The standard way of thinking about the eurozone is this: Germany is strong, France is a bit less strong, and everyone else mooches off their strength.
Certainly that’s how it’s appeared lately, post-crisis, but that’s thinking way too small.
Floyd Norris at NYT sheds some light on what’s actually been the case, going back to the creation of the Euro: Germany is the biggest beneficiary around, and everyone else has been losers.
Basically, because periphery countries like Portugal and Greece and Spain are not able to devalue their currencies to a point where they have competitive labour forces, Germany is the huge winner.
Its trade balance has surged from being in a small deficit pre-Euro to a huge surplus post euro.
These charts, via NYT, show how it looks.
Sans euro, Germany’s neighbours would be far more competitive than they are now. Also, if we went back to each country having their own currencies, the Deutsche Mark would surge beyond where the euro is now, making Germany even less competitive as BMWs became less affordable for everyone else.
The workers of Spain, Italy, France and everyone else are crippled to benefit the Germans, and its insistence on a strong Euro. Also it should be noted that pre-crisis, the huge consumption booms in countries like Greece were another subsidy to the Germans.
It’s ironic, then, that German politicians are giving Merkel such a hard time about bailing out her peers. It seems like a classic case of overvaluing the seen — direct transfers to other countries — over the unseen, the pernicious effects of currency system that doesn’t work.