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German economists are crazy and the economists advising our government are the worst of the bunch.
The French economic weakness is a myth.
No objection either, but would the hypothetical new French currency not devalue against the German one? I doubt the respective economic strengths (and the more dynamic French demography) would be enough to prevent an appreciation of the eventual new DM, if only for Deutschmark fetishism in a lot of financial circles. After all, if policies were mostly driven by facts, we would be in a very different situation, wouldn't we? Let's not forget that markets can remain irrational longer than we can remain solvent...
the real income of Germans would rise. they could go cheaper on Holidays, they could by cheaper goods from the rest of Europe and so on.
As good as it would be for German people, especially those with the lowest incomes, an over-appreciated currency would be a catastrophe for a German economy entirely oriented towards exports: a lot of companies would be hurt, not necessarily the big conglomerates who already have facilities outside of Germany, but the Mittelstand certainly. "Real income" with respect to what? Imported goods? Precisely what an export minded leadership wants to limit at all costs...
Lastly, I don't think the "credible threat to leave the Euro" is the only option for other EZ countries: never mind the fact that, barring a Le Pen elected French president, it is totally unlikely to happen, what with the current EU leaders enthralled with the austerian fairy tale. As you rightly pointed out, threats do not work well, especially with a German leadership (and a German population to a large extent) living in the parallel Swabian housewife universe. Grandstanding never works in the EU, as a British PM is finding out.
Another option is to quietly refuse to apply the full austerity straitjacket. There will be of course a lot of furor, and possibly scathing editorials from German EU commissioners (oh, wait...), but, in the finest EU tradition, no frontal crisis: just long winded horse trading negotiations ending up into some "new consensus", the details of which being difficult to predict from here.
Lastly, there's the - not entirely unthinkable - possibility that the first country to pull the metaphorical trigger won't be Greece or Portugal or Italy, or even France: Germany might well beat them all to the punch. Especially if the EU commission fails to strictly enforce full-metal austerity from Lisbon to Tallin and the cries of currency debasement and Weimar inflation upon us grow increasingly louder in Germany. This would actually provide a perfect vindication to the "lazy Southerners who cannot be trusted" theme
To quote Migeru:
I'm pinning my hopes on AfD.
The "summer series" 'End of the line for the Euro', a political fiction published by Le Monde over the summer of 2011, might even end up to be true after all :-)
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