Who is the greatest economic gainer from the eurozone perhaps Germany!

Simply, the Euro is a weaker currency globally than the Deutschmark would be at this point. The status-quo keeps the cost of German exports low and is the reason why its manufacturing sector remains very strong despite the effects of globalization and the competitiveness of Chinese manufacturing. We have no way of knowing whether the euro at this point in time would be weaker than the Deutschmark might have been; your supposition is therefore a highly speculative one. Indeed, the inception-to-date exchange rate trend of the euro against the US dollar (the world's main reserve currency) has been an appreciative one, making German goods less competitive over time (at least in the US) on the basis of exchange rate alone. German manufacturing long ago moved up the value chain -- producing high quality, high-profit goods. The Chinese do not compete in this arena (there is no Chinese competitor to BMW, Bosch, or even JA Henckels). This may change in the future, as the Chinese keenly realize the need to do so; but presently, German manufacturing is nearly unmatched in its value chain proposition. The Germany economy is actually very weak. It cannot consume all its output at home and it cannot generate sufficient domestic demand for imports to offset its exports. Therefore it cannot keep all its people employed without the kindness of foreigners buying its output. And we've seen with Greece where the kindness of foreigners leads to - the near destruction of other nations who were foolish enough to peg themselves to a German currency - namely the euro. Germany suffers from the Paradox of Productivity. It doesn't need the labour of all its people to produce everything that Germany needs. It uses its external sector to mask this problem and ensure that Germans remain employed. But the cost of this is that lots more people in other countries become unemployed. And worse they get congratulated for doing it.

The productivity of Germany and its lack of domestic demand is the new 'German problem'. What Germany needs to be persuaded to do is start paying its workers more so that there is more domestic demand for its own output or the imports of others Schadenfreude is a reasonable response; for years the architects who forced the Maastricht Treaty through without regard to the obvious consequences have paraded themselves about telling us what a success the Euro zone was. They may be quiet now, but they will be drawing fat pensions and living the life of success whilst the poor in Greece (and across teh whole world) see their livelihoods perish. Have you heard a word of regret from John Major about how he destroyed the Conservative Party to put this shambles on the road, or any regret from the Kinnocks whose whole family have benefited by millions out of this charades? No And how about you hacks; Were you not cheerleaders for the Euro zone, did you not bully the skeptics and call them names and call them rightwing instead of looking at the rational arguments that were being put forward at the time of Maastricht about how "one size does not fit all"? Your mess, now please have some shame and work out how to clear it up. Well actually on secvond thoughts it would be better if you simply disappeared and retired on some Greek Island, lots of cheap labour there for you to spend your retirement income on employing. Why has Germany been the greatest economic gainer from the eurozone The answer is partly that it possesses such a fundamentally strong economy, but also that other eurozone economies have been unable to devalue against it as its competitive position has improved while theirs has deteriorated. This sums it up. The other thing to say is that the weak countries have been able to grow due to the largesse of the strong. (i.e. lower interest rates and available money). When however things get tough, and loans are no longer available, the peripheral countries cannot support themselves, and go bankrupt see Greece, Portugal and such The truth is that the World's banking community was allowed by the incompetent regulators to create far too much debt over the last fifteen years. Everyone with any sort of financial vision did see this - except the bankers who were only ever in it to make easy money. The problem we have is that deleveraging this debt will be far from painless. It can only be economically disruptive to everyone. What we are seeing is the entirely unedifying greed-fest from the financial community to pass the losses that they created, on-to anyone else stupid enough or unfortunate enough.

This situation is not even mainly about Greece or the PIGS and is essentially not about public sovereign debt, but it is about the lending on private secured debt and it is worse in those countries, such as the UK, USA and parts of Spain, Ireland and French cities where property prices have been hugely inflated way beyond the ability of the borrower to repay - just by the actions of unscrupulous lenders. In the past, solving this crisis produced the Long Depression of 1870s through to the end of the start of the twentieth century. There is absolutely no evidence whatsoever that the present bubble's crash will be any quicker to pass by quickly if it is left to its own devices. Inflation deflates historic debt Inflation deflates historic debt seems to tech us the history, but the regulators are against this idea as a solution and they may be right (Wheelbarrows of money to buy a loaf of bread at 9 am and several wheelbarrows by lunchtime!) So what is the other alternative - reduce the pay of everyone (as this is what inflation does). This is itself painful and disruptive. If we want to blame anyone in-particular, it has to be those who we put in change of regulating the markets to prevent the bubble - in the UK - King and his buddies, elsewhere Merkel and Sarkozy. I say - They should be fired for incompetence. There are two questions : A - Is it better to deleverage quickly or slowly? B - Should we actively seek to force deleveraging by putting up interest rates to rational levels - now? I propose to go 'Quickly' for A and 'Actively' for B. The economic madness of releasing oil stocks (china can now stock up while prices are relatively low) in order to temporarily reduce inflation to allow a further bout of money printing will do nothing to improve the situation. As for the EU money consuming monster, Bruxelles, and the Euro, while Germany gets a huge market for its manufactured goods helped by terms of trade which are disadvantageous for Greece Italy and Spain I dont see a long term solution. It's amazing that Germany has been able to fund so often so much externally and still stay ahead. But the Greek (and other mess(en) - no, not Exhibitions) is partly due to the EU rules. Of course the cash gets wasted. I would like the EU to work well, but it never will, while its rulers/executives are as they are.

In short, it seems unlikely that the euro-zone leaders will have any answer to the contagion problem. This means Spain and Italy will lose access to bond market funding, increasing the risk that what started off as a series of fiscal problems affecting a rather small part of the euro-zone economy will end up destroying the entire currency area.

Date : 26/07/2011

Mircea Halaciuga, Esq. 0040724581078 Financial news - Eastern Europe