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Is the Euro at Risk of Dying?
Once again, Europe has become ensnared in a pointless narrative pitting the "frugal" against the
"lax", ants vs grasshoppers. This narrative is not just historically false, but politically toxic, and the
only way to change it will be to reconnect with the shared values of the European project. As such,
the severity of our current crisis calls for a renewed vision that, paradoxically, opens up a path to
a political Europe.
Europe of Grasshoppers, Europe of Ants
In March, in the early days of the health crisis in Europe, Dutch Finance Minister Wopke Hoekstra
suggested that it would be necessary to “investigate countries like Spain that say they have no
fiscal margin to deal with the effects of the crisis provoked by the new coronavirus in spite of the
fact that the Eurozone has grown for seven consecutive years”1
.
His take is disheartening. If anything, it improperly frames the issues critical to the future of the
Eurozone. Of course, the debate over debt mutualisation in the eurozone is not a new one and,
for years, it has put member states at loggerheads. Now, given the financing needs brought about
by the health crisis, this old dispute has risen to the forefront once again.
The protagonists are well known. On one side, member states in favour of the European Union
using its fiscal muscle to finance its development andthe transfers necessary for stability. Southern
countries are the main proponents of this vision, along with Ireland, Luxembourg and Belgium. On
the other side, we find the so-called “Hanseatic” countries (the Netherlands, Sweden, Denmark,
Finland). Occupying the middle ground are France and Germany, with France somewhat closer to
the first group and Germany to the second. Some call for solidarity within the EU while others have
been vocal about their unwillingness to pay the debts of supposedly less fiscally responsible
countries.
2
But of course, appearances are deceptive and the “lax” populations might not actually be the ones
most often mentioned.
Let us look at the example of Italy. All too often, the considerable efforts made by successive Italian
governments since the 1990s to reduce a public debt burden inherited from the 1980s have been
forgotten2
. Italy in fact recorded a primary surplus every single year between 1995 and 2019, with
the single exception of 2009. In other words, taking out debt interest payments, public revenue
has exceeded expenditure every year. Over the same period, primary deficits were recorded in
Germany in 1996, 2001-2005 and 2009-20103
. Even in 2012-13, at the height of the euro crisis,
Mario Monti's government managed to achieve a primary surplus of 2% of GDP at a time when,
as he himself explained, this austerity “destroying domestic demand through fiscal
consolidation”4
, worsening the crisis.
Italy was more than just frugal. It also started reforming its labour market early on. The percentage
of part-time workers in the Italian labour force increased from 10% in 1991-93 to 18.5% in 2017,
comparable to the 22% reached in Germany that same year5
. According to the OECD, Italy enjoyed
greater job protection than France in the mid-1990s, and its labour regulations today are on a level
more comparable to that of Germany’s6
.
In short, contrary to what is often said, Italy has shown itself to be a bit of a poster child.
What do we find if we look at the other
countries?
It is government debt-to-GDP ratio that is
most commonly looked at. As is well
known, it is much lower in the so-called
"frugal" countries (49% of GDP in the
Netherlands, 33% in Denmark) than in the
supposedly "lax" countries (Italy 135%,
Spain 96%)7
. Indeed, this is the basis used
to brand the peoples of Southern Europe
(and for that matter, the French and
Belgians) as irresponsible. Yet, public debt
alone is inadequate as a measure for determining the more or less profligate behaviour of a
population. Household debt, contracted by individuals privately,shouldalso be taken into account.
What the graph shows us is that household debt is proportionally much higher in the countries
that claim to be frugal than in the countries seen as lax. Yet what matters most is not the private
or public nature of expenditure. This is a matter of public choice that each population can make
sovereignly. What is critical is how much debt (privately or through the State) is taken on to spend
more than is produced.
From this viewpoint, the grasshoppers and the ants are not always found where one might expect.
The “Hanseatic” households (black column) have a stronger tendency to spend in excess of their
Households debt in % of disposable income
« frugal » countries « lax » countries
Netherlands average f Sweden Finland Spain Greece average l ItalyDenmark
Verschuldung der Privathaushalte in % des verfügbaren Einkommens
« Sparsame » Länder « Leichtsinnige » Länder
Dänemark
Households debt in % of disposable income
Denmark
« frugal » countries « lax » countries
Source : OECD
3
incomes than the ones in the southern countries (white column). More significantly, the level of
savings by household in each of the Hanseatic countries (dark grey columns) is lower than in Italy,
which is often held up as an example of intemperance1
.
Even more telling, the sum of the ratios of household debt and government debt for the four
Hanseatic countries results in an average that exceeds 260%, compared to less than 220% for the
four other countries analysed (315% for Denmark, 290% for the Netherlands and 220% for Italy).
The aim here is not to conduct an exhaustive accounting of a country's debts in order to analyse
its vulnerability. It is a question of comparing behaviours. There are many, from Aristotle to
Montesquieu, who have sought to characterize the casualness of countries to the south and to
affirm the model behaviour of those who live further north. Repeated incessantly, this old adage
has become accepted law and is poisoning our Community life. The figures are irrefutable: from a
behavioural standpoint, there is no question that the least meritorious are not the usual suspects.
This also holds true for the risks of excessive indebtedness, the dangers of which have been shown
by the subprime crisis. Here again, while there are risks, they are not unique to the countries that
are frequently castigated.
There's none so deaf as those who will not hear
Pitting the "frugal" and the "lax" against each other does not make much sense. Yet, it has served
a purpose. It helps to conceal the root causes of the crisis we are going through. It also obscures
the main promise of the single currency project, which was to promote economic convergence.
The history of the Eurozone starts with a complex industrial heritage8
with roots dating back to
the Second World War. At the time of integration, some countries, particularly Germany, had large
export-driven companies, often specialised in high value-added products. The Atlas of Economic
Complexity published by Harvard University ranks countries according to the sophistication of their
exports, thereby providing a way to measure the differences in industrial complexity between the
European core and periphery at the time of their countries’ integration into the Eurozone. In 1995,
Germany was ranked the 2nd
most complex economy in the world, with Finland coming in 5th
,
whereas Italy was ranked 10th
, France 16th
and Spain 19th9
. The top-ranked were thus spared the
worst of the price competition brought about by China's entry into the WTO. In the case of the
countries with industries specialised in less complex products, this was not the case. To make
matters worse, the appreciation of the euro in the 2000s aggravated the situation. More critically,
however, how could a price war be fought without destroying the social fabric of society? In 2000,
hourly labour costs in Spain in industry and services amounted to 14 euro, compared to 5 in Poland
and 1.5 in Romania10
.
