This coronavirus lockdown is exposing the underlying incoherence, the fundamental mis-design, of this currency bloc that some of us have warned about for years
Almost a million people applied for universal credit over the last two weeks – the first fortnight of our coronavirus lockdown三级成人视频. That’s ten times the normal rate – a stark illustration of how this health emergency is hitting the UK economy.
In the US, over the same period, an even more alarming 9.9 million workers applied for unemployment benefit. That’s more than 6pc of the labour force, more than twice the share of British workers moving onto universal credit since our lockdown began.
三级成人视频While the UK and US economies are close to standstill, the situation is even more perilous across the eurozone. The composite Purchasing Managers index for the 19-member currency bloc – covering manufacturing and services – collapsed from 51.6 in February to just 29.7 last month, with scores below 50 indicating contraction. That suggests annualised economic shrinkage of around 10pc, with much worse to come.
Plunging eurozone PMI measures, while astonishing, are hardly unique. The equivalent UK figure fell from 53 in February to 37.1 last month – better, but not much. And many eurozone nations started their lockdown before we did. What’s so serious, though, for Europe and the entire world, is the already large and now rapidly growing divide between the eurozone’s member states.
While Germany’s PMI fell to 35.0 in March, the equivalent Spanish and Italian numbers were 26.7 and 20.2. Italy’s dominant services sector suffered even more, registering a heartbreaking sectoral PMI of 17.4.
Before coronavirus hit, Italy was already close to recession, with GDP falling 0.3pc in the final quarter of last year. The collapse of the eurozone’s third-largest economy poses serious questions about the stability, nay survival, of the single currency itself.
Last autumn, long before coronavirus, the eurozone was already in deep trouble. Slowing demand in the US and China meant export-focused Germany, the eurozone’s powerhouse, also faced recession. This broader stagnation was exposing, once again, the widely held fallacy that the eurozone had safely left behind its existential crisis of the early 2010s.
The global financial crisis highlighted the financial weakness of many eurozone banks and governments – with spreads between sovereign bonds of low-debt nations like Germany and the Netherlands and high-debt southern members such as Italy and Spain dramatically widening.
With financial markets threatening to tear the single currency apart, European treaties were rapidly altered and bilateral loans extended – amid massive quantitative easing by the European Central Bank三级成人视频. No matter that Italy and Greece were locked in a high-currency straitjacket, with crippling youth unemployment, struggling to recover.
The priority, always, was to keep the European Project alive. But enormous policy blunders have been made in the name of “ever closer union” – such as the ECB buying up countless weak eurozone government bonds. This propped up ailing banks holding such bonds, who kept lending to weak or even insolvent companies.
A三级成人视频s the share of “zombie loans” rose, the growth of many creditworthy eurozone firms was thwarted by this chronic capital misallocation.
Despite endless commentators lauding the “whatever it takes” mantra of the ECB’s then supremo Mario Draghi, his negative interest rates – in force since mid-2014 – have removed banks’ regular profits on interest spreads, weakening them even more.
三级成人视频Forcing zombie banks to close or recapitalise – as happened, for the most part, in the US and UK – would have caused massive rows between eurozone members, but ultimately made the bloc stronger. Instead, the smouldering debts were buried.
As the eurozone slowed last autumn, these problems resurfaced, with bond markets starting to bet again on a eurozone break-up. Draghi’s parting shot, when he stood down last October, was to drive rates even further into negative territory and unleash yet more QE.
三级成人视频It was clear Draghi’s drastic measures, far from working, were counterproductive. This, at a time when sovereign debt-to-GDP ratios across the eurozone were 30 to 60 percentage points higher among the southern “Club Med” bloc than before the 2008 Lehman crisis.
And the stock of non-performing loans was three-times higher than the US and four-times Japan. So, as Draghi left, the eurozone’s banking sector was already a tinder box, ready to ignite – with attention focused on Italy, where around a tenth of bank loans are bad and government debt is 140pc of GDP.
The eurozone as a whole, though, represents the world’s largest concentration of systemically important banks. That’s why the single currency crisis of the early 2010s sent financial markets everywhere haywire. And that’s why the eurozone represents the single biggest danger to global financial stability.
This coronavirus lockdown is exposing the underlying incoherence, the fundamental mis-design, of this currency bloc that some of us have warned about for years. Our concerns have been endlessly waved away.
三级成人视频Yet the underlying reality is – and has always been – that unless member states of a currency union pool their fiscal resources, and form a banking union, that currency union will ultimately dissolve.
三级成人视频Yes, agreeing to massive cross-border fiscal transfers, and to stand behind other nations’ banks, involves a massive loss of sovereignty – and is deeply controversial. That’s why the “completion” of the eurozone has never happened and, as long as wealthier eurozone nations remain democratic, never will.
This fundamental truth about the eurozone is now being brutally exposed. Highly indebted eurozone nations led by France are now pushing for eurozone-wide “coronabonds”.
There’s obviously a moral case to help weaker eurozone nations at a time like this. But, when it comes to the long-term fiscal and banking union needed to ultimately secure the eurozone, north European voters – not least in Germany – simply won’t have it. We can only hope that the economic fallout related to this virus doesn’t test that reality to destruction.