Germany is reluctant to proceed rapidly on either since it would mean that Germany would have to absorb the financial and sovereign risk of
the weaker EURO countries.
Not exact matches
But the mechanics of the
euro guarantee escalating tension: The single currency makes the exports of
weaker countries artificially expensive (and those of Germany excessively cheap), putting their economies at a crippling disadvantage.
While China is usually singled out for its policies, other
countries have behaved more irresponsibly, most notably rich Germany, whose surpluses, the largest in history, were built primarily on an undervalued currency, after the creation of the
euro, and on
weak wage growth, after the 2003 — 05 labor reforms.
Some years ago Mundell, looking at economy sizes, growth rates, percent invested overseas, etc., concluded that a dollar /
euro relationship between $ 1.20 and $ 1.30 could be considered normal, or neither to strong nor too
weak for either
country.
In addition to a
weaker euro, which helps fuel its export - oriented economy, the cost of financing its sovereign debt relative to its existing debt continues to fall while the smaller
countries struggle with rising financing costs.
Eventually, the gap between strong
EURO countries and
weak EURO counties could become so large that the strong counties would become incapable or unwilling to continue to fund the
weak countries.
Global economic conditions have improved over recent months, with stronger economic data emerging in the US, Japan and most other
countries in east Asia, though the
euro area remains
weak.
Another theory floating around is that if the
weaker countries of the
euro leave (e.g. Greece, etc) and the core keep the
euro, then the value of the
euro will actually rise.