Written by Umberto Belluzzo
Last week the coronavirus situation became worse, especially in Europe, and I assume it is clear to anyone that we still have two more weeks of #stayathome. In Italy and Spain, after almost 4 weeks of lockdown, the number of deaths per day are drastic; in UK the Prime Minister got infected and in other places such as the US, Donald Trump has passed from talking about open and crowded churches in Easter to declaring that if the number of deaths remained under 100K, the government would have done a good job. Italy has been the most affected in the world until now, counting up to ten thousand deaths with the number of infected people to over a hundred thousand.
Ten thousand deaths just in Italy is a shocking figure that makes evident the severity of this pandemic to whom, like most of us far away from the red zones, are living this quarantine as a series of long and silent Sundays.
Now, what is the EU doing?
During this period, the tale of the “evil and ugly EU” that does not help those in need has once again arrived. I have noticed how confusing the news reaching a common citizen are, especially when the citizen has other things to do such as studying, online schooling, working etc. and expects the media to inform him in a precise way. Therefore, let’s take a step back so that we can make some order.
Without the intervention of the European Central Bank, which is appreciated by anyone, even by the euro-sceptic parties, Italy and Spain would probably be in a really severe condition. This is because the ECB committed in buying a massive amount of bonds from states in a more difficult situation due to the epidemic, allowing those countries to pay a lower interest rate for the money on loan without generating deficit and have immediate negative consequences; so, they can spend that money to buy masks, lung ventilators, employ new doctors and create more space for the intensive care patients. This was made in order to help the people that, due to the lockdown, have an income equal to 0 and will have a contribution with taxes to the state equal to 0.
Remember that, without these actions, those European countries in the middle of this crisis with a high debt, such as Italy and Spain, would be in extreme difficulty and the only consequent alternative would have been drastic interventions of austerity. The ECB saved these people from austerity. Obviously, it’s not me saying it as I am not an expert; the real experts are saying it. Without this intervention, more than a hundred million people would be in a far worse condition than now.
However, there is again something wrong. Members of the EU are still arguing for the Eurobond. The EU is “ugly and evil” because it is not allowing the introduction of the Eurobond, as the euro-skepticism exponents are saying. Logically, if you think about it, they should be against the Eurobonds.
Therefore, I will explain to you what these Eurobonds are, what is happening and why we are discussing about this topic as something it seems will “determine the death of the EU” as many say (even the pro-Europe politicians).
However, before explaining it, let’s remove my biases by making them obvious:
I am firmly pro-European. I want the United States of Europe, the president of the European Union and common fiscal and monetary policies, a common defense policy, domestic policies and a common cultural orientation. Basically, the same as the United States of America, or even more.
I keep looking outside the window and see how irrelevant we will be as single Italian, German, French and Spanish state in a few time, as shown by this crisis in its way, and I fear for my people and for my future as a member of the generation that one day will start ruling this world.
I am saying this to send a message: I want the Eurobond and I have always wanted them but not for the reasons the Italians, French, Spanish etc. have; even the most euro-skepticism exponents, seem to want them. Their reasons are fundamentally to unload the national expenses to others.
The reason why I want the Eurobonds is that I find them an excellent way to reinforce the European unity.
Then, what are these Eurobonds?
The members of the EU (most of them) have given up their monetary sovereignty to a supranational entity: the European Central Bank.
Let’s take as an example Italy, where I come from.
Italy cannot anymore print euros and since printing money is an instrument that can be used for a series of different good and bad reasons, after the 2008 economic crisis many people had something to say against this loss. However, there is a sovereignty that remained to Italy: the use of the Leverage. To do things, Italy cannot anymore print money as the Italians want and distribute them with the red-fire Supreme plastic pistols that throws banknotes. Nonetheless, Italy can still issue Italian bonds and say to the private market:
“Look, bet on us: you give us X amount of money now; we will invest that X in our economic system and then later, by taxing the citizens who meanwhile will have worked a lot and made more money after the investments, we will give you back the X amount of money you lent us plus the interest rate after ten years”
The government bonds are issued by everyone: Italy, France, Germany, Romania etc. and each of them brings the credibility of its state also with a little bit of prejudice. Obviously, this is because if you had 20 thousand euros to invest and Italy, France, Germany or Romania were to ask for that money, some of these countries would have to offer an higher interest rate than the others to convince you to give them the money (and not to the Germans ♥).
Therefore, what does Eurobond mean?
It means that as Italy, France, Spain and Germany gave up the monetary sovereignty in 1999 to a supranational entity then also each member of the EU would have to give up the control of its bond to another supranational entity that today does not exist and that would be created just to issue Eurobonds for everyone. Therefore, they would not use anymore the solidity of one state as assurance, but instead they would use the credibility of the entire EU, like if it was an enormous and powerful state.
