations like Germany could be plunged into ruin, finally. Politically, the adherence to the euro would lead Europe in a unitary state with a centrally prescribed economic and financial policy. The sovereignty of European nations and the democratic self-determination rights of citizens would be passé. Exactly this goal, the protagonists of the common currency had in mind when the euro was introduced in Such a scenario can be avoided only if the project euro is abandoned and the national currencies are reintroduced in Europe in a controlled process. For Germany, this would mean a return to the stable Deutschmark. The Bundesbank and the other central banks of the euro area today would be once again able to pursue an independent monetary policy. They could adjust their currency appreciation or depreciation by flexible to changing economic circumstances. In short, every country would have the currency that suits its economic capacity. Drastic social cuts would thus be spared. For Germany, the new edition of the Deutsche Mark would bring new disadvantages that can not be concealed. These disadvantages, however, are less severe than the political class claim. Anyway, they do not justify the thesis that the adherence to the euro is "without alternative". The arguments in detail:

17 Back to Deutschmark? 17 Argument 6: With the DM collapses Germany s export Economists largely agree that a new German Mark would appreciate against other currencies due to the then anticipated capital inflows from abroad by about 30 percent. Extreme estimates are even up to 50 percent. This may have a negative impact on exports, as German goods and services would become more expensive abroad. Moreover, it is argued that at a dissolving of the monetary union the trade of Germany would decline with the countries of the former Euro zone. This shows the historical experience. For the above reasons the return to Deutsche Mark would be economically devastating and many jobs in the domestic industry are threatening, critics argue. However, no one can reliably predict how much a new German Mark would actually appreciate after reintroduction. Nor it is clear whether the increase in value would be a long-lasting one. This is not to be assumed. Moreover, a look back in the era of Deutsche Mark before 1999 relativises the pessimism of the Euro apologists: Between 1953 and 1999, the Federal Republic of Germany was consistently among the three leading exporting nations in the world, although the German Mark in this time appreciated permanently. Before each round of upgrading announced by the Bundesbank representatives from economy and politics predicted significant export falls, losses of growth and the loss thousand jobs. But none of that entered. On the contrary, Germany's exports improved after each revaluation despite higher prices for foreign buyers. This is surprising only at first glance. Microeconomic studies show that the success of German products on the international markets is primarily owed to her high quality as well as the power of innovation and flexibility of German enterprises. Moreover, German companies are often operating as world leading suppliers in niche markets. They offer products other companies are not able to deliver. Thats why the price for buyers only plays a subordninate role. Exchange rate adjustments therefore have little impact on export volumes: If the real external value of the currency increases of one percentage to go, German exports fell by just 0.5 percent.

18 18 Back to Deutschmark? For Germany's economy, the ongoing appreciation of the Deutsche Mark was even beneficial. The managers of the exporting companies were forced to optimize the product range and constantly increase their productivity to compete despite higher selling prices in the global competition. The strong German Mark thus promoted the innovation and the market orientation of the export industry. This had a lasting positive impact on the profits and created the necessary scope for income increases of the employees. It turned out particularly at the beginning of the seventies that the Deutsche Mark has hardly impaired the German foreign trade. After the collapse of the monetary system of Bretton Woods with its fixed exchange rates, the German Mark from 1969 to 1973 appreciated against the French franc by 30 percent, against the U.S. dollar by 40 percent and against the British pound as much as 50 percent. Despite the resulting charges for German goods exports increased in this decade as strong as ever. The fact that a high exchange rate does not diminish the success of German economy on international markets also applies to the present: Since the introduction of Euro in 1999 common currency has won opposite the U.S. dollar by approx. 30 per cent and opposite the British pound by 37 per cent of value. Nevertheless, negative effects on the trade of Germany with both states cannot be recorded. In addition, a new, strong D-mark to the same extent as the more expensive exports, would also reduce the cost of imports into Germany. Since more than 40 percent of German exports are based on previously introduced precursors and raw materials, there would be a price dampening effect the companies could pass on to their foreign customers to offset currency-related cost increases. The main beneficiaries of a return to the Deutsche Mark would be the consumers in Germany. They should considerably pay less money for imported products like consumer goods and crude oil because of the strong external value of the new currency. That would increase the purchasing power of consumers and thus stimulating domestic demand, which opened up scope for wage increases. So German citizens would finally enjoy a social dividend by revaluation gains, which guaranteed the general population to D-mark times a just share in the nationl wealth. This social dividend has been dropped with the euro. Thats why the