Debate
3:45 p.m.
The EU’s problem lies in the currency itself, not in any particular country.
by Thomas Fazi
The euro crisis never really ended: the euro is the crisis. Credit: Getty
According to various commenters, we could be on the verge of a second euro crisis, as the “spread” (the difference between Italian and German bond yields) reached its highest level since 2013, after a slow but steady increase in Italian yields . This is not surprising, since none of the underlying dysfunctions of the euro that led to the first euro crisis have really been resolved.
It’s been a decade since Mario Draghi ended the first euro crisis by pledging to do “whatever it takes to preserve the euro”, which essentially meant making the European Central Bank (ECB) act like a central bank.” normal”. bank, promising to act as lender of last resort in case a member state faces insolvency.
In fact, Draghi’s famous speech fell short of “normalizing” the euro. In “normal” countries, that is, countries that issue their own currency, the central bank would never dream of meddling in the government’s fiscal or economic policies. The government sets its fiscal and economic policy objectives, and the central bank adapts to them, which usually means “printing” the money the government needs to meet its objectives.
Draghi’s promise, on the other hand, came with strings attached: the ECB would intervene to save a country from insolvency only if the country signed up to a European Stability Mechanism (ESM) structural program. This included a series of economic and social reforms (liberalization of labor markets, reduction of labor costs, etc.) at the macroeconomic level and cost-reduction reforms at the fiscal level. In other words: think Greece.
This exemplifies the fundamental flaw (or virtue, if you subscribe to the neoliberal point of view) of the euro: in currency-issuing nations, the central bank, as the arm of the state, is effectively dependent on the government or representative institutions; Eurozone governments, by contrast, are dependent on the ECB, which over the years has not been shy about using their power to impose their political agenda about democratically elected governments and even remove political leaders from office.
Observers claimed that the “unprecedented” measures implemented during the pandemic – the suspension of budgetary rules, the ECB’s launch of a massive €1 trillion bond-buying program and the creation of a “recovery plan ” throughout Europe known as Next Generation. EU—meant that the eurozone had finally overcome these structural deficits.
This was an illusion. At some point, central bank support was always going to be reduced with the reinstatement of fiscal rules. And from then on, ECB bond purchases would once again be conditional on governments putting their economic policies under the control of Frankfurt and Brussels.
Which brings us to today. The ECB recently announced that it would end its bond-buying program in July, as expected, and then consider raising interest rates. This immediately made the markets nervous (or better: made them salivate), sending Italian bond yields higher. ECB officials reassured markets by announcing that they will create an “anti-fragmentation tool” to prevent a new crisis.
It is largely expected that this tool will be a kind of UNWTO-light mechanism: one that allows the ECB to raise interest rates and reduce its balance sheet by dumping bonds from low-yielding countries (i.e. Germany), while at the same time continuing to buy bonds from high-yielding countries such as like Italy, thus keeping the “spread” in check, but with less politically toxic conditions attached.
However, this is easier said than done, as Northern European countries are not optimistic about the possibility of the ECB financing Italy’s deficits in the foreseeable future, although that is the only thing that can prevent a new financial crisis. and maintain the economy of the country. social and economic tinderbox of the explosion. Or rather, they might be willing to do so as long as Mario Draghi is in power, but they certainly won’t be willing to support a future “populist” right-wing government, and elections are coming up. Just look at how the ECB treaty The leftist government of Alexis Tsipras in 2015 and the Italian Five Star League government in 2018.
All this points to the fact that none of the underlying problems of the euro have been resolved: the cultural perspectives and economic interests of member states remain irreconcilable, and the fate of democratically elected nations and governments remains in the hands of non-governmental governments. chosen. technocrats in Frankfurt and Brussels. The reality is that the euro crisis never really ended: the euro it is the crisis.