The imbalances in the Eurozone can thus be traced back to this technological inheritance. This
structural disadvantage was compounded by competitive disinflation in Germany and a voluntary
reduction in imports, which deprived its former partners of outlets for their exports. In fact,
1 The figures differ, but they all point in the same direction if debt from the “non-corporate” sector is added to
household debt.
4
Germany’s deregulation of the labour market under the Hartz laws weighed on household
consumption. Between 2000 and 2007, German hourly labour costs did not move in real terms11
.
Pressure on wages reduced the share of household consumption in Germany's GDP12
. At the same
time, investment in industry fell. As not much of the exporters' earnings went towards workers
and investment, savings accumulated13
. This pressure on domestic demand led to a serious
imbalance in the German economy, which accumulated a large current account surplus. By the
end of 2007, Germany had gone from a deficit of 2% in 2000 to a surplus of more than 7%14
. This
unhealthy state of affairs has been regularly denounced by both the European Commission and
the IMF, which noted diplomatically in July 2019 that “the large current account surplus partly
reflects high corporate savings, widening top income inequality, and compressed household
consumption”15
.
Many European countries then found themselves caught between a rock and a hard place. Their
exports fell as a result of the decline in German imports, but their level of industrial development
prevented them from turning out products with high added value, and they were unable to
compete on price because of competition from Eastern Europe and China in particular. With
export-driven growth no longer a viable option, the countries in the south turned in the 2000s to
an economy driven by debt16
. This path was facilitated by the accumulation of savings in Germany,
but also by the extremely low interest rates set by the European Central Bank. For instance, in
2005, the ECB interest rate was 3.25%, while inflation in Spain was 3.4%17
, compared to 1.6% in
Germany18
. As a result, the real interest rate was negative in some periphery countries, fostering
an increase in private debt as well as the rise of speculative bubbles. Property prices in Spain
doubled between the first quarter of 2000 and the autumn of 200719
. It was this excessive private
indebtedness that forced periphery States to bail out their banks after 2008, further worsening
the sovereign debt crisis. In Spain, for example, the budget surplus20
was higher and the public
debt much lower than in Germany between 2005 and 200721
.
Let us look at Italy again. Austerity measures in place since 1995 combined with the appreciation
of the euro, competitive disinflation in Germany and the rise of China all contributed to trapping
Italy in a vicious circle. Moreover, the lack of aggregate demand brought about by the pressure on
Italian wages led to a drop in utilisation of the manufacturing base and, consequently, to a
crumbling of corporate margins, prompting in turn a drop in investment. This lack of investment
prevented Italy from upgrading in quality, which also precluded its escaping the price wars22
. As a
result, despite its fiscal efforts, Italy was only able to make modest reductions in its debt burden,
which fell from 105% in 2000 to 100% in 200723
, prompting the government to continue its
austerity policy. And thus, the vicious circle continued.
After the crisis in the Eurozone in 2010, austerity policies, partly backed by Germany, exacerbated
divergences. Wolfgang Schäuble explained in an editorial published in the Financial Times in
September 2011 that “Governments in and beyond the eurozone need not just to commit to fiscal
consolidation and improved competitiveness – they need to start delivering on these now.”24
.
In Italy, the economic situation worsened considerably. In the summer of 2017, youth
unemployment increased from 25% between 2008-2010 to 43% in 2014. Between 2012 and 2014,
the number of people living in poverty in Italy increased by 3.4 million. At the same time, Germany
enjoyed the benefits of a recovery driven by a Chinese stimulus of biblical proportions. German
5
exports to China rose from 41 billion dollars in 2007 to 91 billion dollars in 2011. Given this
situation, the vicious circle described previously tightened further25
.
And now here we are battling Covid-19. The European Commission's forecasts for 2020 suggest
that Covid-19 will very likely speed up this macroeconomic dislocation. They anticipate a much
sharper recession for the periphery countries26
.
If inertia prevails, the Eurozone, already markedly imbalanced, runs the risk of crossing the point
of no return. This is the thrust of the remarks that Paolo Gentiloni, European Commissioner for
Economic and Financial Affairs, made to Bloomberg in May when he said that “such divergence
poses a threat to the single market and the euro area”27
. Ultimately, we have only two options left:
either the Eurozone integrates further, or it will fall apart.
The Phoenix can be reborn from its ashes
It is the survival of the Eurozone itself that is at stake. After an initial misstep, the European Central
Bank has demonstrated its full commitment to the cause. On 18 March, the ECB launched a new
support scheme for financial markets, the Pandemic Emergency Purchase Programme28
.
Combined with existing quantitative easing instruments, this action avoids a dislocation of
sovereign debt markets. As of 5 June, PEPP has acquired more than 230 billion euro in public and
private bonds, out of a total envelope available of 750 billion euro29
. In addition, the ECB has lifted
a number of restrictions that had previously curtailed its actions, such as authorising the purchase
of Greek bonds, even if they are still considered non-investment grade30
.
This support has been invaluable for Italy. Fitch and S&P have both noted that the ECB's support
constitutes a mainstay for Italian debt sustainability31
. While such support from the ECB is
necessary, it is not enough. This is primarily on account of the fact that the ECB does not officially
have a mandate to directly support the periphery countries' economies or to correct the Union's
macroeconomic divergences. It is only authorised to intervene to fight against price risks32
.
New difficulties have arisen from the ruling handed down by the German Constitutional Court of
Karlsruhe on 5 May 2020. Going against the opinion of the European Court of Justice (ECJ), the
German Court has, for the first time, put the ECB on notice to explain its monetary support
programmes. Even worse, unless satisfactory explanations are given, it has threatened to prohibit
the Bundesbank from participating in these programmes. Without getting into the technical
aspects, two things need to be kept in mind.
First of all, for the first time, a national court did not abide by an ECJ decision. This threatens to
undermine the entire European legal order. It is easy to see how certain populist regimes in Central
Europe could jump on this precedent to try to circumvent individual rules that the European Union
has put in place, particularly in the area of human rights. It is essential that the European
Commission address this issue and not gloss over the Karlsruhe Court's judgement as if it were a
trivial matter.
6
Secondly, also without precedent, the independence of the ECB is being challenged and, ironically,
this is happening in Germany. The ECB does not seem to be letting itself be intimidated33
. It is
crucial that it stands its ground.
It is not likely however that the Karlsruhe decision will have much of a tangible impact. It will be
relatively easy for the ECB to prove that its action was proportionate to the existing exigencies, as
it has been requested to do.
In any case, monetary policy cannot be the only game in town. A budgetary response is also
necessary. The EU has already progressed through several phases. It initially suspended its
budgetary rules and implemented the different mechanisms at its disposal, for example the
European Stability Mechanism34
. This has been a front-line response, but it is economically
inadequate and the ESM loans are politically difficult to implement for countries that are loath to
be considered ugly ducklings.
