The End of the Euro?

June 18, 2010

On June 18, 2010, the American-German Institute (AGI) hosted a conference on “The End of the Euro? Future Economic Policies for the European Union and Germany.” The conference featured expert speakers from the political, non-profit, and academic fields in Germany and the United States and was generously supported by a grant from The German Marshall Fund of the United States and by Allianz SE. Over the course of two panels, the speakers and participants discussed the implications of the euro-zone crisis as well as social welfare policies and a sustainable economy in the U.S. and Germany.

The first panel examined the current euro-zone crisis. While the crisis stemming from the Greece financial problems is not over, the economic indicators in Germany are pointing up. The public deficit will not be as large as forecasted and tax revenues are increasing. While current opinion polls in Germany show that a majority of the population is dissatisfied with the euro, German businesses value the euro as a guarantee against the threat of export devaluation. The euro is also not designed to be situated against the dollar, and German companies prefer a lower euro as this aids their exports. Germany has been criticized for its domestic saving programs, its stagnating domestic consumption, and its consequent reliance on exports. The complicated construction of the euro-zone and the appearance of a European Union that only transfers money have damaged the reputation of the euro, especially as politicians and the media are unwilling or incapable of explaining the complex situation to voters and the general public. The market failures of the financial markets first in the U.S. and then internationally as well as the financial crisis in Greece have presented new problems to the U.S., EU, and Germany – solutions to which are still being found. One of the most pressing problems that will need to be addressed is the fact that Eurostat does not possess more power to check the statistics provided to them; this is one of the regulatory changes that will need to be made. Additionally the EU faces the problem of enforcing policies once the information becomes available.

In the U.S., the costs of the economic crisis and the wars in Iraq and Afghanistan have led to an explosion of the budget deficit, which will be unsustainable in the long-run. Currently at 9.4 percent of GDP, the national security implications of this budget deficit are not adequately addressed in the new National Security Strategy recently presented by the Obama administration. Political will to address the causes and consequences of the rising budget deficit are lacking and it is currently easier for the U.S. to point to perceived policy deficiencies abroad.

The second panel focused on the long-term outlook by analyzing the future of the social welfare policies in Germany and the U.S. and how to achieve a sustainable economy. Three large questions will have to be addressed: 1) What kind of safety net can the state provide; 2) how can the rising public deficit be addressed; and 3) what will be the impact of demographic changes. In regards to demographic changes, Europe is faced with an aging and declining population. The U.S. is currently experiencing population growth; however, the educated population in Germany and the U.S. is comparable as the high school graduation rate in the U.S. is lower. The U.S., however, is at an advantage as it is able to attract a high quality labor force; the EU will have to open its immigration policies to counter its population decline. The transatlantic competition for this skilled labor force will thus have to be addressed.

The German and U.S. economies also face resource scarcity, an increase in environmental costs, and the loss of deficit spending as a driver for economic growth. It is important that the population and the civil society sector in both countries are informed and involved in the debate about these issues.