EU reality and challenges.

[Lucius]

I read a very interesting article in my local newspaper about the economic situation in the EU, with special reference to Italy as one of the examples of illogicality when it comes to the distribution of funds to help EU members, and the treatment of the same by the European Central Bank (ECB). Namely, Italy recently sold three-year bonds worth EUR 3.75 billion with a negative yield of 0.14%, which in some normal circumstances should not happen given the total national debt, which could amount to around EUR 178 billion by the end of the year. In the author's commentary, this policy is called simply adding fuel to the fire, and there is even a new name for it, fiscal extravagance.

Furthermore, this financing policy is not limited only to nation states, but applies to companies that get very cheap money in this way, and in fact these are companies that are in serious financial problems and survive precisely thanks to such generous financial injections. On the other hand, this means that small and successful companies find it difficult or almost impossible to get financial help in these difficult times.

What exactly is the future of the EU if we take into account that large members like Italy and Spain are in a very unenviable position, and some better members are increasingly refusing to give money to what we could call bottomless holes?

Translated into English via Google Translate

A terrible new economic normalcy: An economic scenario we can hardly avoid


Please use the quote option in an adequate way and make everyone's reading more enjoyable.
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[mnporter2001]

When difficulties arise, governments of all countries must be very alert in making supportive policies but it seems that Italy is very subjective about their debt situation.
This may have sparked outrage in neighboring countries and possibly why they do not want to fund such false policies.
Italy is really in trouble during this pandemic because so many people have died because of the aging population, if they keep coming up with bad policies then I think they will soon have the same situation Venezuela

[pixie85]

I don't like what the EU is doing when it comes to trying to equalize countries when it comes to emission norms for cars, CO2, garbage disposal, use of GMO products, but failing every time to equalize wages and prices of goods and services. It's like they're trying for the media and to ease the public opinion but never really doing anything that helps the average citizen.

It's all based around big banking and big money. You can see the EU has no ideas of its own and is always trying to follow the US with monetary policies and inside it's the better and the worse union with Germany and France trying to be the ruling states all the time. 

I think that if a big bank is losing money all the time it should not be bailed out. The market should decide on its own whose services are needed or not.

[pankowri]

The most thing of EU which amazed me is that their has an identity to be known as European which they established. No other organizations can make it happen. Some countries has the well growing economy and some are not. But if you think a community and money flow then you will see a average growth. For the pandemic, maybe they are facing some challenges. Their community strength can face each and every issues with care.

[Lorence.xD]

That is a mark of a capitalistic society. Helping big companies with taxpayer's money and neglecting small businesses. If EU does not update their archaic policies, I think that things will be difficult for the next generation and it is also difficult to do economic experiments, especially now that the popularity of Universal Basic Income and other likely economic concepts is booming.

[stompix]

This one is a tough one, it has pros and cons, and while I agree with the author (of the article) on some I totally disagree on others.

The good thing in all of this is that as we know, Italy has chosen the way of spending to keep business running after the disaster in spring, normally this spending would have led to inflation and thus to an increase in interest rates, but in their cases, this has been avoided by investors willing to get almost nothing in profit and buying their bonds for security. It's like the negative interest of German bonds, you're actually paying them...
I see zero problems with borrowing at zero rates IF you're able to make something with that money and not blow it away.

But the problem is not the bond itself, nor the fact that Italy is borrowing like this, for them such bonds would make the debt service affordable, the problem is that they are borrowing in a monetary Union, and this is where the author is somehow missing the problem, this will not bring the ECB down or hurt it, it will create instability, Germany can borrow money at negative rates, Italy was able to do it at 0.x but the others will not be able to, especially the last wave that adopted the euro, and you end up with euro nominated bonds that have different yields although they are guaranteed under the same system, not a fair outcome.

What exactly is the future of the EU if we take into account that large members like Italy and Spain are in a very unenviable position, and some better members are increasingly refusing to give money to what we could call bottomless holes?

Well, this is the totally fucked up part, (and oh, one thing, Italy is actually a net contributor to the EU budget), that at this point they could borrow on their own and they will not need to ask permission for a move most likely the ECB will not keep doing for their sake, with the oversubscribing boost they've got for those bonds they might try their luck on their own, so if the whole thing continues like this they will try to stop when there is no way of stopping.

But, to return and speak strictly of the future, nobody has a clue, it will all depend if we can get rid of the virus and if we can return to normal and when. But since those are questions with no answer the only concern right now is the possibility of the answer being NEVER, then ...the future is pretty damn bleak.

