19.11.2019

Sunset European currency

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Europe can move from separation to unification, if the European elite, finally, will see the true situation and take early action to work with new challenges. This can lead to the fact that the EU will be more cohesive from the point of view of fiscal policy. It just needs to “monetary base” of the Euro was complete and reliable. In this case, the governments of Italy, Spain and Portugal will be able to Finance themselves with negative rates that are available for the main economies of the European Union.

However, a reasonable question arises: will the group of countries belonging to a standstill because of the national policy of the populist movement, yet to make the leap to work together and create opportunities to strengthen solidarity and unity? Answer it is very difficult.

Закат европейской валютыIf the EU will go the way of the collapse, will look like it’s disintegration? Does Italy have the right to require the impairment of its debt, how could she do that when in the course were the Italian Lira to the formation of a monetary Union? Or Germany is aware of the scale of fiscal largesse necessary to ensure that parity of funding became the basis of stabilnostand the EU, and then removed with disgust — perhaps with some other key EU countries? The answer to all these questions is no.

The Outlook for the economy

The development of negative agenda in the European Union approaching the peak since the sovereign debt crisis in 2010-2012. Yields on government bonds of Italy may look good for a while, if it does rise by about 275 basis points higher than Germany. But on 7 February the EU have sharply reduced the growth forecast for the economy of Italy in 2019 to 0.2% from the previous value of 1.2%. The country’s GDP has shown two quarters of negative growth in 2018.

The only thing we think can improve the situation in Italy is credit momentum, but while the EU is not proposing anything that would reduce the scale of the problems with the balance of Italian banks. In addition, Brussels is insisting that the budget plan of Italy has remained within a clear framework is necessary to ensure stability in the debt markets. And populist government of Italy in response strongly criticized the EU for hypocrisy, pointing out that France’s budget deficit in percentage of GDP is much more, especially after the protests of the “yellow jackets.”

However, the salvation of Italy will hardly help the whole Union. The growth of the economies in Europe is rapidly slowing down, that in recent years due to the strong drop in activity in German industry and the incredible decline in demand for exported vehicles. Now it seems like the growth is almost impossible if the European Central Bank starts to print money (the slowdown coincides with the cessation of asset purchases by the ECB in the course of 2018).

If Europe wants to end the confusion and demonstrate the desire to join efforts to return the EU to its former greatness, it is necessary to use the most powerful weapon — a large-scale recapitalization of the banks and, perhaps, an incentive in the form of a trillion euros. Who exactly spread this message across the EU or will implement it into national policy of the countries does not matter. It is important that, in principle, someone did.

The fate of the Euro

If we see a miracle called “EU 2.0”, will witness the and as Euro reborn like a Phoenix. It can happen — the European economy, so many survivors under pressure from supporters of austerity and the lack of recapitalization of banks after the crisis period 2008-2012, it is now more other global economies are ready to jump in lending and budget expenditures. There is a glimmer of hope that this scenario is realized.

If on the contrary the Euro, much will fall due to the fact that the financial institutions that control the world’s reserves, will lose faith in its viability, investors will rush to buy the asset, which aims to be “an interim step” towards the establishment of the German currency, whether “partial Euro” (not for all EU countries) or a new German mark.

In General, if the Germans used their own currency at the current principles of the foreign trade policy of Germany, its exchange rate would be 30-50% above the current exchange rate of the Euro compared to basket of other currencies. In other words, if Germany acted alone and practiced the lessons she would be on the obstacle for their growth is much faster than the Tesla accelerates.

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