One positive outcome from the Karlsruhe ruling is that, by sending the ball back to the States, the
Court has forced the German Government to confront the situation squarely, which will
undoubtedly also impact the Franco-German agreement. This agreement marks a turning point in
German policy. For the first time, the idea of a European loan and a form of burden sharing have
gained acceptance there. Even Angela Merkel, who stated in 2012 that she would stand against a
mutualisation of European debt until her dying breath35
, now seems on board.
Right afterwards, on 27 May, the European Commission proposed a 750 billion euro plan36
which,
aside from the actual figures, is very important because it is underpinned by the idea of European
solidarity. Better still, it paves the way for the Union to raise its own tax resources, a considerable
step in the direction of integration. Even though there are still many hurdles to overcome before
the first funding is distributed, it is the first sign of light in a long tunnel.
The second comes from the German plan, which largely came into being under the strong
influence of the Finance Minister, Olaf Scholz, and the SPD. This plan breaks with the past and aims
to rekindle consumption and investment. It should be noted that, in Germany, Covid-19 has
already killed the Schwarze Null, symbol of a balanced budget, and now has its death grip on the
Schuldenbremse (the debt brake), in a country where a single word Schuld denotes both debt and
fault. How can German psychology be understood without this key?
These plans, as substantial as they may be however, are not enough. It is much more likely that
two trillion euro will need to be mobilised if we wish to weather the recession and truly commit
to an ecological transition. For this, more ambitious solutions are required. The most promising is
that of perpetual bonds, or Consols, as George Soros likes to call them in reference to the first
bonds of this type issued in the United Kingdom in 1752. A perpetual annuity bearing interest of
0.5% could today procure, in one or more instalments, the two trillion euro required at an annual
cost of ten billion euro. Given that Consols do not need to be repaid, they do not increase the debt
and provide the resources needed for these exceptional times in which we live. This amounts to
an obligation to pay interest and nothing more. It does not involve any debt mutualisation even if
it does entail an obligation to pay ten billion a year from its own resources, which must be
considered against a European budget of around 150 billion.
7
During these new challenging times, Europe must move towards developing new economic
thinking, focused around restructuring the Eurozone. The shortcomings of the Maastricht Treaty,
which France helped to overhaul at the end of 1997 by compelling its partners to focus as much
on growth as on stability, have now become too costly to continue to be ignored. That is why the
Karlsruhe decision, which will force Germany to see this political debate through to a conclusion,
is of such interest. Yet, time is running out. The health crisis has exposed the overwhelming urgent
need for some form of debt mutualisation and monetisation. Perhaps we are on the cusp of
profound changes. But unless we are ready and willing to tackle our old demons, the risks of
dislocation will only increase within the Eurozone and, ultimately, within the Union itself.
We, Europeans…
Paradoxically, this period of crisis that is so sorely testing the European Union may well be the
catalyst for its renewal.
What the ongoing crisis shows us is that European solidarity, rocked by turmoil, has been shocked
into life again by economic proposals that, up until very recently, many people thought were
unattainable. Yet this major upheaval goes far beyond the economy.
Today, it is the societal models themselves that are being called into question. The European
model is floundering, but others are faring even worse. This has notably been the case of the
hitherto dominant model, the flagbearers of which have been the Anglo-Saxons in general and the
United States in particular. This is evidenced today by the inability of the U.S. healthcare system
to meet the demands of those most in need as well as the explosion of racial violence we have
been witnessing. Populism, unilateralism, a withdrawal from world affairs are all traits that are
contrary to the values once defended by the Anglo-Saxons. The proliferation of inequalities and
the weakening of the middle classes have grown alongside an increasing polarisation of society.
Elsewhere in the world, systematic criticism of the United States serves as a pretext for anti-
democratic tendencies and aggressive posturing. It is hardly surprising therefore that this situation
has eroded the confidence that many around the world may have had when looking towards North
America.
Tomorrow, Europe may be the only one able to offer the world a desirable political model.
This European model of society exists. It is rooted in the history of the European continent, which
has known periods of both imperial (Greek civilisation, the Roman Empire, Charlemagne, Charles
V, Napoleon) and cultural (medieval Christianity, the Republic of Letters) unity. It can also trace its
origins back to the violent divisions in Europe, particularly the horrors of World War II, which
brought European civilisation to the brink of annihilation: its unwillingness to accept being torn to
pieces has fuelled its tireless quest for unity. What is the crux of this European model of society?
The European model embodies the will to build a world of justice grounded on the irreducibility
of human dignity.
8
Viewed as such, it is made up of four components. First, the inviolability of human rights. Even
though human rights are common to many societies, their inviolability is a hallmark of Europe as
evidenced by: the abolition of the death penalty, the elimination of special courts, the ban on the
commercialisation of the human body and the extension of constitutional public freedoms.
Next, there is culture as a means of emancipation. Referencing the humanist model of the honest
man, culture in Europe is primarily approached as an instrument for the development of the
human individual, and not as a tool for commercial activity.
It also involves being a model of sustainable development. Europe stands out as having achieved
a good balance between economic prosperity, social justice and environmental protection, even
if with respect to the latter, simply doing a little better than others is not enough. The importance
attributed to social justice ("the rights of the poor") is specific to Europe: the development of the
welfare state and a high degree of tax redistribution are distinctive European characteristics.
Lastly, there is a vision of the international order. This vision is predicated on multilateralism. The
European model defends the dignity of all human beings, not just Europeans. In promoting
multilateralism, Europe has advanced on the international stage a model of justice that it has
developed from within; this vision of the international order can be characterised by the rejection
of power relationships in favour of the rule of law, the priority given to the peaceful settlement of
disputes through negotiation and arbitration, and, finally, solidarity with poorer countries.
This crisis may represent an opportunity to revive a political Europe after its brush-up against the
hypocrisy of the liberal model and its rejection of autocratic flirtations. “Democratorships”, in both
the East and West, have already shown that, as a model of governance, they are neither humanist
nor effective.
We, Europeans, our action is legitimate. It is legitimate because this model is specific to Europe. It
would of course be ridiculous to think that the notion of human dignity, and the values thus
derived, are exclusively European. However, its formulation - its irreducible nature - is without
equivalent elsewhere. Moreover, it is legitimate – and growing in consequence – owing to
Europeans being proud of their model. Finally, it is legitimate because the European model points
the way to a better future. It is not the symbol of an “old outdated Europe”, as some would claim,
passed up by the success of the United States, the dynamism of China or the rise of India. The
crisis has made all that yesterday’s news.
The world of European justice is, on the contrary, a universal reality that is intended to be the
precursor of tomorrow's world, the promise of a new "new world": a world that has abandoned
the raison d'état in favour of the primacy of human rights, a world that foregoes production-driven
growth, seeking instead a path to sustainable development, a world that renounces power-based
relationships in the interests of peace and law.
