How much has Germany gained from its membership of the Euro?

It is an irony that in what is supposed to be a currency union of partners we spend so much time looking for winners and losers! The list changes as there was a time when the current largest loser Greece appeared to be a winner. The onset of the credit crunch reshuffled the pack and led the Euro area into quite a different place. Also the crisis has seen the media often push the view that Germany has been a loser and there have been regular reports of it being defeated at the European Central Bank. Putting it another way we have seen the policies of Mario Draghi pursued rather than the more hardline suggestions of Jens Weidmann who heads the German Bundesbank. Indeed the “whatever it takes (to save the Euro)” speech given by Mario Draghi in the summer of 2012 was seen as a clear victory over Germanic influences. On that road we have seen two trillion Euro projects with the LTROs and now QE as well as the mythical Jedi Mind Tricks of the Outright Monetary Transactions or OMTs.

However life is rarely that simple so let us examine an alternative agenda which is that Germany is in fact a beneficiary out of all this.

The hundred billion Euros issue

Step forwards the Leibniz Institute in Halle who have looked at this subject but as shown below only one aspect of it.

This note shows that the German public sector balance benefited significantly from the European/Greek debt crisis, because of lower interest payments on public sector debt.

They have an explicit and an implicit effect which I shall present in that order.

while the European Central Bank (ECB) monetary policy stance was quite close to an “optimal” monetary policy stance for Germany from 1999 to 2007, during the crisis monetary policy was too accommodating from a German perspective, due to the emerging disparities across the Euro area

in crisis times investors disproportionately seek out safe investments (“flight to safety”), bidding down the returns on safe-haven assets.

So the cost of issuing debt has been much cheaper than would otherwise have been the case for Germany over the Euro area crisis period. Regular readers will know that we have seen more than a few situations where Germany has been paid to issue debt and as I type this stretches almost to the five-year maturity. Who would have thought that not so long ago?

The Leibniz Institute have crunched some numbers as to the benefit from this.

As a result of these two effects, our calculations suggest that the German sovereign saved more than 100 billion Euros in interest expenses between 2010 and mid-2015.

This is an issue that politicians in many countries have avoided because many bond yields have dropped with my own country the UK having a ten-year bond yield of 1.85% which still seems extraordinary. So governments in many places have been given a windfall which of course gets ignored as they rush to take the credit.

Also they point out that this is more than Germany’s explicit exposure to Greece.

That is, Germany benefited from the Greek crisis even in case that Greece defaults on all its debt (a total of 90 billions) owed to the German government via diverse channels (European Stability Mechanism [ESM], International Monetary Fund [IMF], or directly).

I have two thoughts on this. Firstly these are estimates and it is best to consider them as broadly similar. Next we need to take care as this is Germany’s sovereign exposure and does not count what might happen to the banks or the wider economy if Greece defaulted.

What about monetary policy?

The Leibniz Institute hinted at this issue here.

the European Central Bank (ECB) monetary policy stance was quite close to an “optimal” monetary policy stance for Germany from 1999 to 2007.

Another way of putting that was that Germany managed to run monetary policy such as interest-rates up to the credit crunch. So if it had not happened maybe it still would? We know that it certainly did not suit places like Ireland and Spain which saw a housing boom and bust result from it.

Also Germany has seen quite a considerable amount of monetary easing as it’s economy also benefits from the expansionary policies of the ECB. So it has an official interest-rate of -0.2% and has seen all sorts of extraordinary measures including now some 58.3 billion Euros of German government bonds as part of the QE operation. That poses a real question as we consider the ECB buying German bonds at negative yields. To what end?

However we are seeing an extraordinary level of stimulus being applied to the German economy particularly when you consider it has been one of the better performers in the credit crunch era. We await tomorrow’s update on what happened to GDP in the first half of 2015 but Germany’s Council of Economic Experts is fairly sanguine.

The GCEE expects real GDP to grow by 1.8 % this year,

The Exchange Rate

There have been plenty of swings in the value of the Euro currency in its existence but at 93.3 compared to 100 when it started you can see that it is actually not far from it right now and that it is lower. Indeed there has been a larger fall if we compare the peak which was as the Euro was perceived as attractive when the credit crunch first hit and rose to 114.4 in late 2014.

Now imagine when a German Deutschmark would be! I guess those of us who are old enough are singing along to the old Nimble bread advert.

Up, up and away
Up, up and away
Up, up and away

If we do a comparison with how the Swiss Franc has behaved in the credit crunch era then we have a rough ballpark estimate of 1.50 for what a new German Deutschmark would be worth in Euro terms as opposed to the current 1.11 versus the US Dollar. I am sure that some of you are thinking that the “safe haven” craze might have pushed it even higher.

Whilst it did not cause the situation below we can be sure that it has helped Germany maintain it at a time where exporting had to face the credit crunch.


There have been considerable gains for Germany from Euro membership. Contrary to the regular reports of it being defeated it has gained on most fronts. Before the credit crunch monetary policy was set for its benefit but there has been a much larger gain. Over the past few days I am others have accused China of currency manipulation and devaluation. Well what about Germany?! By joining the Euro it sent its currency on a lower path which post credit crunch has turned out to be a much lower path. On that road it has been able to continue its export success and hence boost economic output. If we look back did Germany fire the first salvo in the Currency Wars? Maybe that is going a little far but there is also a grain of truth in it.

