© Dr. William J. Crowder
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Germany is one of the strongest economies in the Eurozone. The labor market reforms that were enacted in the last decade have given Germany the flexibility to respond to the dynamic economic situation created by the financial crisis.
How long will Germany be able to withstand the Eurozone debt crisis and help other troubled countries to combat with their problems?
It is difficult to say, but I think that the German people will eventually decide that it is not worth the cost to them to continue to prop up the Eurozone and at that point the weakest Eurozone economies will be forced to exit the monetary union or undertake drastic structural reforms.
Recently Moody's has changed its outlook for Germany from stable to negative. Do you think this decision is reasonable?
Given the troubles within the Eurozone it makes sense that Germany would be affected sooner or later. It is clear that if Germany is willing to take on some of the debt of the other Eurozone nations, then that would make German issued debt more risky.
What impact would be on Eurozone and the Euro, if Moody's decided to downgrade Germany's triple A rating?
It would raise their borrowing costs slightly, but I do not think there would be a substantial change in the current situation just because of a move from AAA to AA+. It would be similar to what the U.S. experienced when it was downgraded last year.
There are some pronounced opinions that either Greece, as the most troubled economy, or Germany, as the strongest and most competitive, should leave Eurozone. What is opinion on a country leaving Eurozone? What repercussions it might cause?
I have recently started looking at the Eurozone as an insurance pool with Greece, Spain, etc. as the high risk members of the pool and Germany and France as the low risk members. The moral hazard experienced by the high risk members has lead to the current debt crisis. What the low risk members of the insurance pool have to decide is whether the benefits they get by having the high risk nations in the pool outweigh the costs. Clearly if Greece left the Eurozone, the system could continue, but if Germany left, I do not see how the Euro survives.