Conceivably, Germany learned three things from the 1992 experience, and mapped out a course with those lessons in mind. First, absent fixed exchange rates, its export-oriented companies faced the risk of periodic competitive devaluations from the rest of Europe.
German exports had peaked in 1990, and did not fully recover until 1994. They would not fall again for an entire year until 2010, after the credit crisis devastated world trade.
Second, a currency union could help German exports if the euro’s value were held down by less competitive economies.
Italy had been forced repeatedly to devalue the lira as rising costs made its exports too expensive. A common currency would not stop the rising costs, but it would prevent a new devaluation.
Germany, China and the Republicans are the Axis of Fools.Finally, if Germany adopted a low-interest-rate policy, and superlow rates arrived in European nations accustomed to high rates, banks could open the credit spigot and create a debt-financed boom in much of Europe. That would invite a mushrooming of imbalances. Ultimately, deeply indebted countries would face a crisis, one that they could solve only if they acquiesced to German policies and surrendered a large part of national sovereignty.