If we look wider we see difficulties emerge as if Germany has a lower exchange rate other Euro area countries have a higher one. I think you can easily figure out who they are! Also if we are talking about China exporting deflation well what about Germany with its 214 billion Euro trade surplus in 2014? Whilst for example nobody is forced to buy a German car it is true that even they would find it harder to sell them at a much higher exchange -rate.


23 thoughts on “How much has Germany gained from its membership of the Euro?

  1. Shaun,
    Ammunition for Italy when the Troika want to it to join Greece in the naughty corner?
    Of topic do the latest UK employment figures increase the chances of EU exit?

    • Hi Chris

      Whilst the continual depreciation of the Lire posed its own questions for Italian economic activity, I am sure that more than Beppe Grillo must be thinking now that it had its benefits too!

      Why do you think that the UK employment figures might have that effect?

      • Latest employment statistics with “12% increase in EU nationals moving to work in UK over the last year” whilst UK unemployment up 25,000 over the quarter – BBC report on ONS figures for Aug 2015

  2. Hi Shaun

    As you say the exchange rate gain to Germany by having the laggards in the Euro has been huge. It will be interesting to see how much squealing comes out of Germany re the Chinese devaluation; even what we have now must impact on their exports there.

    The potential dark side of this is that we seem to be inching towards a German Europe and not a European Germany which is what we have had up to now. I’m not saying the Germans want this or even welcome it but that is the way we seem to be headed and it’s not only wrong from the economic perspective it is also alarming from the democratic point of view. The democratic deficit in Europe is already huge and if this is combined with the potential economic hegemony of a single country (it happens to be Germany but it would apply to any country) then this should set alarm bells ringing.

    • Hi Bob J

      The German Dax 30 equity index gives us a clue in that it has shed around 600 points or just under 6% since the Chinese devaluation. I think we can figure out the shares which led this!

      As to the situation in Europe the whole project started as a way of the French looking to restrain Germany after the world wars. Yes there have been no major wars but Germany is back in charge by other means as you say.

    • As far as Germany is concerned the war is not over. It transmuted from a military expedition to an economic one in 1945 and continues to this day and beyond.

  3. I’ve said for years that the real problem in the Euro area is Germany.
    It is GERMANY which is out of step with the rest; it is GERMANY which has an aggressive export culture, and it is GERMANY which wishes to impose its culture on the rest of EU.
    Well we CAN’T all be ersatz Germans, even if we want to be; trade is a zero-sum game, and it is not possible for everyone to run a surplus.
    I’ve said, all along, that the Euro’s problems would largely evaporate if Germany was expelled.

    • but nobody is going to kick them out because they finance the Euro zone

      and it suits them , so they aint gonna leave either ….


      PS: must learn German so I can ask for more popcorn …..

  4. So it would be in Germany’s interest to keep the instability going and its partners getting into even more trouble. It follows then, if the UK left the EU, it would make Germany even more prosperous, Don’t expect much to many concession for the UK, when the membership renegotiations start in earnest!

    • Hi Foxy

      The credit side for Germany is the lower exchange rate from which it makes substantial gains. The debit side is the loans it has backed to Greece,Portugal Ireland and Cyprus. So as long as the latter get paid it is not so bothered especially at a time when Germany itself can borrow so cheaply or on occasion be paid to borrow.

      As for the UK well as someone who worked through the 1992 ERM departure I recall that none of our “friends” came to our aid.

  5. Hi Shaun, you DO realise that, as far as economic policy suiting one area, Germany in the EU is analogous to London in the UK?

    London is Rome.

  6. Shaun writes basically claiming the Germans are the main spoilers and gainers in the euro game. If this were true one might ask why are / is the average German suffering with high taxes and paying more for less than any time since the end of the war? German banks do not represent the German people or their well being which has suffered greatly since the introduction of the euro. Austerity has hit the Germans hard and it is only getting worse this is only a part of the general gloom but things are not well for most Germans which partly explains the lowest birthrate on the planet.

    • Hi Bonmot and welcome to my corner of the web

      It is a feature of these times that the individual experience differs from the collective one. For example the UK economy is strong but individuals note that GDP growth per head has been much slower and real wages have fallen. In the same way Germany has benefited from the Euro but the ordinary German may find themselves wondering where it all went? Another theme of this blog is the failure of democracy and the rise of the 0.1%.

  7. Hi Shaun, sorry it’s late – been windsurfing sans pc.

    You ask how many cars Germany world sell with a hard DMark. Minis are built in Oxford. My old RHD 5 Series was built in Johannesburg, SA. BMW’s biggest production plant is located in South Carolina. VW has a huge plant in Tennesee. Skodas and some Audi models built in the Czech republic. Seats built in Spain. Various production around Europe. So we are looking at big international companies with a diverse cost base. I suggest these big companies are flexible enough to thrive even with a very strong Mark, after all there is little difference between an Octavia and a Passat. But the Mittelstand who don’t have international production facilities could be hit very hard.

    But Germans understand fiscal discipline and have successfully made internal devaluation work (Hartz4 reforms). I hear whining about Germans “cheating on the euro” but the same internal devaluation methods are available to all EU nations.

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