1 Independent (April 2020), The European Union will be destroyed by its immoral handling of the coronavirus crisis,
https://www.independent.co.uk/voices/coronavirus-crisis-eu-italy-germany-greece-far-right-eurosceptics-
a9440066.html
2 Servaas Storm (April 2019), Lost in Deflation, Institute for New Economic Thinking,
https://www.ineteconomics.org/research/research-papers/lost-in-deflation
9
3 International Monetary Fund (October 2019), World Economic Outlook Database,
https://www.imf.org/external/pubs/ft/weo/2019/02/weodata/weorept.aspx?pr.x=37&pr.y=11&sy=1990&ey=201
9&scsm=1&ssd=1&sort=country&ds=.&br=1&c=134%2C136&s=GGXONLB_NGDP&grp=0&a=
4 CNN (May 2012), Interview with Italian Prime Minister Mario Monti,
http://transcripts.cnn.com/TRANSCRIPTS/1205/20/fzgps.01.html
5 OECD, Part-time employment rate, https://data.oecd.org/chart/5ZQI
6 OECD, Indicators of Employment Protection,
http://www.oecd.org/employment/emp/oecdindicatorsofemploymentprotection.htm
7 International Monetary Fund (October 2019), World Economic Outlook Database,
https://www.imf.org/external/pubs/ft/weo/2019/02/weodata/weorept.aspx?pr.x=45&pr.y=15&sy=2000&ey=201
9&scsm=1&ssd=1&sort=country&ds=.&br=1&c=138%2C128&s=GGXWDG_NGDP&grp=0&a=
8 Claudius Gräbner, Philipp Heimberger, Jakob Kapeller and Bernhard Schütz (January 2020), Is the Eurozone
disintegrating? Macroeconomic divergence, structural polarisation, trade and fragility, Cambridge Journal of
Economics, https://academic.oup.com/cje/article/44/3/647/5706035
9 Harvard University, Atlas of Economic Complexity, https://atlas.cid.harvard.edu/rankings
10 Eurostat, Hourly labour costs by NACE Rev. 1.1 activity,
https://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=lc_an_costh&lang=en
11 OECD, Average wages, https://data.oecd.org/chart/5ZQM
12 World Bank, Households and NPISHs final consumption expenditure (% of GDP) – Germany,
https://data.worldbank.org/indicator/NE.CON.PRVT.ZS?locations=DE
13 Guntram Wolff (May 2018), Germany’s current account surplus and corporate investment, Bruegel,
https://www.bruegel.org/2018/05/germanys-current-account-surplus-and-corporate-investment/
14 World Bank, Current account balance (% of GDP) – Germany,
https://data.worldbank.org/indicator/BN.CAB.XOKA.GD.ZS?locations=DE
15 International Monetary Fund (July 2019), Germany : 2019 Article IV Consultation-Press Release; Staff Report; and
Statement by the Executive Director for Germany,
https://www.imf.org/en/Publications/CR/Issues/2019/07/09/Germany-2019-Article-IV-Consultation-Press-
Release-Staff-Report-and-Statement-by-the-47093
16 Claudius Gräbner, Philipp Heimberger, Jakob Kapeller and Bernhard Schütz (January 2020), Is the Eurozone
disintegrating? Macroeconomic divergence, structural polarisation, trade and fragility, op.cit.
17 Federal Reserve Economic Data, Inflation, consumer prices for Spain,
https://fred.stlouisfed.org/series/FPCPITOTLZGESP
18 Federal Reserve Economic Data, Inflation, consumer prices for Germany,
https://fred.stlouisfed.org/series/FPCPITOTLZGDEU
19 Federal Reserve Economic Data, Real Residential Property Prices for Spain,
https://fred.stlouisfed.org/series/QESR628BIS
20 Federal Reserve Economic Data, General government net lending/borrowing for Spain,
https://fred.stlouisfed.org/series/GGNLBAESA188N
21 Federal Reserve Economic Data, https:// fred.stlouisfed.org/series
22 Servaas Storm (April 2019), Lost in Deflation, Institute for New Economic Thinking, op.cit.
23 Federal Reserve Economic Data, General government gross debt for Italy,
https://fred.stlouisfed.org/series/GGGDTAITA188N
24 Financial Times, Why austerity is only cure for the eurozone, https://www.ft.com/content/97b826e2-d7ab-11e0-
a06b-00144feabdc0
25 ITC, Bilateral trade between Germany and China Product: TOTAL All products,
https://www.trademap.org/Bilateral_TS.aspx?nvpm=1%7c276%7c%7c156%7c%7cTOTAL%7c%7c%7c2%7c1%7c1%
7c2%7c2%7c1%7c1%7c1%7c1%7c1
26 European Commission (May 2020), European Economic Forecast,
https://ec.europa.eu/info/sites/info/files/economy-finance/ip125_en.pdf
27 Bloomberg (May 2020), Euro Area Under Threat From Uneven Virus Shock, EU Warns,
https://www.bloomberg.com/news/articles/2020-05-06/euro-area-survival-put-at-risk-from-uneven-virus-shock-
eu-warns?sref=lSuy1ocu
28 European Central Bank (March 2020), ECB announces €750 billion Pandemic Emergency Purchase Programme
(PEPP), https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200318_1~3949d6f266.en.html
10
29 European Central Bank (June 2020), Pandemic emergency purchase programme (PEPP),
https://www.ecb.europa.eu/mopo/implement/pepp/html/index.en.html
30 European Central Bank (April 2020), Interview with To Vima,
https://www.ecb.europa.eu/press/inter/date/2020/html/ecb.in200404~5233e69a1f.en.html
31 Fitch Ratings (April 2020), Ftich Downgrades Italy to ‘BBB-‘; Outlook Stable,
https://www.fitchratings.com/research/sovereigns/fitch-downgrades-italy-to-bbb-outlook-stable-28-04-2020
32 European Central Bank, Monetary Policy,
https://www.ecb.europa.eu/mopo/intro/html/index.en.html#:~:text=The%20ECB's%20monetary%20policy%20str
ategy&text=The%20ECB%20has%20defined%20price,2%25%20over%20the%20medium%20term.
33 European Central Bank (May 2020), ECB takes note of German Federal Constitutional Court ruling and remains
fully committed to its mandate,
https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200505~00a09107a9.en.html
34 European Council (April 2020), Report on the comprehensive economic policy response to the COVID-19
pandemic, https://www.consilium.europa.eu/en/press/press-releases/2020/04/09/report-on-the-comprehensive-
economic-policy-response-to-the-covid-19-pandemic/
35 The Telegraph (June 2012), Debt crisis: as it happened - June 27, 2012,
https://www.telegraph.co.uk/finance/debt-crisis-live/9358201/Debt-crisis-as-it-happened-June-27-2012.html
36 European Commission (May 2020), Europe's moment: Repair and prepare for the next generation,
https://ec.europa.eu/commission/presscorner/detail/en/ip_20_940

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Is the Euro at Risk of Dying ?

