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The Long View
Covid-19 Lays Bare the Antagonisms of EU Members
April 20, 2020 - (Gold Market Wire) - The European Union, the quasi-government entity that so many credit with keeping the European peace is, in actuality, tearing the place apart. The cracks that were wide before are widening... into veritable chasms. The stand off over debt mutualisation has exposed a level of acrimony so deep, it is doubtful it can ever be healed, no matter what the eventual outcome of the debate and the decisions the EU Council make.
At the center of the conflict is the idea that Italy was abandoned by its fellow EU members over the CoronaVirus, and because of that, it suffered a larger share of fatalities than any other nation. That, of course, is an Italian view for the most, but is shared with those who want the economic imbalance of EU states evened out by an EU policy of wealth transfers. The EU, constricted in intractable political deadlock seems incapable of acting decisively.
At the core of the divisions within the EU is an allegedly desperate and prostrate Italy asking for financial assistance. But when it an offering was trialed, by EU Finance Ministers via the Stability Mechanism (ESM), the proposals arrived in the form of loans with strings attached that no Italian politician could ever accept. The Italian Prime Minister called it a “trap”. The Italian parliament would have rejected it out of hand. If you hear echoes of the UK/EU divide over Brexit, you are not mistaken. It has a familiar ring to it.
To bring the EU into a semi-functioning entity required so many divisions of power and political compromises that once a crisis, any serious crisis, erupted, decisiveness became impossible, structurally. The idea of 'group agreement' has revealed the achilles heal of crisis management within the EU.To add to the problems,the ECB, having bought every bond in sight for years on end, is at the brink of insolvency. They have painted themselves into a corner so tightly it seems impossible to ever get out of the mess they are in.
But all of this pales when compared to the hardening attitudes of the public towards and within the various national entities that comprise the EU. The public is raging. Even if the EU could agree something at this stage, it is almost impossible to see how the acrimony can ever be resolved. The Europeans are ready to kill each other... along national lines. Here are some take aways from the public to set the stage.
“The Dutch and Germans have run large surplus ever since the creation of the Euro.They need to share that wealth, gained through an unfair advantage, with those in need.”
To which the Dutch (and Germans respond):
“The Italians are the richest nation in Europe, with 4 Trillion Euros of private wealth. And they have the gall to come asking the responsible north for money?! The Germans have low disposable incomes. The Dutch live in small rented accommodation. You live in villas!”
To which the Italians respond:
“The Netherlands is an illegal tax haven. All that money you have is ours!”
To which the Dutch respond:
“Tax Haven? An Italian? Talking about not paying taxes?! And look at your retirement age. You're worse than the Greeks.”
To which the Germans respond:
“Germany does not have unlimited funds to support every EU member ad infinitum”
To which the Italians respond:
“We cannot do anything constrained by using this currency. We need the Lira back!”
...and on and on it goes.
This will never be resolved. And even if it were to be, the political backlash, internally, within the respective European countries would lead to a revolutionary situation. The political horse has bolted. No matter what the EU does now, it will not be corralled back into the “barn” of unity. The Euro was built on a false foundation without the debt mutualisation to sustain a proper currency. To do so at its inception would have caused a revolution before the currency was launched.
So, it is causing one now, instead. Public ire is growing.
The Euro is fatally flawed.