Monday

18th Dec 2017

Focus

Euro-exit parties fail to do their maths

  • There is no clause in the EU treaty on exiting the euro (Photo: ec.europa.eu)

What is the price of a monetary union, or of leaving one, for that matter? These questions are now being raised by the eurosceptic parties that are gathering momentum in Germany, the Netherlands and Finland, all considered to be 'core' eurozone countries.

United by their grievance over the cost of the bailout to the crisis eurozone countries, these parties advocate a future in a drastically different European Union.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

But as their parties' popularity rises, so do questions about the practical implementation of their ambitions.

In the Netherlands Geert Wilders and his Party for Freedom – currently polling at around 20 percent – advocate a Dutch exit from both the euro and the EU.

In February this year, Wilders announced he had a report providing rationale for this position. The document, put together by research company Capital Economics, assessed the impact of The Netherlands leaving the EU – a so-called Nexit.

"Overall, the various strands of analysis point to Nexit being a long-term benefit to the Dutch economy and, more than likely, a short-term help in easing the Netherlands out of its current economic ills," the report said.

Finns party lofts Greek and Cypriot exit

Similar cost benefit rhetoric has also been adopted by the Finns party (polling at 15-20 percent).

"For us this is an economic question, we are committed to the interests of Finland. If the euro is in the interests of Finland, I will happily applaud it – but so far nothing has indicated this is the case," says Finns MEP Sampo Terho.

Speaking on the behalf of his party, Terho demands that the real costs and benefits of the EMU for Finland are calculated. The party is a long-standing critic of the bailouts to Greece and other crisis countries.

"Separating some of the current crisis countries from the EMU would in their mind stop the transfer payments between the member countries and remove the moral hazard of the monetary union," says Lauri Holappa, researcher at the Department of Political and Economic Studies at the Universtiy of Helsinki.

But can a monetary union work without transfer payments?

Sixten Korkman, professor of economics at Aalto University, says no. He also dismisses the possibility of an internal market with similar mechanisms.

"The Finns don't understand or don't accept the fact that our co-dependence demands significant co-operation to keep different problems in check. A functioning internal market cannot be guaranteed through a loose free-trade union, supranational use of power is also necessary."

Sampo Terho, for his part, says Finns understand this reality, but don't accept it.

Just do the maths?

Calculations of any exit scenarios are complex and biased assumptions are hard to avoid in any predictive models.

This is why Sylvester Eijffinger, professor of financial economics and European financial and monetary integration at the University of Tilburg, is not convinced by the report presented by the Dutch Freedom party.

"The analysis of Capital Economics is very biased towards high costs and low benefits of the EU and takes a very optimistic view on exiting by the Netherlands which has no empirical basis," Eijffinger said in an e-mail interview.

"It is very difficult to calculate exactly the costs and benefits of exiting the EU but is clear that being outside the EU will not be beneficial for the Netherlands as a small and open economy," said Eijffinger.

He added that he has never seen "any exit strategy for any member state of the EU that is promising in terms of economic outlook".

Germany is key

So far the Wilders report has not influenced eurosceptics in other member states.

The Finns' Terho says he has never heard of it and in Germany, the euro-exit debate has faded after a brief hype in 2013 following the unexpected success of a party centred around the issue.

Alternative fuer Deutschland (AfD) was formed in March 2013 – six months before general elections – challenging the political establishment on its view that there is "no alternative" to the euro.

Its core message at the time was a breakup of the eurozone and the return to the Deutsche Mark.

The AfD did better than expected, gathering votes from the losing Liberals and disenchanted supporters of centre-right Chancellor Angela Merkel. But it missed the five percent threshold to enter the Bundestag with a small margin.

For the EU elections on 25 May, however, there is no threshold and the AfD is expected to win six to seven seats in the European Parliament. Polls published early May put AfD at six and seven percent, respectively.

Its main campaign topic is no longer the euro-exit, but rather immigration, curbing the Brussels bureaucracy and a repatriation of powers from EU level.

"This is because the euro is not such a big topic any more in German public opinion," says Michael Wohlgemuth, the head of the think tank Open Europe Berlin.

The euro is indeed still popular in all the core countries with 71 percent of the population supporting it in Germany and the Netherlands, and 75 percent in Finland, according to the latest Eurobarometer study from 2013.

This means that advocating a eurozone exit goes contrary to the majority of popular opinion.

In its manifesto, the AfD says it would prefer a "dissolution" of the eurozone, but if that doesn't work, then at least a change to the EU treaties so that countries can exit the eurozone.

Currently there is only a provision for leaving the EU as a whole, but not for leaving the euro.

Another option floated in the AfD manifesto is for the "stability-oriented" eurozone countries – meaning Finland, Germany and the Netherlands – to form their own monetary system.

This is the pet idea of Hans-Olaf Henkel, the former head of the Federation of German Industries and a prominent figure in the AfD.

But this plan is problematic, says Carsten Brzeski, chief economist with ING Bank which in 2011 carried out a study calculating that the breakup of the eurozone would exceed the cost of rescuing it.

"If a country exits the euro on its own, let's say Greece, and returns to the drachma, it would have to change all its assets from euro. There would be a bank run, capital restrictions – it still sounds very bad even if they can devaluate their currency," he says.

"And if the northern countries were to start a smaller eurozone, their currency would appreciate and their exports would go down the drain, bond yields would remain very low or fall even further, which would lead to financial bubbles to a much larger scale than what is happening now in Germany," Brzeski adds.

The last resort for AfD would be for Germany to leave the euro on its own and return to the Deutsche Mark.

The AfD, which likes to refer to itself as a party of "economy professors", has developed a whole theory of how an exiting country could introduce a parallel currency for a transition period and how the exchange rate would be established.