  • 1. Is the Euro at Risk of Dying? Once again, Europe has become ensnared in a pointless narrative pitting the "frugal" against the "lax", ants vs grasshoppers. This narrative is not just historically false, but politically toxic, and the only way to change it will be to reconnect with the shared values of the European project. As such, the severity of our current crisis calls for a renewed vision that, paradoxically, opens up a path to a political Europe. Europe of Grasshoppers, Europe of Ants In March, in the early days of the health crisis in Europe, Dutch Finance Minister Wopke Hoekstra suggested that it would be necessary to “investigate countries like Spain that say they have no fiscal margin to deal with the effects of the crisis provoked by the new coronavirus in spite of the fact that the Eurozone has grown for seven consecutive years”1 . His take is disheartening. If anything, it improperly frames the issues critical to the future of the Eurozone. Of course, the debate over debt mutualisation in the eurozone is not a new one and, for years, it has put member states at loggerheads. Now, given the financing needs brought about by the health crisis, this old dispute has risen to the forefront once again. The protagonists are well known. On one side, member states in favour of the European Union using its fiscal muscle to finance its development andthe transfers necessary for stability. Southern countries are the main proponents of this vision, along with Ireland, Luxembourg and Belgium. On the other side, we find the so-called “Hanseatic” countries (the Netherlands, Sweden, Denmark, Finland). Occupying the middle ground are France and Germany, with France somewhat closer to the first group and Germany to the second. Some call for solidarity within the EU while others have been vocal about their unwillingness to pay the debts of supposedly less fiscally responsible countries.
  • 2. 2 But of course, appearances are deceptive and the “lax” populations might not actually be the ones most often mentioned. Let us look at the example of Italy. All too often, the considerable efforts made by successive Italian governments since the 1990s to reduce a public debt burden inherited from the 1980s have been forgotten2 . Italy in fact recorded a primary surplus every single year between 1995 and 2019, with the single exception of 2009. In other words, taking out debt interest payments, public revenue has exceeded expenditure every year. Over the same period, primary deficits were recorded in Germany in 1996, 2001-2005 and 2009-20103 . Even in 2012-13, at the height of the euro crisis, Mario Monti's government managed to achieve a primary surplus of 2% of GDP at a time when, as he himself explained, this austerity “destroying domestic demand through fiscal consolidation”4 , worsening the crisis. Italy was more than just frugal. It also started reforming its labour market early on. The percentage of part-time workers in the Italian labour force increased from 10% in 1991-93 to 18.5% in 2017, comparable to the 22% reached in Germany that same year5 . According to the OECD, Italy enjoyed greater job protection than France in the mid-1990s, and its labour regulations today are on a level more comparable to that of Germany’s6 . In short, contrary to what is often said, Italy has shown itself to be a bit of a poster child. What do we find if we look at the other countries? It is government debt-to-GDP ratio that is most commonly looked at. As is well known, it is much lower in the so-called "frugal" countries (49% of GDP in the Netherlands, 33% in Denmark) than in the supposedly "lax" countries (Italy 135%, Spain 96%)7 . Indeed, this is the basis used to brand the peoples of Southern Europe (and for that matter, the French and Belgians) as irresponsible. Yet, public debt alone is inadequate as a measure for determining the more or less profligate behaviour of a population. Household debt, contracted by individuals privately,shouldalso be taken into account. What the graph shows us is that household debt is proportionally much higher in the countries that claim to be frugal than in the countries seen as lax. Yet what matters most is not the private or public nature of expenditure. This is a matter of public choice that each population can make sovereignly. What is critical is how much debt (privately or through the State) is taken on to spend more than is produced. From this viewpoint, the grasshoppers and the ants are not always found where one might expect. The “Hanseatic” households (black column) have a stronger tendency to spend in excess of their Households debt in % of disposable income « frugal » countries « lax » countries Netherlands average f Sweden Finland Spain Greece average l ItalyDenmark Verschuldung der Privathaushalte in % des verfügbaren Einkommens « Sparsame » Länder « Leichtsinnige » Länder Dänemark Households debt in % of disposable income Denmark « frugal » countries « lax » countries Source : OECD
  • 3. 3 incomes than the ones in the southern countries (white column). More significantly, the level of savings by household in each of the Hanseatic countries (dark grey columns) is lower than in Italy, which is often held up as an example of intemperance1 . Even more telling, the sum of the ratios of household debt and government debt for the four Hanseatic countries results in an average that exceeds 260%, compared to less than 220% for the four other countries analysed (315% for Denmark, 290% for the Netherlands and 220% for Italy). The aim here is not to conduct an exhaustive accounting of a country's debts in order to analyse its vulnerability. It is a question of comparing behaviours. There are many, from Aristotle to Montesquieu, who have sought to characterize the casualness of countries to the south and to affirm the model behaviour of those who live further north. Repeated incessantly, this old adage has become accepted law and is poisoning our Community life. The figures are irrefutable: from a behavioural standpoint, there is no question that the least meritorious are not the usual suspects. This also holds true for the risks of excessive indebtedness, the dangers of which have been shown by the subprime crisis. Here again, while there are risks, they are not unique to the countries that are frequently castigated. There's none so deaf as those who will not hear Pitting the "frugal" and the "lax" against each other does not make much sense. Yet, it has served a purpose. It helps to conceal the root causes of the crisis we are going through. It also obscures the main promise of the single currency project, which was to promote economic convergence. The history of the Eurozone starts with a complex industrial heritage8 with roots dating back to the Second World War. At the time of integration, some countries, particularly Germany, had large export-driven companies, often specialised in high value-added products. The Atlas of Economic Complexity published by Harvard University ranks countries according to the sophistication of their exports, thereby providing a way to measure the differences in industrial complexity between the European core and periphery at the time of their countries’ integration into the Eurozone. In 1995, Germany was ranked the 2nd most complex economy in the world, with Finland coming in 5th , whereas Italy was ranked 10th , France 16th and Spain 19th9 . The top-ranked were thus spared the worst of the price competition brought about by China's entry into the WTO. In the case of the countries with industries specialised in less complex products, this was not the case. To make matters worse, the appreciation of the euro in the 2000s aggravated the situation. More critically, however, how could a price war be fought without destroying the social fabric of society? In 2000, hourly labour costs in Spain in industry and services amounted to 14 euro, compared to 5 in Poland and 1.5 in Romania10 . The imbalances in the Eurozone can thus be traced back to this technological inheritance. This structural disadvantage was compounded by competitive disinflation in Germany and a voluntary reduction in imports, which deprived its former partners of outlets for their exports. In fact, 1 The figures differ, but they all point in the same direction if debt from the “non-corporate” sector is added to household debt.
