Nostalgia for Deutschmark fades as Germans accept euro

Germans are not known for public outbursts of emotion yet many get misty-eyed at the memory of the Deutschmark, which began its long goodbye 20 years ago.

Elderly western Germans in particular recall in hushed tones its arrival. As the UK stumbled along on spam and rationing until 1953, the Deutschmark’s arrival in 1948 saw shops fill up again – overnight – with food not seen since before the war.

The new currency joined the auto industry and soccer as a source of prosperity and pride for a traumatised nation. Even today, banknotes and coins worth €12.55 billion are still out there in circulation.

By comparison the euro’s introduction two decades ago is remembered as an unsentimental quid pro quo.

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Germany's European neighbours – led by France – were anxious for a single currency to rein in its neighbour's economic might.

For Germany, sacrificing the Deutschmark was part of ending decades of war – hot and cold – in Europe along with German unification.

Chancellor Helmut Kohl didn't last in office until the euro's technical introduction in 1999. And three years later, when the banknotes and coins arrived, Germany was already sliding into recession.

For a sceptical public, the simple DM/euro exchange rate of almost 2:1 sparked the first – negative – myth of the "Teuro", merging euro with teuer, the German word for expensive.

Many Germans have not forgotten how many retailers ripped them off for groceries and other day-to-day items. They paid no heed when macroeconomic surveys emerged showing largely stable prices and no noticeable euro-related price inflation. By then, the reputational damage was done and some dogged DM fans still compared mark prices – frozen in time in 2002 – to euro prices that continue to rise with modest inflation.

The biggest dent to German euro attitudes came with the euro crisis a decade ago, as Angela Merkel realised – later than many EU peers – that the currency was in peril without pragmatic Berlin's backing.

Necessity made her the mother of invention and, working with other leaders in a series of late-night summits, Merkel found ways to support emergency euro interventions that circumvented the very bailout ban used by her mentor Helmut Kohl to sell the euro to ambivalent Germans.

The crisis measures staved off disaster but for doctrinaire Germans the European Stability Mechanism bailout measures remain a bone of contention.

Sense of betrayal

Among those still speak of betrayal are Hans-Werner Sinn, then influential head of Munich’s Ifo economic institute, and Jürgen Stark, the European Central Bank chief economist who resigned in protest in 2012 when the Frankfurt institution began buying sovereign bonds to stabilise some euro members.

“German conservative circles always had their reservations about the single currency and, in the euro crisis, they saw confirmation of their doubts,” said Prof Ferdinand Fichtner, an economist and professor at Berlin’s University of Applied Sciences (HTW).

These critics’ predictions of the euro’s imminent collapse have yet to materialise. But, as with most Cassandras, disaster is always just around the corner: such as in the €2.6 trillion invested by the ECB in sovereign and firm bonds.

Weeks ago, the European Court of Justice (CJEU) finally dismissed German complaints against the practice.

But the critics’ public warnings, taunts and ridicule – of ECB monetary policy and the euro as a political project – have gone a long way to dampen Berlin’s ambition in the euro crisis and in the current euro reform debate.

Opinion surveys tell their own tale. A 2010 Infratest/Dimap poll, as the euro crisis began to roar into life, found just 36 per cent of Germans wanted the mark back compared to 60 per cent happy with the single currency.

The biggest dent to German euro attitudes came with the euro crisis a decade ago

That changed a year later, at the peak of the crisis, when some 57 per cent of Germans agreed that Germany “should have kept the DM rather than introduce the euro”.

But as the crisis calmed, so did public opinion. In 2012, as Germany began an ongoing economic home-run, some 76 per cent believed it was a good idea to retire the DM for the euro.

Crisis myths

Jürgen Matthes, head of the research unit at Cologne's German Economic Institute (IW), says there is a growing acceptance that the integration and stability aspects of the euro are important, given the external economic pressures the EU now faces from China and the US.

He also sees a similarity in Germany to other countries: a euro-crisis narrative that focused more on others’ failings than one’s own behaviour.

“Few here discuss the German money that, before the crisis flowed to southern Europe and contributed to their bubbles,” he said.

Another persistent crisis myth: that Germany gave Greece money. In fact, Berlin – like other euro capitals – provided Athens with loans, on which it has earned almost €2.9 billion. Just don't expect to read about that in the euro-critical conservative press where, instead, complaints are rampant about how the ECB's low interest rate monetary policy is eating away at savings.

Few highlight the upside of low interest rates for Germany: savings of about €290 billion in servicing its federal debt.

Balancing the federal budget, presented by Berlin politicians solely as a national achievement of prudent housekeeping, is much easier when your borrowing costs shrivel.

The benefits of euro membership are rarely flagged as prominently as perceived drawbacks

Whether crisis loan profits, low-interest windfalls or a favourable exchange rate – ensuring competitive prices for car exports – the benefits of euro membership are rarely flagged as prominently in Germany’s euro debate as perceived drawbacks.

Price stability

But Bundesbank president Jens Weidmann is sanguine about the 20-year-old currency's future.

"A new generation has now grown up in Germany which views the euro as its currency quite naturally," he told The Irish Times.

He suggests that work is needed to highlight the benefits of the single currency for all member states, and to push back against notions of everyone being hostage to a monetary policy that favours everyone else.

The ECB’s governing council mandate is to preserve price stability in the euro area and it has been successful in achieving this goal. The governing council, he insists, has all euro countries in mind when it makes monetary policy.

“No country should receive preferential treatment or be punished and the euro system must stay clear of fiscal policy in particular,” said the German central banker, a vocal critic of ECB bond-buying.

Even as the policy expired at the end of 2018, Weidmann remains vigilant of viewing extraordinary ECB intervention as a substitute for sound management of national economies. That was not the deal struck when the euro – and the ECB – were established.

“It is first and foremost the national authorities that are responsible for addressing the challenges of globalisation or technological change,” he said, “ensuring the competitiveness of their economies and promoting decent jobs.”