Germany is letting the rest of Europe go down the tubes

To ask “whether the eurozone will survive” seems so yesterday. Almost every newspaper has asked the question and come up with a shaky answer: can’t be ruled out, but unlikely.

The only guys still asking the question are the Brits, who like to think they were smart to stay out of the euro. According to a report in The Economist, Policy Exchange, a think-tank linked to the ruling Conservatives, has announced a 250,000 prize for anyone who can present the best plan for breaking up the euro. No prizes have been awarded as yet, the magazine assures us, save for a 100 voucher given to a cartoonist who captured the idea rather well. There is, however, a shortlist of five potential euro zappers.

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The reason why questions about the euro’s imminent demise have been muted of late is the LTRO - or the long-term refinance operations of the European Central Bank (ECB). In two tranches, the ECB has flooded the system with over 1 trillion of cheap, long-term funding (three-year loans at 1 percent), and banks are busy rotating the money to earn more money elsewhere.

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But the question is not going away. Ask more specific questions like will Greece drop out of the euro, and the answer quickly changes to, “Ya, possible.”

And the one question that never gets asked is: should Germany opt out? The answer should be yes, for Germany is both the backbone and the key cause of the eurozone’s crisis.

If it opts out, it can bring back the deutsche mark and the rest of the eurozone countries can devalue the rump euro and improve their competitive position while figuring out how to grow their way out of trouble.

If Germany opts to stay in, then it ought to do more than just urge austerity on the poor Greeks, Portuguese, Italians and Spaniards - the PIIGS.

A balanced solution means asking the traditional profligates (the PIIGS) to try serious austerity, and the Germans to try serious spending increases. Without both actions, the burden of adjustment will fall unevenly on the PIIGS.

Unfortunately, Germany continues to run current account surpluses and is worsening the situation. In January, it reported a current account surplus of 8 billion - a continuation of past trends - and its export machine continues to chug along smoothly.

In short, Germany isn’t helping the rest of the eurozone stay afloat.

If there had been no euro, the uncompetitive southern half of Europe would have devalued their currencies and improved their competitiveness.

Inside a single currency, the only option left is “ internal devaluation” - a phrase that is catching like wildfire as though it is some kind of silver bullet.

Shorn or mumbo-jumbo is means savage wage cuts and job cuts.

What it will lead to is shrinkage of GDP in Greece, Spain, Portugal, and Italy - with a decline in their standard of living - for some years.

Wouldn’t it be simpler if Germany bought more of their products, ran a current account deficit, and helped them earn something while tightening their belts?

This simple solution does not seem to have occurred to the Germans. All it means is spending more on imports from the rest of Europe- something that comes easily to most government everywhere.

What’s wrong with Germany’s politicians that they cannot grasp this simple remedy?