Bloomberg News

Seven Currencies Since 1914 Is Enough for Germans Rescuing Euro

October 03, 2011

(Click on EXT4 for more on Europe’s debt crisis.)

Oct. 4 (Bloomberg) -- Addi Brittnacher is one German willing to pay a Greek ransom to save his way of life.

The 61-year-old retired machine worker is from Saarland, the western corner of Germany wedged beside France and Luxembourg and a region built on coal and steel that became the heart of the European Union’s genesis. His wallet used to bulge with three kinds of cash and an identification card to cross the borders a few hundred meters from his home.

“There are no more borders here and people don’t have borders in their heads,” said Brittnacher, as he drove a van on a rutted gravel road along vineyards above the Mosel River. “It’s worth saving Greece to save the euro.”

Saarland is the birthplace of the European integration project that emerged from World War II and culminated in monetary union and the introduction of euro bank notes nine years ago. That makes the region a microcosm of why German Chancellor Angela Merkel may have to do whatever it takes to prevent Greece from blowing the 17-member euro apart.

The region, which was swapped between France and Germany as war booty, has had seven currencies since 1914. The people there don’t want another one because employers such as 263-year-old ceramic maker Villeroy & Boch, Ford Motor Co. and automotive- parts producer Robert Bosch GmbH depend on exports.

Feeling Pain

“The euro is vital because we have above average exports in comparison with other German states,” Christoph Hartmann, 39, Saarland’s economy minister, said in an interview in his office in the state capital, Saarbruecken. “We need long-term security for euro members and we won’t get this through cosmetic changes. It will be painful.”

Greece has about 350 billion euros ($465 billion) of debt, equivalent to five times the size of Argentina’s default a decade ago. The Greek pile will amount to 62 percent more than the size of its economy this year, while its budget deficit will remain wider than targeted as Prime Minister George Papandreou struggles to implement measures to raise money. Based on 10-year government bond prices, its borrowing costs were 22.8 percent yesterday, more than 11 times Germany’s.

Brittnacher lives in the German village of Perl across the Mosel River from the Luxembourg village of Schengen, where EU members signed the agreement in 1985 that led to a passport-free travel zone encompassing most of the group’s now 27 countries.

Wine Prices

Thomas Schmitt, 46, a vineyard owner in Perl, has 7 hectares of grapes producing 90 percent white wines including Grauer Burgunder, Weisser Burgunder and Elbling.

“The euro is a huge help for us when we have to make big investments,” Schmitt said. “It allows me to compare prices from suppliers in France, Germany and Luxembourg.”

“Naturally, I would help Greece although I’m skeptical about whether they can get this thing under control,” he said, sitting at table made from a wine barrel in his vineyard’s cellar. “If the EU can’t solve this problem then who can?”

As the EU’s largest economy, Germany has committed the lion’s share to the rescue of Greece, Ireland and Portugal so far and is under pressure to commit more funds.

It’s the biggest country in the European Financial Stability Facility, or EFSF, with its guarantees rising to 211 billion euros, or 27 percent of the money. The expansion of the fund was approved by German lawmakers on Sept. 29 while polls showed the majority of the public didn’t want to.

Merkel’s Future

The broader EFSF has a remit to buy bonds of distressed euro-area governments on both the primary and secondary markets, aid troubled banks and offer credit lines. All but three of the euro members have approved it.

“The euro is our common future,” Merkel said in a Sept. 27 speech in Berlin attended by Papandreou. “We have to show solidarity to preserve the common currency.”

Germany “profits from the euro” and will provide all the help it can to stabilize Greece, she said.

The Saarland’s dependency on sales abroad reflects the nation. Germany is the world’s second-biggest exporter after China. Outgoing goods rose 14.7 percent in the first half of 2011 from the same period a year earlier, to 525.6 billion euros, according to the Federal Statistics Office in Wiesbaden.

About 17 percent of Saarland’s exports go to France, with its neighbor accounting for 19 percent of imports into the area, the state’s Economy Ministry said.

