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The Rise and ‘Potential’ Fall of Germany within the Eurozone.
Josh Walker
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Content
• Brief background to the EU and the benefits of a single currency.
• The decline of the Eurozone and the drawbacks of a single currency.
• Germany’s boom and slow down within the Eurozone.
• The effects of this on the German economy.
• What’s next for Germany?
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Background to the Euro.
• European Union was formed in 1957.
• EURO (€) coins and notes were installed into the cooperating countries in 2002.
• Considered the greatest achievement by the EU.
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Who is Tied Into the Euro?
The Economist - http://www.economist.com/blogs/graphicdetail/2014/08/european-economy-guide
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Benefits of the Single Currency.
• Fluctuation and exchange rate risks are eliminated.
• Single market is theoretically made more effective and supposedly strengthened.
• Closer cooperation.
• EC described this move as a “stable currency for the 21st
century”.
EC official website - http://ec.europa.eu/economy_finance/euro/why/index_en.htm
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A ‘Stable Currency’?
• As soon as there is an economic problem, all of the countries are dragged in.
• This is shown through the financial collapse of the PIGS countries (Portugal, Ireland, Greece and Spain).
• These countries have required bailouts, as they had been borrowing more money than they effectively could banking crisis showed just how much they could not cope financially.
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Greece as an Example
Showing who Greece is indebted to – graph devised in 2011.
Source: BBC News Business http://www.bbc.co.uk/news/business-15748696
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How Did Germany Get So Powerful?
• Cultural reluctance to borrow money families living within their own means.
• Keeping the real interest rates stable.
• Contrasted to the feeling around the rest of Europe.
• This is seen in German businesses too - global financial crisis did not force the German businesses to slash spending keeping the economy afloat.
• Lack of borrowing has kept Germany out of the economic trouble.
Source: BBC News Business http://www.bbc.co.uk/news/business-18868704
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The Tides Are Turning…
Angela Merkel – Chancellor of Germany.
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The Decline of the German Economy.
TheGuardian online -http://www.theguardian.com/business/blog/live/2014/aug/14/eurozone-gdp-frances-economy-stagnates-again-live#block-53ec51e3e4b06c461acbb3d9
• They have become too powerful.
• The only economy which is keeping the Eurozone alive.
THE ONLY COUNTRY WITHIN THE EUROZONE CAPABLE OF
STOPPING IT FROM COLLAPSING COMPLETELY.
Europe’s World -http://europesworld.org/2013/10/01/the-costs-for-germany-if-the-eurozone-collapses/#.VFjOvfmsV8E
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Why the minus GDP growth?
• The German economy has one of the best ratio’s of exports to GDP in the world.
6% of exports got to China China’s economy is slowing a large % of Germany’s exports to china have slumped.
• Export-based economy – EU slump has slowed down their exports – make up 40% of Germany’s exports.
• Drawbacks to both ‘export-based’ and ‘import-based’ economies.
The Economist – ‘Why the German economy is in a rut’ - http://www.economist.com/blogs/economist-explains/2014/10/economist-explains-14
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What is next for Germany?
• “Saving itself into a recession.”
• Experts believe that Germany should step up their spending on infrastructure – something which they have tightened for over a decade – KEYNESIANIST APPROACH.
Boost short-term growth.
Will also work in the long-term – increase productivity.
• Stimulate the economy again – create more jobs, increase productivity (while the money is so cheap).
The Economist - http://www.economist.com/news/leaders/21625784-german-government-should-invest-money-infrastructure-not-worry-about-balancing-itsThe Local - http://www.thelocal.de/20141014/time-for-german-economy-to-change-course
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References.
• “Eurozone debt web: Who owes what to whom?” – BBC News Business [accessed 02/11/2014] http://www.bbc.co.uk/news/business-15748696
• “Eurozone GDP” – TheGuardian online [accessed 02/11/2014] http://www.theguardian.com/business/blog/live/2014/aug/14/eurozone-gdp-frances-economy-stagnates-again-live#block-53ec51e3e4b06c461acbb3d9
• “German economic strength: The secrets of success” -BBC News Business [accessed 02/11/2014] http://www.bbc.co.uk/news/business-18868704
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• Germany’s flagging economy – The Economist [accessed 02/11/2014] http://www.economist.com/news/leaders/21625784-german-government-should-invest-money-infrastructure-not-worry-about-balancing-its
• Should Germany start spending? – The Local [accessed 02/11/2014] http://www.thelocal.de/20141014/time-for-german-economy-to-change-course
• “Taking Europe’s pulse” – The Economist [accessed 02/11/2014] http://www.economist.com/blogs/graphicdetail/2014/11/european-economy-guide
• “The Costs for Germany if the Eurozone Collapses” – Europe’s World [accessed 02/11/2014] http://europesworld.org/2013/10/01/the-costs-for-germany-if-the-eurozone-collapses/#.VFjOvfmsV8E
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• “Why the German economy is in a rut” – The Economist [accessed 02/11/2014] http://www.economist.com/blogs/economist-explains/2014/10/economist-explains-14
• “Why the euro?” – European Commission http://ec.europa.eu/economy_finance/euro/why/index_en.htm
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Thank You For Listening, Are There Any Questions?