there is zero possibility for the germans to leave the Eurozone. Just think for a moment: If they reverted back to the german deutsche mark this would increase dramatically in relation to the euro and make their exports uncompetitive [most of their exports are to other eurozone countries]. So you see nothing is simple in an interconnected and tangled economy we live in. For instance, the Germans couldn't really care less about letting Greece drown in its debt but their banks have invested in lots of Greek debt so they can't really let it go down.
there is zero possibility for the germans to leave the Eurozone. Just think for a moment: If they reverted back to the german deutsche mark this would increase dramatically in relation to the euro and make their exports uncompetitive [most of their exports are to other eurozone countries]. So you see nothing is simple in an interconnected and tangled economy we live in. For instance, the Germans couldn't really care less about letting Greece drown in its debt but their banks have invested in lots of Greek debt so they can't really let it go down.
This is simply not true and completely ignores the impact on imports. If Germany left, then yes the Deutsche Mark would rise and in the very short term exports would increase in price making them less attractive. But import costs would go down meaning that a country that virtually imports all its oil and gas and a large part of its electricity will have much lower input costs allowing businesses to lower their operating costs and prices charged. Food, medical, computer, electronic imports would all go down in price.
there is zero possibility for the germans to leave the eurozone.
You are right that there is an eventual balance, but the German Bundes Bank was renowned for a relatively tight monetary policy which kept its currency strong from the late 40s to the late 90s. It was because of this strong and stable currency that the economy did so well.Its a bit more complex than that. The exchange rate is effectively a function of demand and supply. As the Bundesbank has had a strict policy of containing inflation they have restricted the supply of Deutschemarks (DM) (prior to the Euro). As a result of this and the strong export led economy they have (meaning those buying the exports also had to 'buy' DM to pay for the exports), the exchange rate meant a strong DM.
So while lower input costs would mean a lower price being able to be charged by Germany companies, a lower sales price would drive up demand for exports, meaning a higher demand for DM, driving up the exchange rate -increasing the cost for people buying the exports. This all levels out a point.
The German economy was doing better prior to the Euro, German GNP averaged an increase of 2.3% from 1990 to 1999, while from 2000 to 2010 it averaged 1.1%.German exports are doing better under the Euro for a similar reason as the Euro is not as 'expensive' as a DM would be. Thus German exports are booming.
No it's not a chicken and egg situation. The looser and less stable the monetary policy the more difficult it is to make economic predictions, making life more difficult for businesses. The perfect example is Germany after WWII and the US during the industrial revolution where strong currencies prevailed.In the above regard, the whole exchange rate thing is a bit chicken and egg...what comes first. Its not the only thing in play though (interest rates, economic expectations etc).
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