I don't like what the EU is doing when it comes to trying to equalize countries when it comes to emission norms for cars, CO2, garbage disposal, use of GMO products, but failing every time to equalize wages and prices of goods and services.

How could the EU equalize the price for goods and how would this equalization work?
Do you want to pay the same prices for a hotel in Amsterdam as in Bucharest? Should Hungarians pay the same price on gas as the Dutch?
You're mistaken norms with taxes, for example, yes the EU has indeed emissions norms for cars but the taxes on cars are different from country to country. We don't have the same annual tax even in the same country what about the EU!

[NeuroticFish]

What exactly is the future of the EU if we take into account that large members like Italy and Spain are in a very unenviable position, and some better members are increasingly refusing to give money to what we could call bottomless holes?

This actually may be good. I mean, I guess that they've learned something from the Greece situation a couple of years ago.
Of course, this means tensions, this means that politicians discuss more and hopefully also think deeper.
And I don't think that Italy and Spain do think seriously on leaving EU, they do have benefits; hence I expect they may "behave" (i.e. stay closer to what's expected from them)

[Cnut237]

Italy [...] fiscal extravagance.

It's the old European idea of the frugal north vs the profligate south. Brexit is often viewed as the UK harming itself (which it is), but it also weakens the EU as one of the major contributors on the 'fiscally responsible' side departs. Covid and Brexit combined will place a lot of stress on the EU, and it's not at all clear how this will turn out. I've seen quotes from the Portuguese PM (they take the presidency soon) raising the 'two tier' idea once again. It's clear that something needs to be done, but getting everyone to agree on what that something is may be difficult.

[Lucius]

I see zero problems with borrowing at zero rates IF you're able to make something with that money and not blow it away.

Just like that, if something does not start to change within the member states themselves, they will only continue to sink into growing debt and growing problems. The question is whether the EU can force some members to act more responsibly before it is too late, or whether a new Greece must happen again?

Well, this is the totally fucked up part, (and oh, one thing, Italy is actually a net contributor to the EU budget), that at this point they could borrow on their own and they will not need to ask permission for a move most likely the ECB will not keep doing for their sake, with the oversubscribing boost they've got for those bonds they might try their luck on their own, so if the whole thing continues like this they will try to stop when there is no way of stopping.

If you may remember there was a thread that mentioned the gold that Italy has (I think they have gold reserves among the top 3 in the world), and the possibility that maybe some of that gold will be sold to repay part of the debt, but such an idea was rejected by ECB. It is true that it is good as long as Italy and countries in a similar situation can get the money they need on their own, but I believe that this must come to an end.

And I don't think that Italy and Spain do think seriously on leaving EU, they do have benefits; hence I expect they may "behave" (i.e. stay closer to what's expected from them)

And I personally think that this is not an option, yet in these countries politicians are much more pro-EU than against, although Brexit has given a wind in the back to those who want the return of national sovereign states outside the EU. What we often overlook is the fact that a strong EU is not in the interests of some other powerful states, and this was more than evident in the example of the US (Trump), which gave full support to Brexit.

Covid and Brexit combined will place a lot of stress on the EU, and it's not at all clear how this will turn out. I've seen quotes from the Portuguese PM (they take the presidency soon) raising the 'two tier' idea once again.

Although Brexit has been a viable option for a long time, Covid-19 is something no one could count on and is just an additional weight on the already difficult situation in which most EU member states found themselves even before it all began - and first of all I mean that some countries like Germany were already in a technical recession. The idea of "two tier" is really dangerous for me because it sends a completely wrong message to some members that they are second-class members who serve only to be a storehouse for what the Western EU needs - and that is primarily people which as cheap labor leaving countries like Romania, Bulgaria or Croatia in the hundreds of thousands.

[Poker Player]

I see a dark future but I was also seeing a dark future in 2012 when Mario Dragui said the famous "Whatever it takes" and totally changed the situacion.

Now we are in a different situation: Lagarde has said that the ECB is reaching its limits and hopes the vaccines work otherwise it seems that the ECB will not have much room for manoeuvre.

I don't know if some unexpected even will happen that will change the situation for good but the large debts of Italy and Spain could end up with them being bailed out of out of the Euro.

