Bloomberg News

Merkel Sees Euros Minted From Marks in Trial of German Integrity

March 04, 2012

German Chancellor Angela Merkel speaks during a press conference at the end of a two-day European Union summit in Brussels, on March 2, 2012. Photographer: Lionel Bonaventure/AFP/Getty Images

German Chancellor Angela Merkel speaks during a press conference at the end of a two-day European Union summit in Brussels, on March 2, 2012. Photographer: Lionel Bonaventure/AFP/Getty Images

The vaulted red-brick building overlooking the River Main on Frankfurt’s east side has an illustrious if checkered past.

Once the biggest free-standing reinforced concrete hall in the world, the 220-meter-long Gross-markthalle became an emblem of modernism when it first opened its doors as a wholesale fruit and vegetable market in 1928, Bloomberg Markets reports in its April issue.

Then, from 1941 to 1945, it was a deportation point for more than 10,000 Frankfurt Jews, most of whom met their deaths in concentration camps. Partially destroyed in World War II bombing raids, the Grossmarkthalle is being recast for its next incarnation: the new home of the European Central Bank, which is now housed in three separate buildings around the city.

The central bank complex is designed to be what its architect, Wolf Prix, calls a “three-dimensional icon” of European unity. And yet its construction coincides with a bout of angst in Germany over the single currency that the ECB is charged with safeguarding.

Arguing that her country has benefited from the euro and stands to gain from its preservation, German Chancellor Angela Merkel is stalwart in her defense of it.

“You can trust that I will do everything to strengthen the euro,” she said in a televised address to the German nation on New Year’s Day.

Tricky Crosswinds

The Iron Chancellor, as she’s known, has stood her ground against tricky crosswinds. On Feb. 27, at Merkel’s urging, the German Bundestag defied a popular backlash and approved the second Greek bailout in as many years.

Anti-euro sentiment at home has grown as the European sovereign-debt crisis drags on. Sixty percent of Germans think the introduction of the euro in 1999 was a bad idea, according to a poll published on Dec. 4 by the German magazine Focus.

The defeat of Merkel’s party, the Christian Democratic Union, in a Berlin state election in September capped a year in which voters punished her coalition government again and again over its handling of the sovereign-debt crisis.

Next year will be an even bigger test: Elections will determine whether Merkel, first elected in 2005, will serve a third term.

Even in Germany’s broadly pro-euro business establishment, there’s some grumbling.

Wolfgang Reitzle, chief executive officer of German industrial group Linde AG and a former Bayerische Motoren Werke AG (BMW) board member, told Der Spiegel magazine in January that if member countries such as Italy cannot get their fiscal affairs in order, Germany should leave the currency union -- though he added he didn’t think it would come to that.

Deepest Crisis

For their part, Merkel’s euro-zone partners want her to be as involved as she can be.

They look to Germany, Europe’s largest economy and the world’s second-biggest exporter after China, as the only country that can steer the Continent out of what Merkel describes as its deepest crisis since World War II.

In February, there were signs that Merkel’s handling of the European financial emergency was finally gaining support at home.

According to a Feb. 8 Forsa poll, public support for the Christian Democratic Union rose to 38 percent, the highest rating since before Merkel’s re-election in 2009. Support for the main opposition party, the Social Democratic Party, stood at 27 percent.

Boosting Exports

The currency Merkel is protecting has been a boon to German exports, about 40 percent of which go to euro-zone countries.

A single monetary policy across the euro zone has benefited German companies, says Geoffrey Pazzanese, co-manager of the Pittsburgh-based, $583.3 million Federated InterContinental Fund, which had 22.7 percent of its assets invested in German firms as of Jan. 31.

The euro has blessed Germany with a weaker, export-boosting currency, which wouldn’t be the case if the deutsche mark still existed, he says.

Furthermore, he says, “The euro has provided more stability within the continental market, where the majority of German exports and imports occur.”

With a gross domestic product of $3.3 trillion in 2010, the German economy is the fourth largest in the world. It is the healthiest of Europe’s major economies. Germany’s unemployment rate of 6.8 percent as of Feb. 29 was the lowest among major European countries. Its inflation rate was 2.3 percent, compared with Britain’s 3.6 percent.

Anti-Euro Sentiment

In 2011, German exports, buoyed by a relatively weak euro that made them attractive, breached 1 trillion euros ($1.3 trillion) for the first time, according to the Bundesbank.