Seeking Safety

“Without the euro, Germany would be in a very difficult position,” Bruce Stout, the manager of Aberdeen Asset Management Plc’s $1.5 billion Murray International Trust, said in an interview at his office in Edinburgh. “If they weren’t in the euro could you imagine what the over-valuation of the deutsche mark would be? People would see it as a safe haven.”

The euro lost 7.7 percent against the dollar in the third quarter. It sank by 9 percent versus the Swiss franc from June 30 until Sept. 5, the day before the central bank in Zurich said it would cap the currency to prevent its role as a safe haven from damaging the country’s economy.

The Saarland changed hands four times between Germany and France in the 20th Century as a result of both World Wars. Its currency varied more, including the adoption of the transitional Saarmark for six months in 1947.

The state was a core of the European Coal and Steel Community, set up in 1951, to “make it plain that any war between France and Germany becomes not merely unthinkable, but materially impossible,” according to Robert Schuman, the French foreign minister at the time and an architect of European unity. He called the coal and steel alliance “a first step in the federation of Europe.”

Border Triangle

Schuman’s family hailed from Lorraine, the area of eastern France across the border from Saarland that was annexed by the German Empire in 1871. Brittnacher was born in Saarland after World War II when it was occupied by the French.

Driving through a French farm village surrounded by forests, Brittnacher, a well-built man with short grey hair and a neatly trimmed moustache, rolls down the window of the van and greets an elderly woman in Plattdeutsch, or “low German,” as she sorts walnuts in front of her home.

The language, which sounds like a mixture of German and Dutch, is spoken by people in the border region of the three countries, he said. “People get confused because we also speak the local dialect,” he said.

Schmitt’s vineyard in Perl is also a blend reflecting the region. Pointing to the cellar’s stone walls, oak beams and heavy wrought iron door hinges, Schmitt said the beams and hinges were made by French craftsmen while the stonework was done by a Portuguese company from Luxembourg. “That’s European unity in stone, steel and wood,” he said.

Better Fish

Markus Moelle, 36, an architect in Saarbruecken, said that German skilled trades are also in demand in France.

“I have French customers who say they only want German plumbers and electricians, even though they’re more expensive, because they know the Germans have better training,” Moelle said on the roof terrace above his office, Raumloesungen Ltd., in an industrial park on the outskirts of Saarbruecken.

Moelle, who designs logistic centers, said “the euro is a foundation for all cross-border business in the region.”

“I can compare prices, wages, you name it, for any project,” he said. “On a personal level, I love having the euro and open border because I do my shopping in France. French supermarkets have far better fish than those in Germany.”

Worldly Region

The Saarland, with a population of about 1 million, is one of the most international parts of Germany.

More than 200,000 people commute across the state’s national borders to jobs, business or for shopping every day, the Saarland Interior and Europe Ministry said in an Aug. 31 statement. Saarland and French police forces carry out regular joint deployments such as a June training operation with 500 French and German officers.

Support in the Saarland for doing whatever it takes to keep the euro region intact compares with 76 percent of Germans who opposed expanding the firepower of the rescue fund for indebted euro governments, according to an FG Wahlen poll for ZDF television published on Sept. 9.

Merkel’s Christian Democratic Union governs the Saarland with the Greens and Free Democrats.

“The labor force beyond the border is increasingly important,” said Hartmann, the economy minister, citing Germany’s aging population. “The French have always worked here but this is growing in importance.”

Hartmann, a member of the Free Democratic Party that serves as junior coalition partner to Chancellor Merkel in Berlin, said that to save the euro Greece will need a “haircut” and its debts will have to be reduced by up to 80 percent. Banks will have to take a “loss,” he said.

Germany’s Greece

Unlike some richer German states, Saarlanders have experience of what it’s like to need aid.

The Saarland was handed 6.6 billion euros in subsidies from 1994 to 2004 to cut its debt and is due to receive a further 2.34 billion euros from 2011 to 2019, according to the state’s Finance Ministry.

