Merkel refuses to consider the North-South schism of Eurozone

Italian Prime Minister Matteo Renzi, German Chancellor Angela Merkel (on the right) and Donald Tusk European Council President (on the left), all shoveling soil at the foot of a small tree. However the tree was not planted on European soil. The planting took place on the occasion of the G7 Summit, which was held in Ise, Japan. Date: 26/05/2016. Location: Ise - Grand Shrine. © European Union, 2016 /Source: EC - Audiovisual Service / Photo: Ken Shimizu.

Italian Prime Minister Matteo Renzi, German Chancellor Angela Merkel (on the right) and Donald Tusk European Council President (on the left), all shoveling soil at the foot of a small tree. The tree was not planted on European soil. The planting took place on the occasion of the G7 Summit, which was held in Ise, Japan. Date: 26/05/2016. Location: Ise – Grand Shrine. © European Union, 2016 /Source: EC – Audiovisual Service / Photo: Ken Shimizu.

The European leaders who form the EU ‘directoire’ may get together as many times as they like, but still appear incapable of solving the club’s existential problems. Last Monday the German Chancellor Angela Merkel, the French President Francois Hollande and the Italian Prime Minister Matteo Renzi met in Naples to relaunch Europe, after the Brexit. Unfortunately, not only did they not effectively tackle the burning issue of the North-South division of Eurozone, but at the insistence of the German Chancellor the issue wasn’t even discussed. Let us dig a bit into this question.

Last week the American Nobel laureate economist Joseph Stiglitz wrote a newsworthy article about the main problem of Eurozone, its North-South division. Sidestepping the usual clichés about the lazy Southerners and the overprotective labor laws, he concluded that it’s the euro that must be held responsible for the club’s problems. It’s very characteristic that the Italian economy stagnates or recedes since the introduction of the common currency, while Greece is by itself a proof that the cost to participate in the euro area may be irreparably destructive.

It’s not the 2008-2010 crisis

The 2008-2010 crisis has exacerbated the burden of the common currency on the south European economies, including, of course, Spain and Portugal. For all those countries there is now no light at the end of the tunnel of impoverishment. Their economic dead-ends have already deformed their social and political structures, in some cases irrevocably. The export killing strength of the euro and the straightjacket of fiscal and financial orthodoxy imposed by Germany are generally accepted today as the main causes of the predicaments of those euro area member states.

Stiglitz says “Deficit fetishism is, no doubt, part of Europe’s problems”. He then continues blaming mainly the common currency as the principal cause for all the euro area problems, by stating that “the euro is more to blame than the policies and structures of individual countries”. Is not the first time though, that he attacks the euro as the main source for Europe’s economic troubles.

Don’t blame the euro only

He has been doing that since the Eurozone was born and continued along the same lines even at the good times of the euro area. It’s highly possible that Stiglitz, being an American himself, tends to overestimate the negative effects of the euro on Southern Europe, and lessen the devastating repercussions of the New York born 2008-2010 financial Armageddon. However it is beyond the scope of this article to do an in depth socioeconomic review of causes and effects, so we will focus on his proposed cure.

Eventually, his proposals for a solution to the euro area member states divisions and troubles do not lead to the dismantling of the common currency. Quite the opposite, they are obviously meant to greatly strengthen it. His suggestions include:
•” Abandonment of the less the than 3% of GDP fiscal deficit obligation;
• Replacing austerity with a growth strategy, supported by a solidarity fund for stabilization;
• Changing the mandate of the European Central Bank, which focuses only on inflation, unlike the U.S. Federal Reserve, which takes into account employment, growth, and stability as well;
• Establishing common deposit insurance, which would prevent money from fleeing poorly performing countries, and other elements of a ‘banking union'”.

The perfect and only solution

In short, Stiglitz tenders a platform on which Germany would agree to undersign and, if needed, use its huge reserves to finance and cover the fiscal and financial chasms of the South. This is a perfect solution for the Southerners and heavenly music to the ears of Renzi and of course the Greek PM Alexis Tsipras. Actually, Stiglitz theorizes on what the Europeans have been discussing for years now. Not only does he set up a growth strategy but also solves, in paper, the problems of the banks, Deutsche Bank included.

This brings us back to our initial observation about last Monday’s pointless meeting in Naples, where Merkel refused to discuss the question of the fiscal deficits limits with Renzi, let alone to shore up the ailing Italian banks. Yet, the time will come and it will be rather sooner than later, when Merkel will be obliged to counter the problems of Deutsche Bank. It will be difficult then for the Germans to respond only to their bank’s difficulties and ignore the ills of rest of the euro area banking system.

