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Marking the euro at 20: the eurozone is doomed to succeed | Financial Times

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2 days ago

A few points to add on Germany:

1. Germany’s entry into the euro hit German exports hard; with high levels of long-term unemployment, Germans talked of a ‘blocked society’

2. The response from Schroeder’s coalition between 2003 and 2005 was to announce a national restructuring program, Agenda 2010 – of labour market liberalisation and benefit cuts designed by Volkswagen’s Peter Hartz. In 2003, following rising competitiveness, Germany was emerging as an ‘export champion’

3. However, the reasons for Germany’s rising competitiveness, contrary to what many in Berlin thought and still think, were not closely linked to the labour market programme. A more important source of competitiveness was outsourcing production to Eastern/Southern Europe

4. In fact, Hartz’s programme forced millions off long-term unemployment benefits into insecure jobs, pushing down wages for unskilled workers, which, being unskilled, did little to aid export competitiveness. In the first 10 years of the euro, half of German households experienced no wage growth

5. The unintended consequence of Schroeder’s reforms was, by alienating voters, to splinter the left-wing of German politics and pave the way for the rise of the Christian Democrats under Merkel

6. Merkel, reflecting West Germany’s rising dissatisfaction with reconstruction and subsidies for the East, adopted a policy of fiscal discipline, which effectively refused to take responsibility for debts held by East Germany, and later the poorer states of the eurozone – indeed, Merkel drove through the Lisbon Treaty of 2007 which reinforced nation-state responsibility and barred the mutalisation of debt

7. This preoccupation with so-called fiscal discipline led to Merkel’s government shocking markets in February 2010 by agreeing to take emergency measures to shore up the euro, but vetoing any help for Greece

8. Much of this ideological concern for 'fiscal discipline' explains the eurozone's difficulty in responding to the financial crisis and sovereign debt crisis