In February European car sales fell by another 10%. They fell last year as well.
Prior to the Euro crisis Germany did well out of the Euro and the EU. Germany worked hard to produce good products and to keep her own costs under control so her products were competitive. She was then able to sell her cars and other items throughout the Eurozone, earning a large surplus for Germany.
Germany was not expected to pay much extra in tax to send grants and loans to the rest of the zone. The theory was each member state in the Euro had to take responsibility for financing its own government, and balancing its own external payments. The system differed from a single country single currency area, where much higher levels of grants and internal transfers are made to let the system work without an exchange rate to correct the imbalances.
Now the deal is a much worse one for Germany. She is having to look outside Europe for markets for her products, as the demand in the weaker Euro states has been in freefall. They cannot afford nearly so many luxury cars as before. Meanwhile Germany is being expected to put up much more money to help finance the overborrowed states and to pay for the balance of payments imbalances and to recapitalise the weak banks.
Frau Merkel is no longer an automatic ally of Mr Hollande. Germany backed the UK’s calls for cuts to the EU budget recently. There are signs that Frau Merkel has to tell her voters she will not use too much German money to prop up the Euro. The more the EU market declines as a source of German prosperity, the more likely it is German voters will oppose putting more money in to keep the whole system going.
The best hope we have all the time we do not have a Eurosceptic majority in the UK Parliament is the growth of Euroscepticism in Germany. It appears that Mrs Merkel now has to accept that German voters are turning against Germany paying ever larger bills for her partners. That mood forced Mrs Merkel into a tougher approach towards Cyprus than she adopted to Greece. The Euro cannot survive for many more years without Germany and the other rich states agreeing to put much more of their taxpayers’ money into the common cause. The UK is more likely now to get German support for less Europe.
Meanwhile, some Germans are beginning to worry about stealth ways of Germany paying for all the losses and economic disaster elsewhere in the zone. Too much monetary experimentation could give Germany inflation, eroding the value of her savings. Tougher approaches to broken banks could lead to German losses on desposits around the currency area. German money has been committed via the European Central Bank to keep the weak banks elsewhere in funds.
The truth is, all the time Germany remains in the Euro, they will have to find ways to make the German public pay. If they will not vote for higher taxes to send the rest of the zone grants, the officials and politicians will find back doors ways of taking German wealth to do the job. The Euro comes with a high price for the prudent and successful caught up in it.