By Germán Gorráiz López – Europe would be suffering from an acute identity crisis aggravated by the COVID-19 pandemic and the subsequent entry into recession of the Eurozone economies, which will sharpen centrifugal forces, so the disappearance of the current Eurozone and the subsequent birth of a new European mapping in the post coronavirus scenario.
COVID-19 and the return of the PIIGS
According to Joel Kotkin in Forbes magazine, for decades, Northern countries (Germany, Norway, Sweden, Denmark, the Netherlands, Finland and the United Kingdom), have compensated for very low fertility rates and the decrease in domestic demand with the arrival of immigrants and the creation of highly productive export oriented economies. On the contrary, peripheral European countries have not developed strong economies that compensate for their demographic decline by basing their economy on the so-called “Mediterranean diet” whose main ingredients were the urban “boom”, tourism and domestic consumption that created excellent dishes. Minimalist, highly suggestive in appearance and exorbitantly priced but devoid of culinary content and with a printed expiration date (2008), caused by the bursting of the housing bubble and the collapse of the economic house of cards in the PIIGS countries (derogatory Anglo-Saxon abbreviation that included to Spain, Portugal, Italy, Ireland, and Greece) and by mimicry Cyprus, Malta, and Slovenia.
However, the imposition of excessively ambitious public deficit reduction targets, in a context of very significant contraction of GDP and with the added problem of lack of credit in several economies, would not have achieved the priority objective of achieving the reduction of imbalances. of the public finances of its member states, but they translated into tax increases, reduction of officials, dismantling of public health, wage cuts, maximum flexibility in the labor market and increase in public debt in peripheral and emerging countries.
Said Debt will reach stratospheric ceilings in Italy and Spain by 2021 as they are the most affected by the coronavirus pandemic, (estimated at 134% and 115% of GDP respectively), which in fact would mean the need for their rescue by the ECB , somewhat unfeasible given the size of the Italian and Spanish economies. At this difficult crossroads, it would be worth recalling the statements made by Peter Morici, economist and professor at the University of Maryland to the Fox network in which he stated “the need for a fiscal union in the euro zone and for the ECB to adopt a role similar to that of the carried out by the US Federal Reserve, they will not arrive in time to save the peripheral countries and he considered the possibility that “these countries leave the euro in order to print their own money and solve their problems as the United States did as a result of the financial crisis. “
Will Germany exit the Euro?
The International Monetary Fund (IMF) urged the German authorities to implement policies to “stimulate the growth of domestic demand as this would have important beneficial effects of contagion both in the eurozone and globally”, since the growth of domestic consumption German could be the German lifeguard in the face of recession. However, the German Constitution considers a budget balanced when a federal deficit equivalent to 0.35% of GDP is achieved, following the Schuldenbremse doctrine (debt curb) that Germany introduced in its Constitution in 2009 with the inescapable objective that Each generation pays its expenses and does not consume the taxes that its children will pay in the form of debt.
Thus, Germany has achieved successive economic surpluses in the last five-year period, with a slight decrease in 2019 (surplus of nearly € 50 billion) and a record budget surplus of € 19.5 billion, which will increase the reserve fund estimated at 40,000 € million. This could be explained by the fact that the zero or negative interest rates implemented by the ECB require less amount to pay the public debt (equivalent to 60% of GDP), which allowed it to accumulate reserves to face the current socio-economic crisis of COVID-19. . Thus, the German Industry Association (BDI) and the German Federation of Trade Unions (DGB) have asked the government for a massive boost in investments estimated at € 20,000 million to relaunch the economy.
For his part, Charles Dumas (Lombard Street Research London), maintains “that membership in the euro has encouraged Germany towards an expensive mercantile strategy at the expense of domestic consumption and the productivity of the economy but now the necessary cure for the ills of The eurozone will impose higher inflation in Germany, prolonged deflationary recessions in important eurozone markets, and continuous transfers of official resources to its partners. ” Dumas concludes that “returning to a cherished German mark would squeeze profit, increase productivity and raise real consumer incomes, because instead of lending savings surpluses to peripheral countries, Germans could enjoy better living standards in their country”. This includes the decision of the German Constitutional Court to ask the ECB for explanations of its monetary policies, behind the decision of the Bundesbank to abandon the Bond purchase program (PSPP), a decision that according to the Former German Finance Minister Wolfrang Schaubel would assume that “the integrity of the euro is at stake.”
The new European cartography
The hypothetical exit from Germany of the Euro would suppose the beginning of the settlement of the Eurozone and the gestation of a new European economic cartography. Thus, we will attend the reconversion of the current Eurozone in the Europe of the Six (Germany, France, Belgium, the Netherlands, Luxembourg and Austria), leaving the rest of peripheral European countries (Portugal, Spain, Italy, Ireland, Greece, Slovenia, Malta and Cyprus), gravitating in their orbital rings, being forced to return to their national currencies and suffer subsequent depreciation.
In addition, the decline in exports due to the contraction of EU internal consumption due to the economic recession, (trade between the EU Member States reached 60% of the total volume of their trade) and the reduction of their competitiveness against to the countries of the rest of the world, (with special incidence in traditionally exporting countries such as Finland) could lead to the constitution of a Scandinavian Federation (made up of Sweden, Norway, Denmark, Finland, Latvia, Estonia and Lithuania) that would pivot in trade ambivalence Russian-European. The rest of the countries of central and eastern Europe, (members of the so-called emerging Europe), will integrate the so-called “European fracking arc” that would extend from the Baltic countries to European Ukraine, passing through Poland, the Czech Republic, Slovakia, Hungary, Romania and Bulgaria and that will depend on the technology of US companies such as Chevron or Shell, a new conflict in the Balkans not being ruled out.