  • 4. 4 Germany’s deregulation of the labour market under the Hartz laws weighed on household consumption. Between 2000 and 2007, German hourly labour costs did not move in real terms11 . Pressure on wages reduced the share of household consumption in Germany's GDP12 . At the same time, investment in industry fell. As not much of the exporters' earnings went towards workers and investment, savings accumulated13 . This pressure on domestic demand led to a serious imbalance in the German economy, which accumulated a large current account surplus. By the end of 2007, Germany had gone from a deficit of 2% in 2000 to a surplus of more than 7%14 . This unhealthy state of affairs has been regularly denounced by both the European Commission and the IMF, which noted diplomatically in July 2019 that “the large current account surplus partly reflects high corporate savings, widening top income inequality, and compressed household consumption”15 . Many European countries then found themselves caught between a rock and a hard place. Their exports fell as a result of the decline in German imports, but their level of industrial development prevented them from turning out products with high added value, and they were unable to compete on price because of competition from Eastern Europe and China in particular. With export-driven growth no longer a viable option, the countries in the south turned in the 2000s to an economy driven by debt16 . This path was facilitated by the accumulation of savings in Germany, but also by the extremely low interest rates set by the European Central Bank. For instance, in 2005, the ECB interest rate was 3.25%, while inflation in Spain was 3.4%17 , compared to 1.6% in Germany18 . As a result, the real interest rate was negative in some periphery countries, fostering an increase in private debt as well as the rise of speculative bubbles. Property prices in Spain doubled between the first quarter of 2000 and the autumn of 200719 . It was this excessive private indebtedness that forced periphery States to bail out their banks after 2008, further worsening the sovereign debt crisis. In Spain, for example, the budget surplus20 was higher and the public debt much lower than in Germany between 2005 and 200721 . Let us look at Italy again. Austerity measures in place since 1995 combined with the appreciation of the euro, competitive disinflation in Germany and the rise of China all contributed to trapping Italy in a vicious circle. Moreover, the lack of aggregate demand brought about by the pressure on Italian wages led to a drop in utilisation of the manufacturing base and, consequently, to a crumbling of corporate margins, prompting in turn a drop in investment. This lack of investment prevented Italy from upgrading in quality, which also precluded its escaping the price wars22 . As a result, despite its fiscal efforts, Italy was only able to make modest reductions in its debt burden, which fell from 105% in 2000 to 100% in 200723 , prompting the government to continue its austerity policy. And thus, the vicious circle continued. After the crisis in the Eurozone in 2010, austerity policies, partly backed by Germany, exacerbated divergences. Wolfgang Schäuble explained in an editorial published in the Financial Times in September 2011 that “Governments in and beyond the eurozone need not just to commit to fiscal consolidation and improved competitiveness – they need to start delivering on these now.”24 . In Italy, the economic situation worsened considerably. In the summer of 2017, youth unemployment increased from 25% between 2008-2010 to 43% in 2014. Between 2012 and 2014, the number of people living in poverty in Italy increased by 3.4 million. At the same time, Germany enjoyed the benefits of a recovery driven by a Chinese stimulus of biblical proportions. German
  • 5. 5 exports to China rose from 41 billion dollars in 2007 to 91 billion dollars in 2011. Given this situation, the vicious circle described previously tightened further25 . And now here we are battling Covid-19. The European Commission's forecasts for 2020 suggest that Covid-19 will very likely speed up this macroeconomic dislocation. They anticipate a much sharper recession for the periphery countries26 . If inertia prevails, the Eurozone, already markedly imbalanced, runs the risk of crossing the point of no return. This is the thrust of the remarks that Paolo Gentiloni, European Commissioner for Economic and Financial Affairs, made to Bloomberg in May when he said that “such divergence poses a threat to the single market and the euro area”27 . Ultimately, we have only two options left: either the Eurozone integrates further, or it will fall apart. The Phoenix can be reborn from its ashes It is the survival of the Eurozone itself that is at stake. After an initial misstep, the European Central Bank has demonstrated its full commitment to the cause. On 18 March, the ECB launched a new support scheme for financial markets, the Pandemic Emergency Purchase Programme28 . Combined with existing quantitative easing instruments, this action avoids a dislocation of sovereign debt markets. As of 5 June, PEPP has acquired more than 230 billion euro in public and private bonds, out of a total envelope available of 750 billion euro29 . In addition, the ECB has lifted a number of restrictions that had previously curtailed its actions, such as authorising the purchase of Greek bonds, even if they are still considered non-investment grade30 . This support has been invaluable for Italy. Fitch and S&P have both noted that the ECB's support constitutes a mainstay for Italian debt sustainability31 . While such support from the ECB is necessary, it is not enough. This is primarily on account of the fact that the ECB does not officially have a mandate to directly support the periphery countries' economies or to correct the Union's macroeconomic divergences. It is only authorised to intervene to fight against price risks32 . New difficulties have arisen from the ruling handed down by the German Constitutional Court of Karlsruhe on 5 May 2020. Going against the opinion of the European Court of Justice (ECJ), the German Court has, for the first time, put the ECB on notice to explain its monetary support programmes. Even worse, unless satisfactory explanations are given, it has threatened to prohibit the Bundesbank from participating in these programmes. Without getting into the technical aspects, two things need to be kept in mind. First of all, for the first time, a national court did not abide by an ECJ decision. This threatens to undermine the entire European legal order. It is easy to see how certain populist regimes in Central Europe could jump on this precedent to try to circumvent individual rules that the European Union has put in place, particularly in the area of human rights. It is essential that the European Commission address this issue and not gloss over the Karlsruhe Court's judgement as if it were a trivial matter.
