Economists Calculate a Price Tag for a German Exit from the EU

What's the price you're willing to pay for freedom from today's version of oriental despotism?

As always, translation and emphases mine, as are the bottom lines.

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A Dexit Costs Every German 2,430 Euros a Year

By Patrick Welter, Frankfurter Allgemeine Zeitung, 24 May 2024 [source/archived link]

The AfD wants Germany to leave the European Union. Experts warn that this would cost Germans dearly—and present a detailed calculation.

‘Limit EU power’ is the slogan on the Alternative for Germany (AfD) election posters for the European election campaign. However, the party’s demands go beyond limiting the power of the European Union. In its election programme, the AfD calls for the establishment of a new European economic and interest grouping because the party believes that the EU cannot be reformed. Co-chair Alice Weidel does not rule out Germany leaving the EU, just as the United Kingdom left the EU in 2020.

However, such a ‘Dexit’ would cost the Germans dearly. According to a study by the employer-affiliated Initiative Neue Soziale Marktwirtschaft (INSM) [i.e., paid for by Big Business], which will be published on Monday [today] and is available to FAZ in advance, Germany’s exit from the EU would cost every German around 2,430 euros on average each year. In the first few years after leaving, the costs would be around twice as high at almost 5,000 euros per person per year [the one thing FAZ didn’t disclose is the timeframe on these costs].

Then the EU will Collapse

The most important reason for the loss of income is that a German exit would sever or damage the close economic ties with the other EU states and also with the EU’s free trade partners [remember: the EU came into being 31 years ago]. For Germany, the ties with the other 26 EU states dominate. They amount to around 60% of gross domestic product (GDP). By comparison, economic ties with the United States amount to around 19% of Germany’s GDP, while those with China only account for 7%. According to the study, it is completely illusory to want to compensate for losses in foreign trade with EU countries by increasing trade with America or other third countries [raise your hands if you believe, even for a moment, that economic ties with other European countries will cease in the event of Dexit; remember ‘Brexit’? We’ve heard all these scaremongering stories before, and last time I’ve checked, the UK is still (sic) around…].

Overall, Germany's annual economic output would be around 200 billion euros a year or around 5% lower after leaving the EU. In the first few years [same formulation as above, with no time horizon provided: why?], this could be up to 10% less. The initial economic slump would then be around twice as severe as in the recession years of 2009 during the global financial crisis or 2020 during the coronavirus pandemic.

‘You can criticise the waste of money, inefficiencies, and bureaucracy of the EU, but the bottom line is that it has now been scientifically proven: no country benefits from the EU as much as Germany,’ says INSM Managing Director Thorsten Alsleben:

Dexit would be a door to the abyss [for whom?].

The New Social Market Economy Initiative is financed by the employers' associations of the metal and electrical industry [oh, look, Germany’s most important Big Business is recognised funding that ‘study’ that has ‘scientifically proven’…whatever, for until later today, said ‘study’ is not publicly available…].

‘Confederation of European Nations’ [hi, Charles De Gaulle]

The loss of prosperity calculated in the study represents a lower limit, emphasise the authors, Gabriel Felbermayr, Director of the Austrian Institute of Economic Research in Vienna, and economist Inga Heiland from the University of Trondheim in Norway. Many of the positive effects of EU membership cannot be calculated [well, this is how ‘the Science™’ works, don’t complain, you peon, just accept we say so], such as the greater personal freedom resulting from freedom of movement [remember when you couldn’t travel internationally before the EU came into existence in 1993] or the innovative capacity of companies in the large single market [there’s not a single argument in here, this is but an assertion].

The analysis assumes that the EU collapses after the withdrawal of Germany, its largest member state. The economic integration progress of the customs union, the single market, the special freedom of movement in the Schengen area, and the European Monetary Union would be reversed. This makes it possible to estimate the costs of the loss of integration [I though it, as the preceding paragraph held, ‘many of the positive effects…cannot be calculated’—and now we can?].

Economists have not calculated what economic benefits Germany would derive from an alternative ‘union of European nations’, which the AfD has in mind as a replacement for the EU. In its election manifesto, the party advocates an open single market in Europe and free trade in general. However, the AfD wants to severely restrict freedom of movement in Europe [by whom?].

