Tuesday 26 June 2012

German fear of Eurozone collapse

Germany fears eurozone collapse would decimate country's economy
German finance ministry projections show Berlin is far from negotiating solution to eurozone crisis from position of strength

24 June, 2012

German finance ministry officials fear that a collapse of the eurozone would decimate the country's economy, driving thousands of companies out of business and putting an additional 2 million people out of a job.

A ministry official told Der Spiegel of the latest projections, which belie any sense that Germany, the richest and most powerful eurozone economy, is negotiating a solution to the crisis from a position of overwhelming strength.

In the first year after a breakup, the German economy would contract by 10% and the number of unemployed would soar above 5 million, the ministry predicts. Germany's current jobless figure is just under 3 million, the lowest in two decades.

Hundreds of thousands of jobs would move abroad, and thousands of companies would go bust. The country's deficit would shoot up as tax income fell and the government was forced to increase expenditure, from bailing out banks to spending more on social welfare.

"When measured against such scenarios, even an extremely costly rescue seems to be the lesser evil," a ministry official told the magazine.

Der Spiegel also cites another scenario put forward by the Swiss bank UBS, which predicts that the breakup of the euro would cost Germany far in excess of €500bn (£403bn), and up to a quarter of its entire GDP.

In an interview with the magazine, Germany's finance minister, Wolfgang Schäuble, warned of the dangers of the eurozone collapsing. "Many of the things that we have achieved and cherish would be called into question, from the common market to free travel across Europe."

"A disintegration of the EU would be absurd," he said. "The world is moving closer together, and in Europe each country would go it alone again? This cannot be, must not be and will not be."

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