The incoming Euro account, Germany at the crossroads: sharing the debt or defusing the single currency

If a common currency amplifies divergences in itself, anti-crisis tax packages of very different effectiveness make it almost impossible to operate. The Euro bill is now looming, and the conflict between France and Germany over the redistribution of losses is less and less hidden. Impossible to predict the future, but one thing is certain: far from being a mutually beneficial area of ​​cooperation, the European construct is a zero-sum drama

In some respects the European Union is fairly fair: after years of intrusion into the politics of peripheral countries – culminating in the removal of elected leaders and / or the installation of puppet regimes – and the imposition of a spiral of depression, deflation and a default that has devastated families, businesses, banks and public accounts without greatly improving the competitive position of those countries (the only thing that matters), now aims, with the consent of its elite, to set foot in Germany, to dismiss the Federal Constitutional Court of his jurisdiction in European affairs, and trap the German taxpayer in tax transfers intended, in the intentions of the supporters of the European project, to turn pale those that became necessary for the absorption of the former GDR.

The polls currently show no trace, but it is plausible to expect that a collapse in German consumption (to finance consumption in the periphery) or inflation (inevitably produced by a European Central Bank under conditions of fiscal dominance ) would determine economic, financial instability , social and political, which in a blocked context such as Germany would find an outlet in the rise of radical parties and extra-parliamentary groups far more worrying than the respectable Hayekian Alice Weidel.

"High risk of worsening", we wrote just six months ago on Atlantico Quotidiano , echoing the alarm of the International Monetary Fund deferentially; and, for months, we felt there was not much to add: that the Euro bill was more and more impending, and the conflict between France and Germany over the redistribution of losses was less and less hidden, was already well illustrated in those paragraphs. Of course, the writer did not have any inkling of the epoch-making pandemic that followed; but, in that farce that Ashoka Mody has magnanimously preferred to call "Eurotragedy", the pandemic is only an accelerator: the Italian and European economy, particularly sensitive to international trade, was already close to the recession, the Italian public debt – perfectly manageable in an advanced country, provided it was independent and with a mainstream vision of the role of the central bank – it was already of dubious sustainability, in that circus known as "economic and monetary union".

The pandemic approaches the epilogue, and with it the choice between defusing the monetary union or mutualising debt and tax transfers. We know in fact – because economic theory is surprisingly in agreement in supporting it – that a currency area tends to crumble spontaneously due to the growing heterogeneity among its members, due to two mechanisms: in one, the disappearance of currency risk leads to productive specializations different, and therefore divergences in per capita incomes; in the other, a member with potential growth below the average of the currency area finds himself with interest rates too high for his economy, which weakens investments further depressing potential growth. In the absence of sufficient capital mobility – in Germany it is preferred to lend one's savings surplus in America , in Italy there are plenty of proposals for financial self-sufficiency – this heterogeneity must therefore be corrected. In the long term, the EU tries to do it with the infamous "harmonization" projects, that is, by forcing uniformity in all activities that can influence the rate of return on capital (taxation, redistribution, public spending, education, industrial policy: protecting the single currency provides a pretext for intruding everywhere); but, since this is an already difficult undertaking between regions of relatively homogeneous national states, and therefore titanic in the varied European continent, in the short term it is necessary to remedy this heterogeneity with a particularly expansive monetary policy, in the medium with the introduction of a common budget and tax transfers.

That the action of the European Central Bank was sufficient, is what the particularly pro-European factions of the political establishment in the German bloc wished: letting it limit interest rate differentials, and buy government bonds without paying too much attention to the composition of its portfolio, would it have been possible with the connivance of the European Court of Justice to mutualise the risks and establish the de facto fiscal union prohibited by the treaties in secret, without the governments of the German bloc having to openly bear the political responsibility for their choices . Against this plan, the Federal Constitutional Court, with the shy support of the Bundesbank, perseveres in its guerrilla war, the results of which are unpredictable: "fiscal dominance" or independence of monetary policy? We refer to the notes of Musso , uncertain, and Alessandro Fugnoli , who ventures instead to predict a return of German cultural hegemony; the rest of us reserve the right to write about it in the future.

For the moment, we will just note that the ECB's action created fiscal space for Italy during the pandemic emergency, but that it would be accused of monetary financing if it continued to disproportionately accumulate government bonds from particular countries to contain spreads in the face of fears of insolvency justified by an anemic recovery. But what else can we expect, if we take into account the importance of tourism in the Italian economy, the weight of small and medium enterprises, and the damage that the pandemic has inflicted on the country's locomotive ? In similar conditions, the suspension of the fiscal rules was a due act, since it is extremely plausible that the debt / GDP ratio increases more precisely in the countries which, due to the relatively high interest rates and the worrying level of the existing debt, are unable to react to the pandemic shock with an adequate tax package, and they will end up with sluggish growth prospects. One could even, with some malice, imply that the decision was taken primarily to support traditional German economic imperialism: Germany is actually using its own budget, and the AAA rating, to unleash a 130 billion fiscal stimulus program , preceded in March by an aid package of 750. The use of KFW, a state finance weapon of German corporatism, endowed with unlimited intervention power in support of German companies, was particularly unprejudiced. If the package was defined by Olaf Scholz as a "bazooka" , it seems to us that it deserves the appellation much more than the "firepower" contiana. It will allow the German economic system to overcome the emergency relatively intact, and to take advantage of the hardships that companies in the peripheral countries will face in order to consolidate their position within the common market, following the pattern that has been frequently repeated in the last decade.

Almost to shield itself from French insults , the "Next Generation EU" is now on the table, the fund for recovery. But the disbursement of resources is linked to the multiannual financial framework, ergo the funds will be available from 2021, the year in which only 12 billion would come to Italy, few and late. In short, one has the impression that it has the aim of strengthening the international reputation of German politics and diplomacy, as well as the hegemony of its economic system; and, likewise, that there are also defeated in Germany, primarily the Bundesbank and taxpayers.

We also reserve the right to deal with the historic agreements and balances underlying the German system in the future. For the moment we observe that yes, the future of the "Next Generation EU" has to be written, the name of which is particularly unrealistic; similarly, the Bundesbank's position of weakness could be transitory, which could perhaps neutralize the PEPP pandemic buying program before the French-led Latin bloc makes it an ordinary tool. In short, the pendulum could return to swing in the direction of a German Europe: it is impossible to predict the future with certainty, what is certain is that, far from being a mutually beneficial area of ​​cooperation, the European construct is a drama to zero sum in which the mere survival of a group is possible only temporarily, and on condition that other members succumb.

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This is a machine translation from Italian language of a post published on Atlantico Quotidiano at the URL on Wed, 10 Jun 2020 04:12:00 +0000.