The Telegraph, April 21st, Barnabas Reynolds
There is a critical defect at the heart of the Eurozone. It is becoming more obvious by the day that its finances are fundamentally flawed, and this is because there is no single sovereign entity raising capital for the whole Eurozone.
At present, all separate Eurozone countries raise monies on the debt capital markets without fear that any of them can be punished (as an individual country) by currency collapse. This is in particular because strong Eurozone states, especially Germany, now run very large surpluses. These surpluses are primarily due to the euro’s value being depressed, which in turn is because the southern Eurozone states have been and remain less competitive, heavily indebted, economies.
These surpluses also arise because Eurozone sellers, especially in the successful north, are subsidised by the Eurosystem’s fiscal arrangements which provide unlimited financing to their Eurozone-based buyers – massively increasing member debts, particularly in the south.
This is an unstable situation and, unless rectified, sooner or later the expense of debt servicing will overwhelm the southern states. Unless the north agrees to fix matters by “mutualising” southern debt while moving to an integrated union – more like the USA, resulting in a steady transfer of funds from the Eurozone’s north to south – this problem is likely to precipitate state bankruptcy in the south. However, the north currently emphatically refuses to consider mutualisation, thus enjoying unalloyed benefits from these self-funding arrangements. Now the additional and enormous cost brought on by the Covid-19 pandemic increases the threat of state bankruptcy in the south, hazarding consequences even more dangerous than before.
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