The costs of a collapse of the € are high - especially for Germany

Germany’s interest to maintain the European Monetary Union (EMU) from an economic point of view should be significantly higher than for other EMU countries. It would be an economic disaster for Germany, if other countries leave the EMU. Consequently, Germany’s position supporting austerity and fiscal discipline is right, but very difficult to realize. The costs for Germany if the country leaves the EMU are at least € 12b per annum and could easily grow to € 85b p.a. In contrast to that, France would be able to gain export shares by between € 19b and € 37b p.a. if it leaves the EMU. Analogously, Italy gains between € 10b and € 186b p.a., Greece at least € 0.5b up to € 35b p.a. In the ase of a Grexit, the Greek currency (Greek €: G€) depreciates immediately down to 1.69 G€/€ which rises the Greek GDP in the same instant by € 35b or 17%. At the same time, enormous costs caused by the two rescue packages would be initiated for the EMU countries. Spain and Italy as well would be able to realize immediate gains caused by immediate currency depreciation which amount to around 12% of their GDP. The German costs of a “Grexit“ are at least as high as € 3.9b p.a. Inventing Eurobonds causes extra interest costs for Germany of € 65b p.a. unless the fiscal treaty and possibly a closer coordination of fiscal and bank policy of the EMU member countries is initiated causes more fiscal discipline. In the latter case, France, Italy, Spain, and Greece would be able to benefit from dramatically falling interest costs without having higher interest burdens in Germany. Germany will have to pass a significant proportion of its EMU benefits to the member countries, otherwise the currency union will fall apart. Currently, the cheapest option from Germany’s viewpoint is to establish continuous transfers to Greece which costs Germany roughly € 5b a year and transfers roughly € 12 b a year to Greece.