Eurozone: Varoufakis discusses the 'greatest beneficiary' in 2018
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The US economy has already recovered the ground lost during the pandemic. Meanwhile, China is producing more now than before the first outbreak of COVID-19. Even Britain, facing all the headwinds from leaving the EU combined with a particularly bad pandemic showing, is staging one of the most rapid recoveries in its history.
On the other hand, the eurozone appears once again to be the weakest link of the global economy.
According to financial columnist Matthew Lynn, it could be years before it claws back to 2019 levels of production and output.
He wrote in the Telegraph: “Growth figures last week were disappointing. True, the zone is growing, but at a far slower pace than the rest of the world.
“Overall, the zone expanded by just 2 percent in the second quarter.
“Italy was the best of its major economies, at 2.7 percent, while Germany managed to eke out 1.5 percent growth for the quarter, below expectations, and hardly making up for the 2.1 percent fall in the first three months of the year.”
“Overall, the IMF expects the zone to expand by only 4.6 percent in 2021, after a 6.5 percent fall last year.
“When will it get back to its pre-pandemic level of production? No one really knows. At the current rate, it will be a while.”
As many fear the gloomy outlook could mean the end of the eurozone in the near future, a 1995 book titled “The Rotten Heart of Europe: the Dirty War for Europe’s Money”, written by British economist Bernard Connolly, has resurfaced.
In the book, published by Faber & Faber, Mr Connolly argued there are no feasible solutions for the euro crisis without a complete breakup of the euro area.
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However, “Nordic-style measures”, he noted, could be key to the continent’s economic survival.
Mr Connolly wrote: “If there are no feasible solutions for the euro crisis without withdrawals, possibly even complete breakup, what does that imply?
“One can have little doubt that serial withdrawals and, a fortiori, a breakup of the euro area will have horrible consequences, quite possibly including a new and bigger financial crisis.
“But for some such crisis is – that word yet again – inevitable.”
He continued: “The biggest credit bubble in history will bring the biggest credit losses in history, come what may.
“The longer the charade of attempting to ‘resolve’ the crisis goes on, the bigger the losses and the more devastating the inevitable crisis will be.
“Because many of the losses, including losses on derivative portfolios, will be borne by banks, the risk is that there is an overwhelming financial panic and a total breakdown of the whole financial and economic system in Europe and perhaps in the wider world.”
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Mr Connolly concluded: “Preventing that might well call for ‘Nordic-style’ measures (so taxpayers were not asked to shoulder the whole burden of banks’ credit losses, for if neither banks’ creditors nor taxpayers are allowed to be hit by credit losses, savers assuredly will be hit via a different route, as governments are forced to generate rapid inflation), potentially involving the nationalisation of the whole financial sectors in many countries.
“If one is optimistic, one can see that as a chance to start a banking system again from scratch, with baking lice sense sold by governments to new, ‘good banks’, with non toxic assets in their balance sheets.
“If one is optimistic….”
In October, German Finance Minister Olaf Scholz said the EU was already taking a step towards a fiscal union with its plans to recover from the coronavirus pandemic – which involves the European Commission borrowing in financial markets.
Mr Scholz told an inter-parliamentary conference on stability, economic coordination and governance in Brussels: “We are moving towards fiscal union, a major step forward in the financial capacity and sovereignty of the EU.”
To support the bloc’s economy, the EU has announced a €750billion (£678billion) recovery fund.
He added: “Markets have confidence in European policies and in the development of European economies.
“We should carry on with this course.”
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