The euro zone on the brink of the abyss as the continent faces a new debt crisis: “Italy is the new Greece!” | Politics | New
A new analysis from Deutsche Bank has warned that the explosion of Covid debts, a relaxed attitude to heavy borrowing and a complacent opinion that interest rates will never rise will lead the world to another economic crisis. Eurozone countries, which experienced such problems ten years ago, are likely to repeat their mistakes with the economies of the rich world straying down the same dangerous path, said senior economist Sebastian Becker. He explained: “Credibility could become an issue as most governments have not been able to achieve balanced budgets in the pre-pandemic ‘golden’ years characterized by robust growth, booming labor markets. boom and a constantly falling sovereign interest bill. Indeed, advanced economies have never achieved a balanced budget on average over the past 30 years.
“A continued and reckless accumulation of debt can potentially lead to self-reinforcing loops of high debt and a high risk premium, which become explosive at some point.”
That point could be at 130% of GDP or more – levels exceeded by Italy and Greece.
Mr Becker’s warning was also echoed by Swedish MEP Peter Lundgren, who claimed that a new European debt crisis was upon us, but with Italy being the epicenter this time around.
The European Commission has given the green light to Rome’s € 191.5 billion (£ 164.6 billion) stimulus package.
Italy, the first European country to be hit by the pandemic, will receive the largest share of the EU’s € 750 billion (£ 644 billion) stimulus package.
Known as Next Generation EU, the fund intends to help countries emerge from a severe economic recession caused by COVID-19.
Italy’s € 191.5 billion (£ 164 billion) plan includes € 68.9 billion (£ 59.1 billion) in grants.
37 percent of the funds will be invested in measures that support climate goals.
However, according to Lundgren, because of this debt, Italy could have a hard time and “become the new Greece”.
He added: “There are several countries which are in a very bad economic state.
“They stay alive just because they get money from the EU.
“And that’s not a situation you want to have
“You have to have a self-financing system.
“It’s vital. And countries like Italy at the moment are not doing it.”
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Mr Rinaldi added: “The conditions were not considered attractive by these countries.
“And it is because there is so much liquidity in the international markets at the moment, that they prefer to finance themselves independently by issuing bonds rather than having conditions attached by the European Commission.”
He added: “Why would you be in debt to the EU when you can indirectly get all the money you want?
“It looks like a trap …
“In Italy, they think this money is free. But it is not. It is a debt that we will have to pay off with interest and principal.
“But above all, it’s a debt with very strict conditions. It’s not just a loan, but the EU dictates what we can and what we cannot do.
“The other countries said ‘no, thank you!'”
Last week, the German Constitutional Court rejected an emergency appeal by the far-right Alternative for Germany (AfD) party against Berlin’s ratification of the stimulus fund.
Since the relevant legislation had already been signed by the German president and promulgated in the Federal Gazette, the request had no legal value, the court said.
President Frank-Walter Steinmeier signed the measure on April 23, after the highest court rejected another emergency appeal against him.
At the time, the court said there would be more potential harm in freezing the fund pending a full decision than allowing it to move forward in the meantime.
The AfD is the largest opposition party in the German parliament.
They argued that allowing the European Commission to borrow funds would be beyond the powers of the EU.