A two-speed Europe in 2021?

Almost 400 million citizens of Europe were used to waking up with a party
hangover after the New Year… And they
probably did, but that is o joke compared to
what several of the Euro Zone governments will
feel as the “big wheel and the cute winter
wonderland cabins” are packed away in “Place
St Catherine, central Brussels”.

2019 was hardly an economic picnic, even for

countries such as the UK, which chose not to adopt the single European
currency eight years ago.

For the likes of Greece and Ireland, 2019 was the year when the gap
between their past spending and the cost of funding became unbridgeable
without outside help, leaving them with no choice but to agree to the
bailouts, a hard choice. More so, for Portugal and Spain it was the year when
they came close to being unable to manage their national debts, brushing
with a real financial disaster.

On the other hand, 2021 may not be able to bring much relief for these
countries, or for others such as Belgium and Italy, which also have huge
debt mountains to climb. Securing the funding of national budgets will
remain the number one priority for all the European Countries, being in the
Euro Zone or outside of the “troubled waters”.

From north to south (Ireland to Greece, Portugal and beyond), many

European citizens went on the march and took to the streets in order to
vent-out their frustrations over the member states economies and how they
have been managed by the governments as well as by the Brussels central
administration.

All the governments have pledged to stop overspending, but deep flaws in
the design of the euro zone from the start will be very hard to overcome and
troubleshoot in the next years.

The new strategy refers to a “two-speed Europe” and the idea may emerge
as a true winner, even though the deal certainly has not pleased the new
member states that stand to lose the most - substantial EU funds.

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2019 at least, ended with some relief among ministers of all 27 EU nations,
agreeing to the terms of a post-2014 rescue shield for any of the 16 euro
zone governments that have future trouble finding sufficient and affordable
borrowing on the world's money markets. That deal in itself may bring new
headaches in its wake, in the form of potentially even higher interest rates
though. Under the new scheme, the lenders involved will be obligated to
take a hit themselves if the borrowing country defaults on it’s debt. So,
inevitably, they will charge more, implementing in effect a premium, to
compensate for taking a loss.

More to the point, it remains a big cloud over whether existing bank
creditors could still be forced to write down some of their loans under the
current rescue plan.

“With the debt markets reacting to every nuance of what European

policymakers say, it is no wonder Central Bank chiefs such as the European
Central Bank's (ECB) Jean-Claude Trichet always choose their words very
carefully, speaking in that special code beloved of central bankers”.

The Economic specialists at the economic survey house of Markit tell us that
the data from purchasing managers and other entities involved in
industries, production and services all point to a two-speed Europe in 2021.

Summing up the events of the past year, one could say it was the year when
recent convergence between poorer and richer, between heavily borrowed
and prudent, was reversed in a flash by unforgiving markets.

The chief economist of the Brussels European Policy Centre, Fabian Zuleeg ,
who heads the independent think tank in Brussels, says that “fixing the
public finances of the likes of Ireland, Greece, Portugal and Spain in 2011
will not be enough”. It is even clearer today, that without intervention, the
economies of Europe will continue to diverge and threaten the destruction of
the euro and the ECB, he insists. "The first step is to come up with a new
design of economic reform that doesn't just cut public deficits," Mr Zuleeg
says.

As far as I’m concerned, I believe that the stronger European partners will
no doubt have to find ways to invest in their economic competitors. I also
believe that issuing EU bonds tied to specific projects in fields such as
transport and energy will definitely revive the now lost economic growth.

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At best, I hope that the economic tide may turn in 2020, just
enough to offset if not cure, some of the “financial hangover” left
over from 2019.

Dec.17.2019

Mircea Halaciuga, Esq

0040.724581078
Finante/Servicii financiare/Investitii