[ad_1]
New analysis by Deutsche Bank has warned that booming Covid debts, a relaxed attitude to heavy borrowing and a complacent view that interest rates will never rise will lead the world into a new economic crisis. Eurozone nations, which ran into such trouble ten years ago, are likely to repeat their mistakes with economies across the rich world straying down the same dangerous path, senior economist Sebastian Becker has said. He explained: “Credibility could become an issue as most governments were not able to achieve balanced budgets in the ‘golden’ pre-pandemic years characterised by robust growth, booming labour markets and an ever falling sovereign interest bill. Indeed, advanced economies have never achieved a balanced budget on average for the past 30 years.
“A continued and careless buildup of debt can potentially lead to self-reinforcing loops of high debt and high risk premium, which do turn explosive at one point.”
That point could be at 130 percent of GDP or more – levels breached by Italy and Greece.
Mr Becker’s warning has also been echoed by Swedish MEP Peter Lundgren, who claimed a new European debt crisis is on the doorstep, but with Italy being the epicentre this time.
The European Commission has given the green light to Rome’s €191.5billion (£164.6bn) recovery plan.
Italy, the first European country to be hit by the pandemic, will receive the largest share of the EU’s €750billion (£644bn) recovery package.
Known as Next Generation EU, the fund intends to help countries out of a sharp economic downturn caused by the COVID-19.
The €191.5billion (£164bn) Italian plan includes €68.9billion (£59.1bn) in grants.
37 percent of the funds will be invested in measures that support climate objectives.
However, according to Mr Lundgren because of this debt, Italy could get into a lot of trouble and “become the new Greece”.
He added: “There are several countries that are in a really bad condition when it comes to the economy.
“They are staying alive simply because they are getting money from the EU.
“And that is not a situation you want to have
“You need to have a self-finance system.
“It is vital. And countries like Italy at the moment don’t.”
JUST IN: Barnier’s extraordinary attack on City of London unveiled
Mr Rinaldi added: “The conditions were not considered attractive by these countries.
“And it’s because there is so much liquidity in international markets at the moment, that they prefer to finance themselves independently by issuing bonds rather than having conditions attached by the European Commission.”
He added: “Why would you be in debt with the EU when you can get all the money you want indirectly?
“It seems like a trap…
“In Italy, they think this money is free. But it is not. It is a debt that we will have to pay back with interests and capital.
“But above all, it is a debt with really strong conditions. It is not just a loan but the EU dictates what we can and what we cannot do.
“The other countries said ‘no, thank you!'”
Last week, Germany’s Constitutional Court threw out an emergency appeal by the far-right Alternative for Germany (AfD) party against Berlin’s ratification of the recovery fund.
Since the relevant legislation had already been signed by the German President and promulgated in the Federal Gazette, the application lacked legal standing, the court said.
President Frank-Walter Steinmeier had signed the measure on April 23, after the top court had rejected another emergency appeal against it.
At the time, the court said there would be more potential harm from blocking the fund pending a full ruling than from allowing it to go ahead in the meantime.
The AfD is the largest opposition party in the German Parliament.
They argued that allowing the European Commission to borrow funds would exceed the EU’s powers.
[ad_2]