But critics say such ideas may make sense in an academic world, but that they would never work in practice.

"Take this idea of allowing countries to leave temporarily – like going to the gym and then coming back to the eurozone when they are fit. It's a nice idea, but it clearly opens the door to financial markets to speculate against them. Plus, the remaining eurozone would need to increase its firefighting capacity to shield the whole thing," Brzeski says.

"Some of the ideas are not wrong, but the practicality and spillover effects are very chaotic and difficult to foresee," he adds.

At the moment the euro-exit question is on the backburner as the eurozone has moved out of crisis mode.

However, key countries in the single currency areas still have severe problems. If the eurozone was ever called upon to bail out a large country, the questions raised by anti-euro parties would once again come to the fore.

Mikael Brunila reported from Finland, Valentina Pop reported from Germany and Peter Teffer reported from the Netherlands

Brinkmanship rhetoric hides cost of Greek euro exit

Within the space of one week, EU politicians have begun talking in a matter-of-fact way about Greece's exit from the eurozone, but analysts say this would involve upheaval far beyond what the casual statements imply.

EUobserved

When two worlds collide

Two worlds collided at the end of last week. The shrill, uncompromising one of British politics and the technocratic, dry, world of the European Commission.

EUobserved

Schadenfreude and fire-walking in the EP

There was outright glee in the EP on Thursday. It was time to dust off everyone’s favourite German word for pleasure in the misfortune of others.

EU parliament approves Juncker commission

MEPs have approved Juncker's new EU commission, with a slightly smaller majority than in 2010, and following a number of concessions on portfolios.

Stakeholders' Highlights

  1. Dialogue PlatformThe Gülen Community: Who to Believe - Politicians or Actions?" by Thomas Michel
  2. Plastics Recyclers Europe65% plastics recycling rate attainable by 2025 new study shows
  3. European Heart NetworkCommissioner Andriukaitis' Address to EHN on the Occasion of Its 25th Anniversary
  4. ACCACFOs Risk Losing Relevance If They Do Not Embrace Technology
  5. UNICEFMake the Digital World Safer for Children & Increase Access for the Most Disadvantaged
  6. European Jewish CongressWelcomes Recognition of Jerusalem as the Capital of Israel and Calls on EU States to Follow Suit
  7. Mission of China to the EUChina and EU Boost Innovation Cooperation Under Horizon 2020
  8. European Gaming & Betting AssociationJuncker’s "Political" Commission Leaves Gambling Reforms to the Court
  9. AJC Transatlantic InstituteAJC Applauds U.S. Recognition of Jerusalem as Israel’s Capital City
  10. EU2017EEEU Telecom Ministers Reached an Agreement on the 5G Roadmap
  11. European Friends of ArmeniaEU-Armenia Relations in the CEPA Era: What's Next?
  12. Mission of China to the EU16+1 Cooperation Injects New Vigour Into China-EU Ties

Latest News

  1. Far-right enters government in Austria
  2. UK should work more closely with MEPs on Brexit
  3. EU set to probe Ikea tax affairs
  4. Estonia's last chance to land green energy results
  5. Catalonia, Brexit, and Uber on EU agenda This WEEK
  6. Macron and Merkel take tough line on Poland
  7. Eurozone future needs structural reforms, EU leaders told
  8. Showdown EU vote on asylum looking likely for next June

Stakeholders' Highlights

  1. EPSUEU Blacklist of Tax Havens Is a Sham
  2. EU2017EERole of Culture in Building Cohesive Societies in Europe
  3. ILGA EuropeCongratulations to Austria - Court Overturns Barriers to Equal Marriage
  4. Centre Maurits CoppietersCelebrating Diversity, Citizenship and the European Project With Fundació Josep Irla
  5. European Healthy Lifestyle AllianceUnderstanding the Social Consequences of Obesity
  6. Union for the MediterraneanMediterranean Countries Commit to Strengthening Women's Role in Region
  7. Bio-Based IndustriesRegistration for BBI JU Stakeholder Forum about to close. Last chance to register!
  8. European Heart NetworkThe Time Is Ripe for Simplified Front-Of-Pack Nutrition Labelling
  9. Counter BalanceNew EU External Investment Plan Risks Sidelining Development Objectives
  10. EU2017EEEAS Calls for Eastern Partnership Countries to Enter EU Market Through Estonia
  11. Dialogue PlatformThe Turkey I No Longer Know
  12. World Vision7 Million Children at Risk in the DRC: Donor Meeting to Focus on Saving More Lives

Stakeholders' Highlights

  1. EPSU-Eurelectric-IndustriAllElectricity European Social Partners Stand up for Just Energy Transition
  2. European Friends of ArmeniaSignature of CEPA Marks a Fresh Start for EU-Armenia Relations
  3. Nordic Council of MinistersNordic Energy Ministers Pledge to Work More Closely at Nordic and EU Level
  4. European Friends of ArmeniaPresident Sargsyan Joined EuFoA Honorary Council Inaugural Meeting
  5. International Partnership for Human RightsEU Leaders Should Press Azerbaijan President to End the Detention of Critics
  6. CECEKey Stakeholders to Jointly Tackle the Skills Issue in the Construction Sector
  7. European Friends of ArmeniaLaunch of Honorary Council on the Occasion of the Eastern Partnership Summit and CEPA
  8. EPSUStudy Finds TUNED and Employers in Central Governments Most Representative
  9. Mission of China to the EUAmbassador Zhang Ming Received by Tusk; Bright Future for EU-China Relations
  10. EU2017EEEstonia, With the ECHAlliance, Introduces the Digital Health Society Declaration
  11. European Jewish CongressEJC to French President Macron: We Oppose All Contact With Far-Right & Far-Left
  12. ACCASmall and Medium Sized Practices Must 'Offer the Whole Package'