In my previous post, I wrote, “The problem seems to be the German government’s unwillingness to explain that Germans benefit more than anyone from the eurozone. Break it up, and German banks go kaplooie, German exports become uncompetitive, German wages become unsustainable, and the German people get blamed.”
One reasonable objection might be that Germany depends relatively little on the rest of the eurozone for its export revenue. (See the above chart for German exports in billions of current dollars.) In 2009, the eurozone took only 41% of all German exports. Moreover, much of the eurozone is likely to survive any crisis. The six countries whose new currencies are likely to collapse in the event of a breakup (Belgium, Greece, Ireland, Italy, Portugal and Spain) took only 17% of German exports. Those statistics certainly make it seem that Berlin could afford to let the European Union go hang.
Except ... well ... Germany depends a lot on exports. Exports to the Notorious Six may come to only 17% of German exports, but Germany exported 38% of its GDP in 2009. Exports to the Notorious Six, therefore, came to 6.6% of German GDP. In addition, imports from the Notorious Six came to 5.0% of German GDP. Imagine, then, a devaluation that caused German exports to those countries to drop by a third, while imports from them rose equivalently. The total negative shock to Germany’s economy would come to 3.9% of GDP. That is, I think, quite large. Depending upon the multiplier, the shock could be even larger.
Add to that the negative effect from the collapse of all those German banks that invested in the Notorious Six (plus the huge rise in uncertainty that any European collapse will entail) and the negative effect is likely to be much much larger than 4.9%. Six percent? Eight percent? Your guess is as good (and likely better) than mine. But the numbers look to be at Great Depression levels, unless the German government proceeded to throw its current rulebook out the window and deficit spend as if there was no tomorrow. (1931 all over again!)
Will German voters prefer to pay that price rather then pay to resolve the credit crises currently besetting (or threatening to beset) the Notorious Six? I do not know. I increasingly suspect that they would. Buckle up; we seem to be in for a rocky ride.