Europe’s fight against coronavirus is unfolding. A political crisis is emerging about how money is raised to rebuild Europe.
Two types of debt-Euro bonds have been created to address the controversy between Germany and Italy. Two unpopular ideas are now combined into one controversial idea.
span style=”background color: rgb(255 );”> The question of how risk is spread across countries with drastically different economic outlooks has become a pointy and populist. The eurozone is now in a three-pronged crisis that combines politics, economics, and identity.
A political party from Italy published an advertisement in a German daily paper in March. It compared the European reluctance to show “ethics” and solidarity to fund coronavirus recovery.
The Nazis are back in Europe’s political arena, as Italy draws upon its role in the FT reports describing the “partial cancellation” of Nazi war debts.
span style=”background color: rgb[255,255, and 255 Germany couldn’t have paid it,” reads the letter, which reflects on the efforts of all European countries at the end the Second World War. The collective effort to rebuild Europe after war is being held up by Germany’s inability to accept a joint European debt measure.
An economy in freefall and 16,000 people dead, the hatred of Europe’s economic powerhouse has rekindled in Italy as the blame game gains political momentum.
Today’s meeting of eurozone leaders will discuss economic measures to combat the coronavirus pandemic. However, the issue regarding joint debt continues to divide the single-currency zone into two distinct groups.
It is the case that the coronavirus pandemic has impacted the most on the countries of Southern Europe, specifically Italy. This, unlike the 2012 debt crisis which was their fault, is not surprising. Italy doesn’t understand why it should be subject to high borrowing costs and possibly punitive terms on its spending. They believe that all debt should be guaranteed in a single currency area.
Italy claims that the response to the virus was also developed by other European countries who learned from Italy’s experience. Why wouldn’t there be a similar response if the knowledge was shared? Europe often speaks of solidarity, shared history, and ideals. It’s difficult for Italian voters to envision a situation in which a response based on these terms would be applicable during a pandemic.
The opposition camp sees “pooled” Debt as a political problem that will lead to their tax payers paying the bill. Phillip Wool, a MD at Rayliant Global Advisors, describes this as an “obvious ethical hazard” in which richer European countries “cosign loans for nations whose spending they cannot easily influence span>
These countries believe that coronabonds are a significant step towards financial integration within the eurozone. Voters don’t want their legislators to pay for people who share a currency.
It is better to avoid controversial ideas that are already well-known. Pandemic bonds are here. The World Bank issued pandemic bonds in 2017 and was accused of “not functioning properly” because they didn’t pay out during ebola.
John Seo, Fermat Capital Management MD, describes it as a “curious allegation”. They are, however, pandemic bonds, not epidemic bonds. Pandemic bonds are not bonds for any-insured-events, but they are catastrophe bonds. We have a pandemic now so appropriately named bonds will respond.” Ebola bond didn’t pay because there weren’t enough deaths. Unfortunately, this is not the problem we are facing today.
Cold Economics , Hot Politics
The leaders will meet via video conference today to discuss this issue.
Coronabond supporters include Greece, Spain Portugal, Ireland and Belgium. Quadra Global Capital Corp CEO Perry Anderson describes these countries as “less fiscally responsible” and “more prone to seeking out economic support.” He also mentions the “Frugal Four”, which includes the Netherlands, Finland and Austria.
Anderson says that the eurozone should “join hands and collectively go at this together” to spread the risk of systemic failure and diversify its chances. But, fiscally responsible countries might argue that this is happening at the expense countries who were previously able to manage their budgets .”
The European ideals developed after World War II and became economically viable in the 1951 European Coal and Steel Community are being challenged by those who believe that the responsibility to protect their spending shouldn’t be shared with other countries.
With 16,000 people killed in Italy and an economy desperately in need of help, hatred towards Germany has become a major problem for the European project.
Bruno Le Maire, France’s finance Minister, is a calm voice who supports the idea of a temporary fund to aid the recovery efforts in the eurozone. He stated that [European] “Solidarity” means being able to pool our resources to deal with the effects of the crisis .”
Le Maire urged the eurozone not to engage in ideological debates about eurobonds and coronabonds.