Eurozone: Varoufakis discusses the 'greatest beneficiary' in 2018
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The US economy has already recovered the ground lost during the pandemic. Meanwhile, China is producing more now than before the first outbreak of COVID-19. Even Britain, which had one of the worst outbreaks of the virus and facing all the headwinds from leaving the EU, is staging one of the most rapid recoveries in its history.
On the other hand, the eurozone appears once again to be the weakest link of the global economy.
According to financial columnist Matthew Lynn, it could be years before it claws back to 2019 levels of production and output.
He wrote in the Telegraph: “Growth figures last week were disappointing. True, the zone is growing, but at a far slower pace than the rest of the world.
“Overall, the zone expanded by just 2 percent in the second quarter.
“Italy was the best of its major economies, at 2.7 percent, while Germany managed to eke out 1.5 percent growth for the quarter, below expectations, and hardly making up for the 2.1 percent fall in the first three months of the year.”
“Overall, the IMF expects the zone to expand by only 4.6 percent in 2021, after a 6.5 percent fall last year.
“When will it get back to its pre-pandemic level of production? No one really knows. At the current rate, it will be a while.”
As many fear the gloomy outlook could mean the end of the eurozone in the near future, a warning by the former governor of the Bank of England Lord Mervyn King has resurfaced, in which he brilliantly explained why he believes the eurozone is doomed to fail.
In his 2016 book ‘The End of Alchemy’, Lord King warned of a looming “economic and political crisis” triggered by endless bail-outs, austerity demands and pressure from the “elites in Europe” and the US to create “a transfer union” to solve the eurozone’s woes.
In the second extract of The Telegraph’s exclusive serialisation, Lord King warned this “sowed the seeds of division” in the bloc and created support for populist parties.
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He argued further steps towards political union could have sparked a public backlash.
He wrote: “It will lead to not only an economic but [also] a political crisis.
“Monetary union has created a conflict between a centralised elite on the one hand, and the forces of democracy at the national level on the other.
“This is extraordinarily dangerous.”
Lord King added Europe’s biggest economy was facing the “terrible choice” of writing a blank cheque to support the bloc “at great and unending cost to its taxpayers” or calling “a halt to the monetary union project.
He added: “The only way to stop countries staring into the abyss of crushing austerity, continuing mass unemployment with no end in sight to the burden of debt faced by debtor nations is for them to abandon the euro.
“The counter-argument – that exit from the euro area would lead to chaos, falls in living standards and continuing uncertainty about the survival of the currency union – has real weight.
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“But… leaving the euro area may be the only way to plot a route back to economic growth and full employment.
“The long-term benefits outweigh the short-term costs.”
In October, German Finance Minister Olaf Scholz said the EU was already taking a step towards a fiscal union with its plans to recover from the coronavirus pandemic – which involves the European Commission borrowing in financial markets.
Mr Scholz told an inter-parliamentary conference on stability, economic coordination and governance in Brussels: “We are moving towards fiscal union, a major step forward in the financial capacity and sovereignty of the EU.”
To support the bloc’s economy, the EU has announced a €750billion (£678billion) recovery fund.
He added: “Markets have confidence in European policies and in the development of European economies.
“We should carry on with this course.”
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