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Are Germans’ Worries Over the Euro Justified?

December 8, 2010
by

As people wonder about the future of the euro, the BBC yesterday ran a story about how people are still using Deutschmarks for everyday transactions.  While the euro has been the official paper currency of Germany since 2002, people can still use Deutschmarks and one can still exchange them for euros at German banks.   However, now that people’s faith in the euro has been eroding, the Deutschmark has become more popular as it was long a symbol of West Germany’s rebirth after the Second World War and post-war economic boom.

 

Relatedly, as I have commented a few times, portions of the German economy, particularly the export sector, may actually benefit from the euro crisis since the crisis has driven down the value of the euro.  The BBC also reported this morning that German’s trade surplus shrank in October, which might actually not be surprising, since the euro appreciated compared to the dollar in October compared to September.  In November this trend was reversed in response to the Irish bailout.  Perhaps counter-intuitively, German business confidence actually rose in November to record highs since German reunification in 1990.  However, on closer look this may not be too surprising since the German economy is booming when compared with its southern neighbors, and this trend will probably continue, regardless of the woes of other euro members—provided that the euro does not completely collapse.

 

As a result, while a minority of German citizens might have lost faith in the euro and want to return to the trusted Deutschmark, it is important to note that the German economy—which has historically been the engine of European growth—is still doing well.

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