  • 6. 6 Secondly, also without precedent, the independence of the ECB is being challenged and, ironically, this is happening in Germany. The ECB does not seem to be letting itself be intimidated33 . It is crucial that it stands its ground. It is not likely however that the Karlsruhe decision will have much of a tangible impact. It will be relatively easy for the ECB to prove that its action was proportionate to the existing exigencies, as it has been requested to do. In any case, monetary policy cannot be the only game in town. A budgetary response is also necessary. The EU has already progressed through several phases. It initially suspended its budgetary rules and implemented the different mechanisms at its disposal, for example the European Stability Mechanism34 . This has been a front-line response, but it is economically inadequate and the ESM loans are politically difficult to implement for countries that are loath to be considered ugly ducklings. One positive outcome from the Karlsruhe ruling is that, by sending the ball back to the States, the Court has forced the German Government to confront the situation squarely, which will undoubtedly also impact the Franco-German agreement. This agreement marks a turning point in German policy. For the first time, the idea of a European loan and a form of burden sharing have gained acceptance there. Even Angela Merkel, who stated in 2012 that she would stand against a mutualisation of European debt until her dying breath35 , now seems on board. Right afterwards, on 27 May, the European Commission proposed a 750 billion euro plan36 which, aside from the actual figures, is very important because it is underpinned by the idea of European solidarity. Better still, it paves the way for the Union to raise its own tax resources, a considerable step in the direction of integration. Even though there are still many hurdles to overcome before the first funding is distributed, it is the first sign of light in a long tunnel. The second comes from the German plan, which largely came into being under the strong influence of the Finance Minister, Olaf Scholz, and the SPD. This plan breaks with the past and aims to rekindle consumption and investment. It should be noted that, in Germany, Covid-19 has already killed the Schwarze Null, symbol of a balanced budget, and now has its death grip on the Schuldenbremse (the debt brake), in a country where a single word Schuld denotes both debt and fault. How can German psychology be understood without this key? These plans, as substantial as they may be however, are not enough. It is much more likely that two trillion euro will need to be mobilised if we wish to weather the recession and truly commit to an ecological transition. For this, more ambitious solutions are required. The most promising is that of perpetual bonds, or Consols, as George Soros likes to call them in reference to the first bonds of this type issued in the United Kingdom in 1752. A perpetual annuity bearing interest of 0.5% could today procure, in one or more instalments, the two trillion euro required at an annual cost of ten billion euro. Given that Consols do not need to be repaid, they do not increase the debt and provide the resources needed for these exceptional times in which we live. This amounts to an obligation to pay interest and nothing more. It does not involve any debt mutualisation even if it does entail an obligation to pay ten billion a year from its own resources, which must be considered against a European budget of around 150 billion.
  • 7. 7 During these new challenging times, Europe must move towards developing new economic thinking, focused around restructuring the Eurozone. The shortcomings of the Maastricht Treaty, which France helped to overhaul at the end of 1997 by compelling its partners to focus as much on growth as on stability, have now become too costly to continue to be ignored. That is why the Karlsruhe decision, which will force Germany to see this political debate through to a conclusion, is of such interest. Yet, time is running out. The health crisis has exposed the overwhelming urgent need for some form of debt mutualisation and monetisation. Perhaps we are on the cusp of profound changes. But unless we are ready and willing to tackle our old demons, the risks of dislocation will only increase within the Eurozone and, ultimately, within the Union itself. We, Europeans… Paradoxically, this period of crisis that is so sorely testing the European Union may well be the catalyst for its renewal. What the ongoing crisis shows us is that European solidarity, rocked by turmoil, has been shocked into life again by economic proposals that, up until very recently, many people thought were unattainable. Yet this major upheaval goes far beyond the economy. Today, it is the societal models themselves that are being called into question. The European model is floundering, but others are faring even worse. This has notably been the case of the hitherto dominant model, the flagbearers of which have been the Anglo-Saxons in general and the United States in particular. This is evidenced today by the inability of the U.S. healthcare system to meet the demands of those most in need as well as the explosion of racial violence we have been witnessing. Populism, unilateralism, a withdrawal from world affairs are all traits that are contrary to the values once defended by the Anglo-Saxons. The proliferation of inequalities and the weakening of the middle classes have grown alongside an increasing polarisation of society. Elsewhere in the world, systematic criticism of the United States serves as a pretext for anti- democratic tendencies and aggressive posturing. It is hardly surprising therefore that this situation has eroded the confidence that many around the world may have had when looking towards North America. Tomorrow, Europe may be the only one able to offer the world a desirable political model. This European model of society exists. It is rooted in the history of the European continent, which has known periods of both imperial (Greek civilisation, the Roman Empire, Charlemagne, Charles V, Napoleon) and cultural (medieval Christianity, the Republic of Letters) unity. It can also trace its origins back to the violent divisions in Europe, particularly the horrors of World War II, which brought European civilisation to the brink of annihilation: its unwillingness to accept being torn to pieces has fuelled its tireless quest for unity. What is the crux of this European model of society? The European model embodies the will to build a world of justice grounded on the irreducibility of human dignity.
  • 8. 8 Viewed as such, it is made up of four components. First, the inviolability of human rights. Even though human rights are common to many societies, their inviolability is a hallmark of Europe as evidenced by: the abolition of the death penalty, the elimination of special courts, the ban on the commercialisation of the human body and the extension of constitutional public freedoms. Next, there is culture as a means of emancipation. Referencing the humanist model of the honest man, culture in Europe is primarily approached as an instrument for the development of the human individual, and not as a tool for commercial activity. It also involves being a model of sustainable development. Europe stands out as having achieved a good balance between economic prosperity, social justice and environmental protection, even if with respect to the latter, simply doing a little better than others is not enough. The importance attributed to social justice ("the rights of the poor") is specific to Europe: the development of the welfare state and a high degree of tax redistribution are distinctive European characteristics. Lastly, there is a vision of the international order. This vision is predicated on multilateralism. The