Institute of World Economics
Research Centre for Economics and Regional Studies
of the Hungarian Academy of Sciences
Germany’s Role in
The Euro Crisis Management
Ágnes Orosz
“POST-CRISIS ECONOMIC DEVELOPMENT
OF EU AND BULGARIA”
18th – 19th October 2012, Sofia
Institute of World Economics
Research Centre for Economics and Regional Studies
of the Hungarian Academy of Sciences
Outline
Outline
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Importance, relevance of the topic
The nature of sovereign debt crisis
Competitiveness imbalances
Current account imbalances
Germany’s euro trilemma
Final remarks
Institute of World Economics
Research Centre for Economics and Regional Studies
of the Hungarian Academy of Sciences
Why is Germany important?
• Strong commitment to stabilise the euro area
• Ruling of the German Constitutional Court on
September 12  „green light” for ESM (with a
few recommendation)
• Engagement to rule-based fiscal policy (pioneer,
role model)
• Biggest contributor to crisis management
• Historical reasons
• Trade, economic performance, etc.
Institute of World Economics
Research Centre for Economics and Regional Studies
of the Hungarian Academy of Sciences
On the issue of „sovereign debt crisis”
• Not primarily a “sovereign debt crisis” 
banking and balance of payments crisis
– Competitiveness imbalances
– Current account imbalances
– Increasing corresponding debt flows
Institute of World Economics
Research Centre for Economics and Regional Studies
of the Hungarian Academy of Sciences
Competitiveness problem of the
periphery
• Particularly important for: Greece, Ireland, Italy,
Portugal, and Spain
• Devaluation is not possible because of the euro  ULC
(increased the most in the „problematic area, while the
least for Germany)  competitiveness gap with
Germany (solution = downward adjustment of
wages???)
• Differences is export basket  decreasing wages no
solution
• Export structure issues
Institute of World Economics
Research Centre for Economics and Regional Studies
of the Hungarian Academy of Sciences
About current account imbalances
About current account imbalances
• Trade surpluses of Germany more regionally
concentrated to Europe
• Loss: decreasing export demand within Europe
• Benefits: (1) depressing the euro stimulating non-euro
net exports, (2) depressing German interest rates 
Germany as a safe haven for investments
• Early warning mechanism of EC (CA above 6% of GDP =
danger for overall stability in Europe) = rather
consequence than cause
Institute of World Economics
Research Centre for Economics and Regional Studies
of the Hungarian Academy of Sciences
Germany’s euro trilemma
Germany’s euro trilemma
– Perpetual export surpluses
– No transfer/no bailout monetary union
– A “clean” independent central bank
• Maastricht regime designed by Germany: no bailout and no transfers (result: bankrupting its trade
partners)
• Trilemma must be solved  steps towards more
bail-out (contradict to the German voters)
Institute of World Economics
Research Centre for Economics and Regional Studies
of the Hungarian Academy of Sciences
Final remarks
Final remarks
• Importance of the presidential elections in September
2013  European policy would be a part of the
election campaign
• Need for additional crisis management measures 
financial relief and political support from Germany
(incremental steps)
• Political union debate has started (potential
constitutional changes)
• Changes in Merkel’s communication (Greece’s visit)