gap between rich and poor has diverged since the turn of the millennium when the euro was introduced. The return to the Deutsche Mark would therefore be an act of social justice, because a fair share in the social prosperity could be secured for the population at large, finally. Therefore the leftist parties should actually belong to the strongest supporters of a national currency in Germany. But as it is well known this isn't the case. The reason is that these parties understands the Euro as a political instrument to sharpen the sovereignty of the European nations in favour of a Brussels central state. Even the social justice troubled otherwise with pleasure is subordinated to this target. The striving for a united Europe is part of a comprehensive globalization strategy which aims at an world state in the long-term perspective. The increased domestic demand being expected after a return to the Deutsche Mark would also give our trading partners the chance to sell more goods on the German market. Thereby they could reduce their large current account deficits with Germany. Exactly this is demanded of economists and international organizations like IMF already for many years. However, this demand can only be fullfilled if the euro would be abolished and the national currencies would be reintroduce in Europe. In this case, not only the purchasing power of German consumers would increase, but also the price competitiveness of crisisridden countries being able to devalue their currencies, again. This possibility is denied to them by the euro today. Equipped with its own currency, these countries could export more goods and thus stimulating their economies. This would also improve the sales opportunities for German companies in these foreign markets. Scientific studies show that the gross domestic product of Germays major trading partners increases by one percent, put the German exports increased by more than two percent. This effect also would contribute to compensate for the export shock, the German economy would suffer from reintroducing the strong D- Mark. Conclusion: The claim that a return to the German mark would damage Germany's exports permanently and plunge the economy into recession, is pure scaremongering. Although the D-mark in its history appreciated repeatedly and sometimes strongly, the enterprises have increased their foreign sales ever. There is no economic reason why this should be any different after the end of the Euro. Moreover, a strong economy needs a strong currency to maintain their ability to innovate and compete internationally not to fall behind. For this reason alone it is imperative from a German perspective, to say goodbye to the relatively weak Euro.

19 Back to Deutschmark? 19 Argument 7: The return of the D-Mark Germany would cost more than the euro According to the constantly updated calculations of the Munich Ifo Institute, the liability risk of Germany from the euro rescue currently amounts to 719 billion Euro (as of 01/02/2013). This sum Geman taxpayers would lose if the crisis-ridden countries of European periphery including Cyprus went bankrupt or denied to acknowledge their debts to Germany any longer. The German Central Bank would run the risk of their claims against the ECB's target system in the amount of currently around 660 billion Euro to go completely deprived of the EMU should be buried. In this case, would have to step in the state, and thus the taxpayer to offset the imbalance in the balance sheet of the central bank. For opponents of the D-mark return it is therefore clear that Germany must remain unconditional in the EMU, because a withdrawal would probably be more expensive than sticking to the Euro. The one who so argues assumed that the crisis countries can cope with her fault problem and even will repay the helps granted them at the end should the Euro continue. But this assumption is fallacious. As indicated, the border states of the EMU in the euro have no chance of a sustainable economic recovery, because they cannot compensate their competitive disadvantages by unilateral currency adjustments. They only alternative left are painful reforms leading to persistent wage and price deflation. Such austerity policy seems hardly enforceable in democratic states for a longer period. If one intended to continue the approach adopted it may lead to dangerous destabilization of the political situation in the countries concerned, which would have repercussions on the entire continent. The heavy protests of the people in Southern Europe against the savings packets of her governments and the growth of radical voices parties give a foretaste of the impending development. Against this background, future haircuts and further financial assistance to the debt-ridden countries in the euro zone are inevitable. In the long run this alone might not suffice to protect the shattered national economies of Europe from insolvency and keep together the Euro zone. Rather, it will soon have to give regular transfers from rich nations in favor of the low-growth EMU members comparable to the German fiscal equalization among federal states. A large portion of the resulting expense would have to be shouldered by the taxpayers in Germany. The situation gets even more dramatic if large countries of the euro zone such as Spain, Italy or even France found themselves in serious trouble and would ask for help of the rescue packages. In this case the liability amounts Germany would have to answer in doubt, would be unimaginably vast, which means immense risks not only for the present but also for future generations. In addition, Germany would probably face a downgrade of its rating on the financial markets leading to a noticeable increase in lending rates. A rise of interest rates by only one percentage point means additional expenditure to the public purse of about 18 billion Euro in order to refinance the national budget.

