Germany, Not Greece, Should Leave the Eurozone

Why should Germany continue to pay for the fiscal mistakes of other countries?


There's much talk of Greece leaving the euro. The current Greek government has almost certainly failed to implement the austerity measures necessary for future bailouts, and the left-leaning parties of Greece continue to cling to the myth of eurozone membership without austerity. Italian and Spanish membership of the euro is also increasingly in doubt, thanks to record levels of borrowing and government spending.

Germany, one of the only countries that has enjoyed any growth recently, has been the main source for much of the financial assistance enjoyed by so many of its European neighbors. Although Chancellor Angela Merkel is against any country exiting the euro, some of her colleagues are not so committed to the single currency. Some members of the coalition government have openly said that if Greece is unable to implement the necessary austerity measures, then Germany should veto any further assistance. Such a move would force Greece out of the eurozone, setting a worrying precedent for countries like Italy, Spain, and Ireland.

Despite all the talk of eurozone exits, one possibility hasn't been raised nearly enough: the possibility of a German exit. Such a move would not only be economically advantageous to Germany and the rest of Europe in the long run, it would also be one of the few morally justified exit strategies available.

Since the euro crisis began, Germans have been paying for the irresponsibility of other foreign governments. Early this year the European Stability Mechanism was set up to coordinate future bailout efforts. Despite its namesake the mechanism has not provided much stability and its constitutionality is currently being considered by the Federal Constitutional Court of Germany. It is worthwhile for the German senior judiciary to examine the ESM closely, especially given that Germany is providing 27 percent of the funds.

There is only so long that Germans will put up with being the go-to bailout source for Europe, and it seems that German politicians are slowly coming around to accepting that bailouts can be politically as well as financially costly. No responsibility is being felt by those responsible for the crisis. As Germany's deputy finance minister said in June, "debt is a national responsibility." A German exit from the euro would help address the question of culpability.

As Citadel founder Kenneth Griffin and University of Chicago economist Anil Kashyap wrote in The New York Times, with Germany resorting back to the mark the rest of Europe would enjoy a devalued euro, allowing the countries left in the single currency more flexibility in managing their finances. Such a move, while by no means popular, has been discussed in the Times, Time, and Harvard Business Review, where such benefits have been outlined. Without Germany in the single currency many of the countries that currently rely on German generosity will have to implement lasting fiscal reforms. A German euro exit would not be comfortable in the short term, but in the long term at least the countries that have been suffering humiliation on an international scale will be able to gradually regain some semblance of dignity.

Morally, such a move is also desirable. For the last few years those with no attachment to the stupidity of European politics have been asked to come to the rescue of governments whose members have not had any costs to bear. The proposals being considered do not accept that it might be seen publically as the right thing for Greece and/or Germany to step out of the crisis. No one can fault Greeks for deciding to embrace default or a devalued currency, nor can anyone fault Germans for wanting to stop paying for mistakes that were not theirs.

The toxic commitment to the eurozone that seems to have possessed most of Europe is having a disastrous effect on not only the economies of Europe, but also on the notion of moral responsibility. Were Germany to exit the Euro there would be some hope for Europe's economy, but perhaps more important, a German exit would stop other countries assuming bailouts are as good as guaranteed.