The Telegraph:
Does Germany rule your world?
9 July 2014
Second, it is the view of most economists that Germany has been the biggest winner out the euro, and that being part of the euro - rather than keeping its old currency the Deutschmark - has been an enormous advantage. When it joined, the exchange rate was set at EURO 1 = DM1.96, which most people at the time thought was a fair rate. But it is estimated by the European Commission itself that since then, Germany's real exchange rate has fallen by nearly 20 per cent. In other words, if Germany had kept the Deutschmark, the value of its goods would have been 20 per cent more expensive to any potential customer. Being part of the shared euro, kept weak by struggling neighbours, has helped it drag down the cost of its goods. As a result, German cars, kettles and shoelaces suddenly became far cheaper to buy. This argument has long been pushed by Nobel prize-winning economist Paul Krugman, no less, who has emerged one of the chief Germany-bashers. But a number of other Nobel prize-winning economists, such as Joseph Stiglitz and Christopher Pissarides, have recently joined him in voicing criticisms of the inherent problems of a powerful northern Europe, led by Germany, and a weak southern Europe all using the same currency. Germany, they say, urgently has to readdress its serious imbalances. The most obvious method would be to make its goods more expensive, by pushing up its workers' wages.
This article was published online by The Telegraph on July 9, 2014
Link to article here
Related links
Christopher Pissarides webpage
Macro Programme webpage