Germany was the main beneficiary from the euro in 2010, when the single currency increased the region’s wealth by 332 billion euros ($424 billion), or about 3.6 percent of gross domestic product, a McKinsey study showed.
The then 16 euro members benefited to varying degrees as some countries were slow to adjust their economies to increasing competition, McKinsey’s German office based in Dusseldorf said today in a study. At 165 billion euros, or 6.6 percent of its GDP, Germany’s gain was almost half the region’s total.
“The removal of nominal exchange rates within the euro zone lowered transaction costs, trade within the euro zone increased, competitiveness rose as firms benefited from economies of scale and scope, and investment and consumption were boosted by low interest rates,” McKinsey said by e-mail.
European leaders are striving to hold the now 17-member euro area together as the debt crisis that emerged in Greece more than two years ago spreads to the region’s core. Greek Prime Minister Lucas Papademos last week warned of an exit from the euro and economic collapse if fellow citizens didn’t accept short, sharp cuts in incomes and pensions.
Italy’s advantage of having the euro accounted for 3.1 percent of its GDP, while the boost for France equated to 0.7 percent of the country’s output, McKinsey said. Estonia became the 17th member of the single currency on Jan. 1, 2011.
A policy of budget discipline linked to a stabilization mechanism is best suited to return the region to sustainable public finances, the study said.
Following the two-pronged approach will lead to declining euro region debt from 2016, and beats the alternatives of isolated liquidity support by financial backstops or the European Central Bank, dismantling the currency bloc or moving toward closer fiscal union, McKinsey said.
–Editors: Alan Crawford, Andrew Atkinson
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Along those lines, we thought this chart from Reuters’ Scotty Barber was pretty fantastic.