Dark clouds in the horizon

The eurozone banks are borrowing heavily from the European Central Bank. Current borrowing amounts to €1,31 trillion. They take the money at negative interest rates, which means that they are paid to borrow. The negative rates are now around minus 1 per cent. By doing so, the ECB is telling us that the funding needs are enormous and that the crisis resulting from the pandemic is very deep.

The picture shows me three more things.

One, that we have too many private banks in the eurozone. Some countries, with small economies, have an incredible number of banking players. Tiny banks are particularly vulnerable to shocks. They represent an additional financial risk at a time of many hazards.

Two, most of the borrowing has been applied by the banks in the purchase of government bonds. That means the ECB is using the commercial houses – and paying them a fee – to finance exceptional and current government expenditures. Public debt is growing fast and in a non-productive way. Its growth goes hand in hand with the tremendous levels of debt of the enterprises and of the poorer segments of the population. Overall debt, in some countries of the zone, is reaching unsustainable levels.

Then, my third point. Conservatives and extreme right parties and movements in richer eurozone States are getting ready to challenge the policy options of the ECB, particularly their easy money funding programmes. These challenges will combine political activism with legal proceedings. As an example, the ultra-nationalist and extremist German party Alternative for Germany has announced today they will move a legal action against the ECB’s emergency programme. It would be a mistake to underestimate this decision. That goes along the recent ruling of the country’s Constitutional Court on a comparable matter. And it must be seen in conjunction with the position that The Netherlands, Finland, and a few others have taken, asking for conditionalities to be added to the Von der Leyen rescue plan.

As I see it, all this contains the seeds for further divisions in Europe. This time, the division might mean severe rupture. It is the future of the Union that is at stake.

Greece´s poker game

The Greek government is playing hard ball. They are convinced, I guess, that in the end the EU creditors will do whatever it takes to keep Greece within the Eurozone. And their poker hand is based on that assumption.

It´s a risky position. Athens might know more than we know about the concessions the other Europeans could possibly be ready to accept. But I am not sure they know. They just take the chance and hope to be right, that´s what I believe.

At this stage it is difficult to forecast the events of next week or so. We are certainly close to a clarification. And that moment of truth might be a difficult one for the Greek people. 

Europeans

The latest Eurobarometer survey results published yesterday show that the European citizens value above all the free movement of people, goods and services within the EU and the fact that peace has been kept in the Continent. 62% of those living in the Eurozone also believe that the common currency is a positive development. However, a large number (67%) think that their voice is not heard and counts for little when it comes to influencing European politics.

It is also curious to note that the rich Luxembourg feel very “European” (88% of people in the Grand Duchy say so) and the poor Greek have a very different opinion (only 44% feel as Europeans).  They are at the end of table.