Germany’s Secret Euro Problem

Germany's Secret Euro Problem
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Before the creation of the common European currency, the “Euro”, on January 1, 2000, every European country had their own unique currency and monetary policies. Germany had the “Deutschmarks”, France the “Franc” and so on. However, after the creation and adoption of the Euro, Germany has had an increasingly troublesome secret euro problem. 

The Euro today is the common currency of many countries (19) and the second most traded currency of the world. And as the main currency of the European Union (the “EU”), it is valued and traded on the basis of the monetary and fiscal health of the EU.

But not all the countries within the EU are equal in terms of their economies. Some countries, such as Germany, have strong economies. Whereas countries such as Greece and Spain, are much weaker. However, the Euro is traded and valued (generally) based on the EU economy as a whole – not on the individual basis of its member countries. 

Germany's Secret Euro ProblemShould the single Euro currency be no more, the separate value of each member country’s currency would then be a reflection of their own nations health and weaknesses. And there lies the German secret Euro problem.

Because Germany’s economy is not only the strongest of the EU, it is also the most export driven. A weak Euro means that German exports are less expensive in world markets. The lower value of the Euro (compared to the now non-existent Deutschmarks) have greatly helped grow German GDP.

Without the Euro, a German Deutschmark would soar to higher levels, causing exports to fall and (more than likely) create a severe recession within Germany. In crude terms, the German export economy has greatly benefitted from the weakness of other EU countries and the subsequent lower “grouped economy” Euro value.

Though Germany may seem strong in its negotiations with Greece, and may not appear to want to keep the Euro and the EU together at all costs, the secret is that Germany is much stronger with the Euro than without.