by afew
Thu Nov 28th, 2013 at 02:42:20 AM EST
In a memo that we saw here, French bank Natixis' chief economist Patrick Artus, a well-known pundit on French media, describes Germany as a misfit in the single currency area, and outlines the macroeconomic case for D-exit.
This is a quick rundown of his points. The memo, in French, pdf, is here.
With the disclaimer that other fields than macroeconomics may be involved, Artus offers the following reasons for Germany to leave the euro:
- asymmetry of cycles between Germany and Rest of Euro Zone (ROEZ)
- weakening economic links between Germany and ROEZ
- structural asymmetries between Germany and ROEZ
- different foreign exchange needs between Germany and ROEZ
- impossibility for ROEZ countries to carry out internal devaluations
Cycles: absence of asymmetrical cycles is a condition for a shared currency. But GDP growth and the unemployment rate show strong asymmetry:
(Real GDP, annual change in %)
(Unemployment rate)
The asymmetry stems from structural differences (see further down), and differences in how credit supports demand:
(Credit to households and business, annual change in %)
The result of this asymmetry is that common monetary policy is not adapted to the whole of the Euro area. Between 2002 and 2007, it was too restrictive for Germany, too expansionist for ROEX; since then, it has been the reverse:
(Repo rate and nominal GDP)
Weakening economic links: the more economic links there are between countries, the easier it is to maintain a common currency. But the crisis has led Germany to develop its exports outside the Eurozone, allowing it to hold on to its trade balance surplus:
(Germany, annual trade balance in €bn)
This results in a weakening of trade links between Germany and ROEZ, making fixed exchange rates less necessary:
(Germany, exports to EZ: thick line, in % of total exports, thin line, in % of GDP)
Structural asymmetry between Germany and ROEZ: (a) differences in sectorial structure, with greater importance in Germany of manufacturing and industry-related services:<>
(Added value in manufacturing, % of real GDP)
(Intermediary consumption of services by manufacturing, % of nominal manufacturing added value)
(b) Savings: population ageing and cuts in social transfers power a higher savings rate in Germany than in ROEZ, explaining the situation of the current account:
(Over 60s in % of 20-60 population)
(Gross household savings)
(Current account in % nominal GDP)
(c) Labour market regulation: deregulation in Germany has led to a very low-wage sector in services and agriculture that directly improves German cost-competitiveness in these sectors, and indirectly for industry via services. Income inequality has risen faster in Germany than in ROEZ (based on cited GINI figures, decile and quartile comparisons, and poverty percentages).
Differing foreign exchange needs: German industrial product mix is better than in ROEX, as shown by export price elasticity measures (0.3 for Germany as against 0.8 for ROEX; 1.1 for France!). A weaker euro is therefore preferable for ROEX, while Germany prefers a strong euro to keep down the cost of its imports, while its exports depend little on the exchange rate:
(Exports (1999=100), left, and EUR/USD exchange rate, right)
Inability of ROEX to implement internal devaluations: cost-competitiveness continues to worsen relative to Germany, so the correction of the ROEX current account (see above) has come about through compression of demand:
(Unit labour costs, 1999=100)
(Domestic demand, 1999=100)
So how to keep the euro?
The macroeconomic conditions for a monetary union between Germany and ROEX are not currently in place. What would probably be necessary:
accept growing concentration of industry and related services in Germany:
(Manufacturing added value of Germany in % of total EZ)
accept corresponding migratory flows, that have already begun:
(Net immigration in % of population)
correct resulting divergent income levels by appropriate transfers:
(GDP per capita in % of German)
