Eurobonds – It is make or break time for Europe

Christos Mouzeviris pulls no punches in his latest piece on the recent reaction by number of member states to the Eurobond proposals. 

In the last few days, nine EU member states have issued a joint letter to the EU Council President Charles Michel, calling for the issuance of a joined European debt mechanism, or the “corona-bonds “as they are named. These countries included Italy, Spain and France, who are among the worse hit by the COVID-19 outbreak, together with Greece, Ireland, Portugal, Belgium, Slovenia and Luxembourg. The call was made as these nations are struggling with the spread of the virus, plus its economic consequences and anticipated outcome. The notion was once again rejected by the “frugal” states of the north, notably Germany and the Netherlands plus their allies.

Make or break

As expected, the EU has found itself in another unity test and identity angst. The Portuguese Prime Minister lashed out at the Dutch Minister of Finance over comments he made suggesting that Brussels should investigate countries like Spain for not having a budgetary margin to fight the pandemic. It is evident that the EU cannot and should not continue like this. If the “frugal” states mistrust the southern ones that much, then there is absolutely no reason to remain in the same union. All peripheral economies, with the insistence of Germany, had to go through brutal reforms, humiliating austerity with massive unemployment, social and economic dismantlement, even loss of life ten years ago; suicides skyrocketed in Greece, the posterchild of the eurozone economic crisis.

So for now to have Netherlands, pointing the finger once again towards Spain is simply unacceptable and disrespectful. The peripheral countries did what they were expected to do, they fixed their banking sector, dealt with their debt, modernized their economies, sold out their national assets and even endured the humiliation of belonging to the “PIGS” group during the last crisis. What excuse does the Netherlands now have to ask for more? None really, apart from acting like an egotistical, self-serving party. It is great to be one of Europe’s tax havens, either within its European land borders, or via its overseas territories, gaining unfair advantage against its fellow Europeans, yet then accuse them of being corrupt and lazy, worthy of never-ending supervision, while yourself as a nation refuse to abandon your own practices.

Greece for example used to have its own thriving industries, only to see them relocate to other developing nations due to globalization or be bought from bigger European multinationals, eventually becoming sold or closed off. Many Greek companies relocated to Benelux countries, in order to obtain tax relief there. Our farmers must bury their crops, so that Greece can buy the same goods from countries like Turkey or Egypt. All due to EU trade deals and agreements. So why then the “frugal” states object when we get compensation for the policies they pushed, due to their stronger influence in the EU? Perhaps they would like to relocate some of their factories back to us, so we can regain some of our jobs lost and keep our workers here, instead of them going and “stealing their jobs”. In addition, the question of “Eurobonds” is not new. It was brought up ten years ago and it was rejected again by Germany and the Netherlands. Sadly, then it was Greece alone who was crying out for them, as a help to deal with the economic crisis. But Spain’s conservative government did not side with Greece so perhaps now they get to taste the consequences.

Bonds versus ESM

The Eurobonds are a necessity. If the eurozone remains a currency union only, countries like Spain, Portugal and Greece will always be at disadvantage. Germany might insist on The European Stability Mechanism (ESM), however that does not solve the problem, but only brushing its surface, until the next crisis comes. It suits the Germans, as after accumulating most of the wealth, all they must do is spare a fraction of it via ESM, plus maintain the image of the saviour of Europe. Obviously, the Germans and the Dutch are reluctant to share their wealth.

But unfortunately, then they should follow the British out of the EU. They cannot have their cake and eat it. The euro was modelled after the German mark; thus, it is more compatible to the German economy and those with a similar one. The weaker eurozone nations are unable to devalue their currency in order to stimulate their economy, plus they must also overspend in order to keep up and share the same currency with the much stronger economic powerhouse that is Germany. If we examine how they are forced to overspend, we will find out that usually it is by buying luxury goods such as cars and military equipment from Germany itself. In this way, they are helping to sustain its economy and empower it even further. The situation goes in circles and it is unworkable.

The only way forward is if we either proceed in making Europe a more federal entity or listen to the Eurosceptics and revert to a trade block. The Germans must make up their mind of what type of Europe they want and stop holding everyone else as hostages to a project that mainly benefits themselves. The United States, Brazil, Russia, India and other federal states, have a more harmonized fiscal policy, although indeed some of their states or regions are more affluent. That does not stop them from transferring wealth or sharing debt, since they share a single currency and thus, they abide to a more centralized fiscal policy.

COVID-19 collects debts from all

In Europe on the other hand we opted for maintaining our national governments and grant them with most decision-making powers, so that they opt-out or block any policy they do not agree with, even if this comes to the detriment of the overall EU itself. It is time for all of us to rethink of what kind of Europe do we want and our role in it. It is unacceptable for a handful rich nations to opt for all the benefits, while rejecting the responsibilities that come with EU membership. It is even more outrageous, when they scapegoat their fellow member states, in order to excuse their stance to their voters. Something that worked many times before, when European governments were branding their colonial subjects as savages, other cultures as inferior and their ethnic minorities as the enemy from within, worthy to be managed and ruled because they were unable to do it by themselves, or even be exterminated. As the Portuguese Prime Minister stated already, the COVID-19 outbreak is not of the southern nations’ making and it affects all countries in Europe, as it will ultimately have an impact on the collective European economy. To deal with it, we will need finally to show solidarity, otherwise start thinking about our mutual divorce, whether this is the dismantling of the eurozone, or the EU itself.

The British perhaps foresaw this and did well to abandon ship early. The Danes too decided to opt out from the euro and the Swedes, although obliged to join by their Treaty of Accession in 1994, have also managed to stay out of it. The eastern and central new EU entries have mixed reactions to their membership with Poland going from one of the most enthusiastic members, to one of the more Eurosceptic. Together with the Czechs and the Hungarians, they are staunchly opposing their euro membership and perhaps they too, are wise. If all they see from how the eurozone is managed, why would they want to join and be scorned by arrogant Dutch ministers, or have their fiscal policies dictated by another EU member state?

If we are to continue with our “European dream,” we must make up our minds and either give EU institutions full authority and capacity to decide our collective future or since we are so fond of our national governments, keep them and accept the consequences.