The Saarland is the smallest of Germany’s states after the cities of Berlin, Hamburg and Bremen, and had 11.8 billion euros of debt at the end of 2010, the Finance Ministry said.

“You could say we’re the Greece of Germany,” Oliver Groll, an economist at the state’s Chamber of Industry and Commerce, said in an interview. “The Saarland profits from the rest of Germany. Low interest on German bonds helps the indebted Saarland. It’s kind of a German euro bond we benefit from.”

Honecker’s Home

The state, which produced East German communist leader Erich Honecker, has converted a once declining economy from coal and steel into one based on manufacturing and services. Steel and coal employed 100,000 people in 1960 and today the number is 14,000, with the final 3,000 coal jobs due to be axed next year, according to the Chamber of Industry and Commerce.

Today, of the Saarland’s 100,000 industrial jobs, about 45,000 are at automotive companies including Ford, which makes its new Focus compact car in the region, and Robert Bosch manufacturing diesel injection components.

The Saarland’s gross domestic product grew 4.7 percent last year, the biggest yearly expansion since 1979, according to data from the Economy Ministry. That’s more than Germany as a whole at 3.6 percent in 2010.

Nationwide, growth is forecast to slow to 2.7 percent this year and 1.3 percent in 2012, the International Monetary Fund said last month. The Greek economy will shrink for a fourth straight year in 2012, contracting 5 percent this year and 2 percent next year, it said.

Deutsche Mark

Heino Klingen, director of the Saarland Chamber of Industry and Commerce’s economic and business-development division, warns that any return to the deutsche mark would push up the value Germany’s currency to rates of the 1980s and harm exports.

“Saarland industry exports over 50 percent of what it produces, mostly to the euro region with France as our biggest market,” Klingen said in an interview. “So the euro is very, very important for us.”

To buttress growth, the Saarland needs to attract more companies to base their business there and create research and development jobs, Hartmann said.

One global company with its headquarters in the Saarland is Mettlach-based Villeroy & Boch, a ceramics maker of everything from toilets to luxury tableware for all recent popes including Benedict XVI. The company, founded in 1748, is active in 125 countries and generates 65 percent of its revenue in euros, Joerg Wahlers, its chief financial officer, said by e-mail.

“This alone shows the meaning of the currency for us,” said Wahlers. “The euro reduces Villeroy & Boch’s currency risks and gives us greater planning security.”

Dishwasher Safe

Villeroy & Boch expects global sales of 760 million euros in 2011 with net operating profit of about 30 million euros, said Almut Haehner-Ural, Villeroy & Boch’s spokeswoman.

At the company’s museum next to the factory, tableware designed for recent popes is on display. Benedict’s are less ornate, simply with his coat of arms of crossed keys, a bear and a scallop shell after he requested they be toned down.

“He wanted less gold and a thinner gold border,” said Ester Katharina Schneider, who runs the museum. “He chose from our normal production line and the plates are dishwasher safe. We’re told he uses them on a daily basis.”

Brittnacher’s van rattles up a hillside surrounded by fields of rich, reddish soil littered with stone fragments.

“This field is in Germany but it’s farmed by two Frenchmen,” said Brittnacher, whose home is 300 meters (984 feet) from Luxembourg and 500 meters from France. “Back in the old days of border controls they had to declare the manure they drove across the border as fertilizer.”

He pulls up at a Franco-German “Peace Chapel” built of stone between 1996 and 1999 and straddling the French-German border. Inside is a metal plaque listing men from the surrounding villages who were killed in both world wars.

“These three countries here are our capital,” Brittnacher said. “We haven’t had a war for more than 60 years in a place where there was so much war. This alone makes the EU and the euro worth fighting for.”

--With assistance from Tony Czuczka in Berlin. Editors: Rodney Jefferson, John Fraher

To contact the reporter on this story: Leon Mangasarian in Perl, Germany, at lmangasarian@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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