Here’s one more point from George Soros’ takedown of German economic policy, which just went up at the New York Review of Books. It’s in regard to this idea that Germany might be better off if it left the euro, and re-introduced the Deutsche Mark, as so many German citizens apparently would like to see.Here’s what would happen:
The Deutschmark would go through the roof and the euro would fall through the floor. This would indeed help the adjustment process of the other countries but Germany would find out how painful it can be to have an overvalued currency. Its trade balance would turn negative and there would be widespread unemployment. German banks would suffer severe exchange rate losses and require large injections of public funds. But the government would find it politically more acceptable to rescue German banks than Greece or Spain. And there would be other compensations: pensioners could retire to Spain and live like kings, helping Spanish real estate to recover.