It’s fantastic right? YES but there is a problem. This problem came out in these days due to the crisis and after the statement of the Head of the European Commission, Ursula Von Der Leyen, who basically said the Eurobond “is just a slogan”.
Honestly, it is a little bit; I am saying it as fan of the project. 🙂
Curiously, the request of the Eurobond comes from political areas that see the disposal of the sovereignty as an issue. This is because, just to make it even more clear, in the case Eurobonds are approved, only an independent entity will be able to decide when, where and how to issue the bonds.
Why is Germany against the Eurobonds?
To explain the concept of why Germany is against the Eurobonds, I’ll use an example:
Assume that EU has fallen and that two other different custom unions entities were formed:
One entity is made between the northern and richer states such as Germany, France, Austria, Denmark, Norway etc. and the other entity is organized between the states of the southern part of Europe such as Spain, Italy, Slovenia, Croatia, Montenegro and Albania. Let’s call this alliance “Sunny places”.
In this scenario, Italy and Spain, the countries that initially wanted the Eurobond, are the engine that runs this alliance. Let’s suppose that all of the members of “Sunny places” are the same as before. So, for example, Italy is still a country with stagnant economy and in decline but it is still more developed and rich than Albania or Montenegro. Now assume there is suddenly a problem and now Albania asks Italy, which is, in this scenario, the Germany of “Sunny Places”, to issue the “Sunny Places bonds” which are bonds issued in the name of all the Sunny States of the alliance, Italy and Albania included.
In case the Sunny Places bonds would not go as well as expected, they would have to be repaid with taxes payed by every member of the alliance.
Hence, how would you react to the idea of paying with your taxes the debts of the Albanian government and its citizens? How would the politicians in Spain and Italy react? Be honest: would you really risk the possibility of seeing the taxes you pay to increase just because your country has to act as guarantor for not only Albania, but also Montenegro, Croatia etc.?
Of course, no. Here’s the reason of resistance of Germany and other members of the EU (the most economically stable countries) to the creation of Eurobonds.
The question of Europe is evil or Europe is good is irrelevant because Europe does not exist. Right now, Europe is just the sum of the interests of the national politicians that get votes from national electorates. As the Italians would not trust the Albanians because of unjustified prejudice or other objective reasons, in the same way Germany does not trust the Spanish and the Italians.
Whose fault is this? How do we solve this?
The critics that come from the euro-Skeptic world that say “Europe does not work and at this point it is better to leave it” are dangerous. Europe does not work because it is a group of political powers and led by politicians that do not respond to all the 500 million people but just to their national interests.
The typical German, although he loves Pizza and Paellas, does not want to be taxed because Italy or Spain can spend his money and waste billions of euro in unproductive expenditure (e.g. reddito di cittadinanza in Italy). A German politician that is claimed to “give money to Italy” may not be elected. As a consequence, he/she seeks the interests of his electorate.
This is why they don’t want the Eurobond. When we try to look at the opposite perspective, we will understand that it is not us (Italians, Germans, Spanish, Polish or French) against Europe but it is instead a lot of countries that seek their own interest while there is no one at the top with the power to make decisions for everyone.
Anyway, this boring topic of the Eurobond is not vital for Europe because firstly, there are other instruments to solve the pandemic crisis and secondly because to establish the Eurobonds is really complicated.
Lastly, I would like to expose some of my thoughts about the incapacity of modern politics and humanity in general to prevent future dangers.
For example, the dangers of a pandemic virus were highlighted for years by scientists and experts in the past. Even Bill Gates had a TED talk in 2015 telling the world was not ready for a virus without any cure. And here we are. Did we do something? No.
In fact, a politician that follows consent every day and that analyses the popularity charts and effectively becomes a slave of votes same as an influencer with likes, will never be able to plan anything because planning for the future does not get consent instead blaming someone else does. This crisis is the proof of what I just said.
Politicians make choices for today but not in the long-term, after their mandate ends.
Are we learning something from this Pandemic? Will we ever learn something?
This pandemic is not the only event that scares scientists, there is something even worse in the horizon and guess what we’ve done in the last two years?
We’ve made jokes about a child that became the symbol of acting before it’s too late. I am talking about climate change and its effects. We will not be able to contrast those by closing ourselves into our homes and turn on the PlayStation.
Politics has lost the capacity of looking forward and the only way to solve it, in my judgement, is a common (European) mission. For example, the US has the philosophy of freedom, which is effectively a common objective. My point is, what does Europe have? What unites the French, Spanish, Polish, Hungarians, Germans etc. except the fear of another global conflict?
Europe needs an enormous cultural revolution to find a common objective between the European states. Until we don’t do this, Europe will never work.
I know this was a long article and I thank you for reading it completely.
I hope I have created an interest in you.
I hope you are safe, and you’ll read one of my next articles.
Thank you again. Ciao. 🙂