EU at ‘crunch point’ over future of the Eurozone says expert
Ten years after the financial crisis, Europe’s economy achieved a recovery, but not a revival. Low inflation, low interest rates and low growth were the new normal across the continent. Then, the coronavirus pandemic hit, causing incredible damage to the economies of numerous countries.
Covid-19 plunged the eurozone into its deepest recession for a generation and the economy is expected to shrink again at the start of this year.
Analysts at banks including JPMorgan Chase & Co. and UBS Group AG are downgrading forecasts to account for renewed lockdowns and the prospect that the new coronavirus variant ravaging the UK will do the same on the continent.
Add vaccination delays to trade disruptions because of Brexit, and the scene is set for a second quarter of falling gross domestic product.
That would echo the downturn at the start of 2020, even if less severe, and increase pressure on indebted governments and the European Central Bank, which meets to set policy next week, to provide more financial support.
The outbreak is expected to push debt as a percentage of GDP up to 200 percent in Greece – the second highest in the world – 158 percent in Italy and 120 percent in Spain.
We will use your email address only for sending you newsletters. Please see our Privacy Notice for details of your data protection rights.
Amid fears the eurozone might not be able to survive, a speech by former Greek Finance minister Yanis Varoufakis has resurfaced.
The economist and former politician argued that the Bundesbank, the German Federal Bank, already has a plan for when the debt of other eurozone countries will become too much.
In a 2018 debate at the Oxford Union, the ex-Greek minister said: “The euro will break up, if it breaks up, I am not wishing that it does, I am simply describing the future as I see it.
“The way it will happen is that Germany will leave the euro once the Berlin political class has had enough of the riff raff, asking the Greeks, the Italians, the French, the Portuguese and so on.
“The moment they start sniffing in the wind that possibility they might have to bail out 2.7 trillion euros of Italian debt, believe you me, the Bundesbank already has a plan in the drawer for printing Deutsche Marks.”
Mr Varoufakis then explained what will happen after is that all German accounts will be redenominated from euros to Deutsche Marks immediately, as Germany has a “gigantic account surplus”.
JUST IN: President Blair? Former PM ‘considered standing for EU’s top job’
He added: “The nearer we are getting to a fragmentation of the euro, the higher the value of the German euro.
“Of course what will happen is euros will be shifted from Italian bank accounts to German bank accounts.
“This is already happening.
“There are about 200 billion in the last 18 months that have shifted from Italian to German bank accounts because of the risk of keeping your euros in a country that after the break-up of the eurozone will see its currency redenominated downwards not outwards.”
Back in March, Mr Varoufakis brilliantly explained everything wrong with the EU’s response to the pandemic and revealed what the bloc should be doing instead.
In a video posted on his YouTube channel DiEM25, he said: “The eurogroup, the EU and in particular the eurozone are terribly structured.
“They are on autopilot.
Merkel’s possible successor listed Turkey for UK-style trade deal [INSIGHT]
Boris Johnson’s plan to mimic Singapore in UK unravelled by Redwood [EXCLUSIVE]
Biden ‘to snub Johnson in boost for Sturgeon’s independence bid’ [EXCLUSIVE]
“They simply follow particular rules that cannot be followed without racking our economies. It is a reflection of a system that has been created in order to prevent governments from acting on behalf of society.
“That is if you want the ‘neo-liberal kernel inside Europe’.”
Referring to the proposals of his political movement DIEM25 or Democracy in Europe Movement 2025, the former Finance Minister said: “We need a common investment policy based on an alliance between the European investment bank and the European Central Bank.
“We need a universal basic dividend.
“We need a carbon tax and a social equity fund, the purpose of which will be to energise both private capital and public finance.
“We need public financial instruments in order to take the liquidity that exists in our financial circuits and put it into good use.
“Press them into public service in terms of public health, in terms of creating good quality jobs.
Question Time: Varoufakis suggests solution to economic issues
“The agenda of DIEM25 has never been more pertinent and has never been more urgent than today.”
At the end of summer, EU leaders, spearheaded by German Chancellor Angela Merkel and French President Emmanuel Macron, struck a deal on a huge coronavirus recovery package after days of bitter talks.
The €750billion (£668billion) coronavirus fund will be used as loans and grants to the countries hit hardest by the virus.
The remaining money represents the EU budget for the next seven years.
However, Mr Varoufakis immediately criticised the measures, claiming they will take Europe another step towards “disintegration”.
Source: Read Full Article