The euro has a future

December 2011

At the SPD party conference Helmut Schmidt described the “chatter about the supposed euro crisis” in media and politics as “careless talk”. The former Chancellor challenged the Germans in no uncertain terms to hold on to the idea of a united Europe and to not encourage the end of the euro. Many Germans share Schmidt’s opinion. The majority is convinced that the euro will remain the currency in future, with almost two out of three believing that we will still pay our bills in euros in ten years. However, this is not a result of the current financial policy but in spite of it. Almost two thirds of participants thought the government’s handling of the euro debt crisis was poor.

A mere 8% of Germans think the government’s management of the euro crisis was “good” or “very good”. A significant majority disagrees and judges the approach “poor” or “very poor”.  These are insights gained from an international supplementary survey carried out as part of the GfK Investment Barometer, which the GfK Verein regularly conducts in collaboration with the Wall Street Journal Europe. More than 8,900 private investors in ten European countries (including Germany) and over 850 private investors from the US were surveyed for this study. A conscious decision was made to survey investors and not private individuals, as it is the behavior of investors which will ultimately decide the success of the currency.

The Deutschmark is not set to make a comeback

Are euro bonds the way forward or should budgetary discipline in individual countries be supported? How well have the rescue measures functioned up until now and do they create the necessary confidence in the financial markets? These and other, similar questions are leading to anxiety among consumers who are doubtful of politicians’ ability to take action. Yet, despite criticizing the government, the majority of individuals are convinced that the euro has a future, with only one in three of the participants believing that the euro could be replaced within ten years. In addition the majority of Germans are not interested in the return of the Deutschmark. Over half of private investors are of the opinion that the euro should remain the currency.

The optimism with which an individual regards the future of the eurozone is dependent upon their own financial situation. Private investors with private wealth in excess of EUR 50,000, or a monthly household income of more than EUR 2,500, see the future of the euro more positively than investors who have less capital. Of the most affluent individuals, 71% believe that the present currency will still exist in ten years and almost two in three would like it to be that way. In comparison, just 63% of those investors in a worse financial situation believe in the survival of the euro and only about half hope this will be the case. Wealthier private investors also view politicians more favorably, and 10% think that the government’s handling of the current crisis has been “good” or “very good”. This figure drops to just 6% for investors with less capital.

It is not only an individual’s financial situation that plays a part in their assessment of the euro crisis, age and level of education are also decisive factors. Younger investors are more attached to the euro and 62% of them wish to retain the current currency and not revert to the Deutschmark. In addition, almost 70% of young investors are sure or at least relatively sure that the next ten years will see no change in currency. Older investors tend to share this opinion but are rather more reserved in expressing it.

Greater differences emerge when respondents’ level of education is taken into account. The most optimistic are those investors who hold a university degree. More than half (57%) do not support the government’s handling of the crisis, but a large majority believe in the single currency. Three out of four of the participants in this group would like to keep the euro, and only a quarter would rather return to the Deutschmark. Investors with university degrees are even more confident that the euro will still exist in ten years time, with a good 80% thinking this, a quarter of whom are absolutely certain.

Optimism increases with qualifications

Investors with lower qualifications are much more skeptical. The majority of respondents (53%) with a high school diploma would not like to keep the euro and are in favor of replacing the present currency and reinstating the Deutschmark. While 40% believe that this is likely to happen or even sure to happen, just under 20% of investors with university degrees consider a currency change likely.

Europeans criticize crisis management

It is clear not only in Germany, but also in Europe as a whole that levels of education have an influence on an individual’s opinion of the euro. In many EU countries, those in support of the euro hold higher qualifications than euroskeptics. On the whole, the desire to keep the euro is stronger across Europe than any longing for pesetas, kronor or francs. Furthermore, as in Germany, the majority of EU consumers are convinced that there will be a euro in ten years’ time. This confidence is only crumbling in the crisis countries of Portugal and Greece, where 42% and 44% respectively do not believe the euro will continue to exist as the currency in their countries in the next few years.

The handling of the crisis can be intensely debated, as shown by the numerous summit meetings over the past few months. However, Europeans are in agreement when it comes to the question of how well their governments have managed the predicament. The answer is clear: individuals in the euro countries would like their governments to handle the situation better. This is particularly the case in the crisis countries. The Greeks are the most critical with almost 80% finding politicians’ responses inadequate, which has been made clear by the numerous demonstrations that have shaken the country for weeks. Spaniards and Italians are also critical. In each of these countries, approximately three out of four of investors would like to see the crisis managed differently. However, the news is more positive in the Netherlands, with at least 22% of participants in this stable country agreeing with the way in which their government has handled the crisis.

In the countries that do not have the euro the voices of criticism are quieter. British, Polish and Swedish respondents evidently feel less affected by the crisis. The majority of individuals in these countries believe in the continued existence of the common currency but do not wish to adopt it themselves. Brits, Poles and Swedes are satisfied with their currencies in the current crisis.

Americans still support the euro

The euro crisis is no longer a solely European topic and individuals on the other side of the pond are also worried about the turbulence on the financial markets. US President Barack Obama first uttered strong criticism of Europe’s management of the crisis in September and, at a summit meeting in Washington a few days ago, he called upon the governments of Europe once again to rectify the crisis quickly but this appeal is clearly not enough for American savers. As in Germany, the majority of American consumers judge the actions of their government as insufficient. Obama’s handling of the debt crisis in Europe is criticized by 55% of respondents, indeed only 13% have positive things to say in this regard. However, this suggests that American investors are slightly more positive than Germans. 

Almost all investors wish to retain the euro

Americans do not believe that the euro could soon be a thing of the past. More than two thirds of participants thought it was “probable” or “certain” that Europe will not return to lira, Deutschmarks or francs in the future and a substantial majority would also not like to consider it. Of Americans whose business depends on the stability of the eurozone, 96% would also like to see the continuation of the euro as a currency in the financial system.

Independent of their available capital, American hopes for the continued existence of the euro are widespread. However, the picture looks different in relation to government measures and opinion about the future of the currency. In this regard, savers with more assets are slightly more critical. In contrast to Germany, participants in a better financial situation praised the government less frequently than investors with lower funds. In addition, the concern that the euro might not survive the next ten years is greater among more affluent individuals.  

Investors in Europe and the US appear to be following the motto that “confidence is good, control would be better”. Many of the private investors believe and hope that the euro is here to stay, but they would also like to see the government managing the crisis better so that the turbulence it is causing can be brought quickly under control. At least 17 euro countries and six further EU countries agreed on a joint plan at the EU summit in Brussels in the last week. Soon, with the help of binding limitations on new debt there should be more control. Only the coming months will show whether strict budgetary discipline will be enough on its own to win back the confidence of citizens. German Chancellor Angela Merkel appeared optimistic following the summit, convinced that the decisions made in Brussels would strengthen the credibility of the eurozone.

Data source: GfK Verein (GfK Investment Barometer, October-November 2011)

If you have any queries please contact Raimund Wildner or Sandra Lades.

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December 2011