The EU’s Bonds

Are the rules and links binding EU countries weakening in the face of the latest crisis?

Daniel Craig, aka James Bond, claims his latest movie, ‘No Time To Die’, tries not to be political but is inevitably tainted by Trump and by the nihilism of Brexit. We can’t see what he means because the release of the film has been delayed by the covid-19 pandemic but we assume this is a pejorative reference to Brexit, typical of most luvvies’ views. The title is ambiguous, is it a bad time to die or is there too much to be done first? The pandemic might delay Brexit because there won’t be enough time to reach an agreement, or with the deadline approaching will the parties come together more quickly rather than make the economic situation even worse? Hopefully the negotiators will survive the period.

Dr No -LegardeThere are other James Bond titles that seem to fit certain current events. Italian government bond yields surged because of the corona virus crisis there. ECB President Christine Legarde told a press conference in Frankfurt that “we are not here to close spreads” which caused more panic in the financial markets. ‘Dr No’ might be a suitable moniker for her. Admittedly she rowed back on that comment pretty quickly, later saying that the ECB is mindful of fragmentation risks and its tools will be completely available to Italy. What tools? Italy has asked that the Stability and Growth Pact be suspended (under EU treaty law this is permitted where there is an “unusual event outside the control of member States”) but the strain on eurozone cohesion will be immense if a bailout is required. Germany has consistently refused to allow its large fiscal power to prop up the zone, now it will probably have to if it is to survive but that will shake domestic politics to the core. This is the kind of danger the EU project was meant to prevent.

In the three decades preceding Italy’s adoption of the euro its independent currency, the lira, steadily depreciated against the German mark, by 80%, to remain competitive. Mario Draghi, then Director General of the Italian central bank, and many other Italian economists, felt that without this escape valve there would be no option but for their government to adopt and enforce disciplined financial and structural policies. Subsequent growth has been near zero, unemployment consistently high and government debt has mushroomed. Italy is in no position to defend itself without the support of its friends and neighbours; creditor states in the North may resist but face a tricky situation.

Goldfinger MerkelWe’ll skip the second Bond movie, ‘From Russia With Love’, though we could review our tale of NordStream2 [1]. The third in the series, Goldfinger (“the man with the Midas touch“), might describe Germany’s behaviour since the half-baked monetary union started, although perhaps Coldfinger would better highlight Angela Merkel’s response to the virus emergency. She has refused to allow any face masks or other virus protection to be exported [2]. Several EU member states are now closing their borders to the citizens of others. There is a British military order when its combatants face a hopeless situation: ‘Every man for himself’; it means that the parent force is declaring itself free of any duty to continue to provide further supplies, medical aid or tactical support for the forces who receive this order. Clearly the nation state has not withered. Interestingly China has offered protective supplies plus medics to assist beleaguered Italy, it’s good to know which friends you can rely on [3].

live and let die 3b

[1] Gas Leak




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