THE BLOG

Why Germany Should Vote No and Leave the Euro

06/07/2015 11:02 BST | Updated 04/07/2016 10:59 BST

It is patently clear that the eurozone has been a disaster, and consequently that if Greece wants to end its humanitarian crisis, it should vote no in the Sunday referendum, leave the eurozone, and reissue the drachma. What is perhaps less obvious, but nonetheless true, is that Germany should also follow this path and leave the eurozone and reissue the D-mark.

This is because - like Greece, though nowhere near to such an extent - the German public has suffered considerably under the eurozone system. Wage-growth offers a pertinent example of this.

Over a 20 year period, from 1990 to 2010, median per-capita income rose by only7.5 percent - or 0.4 percent per year. Compare this to the UK and Spain, where comparable income rose by over 50%. As Neil Irwin, a correspondent for the New York Times, points out, this has led to a dramatic shift in international standards. "In 1990, [German middle-class workers] made 10 percent more than similarly situated Dutch workers and 29 percent more than middle-income British ones. But by 2010, they made less than either."

It is no wonder that already this year the German train and postal services have gone on strike, with the postal service strike lasting - so far - for a month. Nor that poverty is at its highest point since reunification, with 12.5 million Germans being classed as living in poverty.

One might wonder what pay specifically has to do with the eurozone. Afterall, pay can be low in countries outside of the eurozone as well. The point is to do with the reason that pay-growth has been so low in Germany, which is intimately related to the eurzone.

Without its own currency, the only way for Germany to remain competitive internationally has been essentially to cut wages. Again, as Irwin notes, "One result [of the non-existent pay-growth] was a boon for German exports. By keeping a lid on wages, Germany made its exporters' products more competitive in the global marketplace." Consequently, this had the effect of running up "debt in Spain and Greece and Italy," who were importing German goods, as "Germany sold more stuff to Southern Europe than it bought."

Normally, this strategy would mainly benefit the importing countries, as they would be acquiring real goods in exchange for IOUs - money, that is. But, when the importing countries were countries inside the eurozone - countries without the ability to issue their own currency - then the inevitable debt (and austerity) became a problem, causing poverty and declining or stagnant wages in all countries concerned, both importer and exporter.

The solution to this problem, perhaps like most solutions, is relatively straightforward and simple. Vote no, abandon the eurozone, and reissue whatever national currency was used before entry into the eurozone. In the case of Germany, this would allow the Deutsche Bundesbank, the central bank, to devalue the currency in order to remain competitive, instead of smashing wages.

If, instead, this solution is not taken, then for Greece there will be "more austerity, more disasters and eventually a crisis much worse than anything we've seen so far," to quote the Nobel prize winning economist, Paul Krugman. And for Germany there will be continued wage-suppression, continued poverty, and continued strikes, as the country is transformed for the worse by the monetary union.

With these considerations both Greece and Germany should say no to the eurozone.