The Germans will learn

That’s why Stiglitz proposes a genuine common deposit insurance fund for the entire banking system of Eurozone. This is tantamount to Berlin undersigning the risks of the Italian and Greek banks also . Understandably, this eventuality will surely be politically spiky in Germany. It’s the well known and much discussed, but ostracized by the Germans, idea of the issue of Eurobonds, a euro area common government borrowing instrument, which will function as a common guarantee for the entire Eurozone’s debts.

This is exactly where the future of the euro hangs upon. If Germany continues denouncing the mutualisation of Eurozone’s risks, soon there will be no Eurozone. Brexit is just the beginning. Italy is also preparing a referendum. Renzi has announced a plebiscite to reform Italy’s legislative structure, and has interlocked his political future with the ‘yes’ outcome. If it’s ‘no’ he says he will quit. If nothing changes until the Italians go to the ballot box the ‘no’ is rather certain.

Regrettably, weeks only after the Italian PM’s announcement, Renzi acknowledged that he made a grave mistake proclaiming this referendum. He realized to his astonishment that the Italians will connect their votes to the questions that bother them, not the Prime Minister’s one. Currently, the wider discussion about this referendum touches everything else other than Renzi’s question.

Then, after a very probable ‘no’ to Italy’s constitutional changes, another referendum about an Italexit won’t seem impossible. If this is what Germany wants, Berlin can continue on the same path. Eurozone needs a groundbreaking reform and Germany has to undersign and pay for it or the EU will be eventually resolved.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Featured Stings

18th European Forum on Eco-innovation live from Barcelona: What’s next for eco-labelling?

China hopes EU Commissioner De Gucht drops super anti-dumping tariff on solar panels

Everybody against Japan over yen’s devaluation

Brexit uncertainty keeps shaking the world’s financial markets

More capital and liquidity for the banks

Yes, together we can make a change! YO!Fest and EYE 2016

Legal Manager – 2050

Yanis Varoufakis in a Sting Exclusive: “Unsustainable debt turns the creditor into Leviathan; Life under it is becoming nasty, brutish and short”

WEF Davos 2016 LIVE: “Employment contracts today are a reducing share of the workforce”, scientists worry in Davos that the 4th industrial revolution threatens employment globally

De Gucht: More gaffes with the talks on the EU-US free trade agreement

Can ECB’s €60 billion a month save Eurozone?

Paris, Rome, Brussels and Frankfurt to confront Berlin over growth and the Athens enigma

European Court of Justice to Google: It is #righttobeforgotten but not #righttoberemembered

IMF: European banks do not perform their duty to real economy

MWC 2016 LIVE: 5G to embrace unlicensed bands and Wi-Fi

Varna (Bulgaria) awarded European Youth Capital 2017

TTIP’s 11th round major takeaways and the usual “leaked” document

Appreciation of euro to continue

Germany loves a strong euro; the new Fiscal Councils can deliver despite the Greek chaos and a wider questioning of austerity

Junker for Commission President: What were the stakes in this affair

THE ROAD TO GANESHA

Responsible Artificial Intelligence

Rehn ready to sacrifice part of the real economy

Trump’s Russophiles under investigation, Europe remains ‘en garde’

UN Human Rights Council resolution on youth and human rights: a step forward for youth rights

European Youth Forum welcomes establishment of new Youth Intergroup in the European Parliament

Parliament votes reform for better European Co2 market but critics want it sooner than later

Is Eurozone heading for disinflation?

Migration crisis, a human crisis after all

Rehn very reserved about growth in Eurozone

Germany fears that Americans and Russians want to partition Europe again

168 hours left for MEPs – ECOFIN Council to deliver a Banking Union

Facebook and Google to treat Europe as the 51st State of the USA

MWC 2016 LIVE: Mobile has power to tame transaction fees – PayPal CEO

Who cares about the unity of Ukraine?

Medical Doctors in Industry 4.0: pure science fiction

MWC 2016 LIVE: Orange targets VoLTE and Voice over Wi-Fi; strikes Google partnership

What does Tsipras have to offer to the rest of Europe? Is it worth an early advance of €10 billion? Berlin sturdily denies it

EU-US relations on the dawn of the Trump era

iSting: Change Europe with your Writing

Who is to pay the dearest price in a global slowdown?

The EU accuses Russia of bullying Ukraine to change sides

The impact of refugees on the European healthcare system

EU is officially in recession

Commission criticised member states on blocking financial transaction tax

South Sudan’s foreseen genocide: from “Never Again” to “Again and Again and Again”?

EU Summit: Why was Poland isolated in opposing Tusk and the ‘multi speed’ Europe

A European young student speaks about the Youth Policies of the European Commission

Tackling Youth Unemployment

The Next Web 2014, the biggest European conference on Internet so far and the Absence of Brussels from Amsterdam

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s