Eurozone: Varoufakis discusses the 'greatest beneficiary' in 2018
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Public deficit and debt soared in the EU as governments massively supported their economies to mitigate the impacts of the pandemic, Eurostat said in a new publication at the end of April. Among other striking figures, government debt in the euro area reached 98 percent of GDP, the European statistics agency noted. Eurostat reported: “In the euro area, the government debt to GDP ratio increased from 83.9 percent at the end of 2019 to 98.0 percent at the end of 2020, and in the EU from 77.5 percent to 90.7 percent.
“In the euro area, the government deficit to GDP ratio rose from 0.6 percent in 2019 to 7.2 percent in 2020, and in the EU from 0.5 percent to 6.9 percent.”
Greece, which was still reeling from its sovereign debt crisis, had the highest debt in the bloc compared to the size of its economy.
It was followed by Italy, Portugal, Spain, Cyprus, France and Belgium.
Spain, Malta, Greece and Italy had the highest deficits.
As many fear the end of the eurozone could be near, unearthed reports reveal how the euro might find itself in a better position if it was not for France and Germany.
Arguably, it was not the behaviour of the eurozone’s southern members that first plunged the single currency into crisis in 2008.
There was, from the beginning, a way for the EU to police the economies of member states by following the rules that had been laid down for the single currency in the Maastricht Treaty.
It was called the Stability and Growth Pact, and it was not Italy or Greece that torpedoed it but Germany and France.
In 2003, Paris and Berlin had both overspent, and their budget deficits had exceeded the 3 percent of GDP limit to which they were legally bound.
The Commission – then led by the former Italian Prime Minister Romano Prodi – had the power to fine them.
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However, the finance ministers of what was then the 15 eurozone member countries gathered in Brussels and voted the Commission down.
They voted not to enforce the rules they had signed up to and which were designed to protect the stability of the single currency.
Britain’s then-Chancellor, Gordon Brown voted with the French and German position.
Mr Prodi told the BBC in 2014: “Clearly, I had not enough power.
“I tried and they [the finance ministers] told me to shut up.”
Jacques Lafitte, a French finance ministry official, said the technocrats working on the project knew that some central mechanism was needed to make sure member governments complied with the rules.
She said: “We made a number of suggestions to the member states at the time.
“But these were all rejected, because they would have involved transferring sovereignty from national governments to Brussels or maybe Frankfurt.
“We knew deep inside. Again we could not say so publicly.
“We were mere technocrats. We were supposed to shut up and listen to the member states who, almost by definition, knew better. I was convinced it was not enough.”
Sir John Grant was Britain’s ambassador to the EU at the meeting of finance ministers.
He said: “The credibility of the Commission and the readiness of the member states to accept the authority of the Commission as the independent enforcer of the Maastricht criteria was obviously gravely undermined.”
It was also a signal to everyone else in Europe.
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Former Deputy Finance Minister for Greece, Peter Doukas, recalled: “The view was that, ok, if the big boys won’t adhere and impose discipline on themselves, they’re going to be more relaxed in enforcing the treaty [on us].
“I mean, no-one can impose sanctions on Germany and France.
“They are the European superpowers. So they won’t adhere.
“The pressure was simply not there.”
Speaking at the Delphi Economic Forum in Greece in 2017, former Italian Prime Minister Mario Monti also laid the blame for the eurozone crisis on Germany and France.
He said: “It was caused by the two most revered parents of the euro, Germany and France, which in 2003 did not comply with the stability pact.
“Neither the Prodi Commission imposed any sanctions on both countries nor the EU Council wanted to.”
In a report for the University of Erlangen titled ‘The euro crisis – causes and symptoms”, author Christoph S. Weber wrote in 2015: “During the past 14 years several countries failed to fulfil the public deficit criterion, some repeatedly.
“However, the Maastricht deficit procedure, which mandates fines for sinner countries, was not always implemented. In 2002 and 2003 France and Germany ran deficits that were too high, but strong-armed their partners in the eurozone into forgoing punishment.
“This fatally weakened the legal framework of the Maastricht Treaty.
“Thus, the Maastricht criteria are merely recommendations, not requirements.
“The Treaty also included a no bail-out clause meaning that member countries shall not be liable for other countries’ debt.
“The idea that founders of the euro had — namely that the criteria would be a benchmark that all members would endeavour to meet and that the no bail-out clause prevents the assumption of debt — turned out to be blue-sky thinking.”
It was French wartime hero and later President Charles de Gaulle who famously told German Chancellor Konrad Adenauer in 1963 that, “Europe is France and Germany; the rest are just the trimmings”.
More than half a century later, General de Gaulle’s comment is still relevant.
It was German Chancellor Angela Merkel and French President Emmanuel Macron who this summer came up with the idea of a huge coronavirus recovery package, otherwise known as the recovery fund.
The €750billion (£668billion) fund will be used as loans and grants to the countries hit hardest by the virus.
The remaining money represents the EU budget for the next seven years and it has been described as the first step towards “a fiscal union”.
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