2013-07-17 – London
Former German finance minister Oskar Lafontaine calls Eurozone “untenable”
Former German finance minister and euro supporter, Oskar Lafontaine, sees a Eurozone breakup as imperative for a quick recovery for the EU’s peripheral countries. His latest remarks indicate a U-turn for the German left, which has been reluctant to question the single currency in the past.
The left wing politician who was Germany’s finance minister when the euro currency was launched in the late 1990s has come to believe that the euro has undermined the “social welfare state” and led to “great economic imbalances”, which could threaten European solidarity. The current design of the Eurozone is “untenable”, Lafontaine told the Stuttgarter Zeitung.
While German economic output levels are stable, economic performance is poor in all South European countries. In Greece, unemployment increased to its all-time high of 27 percent and more than 63 percent of young people are without jobs. To maintain the inflow of foreign funds, the Greek government has had to assure the EU and the IMF that it will dismiss 150,000 civil servants by 2015, accounting for roughly one fifth of the government workforce.
In Germany the situation could not be more different: unemployment shrunk by 0.1 percent to only 5.3 percent and GDP expanded 0.1 percent in the first quarter of 2013 over the previous quarter.
Many economists therefore agree that Europe may face a “lost decade” if internal transfers across this North-South divide remain unaddressed.
Lafontaine’s call to abandon the euro thus mirrors public scepticism about the sustainability of a currency regime that accommodates the demands of exporting countries more than those of countries with strong domestic demand. Low interest rates and stable exchange rates as set by the ECB benefit the German economy but they harm Southern economies.
Economic analysis suggests that a periodical deflation could help get these economies back on their feet, yet such monetary intervention is prohibited under EU law.
