Italy and Spain are in trouble. Not only do they have the worst coronavirus outbreaks in the EU but their economies are on the rocks. The European Central Bank (ECB) saved Italy with promises in March as the Italian Treasury was having to offer ever increasing yields on its bonds to raise money:
Since the ECB promises have failed to materialise the markets in bonds are again losing confidence in Italy. The Eurogroup and EU Council was supposed to have resolved the problem of how Italy will raise the cash to pay for Covid-19 by yesterday but it has dithered and is still in a (virtual) meeting as I write this article.
The Italian problem has three possible outcomes, the happiest for Italy is that the EU backs its bonds, otherwise the EU may make loans to Italy or Italy may leave the Euro.
The Northern EU countries prefer to offer Italy loans. The Greek crisis was “solved” in this manner and the Greeks are increasingly accusing the EU of being a colonial power. Huge loans with clauses that allow those who make the loans to force the sale of utilities, ports etc. in the event of default do indeed amount to a form of colonialism. The Italians don’t want this.
Could Italy leave the Euro? Probably not. The Greeks had a referendum that should have led to departure from the Euro and it was simply ignored.
The Germans hold all the cards, there is no need for them to write a blank cheque by backing Italian bonds, they will offer loans and the Italians will be forced to take them. This will save the EU over the next few years but Italians will notice that they no longer own their own economy. There will be unrest about this but it will fail to gain traction because you can check out of the Eurozone but you can never leave. The unrest will lead to a far right alliance in southern Europe that will eventually take over the EU.
It will be interesting to see if this article was right about the loans – it will only be a few hours or days before we know. The latest news: “After 16 hours of discussions, we came close to a deal but we are not there yet. I suspended the Eurogroup and (we will) continue tomorrow Thursday,” said Eurogroup President Mario Centeno.
This post was originally published by the author on his personal blog: https://pol-check.blogspot.com/2020/04/italy-spain-and-future-of-eu.html