Germany derives the greatest economic benefits from its membership of the European Union from the large single market of 27 member states. According to the study, the benefits amount to around 3.6% of gross domestic product. Freedom of movement within the Schengen area brings an economic benefit of around 1% of GDP, while membership of the European Monetary Union brings an increase of 0.7% of GDP. The positive effects of the customs union and existing EU free trade agreements with third countries are much smaller. The overall positive effects are offset by Germany’s net payments to the EU of around 0.2% of GDP. Overall, this results in an increase of around 5% of GDP or 2,430 euros per capita per year. ‘EU membership is an excellent deal for Germany,’ write Felbermayr and Heiland. [I’ve hardly ever seen ‘economists’ make such BS-grade assertions; GDP cannot be broken down to per capita averages like that and make sense as an argument; Germany’s median annual income is US$ 20,323 while we note, seemingly in passing, that any of these numbers is essentially meaningless in the face of the ECB’s—or the Fed’s, for that matter—annual inflation target of 2% per year]

According to the study, a German exit from the EU would affect all economic sectors in Germany, in some cases drastically. Real value creation in industry would fall by 7%. Metals, plastics, chemicals, and food would be particularly affected. Real value added in the service sector would fall by more than 4% and in agriculture by 8%.

The results of the INSM study are roughly in line with calculations by the Institut der deutschen Wirtschaft (IW), which has close ties to employers. The IW had estimated a loss of prosperity amounting to 5.6% of real GDP for the fifth year after an exit. This would mean a loss of around 2.5 million jobs. For the first five years in total, the IW had calculated an economic loss of 690 billion euros. The IW researchers assume a German exit from the EU similar to the UK’s exit, but not a complete collapse of the EU as in the INSM study.

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Bottom Lines

Highly misleading in their headline, the assertions made in the ‘study’ cannot be questioned at this moment. There is a ‘pre-print’ available, but since it is impossible to know, as of this writing, what the peer review did to the text, I limit myself to what is known.

First of all, note the eery similarities to all Covid ‘Science™’ (scams). Remember, we’re ‘moving at the speed of science’, as Tony Fauci said, hence no need to deliberation, peer review, or waiting for results to be published. Shall we talk about the infamous ‘Proximate Origins of Sars-Cov2’ paper from early 2020 in this context?

I mean, with annual ‘inflation targets’ of 2%, every number given must be considered in this light: the euro was created (first as unit of account in 1999), hence we’re in the 25th year of running an official 2% of ‘inflation’ per year in the Eurozone.

Interjection: what is ‘inflation’? It means a loss of purchasing power per unit of currency.

2% growth rates mean, simply put, a doubling time of 35 years; if we assume, for the sake of the argument, that ECB data is accurate (which I don’t believe), 2% of annual inflation over 25 years, that today’s ‘inflation’ has resulted in losses of purchasing power of around 71-2% relative to 1999.

Put simply: every euro in circulation—and remember that this includes also assets denominated as such, liabilities, and all financial products in said currency—have lost some 71-2% of its purchasing power over the past 25 years.

Is any of this included in the above news article? Nope.

In their preprint, Felbermayr, Jasmin Gröschl (the third co-author who is unmentioned in the FAZ piece), and Heiland write:

We propose novel estimates of the economic consequences of undoing European goods and services markets integration. Using a quantitative multi-country, multi-sector trade model…

No need to read on, esp. in the preprint version. Note we’re talking ‘novel estimates’ (i.e., stuff that has not been verified yet) based on ‘a quantitative…model…using the sector-level gravity equations that our theoretical general equilibrium model implies. To identify treatment effects, we exploit the panel nature of our data. Given the theoretical model, these estimates can be translated into changes in ad-valorem tariff equivalents of non-tariff trade costs.’

All clear, eh? Neoliberal BS with fancy terms. ‘General Equilibrium Theory’, which is as old as Adam Smith’s classic Wealth of Nations (1776). In effect, all it means is

the price system [which] plays the crucial coordinating and equilibrating role: the fact the everyone in the economy faces the same prices is what generates the common information needed to coordinate disparate individual decision. [source]

Problem is: how do we factor the multi-variate regulatory régimes of the EU/EEC et al. that, for all intents and purposes, serve to distort the price mechanism?

Here’s one more paragraph of mumbo-jumbo from the preprint (emphases mine):

We simulate the economic consequences of ‘undoing Europe’, highlighting country-level and sector-level heterogeneity regarding output, trade, and welfare effects, and contrasting models with and without complex IO linkages. We bootstrap the distribution of structurally estimated parameters and the corresponding simulated effects to obtain confidence intervals for our model predictions. Our bootstrap methodology provides a convenient solution to deal with estimated structural parameters that are not individually significant or need to satisfy theoretical constraints. Moreover, the bootstrap methodology permits us to test for the statistical significance of our comparative static results.

If there are statisticians among the readers, please help me out; I read this the following way: we made up a bunch of estimates, run a few simulations, and adjusted another set of variables to obtain ‘values’ (sic) that would otherwise be ‘not individually significant’. Then we ‘tested’ our thrice-simulated inputs for p-values.

How far off am I?

Let’s see if the published version of the ‘study’ explains stuff.