Why Germany will never leave the eurozone

Germany may grumble about its eurozone partners. But the truth is, it gains far too much from the single currency to ever quit.

More talk on the Today programme this morning about how Germany should leave the eurozone and either take back its own currency or form a strong currency union with a few other northern European countries. Back in the days when the euro crisis was just coming to public attention, I remember thinking that this might be a workable solution I even wrote a blog on it. And while it might even still be something of a way out, I just can't see the German authorities going for it voluntarily.

Why? They've gained more from the euro than they will ever lose from bailing everyone else out. How? In general, a currency represents the strength of a country's economy. So when the UK is doing well, sterling rises. When it is doing badly, it falls (you will have noticed it mostly does the latter).

But the euro represents a spectrum of countries, connecting Germany's strength with the weakness of the periphery. So it is much weaker than thedeutschmark would have been and much stronger than say the lira would have been. That gives Germany a whopping advantage: it gets to sell its exports abroad at a significant discount to what you might consider to be the 'real' price.

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That works for its manufacturers they offer quality anyway, of course, but this lets them offer excellent value to their clients at the same time. The common currency also stops many of the rest of Europe's companies competing with Germany. With no euro, everyone else would devalue their currencies to nick a bit of market share they might not be able to offer German quality but given a free floating national currency they could surely offer the kind of prices that would go some way to compensating.

With the euro they can't. Instead, while Germany basks in the glory of weak currency driven manufacturing success, they have to put up with strong currency driven failure.

That's why Germany, with a mere 1% of the world's population accounts for 9% of its exports. It is probably why German consumer confidence is still better than everyone else's and why its labour market is relatively buoyant. Finally it is why the country has managed to move, as if by some miracle of manufacturing from having a trade deficit in 1999 to having the world's second largest trade surplus now.

Yes, Germany has done a good job at reforming its labour markets and yes, there is much to be said for its innovative and high performance products as well as its core of family owned mid-sized companies. But as all consumers know, price is the thing that makes a difference at the margin. Global politicians and economists spend a great deal of time having a go at China for being mercantilist artificially holding down its currency in order to keep its exports cheap and gain global market share at everyone else's expense. We don't have a go at Germany despite the fact that it is effectively doing exactly the same thing, simply because it is doing so under cover of the euro.

The existence of the common currency allows Germany to have a weak currency at the same time as it gets to bluster away about the importance of a strong currency and be taken seriously as it does so. I can't see its manufacturers or politicians giving that up without one hell of a fight.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.