20 20 Back to Deutschmark? The thesis, Germany's claims against the EMU partners were lost, should the Federal Republic unilaterally withdraw from the euro group, has to be critically scrutinised, too. It is argued that this step would be interpreted as a breach of European treaties by the debtors not willing to accept their euro-denominated liabilities any longer. But this argument is not conclusive because the claims of Germany don't have to do with the euro originally. Rather, in truth, they result from guarantees and loans that have been granted to these countries, as well as from deliveries and payments of German enterprises. Should the crisis countries refuse to service their debts, this would hardly be justified legally. This applies all the more since Germany s leaving of European Monetary union wouldn't be illegal. Although the Community Treaties don't provide a retirement of single members from EMU, the international law allows the possibility of discontinuing international agreements in case of frustration of purpose. This prerequisite is given already in view of the Euro, because central promise of the Maastricht Treaty, which was constitutive for Germany's consent to the monetary union, have been broken long term. One thinks especially of the no-bailout rule as well as the prohibition of financing the national budgets of member states by the ECB. As it is known, both targets have got no longer watched already for years. The same applies to the stability criteria of the Maastricht Treaty, which are also worthless. A unilateral withdrawal of Germany from the European Monetary Union should also be only a last resort in case that a conjoint solution over the end of the single currency cannot be found in the Euro group. The target is a systematic closure of the EMU, to prevent new financial turmoil or even a crash of the global economy. In this context a consensus on the old debt of crisis countries sould be found. This consensus may include a debt moratorium, that the prolongation of the repayment terms, reducing interest rates on loans and a partial debt relief. It is crucial that today's crisis-ridden states equipped with its own economic performance matched currencies are finally in a position to increase their volume of trade sustainably to reduce their current account deficits with its trading partners in Central Europe and to generate growth. An exit on the European Monetary Union would not come free of charge für Germany, but would cause significant cost. As already stated, the German mark would appreciate against the euro and the national currencies of the new former EMU countries more or less strongly. This led not only to a temporary charge of German exports (see above), but would also have implications for cross-border debts and foreign assets of local banks, insurance companies, businesses and individuals, denominated in Euro. They lose value relative to the foreign currencies. According to the calculations of the British economist Roger Bootle, the loss of German creditors would be about 160 billion euros, should the new Deutschmark permanently improve by 20 percent. This corresponds to seven percent of GDP. This amount is high undoubtedly but represents just a fraction of the liability risk that Germany lodged with the Euro rescue. Moreover, the return to strong D-mark would lower the value of debt in the euro, Germans have to creditors abroad. To cushion the hardness for individual sufferers, a compensation fund would be conceivable dined by the winners of the DM-conversion and possibly by the state, too. By help of these means those capital owners could be compensated, where the return to Deutsche Mark has brought sustainable exchange losses, but taking into account a reasonable deductible. Capital inflows, which Germany would expect after re-introduction of the Deutschmark would bring also a positive effect: the strong DM-demand would keep German interest rates low in the long run. This reduced the cost of loans, which not only boosted consumption and investment, and thus promoted the economic growth, but also relieved the State budget. In addition, the appreciation of the Deutsche Mark after a currency changeover would reduce the burden debts of public and private borrowers. The return to German mark would have consequences for the Deutsche Bundesbank, too. The bank probably would have to write off (partly) their future billings in DM-euro claims on the ECB system in their balance sheet. These aforementioned target demands currently refering to about 700 billion euros. Should this be the case, German taxpayers must not compensate for the damages at any rate, as often claimed. A central bank having the right to print money without limits can compensate a financial imbalance by creating new liquidity. This monetary expansion would also dampen the expected appreciation of the new Deutschmark.