The Eurozone As An East-German Motorcycle
Eager for yet another explanation why despite all the bluster and rhetoric, it is Germany that has been the biggest beneficiary from the “Eurozone Experiment” (at least so far), as the following chart (and yes, there are other nuances, but in a continent in which youth unemployment is approaching 60% in increasingly more countries, it really is all about jobs) so clearly shows…
… then here is one from the inimitable Albert Edwards of Socgen who compares the destruction of the peripheral economies to… the iconic East German motorcycle the MZ, the two wheel equivalent of the just as iconic Trabant.
My final observation about the current eurozone conjuncture is to remind readers about the fate of the East German MZ motorcycle company (see picture below). Prior to the 1990 reunification of Germany these motorcycles were an extremely common sight (eyesore?) on the streets of London. But in what many saw as a cynical vote catching measure, Chancellor Kohl allowed the East German savings in Ostmark deposits to be converted into the Deutschmark at a one-for-one exchange rate (the black market rate was nearer to 10-1). The immediate euphoria of East Germans being able to spend their savings at a favourable exchange rate was replaced by gloom as East German industry was bankrupted at this wholly incorrect exchange rate. The quaint, oily MZ had a market at the right exchange rate. At the wrong one East German industry was bankrupted and West German citizens were forced to ultimately pay a heavy financial price for the resultant mass unemployment. And now all these years on one could say we are dealing with almost exactly the same issues: i.e. countries locked together at wholly inappropriate bilateral real exchange rates? Plus ça change