Businessmen Regret Leaving Merkel in Peril Over Euro's Benefits
Munich Re Chief Financial Officer Joerg Schneider
Guenter Schiffmann/Bloomberg
Munich Re Chief Financial Officer Joerg Schneider said, “We’ve forgotten to stress how important the euro is and how good it is for our business.”
Munich Re Chief Financial Officer Joerg Schneider said, “We’ve forgotten to stress how important the euro is and how good it is for our business.” Photographer: Guenter Schiffmann/Bloomberg
Jan. 24 (Bloomberg) -- Mark Grant, managing director at Southwest Securities Inc., talks about the outlook for Europe's sovereign debt crisis and the euro. Chancellor Angela Merkel said on Jan. 12 that Germany is ready to revise the terms of Europe's rescue fund for indebted states. Grant speaks with Matt Miller and Carol Massar on Bloomberg Television's "Street Smart." (Source: Bloomberg)
Chancellor Angela Merkel
Michele Tantussi/Bloomberg
Support for Chancellor Angela Merkel's coalition government has dropped to as low as 38 percent in polls, compared with her bloc’s victory with 48.4 percent of the vote in September 2009.
Support for Chancellor Angela Merkel's coalition government has dropped to as low as 38 percent in polls, compared with her bloc’s victory with 48.4 percent of the vote in September 2009. Photographer: Michele Tantussi/Bloomberg
German executives are standing on the sidelines as Chancellor Angela Merkel struggles with an electorate questioning the cost of bailing out debt-laden neighbors to save the euro.
German companies were among the greatest advocates of the single currency at its inception in 1999, having contended for decades with a surging deutsche mark that hammered exports every time European neighbors devalued their way out of recession. Now that they’ve reaped the benefits of the euro, executives are questioning whether they should be doing more to back up Merkel.
“We’ve forgotten to stress how important the euro is and how good it is for our business,” said Joerg Schneider, chief financial officer of Munich Re, the world’s largest reinsurance company. “We haven’t pointed out enough that the euro is a massive export-support instrument for Germany.”
The euro area is Germany’s biggest export market. Shipments of German cars, high-speed trains and chemicals have more than doubled since the single currency was introduced, helping Siemens AG, BASF SE and Daimler AG bounce back from the credit crisis stronger than their European counterparts.
Even with exports leading the German economy to its strongest growth in two decades last year, in turn pushing down joblessness to a 20-year low, voters aren’t rallying behind Merkel, who will encounter business leaders this week at the World Economic Forum in Davos, Switzerland. Support for the chancellor’s coalition government has dropped to as low as 38 percent in polls, compared with her bloc’s victory with 48.4 percent of the vote in September 2009.
‘Stabilizing Force’
A total 49 percent of Germans favor ditching Europe’s common currency and returning to the deutsche mark, according to a Dec. 26 YouGov survey for Bild newspaper. The results showed 77 percent of Germans believe they haven’t benefited from the 12-year-old currency. Merkel told reporters in Berlin on Jan. 12 that “we support whatever is needed to support the euro.”
“The euro has been a stabilizing force on the German economy because it helped other European countries avoid having currency crises,” said Fredrik Erixon, director of the Brussels-based European Centre for International Political Economy.
The euro remains 8.4 percent overvalued against the dollar even after weakening 4 percent the past 12 months, according to an index compiled by the Organization for Economic Cooperation and Development.
Greece Bailout
The advantages for taxpayers were blurred by last year’s 110 billion-euro ($150 billion) bailout for Greece, of which Germany contributes as much as 22.4 billion euros. Ireland also received an 85 billion-euro aid package from the International Monetary Fund and the European Union. Bild, German’s best- selling tabloid, ran headlines in April accusing Greece of squeezing Germans for their hard-earned cash.
“In Germany, it’s a popular sport to question why German taxes should go to pay for these imbalances, but the German economy is doing very well and wouldn’t have been in this situation without the euro,” Daimler CEO Dieter Zetsche said at the Detroit auto show this month.
