You Know, We Might Be Looking At Another European Recession Already

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• The German Centre for European Policy has reported (20 Years of the Euro: Winners and Losers 2019) that Germany and the Netherlands are by far the main beneficiaries of the Euro, whilst France and Italy have been the biggest losers. The report also noted the negative impact on the southern Eurozone countries.

  The 10 non-Eurozone countries in the EU do better, with higher levels of growth. Whilst it might be true that Poland and Hungary, for instance, have more scope for growth as they start from a lower base than Germany, it is very probable that were they in the Eurozone their economies would be stagnating.

  However, the obvious benefit that Germany has accrued by having an artificially low exchange rate via the Euro may well have run its course. Its huge trade surplus has been the result of selling industrial output, to a large extent, to EU member states. Their economies are not growing fast enough to absorb that output, too much supply and not enough demand makes Germany more vulnerable than is supposed.

  The cracks in Germany have reached a point where they can't be papered over. Once pristine autobahns are in need of repair, education outcomes are even worse than in the UK and lag some way behind the likes of Estonia. The new arrivals have not proved a boon to the economy, but the exact opposite.

  However, Germany has a plan to ensure the long-term strength of its industrial sector, that plan is closely intertwined with European Union militarisation. The merging of EU member states' military capacity, Nick Clegg's dangerous fantasy, opens up huge possibilities for the German arms industry. The EU will of course standardise member states military hardware, just as they standardise the curvature of fruit and vegetables.

  The standardisation will require initially re-equipping armies, navies and air-forces and continued maintenance and upgrades without end. As we have already seen from the bailouts of Greece, much of which went to Greece's creditors who by and large were German and French banks; Greece as part of the deal was required to purchase very expensive German submarines and associated maintenance contracts at a cost of 25 billion Euros. In effect the ECB "printed" Euros, passed that money via Greece but basically directly to French and German banks and the German arms industry.

  The fatal flaw to this solution is that it is no solution at all, certainly in the short term it will boost the German, and to a lesser extent the French, economies by increasing arms sales, but by the same token it will reduce the purchasing power of consumers, whose liking for BMWs, VWs, and Mercedes will be less easily indulged.

  A German dominated militarised EU is cause for concern. Recently President Macron has justified the need for a unified EU military to protect the EU from the United States, Chancellor Merkel has stood behind his comments. That this barely raised an eyebrow in European capitals indicates just how quickly Europe's security landscape can change and how reckless European leaders can be.

  The EU's expansionist agenda, which so far has been carried out with diplomatic efforts backed up by huge sums, has in the case of Ukraine been dangerously destabilising and wholly in the negative. Will the EU be able to resist the temptation, once it has effective control of member states' military capacity, not to add the threat of force when pursuing its polices in respect of neighbouring states? The tendency for states with ailing economies to seek the diversion of conflict, especially in the European context, has not ended well in the past and there is no reason to suppose that it will do so in the future.

  • An artificially weak currency may be good for the owners of the large German conglomerates, but good for Germany as a whole? Every German is worse off because their currency is worth less than it would be absent the Euro. How many more beers could be purchased on the Costa Del Skol if paying prices in Pesetas with D-Marks than paying in Euros with Euros? How much cheaper would BMWs be _for Germans_ buying them in DM when the imported components are bought with strong DMs instead of weak €?

    • Indeed, just a few decades ago German tourists in the world's exotic destinations were commonplace, today their absence is conspicuous; their buying power in Euros is a lot less than it was with DMs. Of course reunification costs no doubt have also played a part in reducing part of the population's disposable income.

      However if Germany had kept the DM exports would certainly been more expensive and therefore employment less. The raw material cost of most manufactured products is a very small part of the overall cost, wages, development, energy and plant are much more significant, so BMWs would probably not be much cheaper in Germany if they were still purchased with DMs.

      It is also probably true that had Germany kept the DM the European Commission would have been far less forgiving of Germany breaching EU law by having such a large trade surplus.

      It is hard to know if individual Germans would have been better off keeping the DM, but it is almost certain that the economy as a whole would have struggled.

• But that’s Germany, what about the wider eurozone?
  
  The eurozone's economy is Germany + rounding errors.