Even so, the same poll that reported a majority anti-euro sentiment also found that 74 percent of Germans considered the abandoned deutsche mark a more reliable and stable currency than the euro. Pazzanese says such anti-euro attitudes are shortsighted.

“Our view is that if there were still deutsche marks, the German export engine would likely be struggling with problems that can occur with a strong currency, such as competitiveness,” he says.

Frankfurt Mayor Petra Roth says German nostalgia for the mark is misplaced.

“Monetary union is part of Europe’s success,” she said in an e-mail interview. “If we were to abandon these aspirations, Europe would be nothing more than a conglomeration of national states.”

Kohl’s Protege

The events of 1989, when the Berlin Wall fell and the process of German unification was set in motion, put Europe and the world on a path of no return, she says.

The single currency was never a particularly German project, says Irwin Collier, a professor of economics at the Freie Universitaet Berlin. He says Germany had its own, pragmatic reasons for signing up for it, however.

By supporting what was largely a French undertaking, Germany got Paris and the European Economic Community, the precursor to the EU, to back the unification of East and West Germany in 1990.

Then-Chancellor Helmut Kohl sold the single currency to Germans on that basis, Collier says. He says Kohl’s thinking was, “We don’t get German unification without caving in on monetary union.”

All these years later, it’s Kohl’s protege, Merkel -- born in West Germany, raised in East Germany -- who holds the fate of the euro in her grasp.

Cajoled by Merkel

Germany is contributing as much as 211 billion euros to the European Financial Stability Facility, which is empowered to raise up to 440 billion euros by selling bonds to bail out over- indebted euro-zone countries.

In the pre-dawn hours of Feb. 21, cajoled by Merkel, European leaders ground out a deal valued at 130 billion euros in aid to Greece, allowing the country to escape an imminent default that would have convulsed the single currency.

In 2014, if all goes according to plan, the new ECB headquarters will be inaugurated and take its place along the Frankfurt skyline.

Looming over the rebuilt Grossmarkthalle, two adjoining 185-meter-high (600-foot-high) glass towers are intended to portray a united Europe -- not “just a flag, but a really striking feature,” says Prix, the Austrian architect whose firm, Coop Himmelb(l)au, designed the complex.

Banking Dynasties

Frankfurt is well-suited to such symbolism. Like Germany as a whole, it was born again after the war.

It is Germany’s fifth-largest city, with a population of about 650,000, and has a long tradition in finance, with roots in the Bethmann and Rothschild banking dynasties. Commercial bank towers now rise above what was once the rubble of a bombed city.

Frankfurt was also the cradle of a brief democratic movement that flared in 1848, when the insurgent National Assembly met in the Paulskirche, or St. Paul’s Church.

Today’s united Europe is an attempt to preserve democracy and prevent a return to tyranny, Frankfurt Mayor Roth says.

In that sense, she says, “there are parallels between the Paulskirche and Europe.”

While its designers intended the new ECB complex to convey harmony, old tensions are never far away.

Financial Turmoil

German lawmakers from the Social Democratic Party and the Christian Social Union as well as Merkel’s party criticized the ECB for purchasing bonds of euro-area countries and flooding the market with cash to stem the financial turmoil emanating from such countries as Greece and Italy.

The unprecedented intervention by the central bank prompted ECB chief economist and executive board member Juergen Stark, a former Bundesbank board member, to resign in protest at the end of last year.

Earlier, in February 2011, Axel Weber, who was a contender for the job Mario Draghi got, resigned as Bundesbank president after voicing his opposition to the same measures.

Many Germans don’t buy into the ECB as a symbol or even as an institution, the Freie Universitaet’s Collier says.

“There’s a common feeling that this European project -- all of the institutions of the EU -- is not ‘theirs,’” he says. “The ECB is just one more institution.”

Joerg Asmussen is one German who doesn’t feel that way. He’s a former German deputy finance minister who took Stark’s place on the ECB executive board in January. He says the new ECB premises are built to last and to endure difficult times.

“And so are we,” he says of the central bank.

Long, Hard Slog

When the guardians of Europe’s single currency move into their new ECB offices, they could be gazing upon a very different landscape than the one European leaders envisioned under the 1992 Maastricht Treaty that created the European Union and led to the euro.

In a Feb. 7 speech on the future of Europe, Merkel said that beating the debt crisis would require deep structural reform. While it would be a long, hard slog, she said, “change can bring something good.”

Whatever it brings, Germany will get the credit -- or the blame.

To contact the editor responsible for this story: Laura Colby at lcolby@bloomberg.net


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