Germany’s benchmark DAX Index outperformed all other major European stock indices last year, even after stripping out dividend payments. Siemens, Germany’s largest company by market value, said today it’s on track to reach its full-year earnings goal after selling more health-care, industrial and energy equipment.
Export Boom
In 1998, the last year before German companies started using the euro, Siemens said it generated 27 percent of sales in Europe outside its home country. By 2010, that proportion had increased to almost 38 percent, Bloomberg data show. In the 10 years before the euro’s introduction in 1999, German exports rose about 68 percent, compared with more than doubling over the most recent decade, Federal Statistics Agency data show.
“I would like to see the business community be a little bit more active in explaining” that the euro’s strength is essential for German jobs, exports, enlargement of markets, and “a very vital point for our big companies,” Deputy Foreign Minister Werner Hoyer said in a Jan. 12 interview in Washington.
The euro saves Munich Re, which got 64 percent of its premium income from Europe in 2009, “significant” currency hedging costs and minimizes its capital investment risks, said CFO Schneider. The currency has “drastically increased our investment universe,” he said.
The common currency also forced Germany, in the aftermath of a costly reunification, to squeeze labor costs and boost its competitiveness on international markets. Germany has 82 million people and a gross domestic product of 2.4 trillion euros.
‘Economic Advantages’
“The euro has brought many economic advantages since its introduction -- a very low inflation rate, low interest rates, and a rise in employment much stronger than in the U.S.,” Michael Diekmann, chief executive officer of Allianz SE, Europe’s biggest insurer, which manages more than 1.4 trillion euros in assets, said in a Jan. 14 e-mailed answer to questions.
Demand outside Europe for German cars and chemicals means companies like Volkswagen AG and BASF have been able to absorb a 16 percent increase in the euro against the dollar since 2005.
Volkswagen’s Audi unit on Dec. 27 embarked on the biggest investment program in its history, saying it planned to add 1,200 new positions in 2011 and invest 11.6 billion euros by 2015. The luxury carmaker aims to sell 1 million cars in China over the next three years.
“Transaction costs and foreign-exchange rate influences decreased markedly thanks to the common currency,” CFO Axel Strotbek said in a Jan. 18 interview. “There’s no alternative to a European single currency.”
China Growth
BASF, the world’s largest producer of chemicals, expects to top record sales and earnings in 2010 this year, buoyed by growth in China and surging demand for plastics. BASF has earmarked as much as 10 billion euros for investment in its main chemical complex in Germany, securing 33,000 jobs.
German companies have sponsored nationwide PR campaigns in recent years to raise public awareness of their competitive edge. “Germany, Land of Ideas” was started in 2006, to generate positive sentiment when the country hosted the World Cup soccer championship. Among its sponsors were Deutsche Bank AG, ThyssenKrupp AG and BASF.
European policy makers have committed part of the rescue fund to bailing out Greece and Ireland. Elections in seven of Germany’s 16 states, starting on Feb. 20, will be a litmus test on how well Merkel can persuade the electorate that bailing out Europe’s weakest members benefits all countries.
German Opposition
Giving more aid to indebted euro countries is opposed by 62 percent of Germans, while 32 percent support it, according to a Dec. 14-16 poll for ZDF television. The FG Wahlen poll of 1,421 people had a margin of error of as many as 3 percentage points. Merkel staked the survival of Europe on the future of the single currency in a speech at a party convention in Karlsruhe, Germany on Nov. 5, saying “if the euro fails, then Europe fails.”
“Merkel is doing a lot now in supporting” the euro, said Josef Ackermann, CEO of Deutsche Bank, Germany’s biggest bank, in a Jan. 10 interview. “But it’s also important that businesses and CEOs join in. Politicians and businesses have to explain much more the benefits of the euro for the German economy.”
To contact the reporters on this story: Leon Mangasarian in Berlin at lmangasarian@bloomberg.net
To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net
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