[sana54210]

There is a big reason why EU should continue to operate even with bad members that keep costing them money, the whole idea wasn't to make sure they make tens of billions of profit every year, specially when you make it like one nation, that means some places will be affected by it a lot worse. However the idea that they can move around easily, have one currency, do trade like crazy, have companies all over the continent, these are all great things for people to profit from.

Hence at the end of the day it is something that people will get help from, you could literally work in France and live in Italy and so forth, these type of community help that was the intention still is valid today. Obviously that was a small example, but the main idea that it is like a one nation still works.

[stompix]

If you may remember there was a thread that mentioned the gold that Italy has (I think they have gold reserves among the top 3 in the world), and the possibility that maybe some of that gold will be sold to repay part of the debt, but such an idea was rejected by ECB.

In my opinion, and this is based just on my guts, nothing else, I think this will be the worst possible moment to start selling the gold. Italy has never sold gold, now they will have an excuse, the crisis, from this onwards there will always be the danger of selling again because this and that is also labeled a crisis till there is nothing left, and that I think will happen a lot faster than anyone thinks, and when it happens then the country is f* beyond repair.

If they manage to somehow weasel their way out at least till the danger of new waves of covid danger is gone then they could draft plans for it but not sell when there is blood in the streets.

The idea of "two tier" is really dangerous for me because it sends a completely wrong message to some members that they are second-class members who serve only to be a storehouse for what the Western EU needs - and that is primarily people which as cheap labor leaving countries like Romania, Bulgaria or Croatia in the hundreds of thousands.

The two speed/tier/class idea is the worst of the worst, what we need is a more united Europe not one split by a hundred things, we need to make this more like a single state not go the opposite way.  And it's not just the eastern states, the whole eastern part of what was once Moravia is plagued by this, and I see no solution in sight. Next year the construction company where a childhood friend is doing the accounts will bring in 200 Vietnamese and Sri Lanka(!?) workers....whatever

[Lucius]

In my opinion, and this is based just on my guts, nothing else, I think this will be the worst possible moment to start selling the gold.

Regardless of the moment, the fact is that every EU member state needs its approval from the ECB to sell its gold, and even if Italy received that approval, their gold would is in several locations around the world, so the transaction would take time. What is a paradox is that you have huge amounts of something that is very valuable, and at the same time you can't do anything with that wealth because someone else has the keys to your treasury.

The two speed/tier/class idea is the worst of the worst... Next year the construction company where a childhood friend is doing the accounts will bring in 200 Vietnamese and Sri Lanka(!?) workers....whatever

We can pretend that there is some kind of unification of Europe, but it exists only on paper - everyone looks after their own interests, and small and weak members consistently obey every command from Brussels. As for people leaving for a better life, it has always existed, but small countries like Croatia, which has lost about 400 000 people since joining the EU, are experiencing a demographic collapse. It is true that cheap labor comes from the east, but these are people who have completely different customs and patterns of behavior that often conflict with the standards that exist in the west.

[NeuroticFish]

The two speed/tier/class idea is the worst of the worst, what we need is a more united Europe not one split by a hundred things, we need to make this more like a single state not go the opposite way.

I completely agree it's extremely bad.

After 30 of being reunited, there's still a huge difference between Western and Eastern Germany. And it's the same nation. Then what they expect from eastern Europe and the Balkans? It's clearly a different pace, different mentality which has to be accepted, helped out and, if necessary, even awaited.

Imho getting workers from eastern Europe was good for both parts. This brings, on long term, back into those countries more of the western rigor and also forces increase of wages, improving the money flow that makes economies and services improve. On the other hand, two-speed and getting increasing numbers of Asian workers everywhere slows down (or even stops!) this attempt of evolution.

Maybe EU should learn from USA. The Americans managed to have so many states work together as a country. And we should even be smarter than needing a war for reaching that. But I'm afraid I have too high hopes and actually EU construction is doomed.

[FanEagle]

Obviously nations that are not doing well will sell their future for a better today, and that has always happened in history as well. Italy is amongst the nations known for not being good at all when it comes to finances, Italy, Spain, Portugal and mainly and mostly Greece which is horrible beyond measure.

However these nations will stay in EU and will keep ruining their situation for a very long time, which is the trouble EU has, there is nothing you can do to prevent another nation to do something because they are their own nation, whereas they are freely destroying your nation as well. Think about being a German, your nation is doing awesome but your money becomes less valuable just because other nations are dealing with it a lot worse, that is not something you would be happy about.