European model defends the dignity of all human beings, not just Europeans. In promoting multilateralism, Europe has advanced on the international stage a model of justice that it has developed from within; this vision of the international order can be characterised by the rejection of power relationships in favour of the rule of law, the priority given to the peaceful settlement of disputes through negotiation and arbitration, and, finally, solidarity with poorer countries. This crisis may represent an opportunity to revive a political Europe after its brush-up against the hypocrisy of the liberal model and its rejection of autocratic flirtations. “Democratorships”, in both the East and West, have already shown that, as a model of governance, they are neither humanist nor effective. We, Europeans, our action is legitimate. It is legitimate because this model is specific to Europe. It would of course be ridiculous to think that the notion of human dignity, and the values thus derived, are exclusively European. However, its formulation - its irreducible nature - is without equivalent elsewhere. Moreover, it is legitimate – and growing in consequence – owing to Europeans being proud of their model. Finally, it is legitimate because the European model points the way to a better future. It is not the symbol of an “old outdated Europe”, as some would claim, passed up by the success of the United States, the dynamism of China or the rise of India. The crisis has made all that yesterday’s news. The world of European justice is, on the contrary, a universal reality that is intended to be the precursor of tomorrow's world, the promise of a new "new world": a world that has abandoned the raison d'état in favour of the primacy of human rights, a world that foregoes production-driven growth, seeking instead a path to sustainable development, a world that renounces power-based relationships in the interests of peace and law. 1 Independent (April 2020), The European Union will be destroyed by its immoral handling of the coronavirus crisis, https://www.independent.co.uk/voices/coronavirus-crisis-eu-italy-germany-greece-far-right-eurosceptics- a9440066.html 2 Servaas Storm (April 2019), Lost in Deflation, Institute for New Economic Thinking, https://www.ineteconomics.org/research/research-papers/lost-in-deflation
  • 9. 9 3 International Monetary Fund (October 2019), World Economic Outlook Database, https://www.imf.org/external/pubs/ft/weo/2019/02/weodata/weorept.aspx?pr.x=37&pr.y=11&sy=1990&ey=201 9&scsm=1&ssd=1&sort=country&ds=.&br=1&c=134%2C136&s=GGXONLB_NGDP&grp=0&a= 4 CNN (May 2012), Interview with Italian Prime Minister Mario Monti, http://transcripts.cnn.com/TRANSCRIPTS/1205/20/fzgps.01.html 5 OECD, Part-time employment rate, https://data.oecd.org/chart/5ZQI 6 OECD, Indicators of Employment Protection, http://www.oecd.org/employment/emp/oecdindicatorsofemploymentprotection.htm 7 International Monetary Fund (October 2019), World Economic Outlook Database, https://www.imf.org/external/pubs/ft/weo/2019/02/weodata/weorept.aspx?pr.x=45&pr.y=15&sy=2000&ey=201 9&scsm=1&ssd=1&sort=country&ds=.&br=1&c=138%2C128&s=GGXWDG_NGDP&grp=0&a= 8 Claudius Gräbner, Philipp Heimberger, Jakob Kapeller and Bernhard Schütz (January 2020), Is the Eurozone disintegrating? Macroeconomic divergence, structural polarisation, trade and fragility, Cambridge Journal of Economics, https://academic.oup.com/cje/article/44/3/647/5706035 9 Harvard University, Atlas of Economic Complexity, https://atlas.cid.harvard.edu/rankings 10 Eurostat, Hourly labour costs by NACE Rev. 1.1 activity, https://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=lc_an_costh&lang=en 11 OECD, Average wages, https://data.oecd.org/chart/5ZQM 12 World Bank, Households and NPISHs final consumption expenditure (% of GDP) – Germany, https://data.worldbank.org/indicator/NE.CON.PRVT.ZS?locations=DE 13 Guntram Wolff (May 2018), Germany’s current account surplus and corporate investment, Bruegel, https://www.bruegel.org/2018/05/germanys-current-account-surplus-and-corporate-investment/ 14 World Bank, Current account balance (% of GDP) – Germany, https://data.worldbank.org/indicator/BN.CAB.XOKA.GD.ZS?locations=DE 15 International Monetary Fund (July 2019), Germany : 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Germany, https://www.imf.org/en/Publications/CR/Issues/2019/07/09/Germany-2019-Article-IV-Consultation-Press- Release-Staff-Report-and-Statement-by-the-47093 16 Claudius Gräbner, Philipp Heimberger, Jakob Kapeller and Bernhard Schütz (January 2020), Is the Eurozone disintegrating? Macroeconomic divergence, structural polarisation, trade and fragility, op.cit. 17 Federal Reserve Economic Data, Inflation, consumer prices for Spain, https://fred.stlouisfed.org/series/FPCPITOTLZGESP 18 Federal Reserve Economic Data, Inflation, consumer prices for Germany, https://fred.stlouisfed.org/series/FPCPITOTLZGDEU 19 Federal Reserve Economic Data, Real Residential Property Prices for Spain, https://fred.stlouisfed.org/series/QESR628BIS 20 Federal Reserve Economic Data, General government net lending/borrowing for Spain, https://fred.stlouisfed.org/series/GGNLBAESA188N 21 Federal Reserve Economic Data, https:// fred.stlouisfed.org/series 22 Servaas Storm (April 2019), Lost in Deflation, Institute for New Economic Thinking, op.cit. 23 Federal Reserve Economic Data, General government gross debt for Italy, https://fred.stlouisfed.org/series/GGGDTAITA188N 24 Financial Times, Why austerity is only cure for the eurozone, https://www.ft.com/content/97b826e2-d7ab-11e0- a06b-00144feabdc0 25 ITC, Bilateral trade between Germany and China Product: TOTAL All products, https://www.trademap.org/Bilateral_TS.aspx?nvpm=1%7c276%7c%7c156%7c%7cTOTAL%7c%7c%7c2%7c1%7c1% 7c2%7c2%7c1%7c1%7c1%7c1%7c1 26 European Commission (May 2020), European Economic Forecast, https://ec.europa.eu/info/sites/info/files/economy-finance/ip125_en.pdf 27 Bloomberg (May 2020), Euro Area Under Threat From Uneven Virus Shock, EU Warns, https://www.bloomberg.com/news/articles/2020-05-06/euro-area-survival-put-at-risk-from-uneven-virus-shock- eu-warns?sref=lSuy1ocu 28 European Central Bank (March 2020), ECB announces €750 billion Pandemic Emergency Purchase Programme (PEPP), https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200318_1~3949d6f266.en.html
  • 10. 10 29 European Central Bank (June 2020), Pandemic emergency purchase programme (PEPP), https://www.ecb.europa.eu/mopo/implement/pepp/html/index.en.html 30 European Central Bank (April 2020), Interview with To Vima, https://www.ecb.europa.eu/press/inter/date/2020/html/ecb.in200404~5233e69a1f.en.html 31 Fitch Ratings (April 2020), Ftich Downgrades Italy to ‘BBB-‘; Outlook Stable, https://www.fitchratings.com/research/sovereigns/fitch-downgrades-italy-to-bbb-outlook-stable-28-04-2020 32 European Central Bank, Monetary Policy, https://www.ecb.europa.eu/mopo/intro/html/index.en.html#:~:text=The%20ECB's%20monetary%20policy%20str ategy&text=The%20ECB%20has%20defined%20price,2%25%20over%20the%20medium%20term. 33 European Central Bank (May 2020), ECB takes note of German Federal Constitutional Court ruling and remains fully committed to its mandate, https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200505~00a09107a9.en.html 34 European Council (April 2020), Report on the comprehensive economic policy response to the COVID-19 pandemic, https://www.consilium.europa.eu/en/press/press-releases/2020/04/09/report-on-the-comprehensive- economic-policy-response-to-the-covid-19-pandemic/ 35 The Telegraph (June 2012), Debt crisis: as it happened - June 27, 2012, https://www.telegraph.co.uk/finance/debt-crisis-live/9358201/Debt-crisis-as-it-happened-June-27-2012.html 36 European Commission (May 2020), Europe's moment: Repair and prepare for the next generation, https://ec.europa.eu/commission/presscorner/detail/en/ip_20_940