The Disastrous Consequences of a Euro Crash

(…..) Germany Would Be Hard Hit. Germany, great exporting nation, would be especially hard hit by monetary reforms in southern countries. Exports to Italy and Spain alone are valued at about €100 billion a year. Although sales of cars, machinery, electronics and optical devices would not be eliminated altogether in event of a euro collapse, there would be sharp declines, because customers in Southern Europe could no longer afford German products. As soon as lira or pesetas were in circulation once again, the currencies would be devalued against euro. Some expect their value to decline by 20 to 25%, while others believe that as much as 40% is likely. German goods would automatically become more expensive and would hardly be competitive anymore. When BMW CEO Norbert Reithofer warns that a collapse of the euro “would be a catastrophe,” and says that he “doesn’t even want to imagine” possible consequences, he isn’t just thinking about declining exports. Reithofer fears that regionalism could return to Europe, and that countries could reintroduce customs barriers to protect domestic industry. And current uniform environment protection rules would be replaced by a large number of national regulations. All of this would plunge German export economy into a crisis. Consequences would be extensive for companies that don’t just sell products to Southern Europe, but also maintain branches there or hold partnerships in local companies. German industrial conglomerate ThyssenKrupp, for example, earns about €1.6 billion in revenues in Spain, where it also employs 5,500 people, mostly in elevator production. Even more important to the company is Italy, where it makes €2.3 billion a year, mostly with the production of stainless steel. ThyssenKrupp’s business in Italy and Spain makes up 9% of total sales, which illustrates importance of the two countries in terms of profits. If a reintroduced lira and peseta were devalued against the euro, amount of money that the subsidiaries transferred to the parent company in the western German city of Essen would shrink. A look at the statistics of Germany’s central bank, Bundesbank, illustrates the amounts of money at stake for the economy. They show that in 2010, German companies achieved sales of about €218 billion in Italy, Spain, Portugal, Greece, Ireland and Cyprus, with Italian subsidiaries alone accounting for €96 billion. Value of foreign direct investment in these countries is about €90 billion. German companies would also benefit from a euro crash, labor costs would decline in their Portuguese or Spanish factories, but on balance consequences would be negative. After last appreciation of currency in Germany, when deutsche mark was flying high in mid-1990s, export economy suffered the consequences for years (…..)



Acerca de ignaciocovelo
Consultor Internacional


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