[pixie85]

I don't like what the EU is doing when it comes to trying to equalize countries when it comes to emission norms for cars, CO2, garbage disposal, use of GMO products, but failing every time to equalize wages and prices of goods and services.

How could the EU equalize the price for goods and how would this equalization work?
Do you want to pay the same prices for a hotel in Amsterdam as in Bucharest? Should Hungarians pay the same price on gas as the Dutch?
You're mistaken norms with taxes, for example, yes the EU has indeed emissions norms for cars but the taxes on cars are different from country to country. We don't have the same annual tax even in the same country what about the EU!

This is where the issue lies. I'm against equalization in any form.

If you don't want to pay for a hotel in Bucharest what people pay in Amsterdam, why should people in Bucharest, who have less clean energy than the Dutch and more coal-based power plants have the same CO2 emission limits?

Taxes are still different but I feel like they are increasing more rapidly in the Eastern Europe due to EU regulations.

[zasad@]

If I'm not confused, the biggest contributions to the EU budget were paid by Germany, France and Italy. In 4th place was England, but they were tired of it. It ended with Brexit
The European Union was created almost 28 years ago to address the problems of the time. Maybe Italy, too, think to follow the path of England.
3 strong economies will feed several dozen countries, how long will it take for the leading EU countries to get tired of it?

[stompix]

why should people in Bucharest, who have less clean energy than the Dutch and more coal-based power plants have the same CO2 emission limits?
Taxes are still different but I feel like they are increasing more rapidly in the Eastern Europe due to EU regulations.

The share of sustainably generated electricity in total Dutch electricity consumption was 13.8 percent in 2017
The structure of electricity production of Romania in 2019 was provided by 26.75% – hydro-energy 12.09% – wind power

You were saying?
Actually, the Netherlands lags behind a lot of countries when it comes to energy.

And if you want another mindblowing fact, dutch people drive a lot, their emissions per car owned are higher than France and the UK:

Maybe EU should learn from USA. The Americans managed to have so many states work together as a country. And we should even be smarter than needing a war for reaching that. But I'm afraid I have too high hopes and actually EU construction is doomed.

Even if we manage to copy the US model, which we probably won't, some countries will end up either with 1/2 of the average GDP per capita just like in the states, no form of Union will manage to keep people from going to a different city where there is a better payment and none will fill the gap without pissing so much the others that they will try another UE-exit.
As for the war, probably that's one of the problems, we have been at war for too long, we are more nationalists than the people in the states, we still have deep resentments for things that happened a century ago and I don't this one either going away soon.
 

[NeuroticFish]

Even if we manage to copy the US model, which we probably won't, some countries will end up either with 1/2 of the average GDP per capita just like in the states, no form of Union will manage to keep people from going to a different city where there is a better payment and none will fill the gap without pissing so much the others that they will try another UE-exit.

I agree, nobody would stop such migration. But in time - long time, probably decades - overall some sort of equalization will happen. Not completely, leaving those regions somewhat behind, but the difference won't be this big.

we are more nationalists than the people in the states, we still have deep resentments for things that happened a century ago and I don't this one either going away soon.

Here you do have a point. Although I agree it can be a problem, I don't think that's such a big one. In my country the people from certain regions don't like people from other regions or there are people that clearly hate certain national minorities. Still, overall, we all live in the same country and, although regrettable situations like in ex-Yugoslavia (and I mean more than just the war itself) could have happened, they didn't (or at least far from that extent).
So I guess that there's a big "depends" on whether those "deep resentments" (well said) are surmountable or not.

[Lucius]

If I'm not confused, the biggest contributions to the EU budget were paid by Germany, France and Italy. In 4th place was England, but they were tired of it. It ended with Brexit
The European Union was created almost 28 years ago to address the problems of the time. Maybe Italy, too, think to follow the path of England.
3 strong economies will feed several dozen countries, how long will it take for the leading EU countries to get tired of it?

To begin with, let me ask you how much is a fully trained doctor or scientist educated somewhere in the east of the EU worth to Germany or Italy? If we look from that perspective, then the most valuable commodities are actually the people the Western EU is crying out for (at least that was the case before this crisis). Money from those countries cannot pay for the damage they actually cause to those same countries - not to mention that their banks and companies like shopping malls make enormous profits that they send to their home countries, while at the same time creating low-paid jobs.

The EU was actually created much earlier, formally as early as 1958 (Belgium, France, Italy, Luxembourg, the Netherlands, West Germany), and what you are referring to is called Maastricht Treaty.