If I had to attribute my entry onto the political stage to any individuals, it would be Mark Carney, George Osborne and Theresa May. Not because I was inspired by any of them but as a result, in the case Mrs. May, of her total ineptitude over Brexit and, in the case of the first two, the inordinate amount of nonsense they spouted in the run-up to and following the referendum with their absurd Project Fear. I was horrified by the falsity of the varied and serious ills they forecast would plague the UK if we simply voted to leave the EU in 2016. I engaged, for the first time in my life, in writing numerous letters to the press pointing out how daft their claims were. Little did I know that Project Fear would continue for the following three and a half years. Thankfully the irrational fear of Brexit has now all but gone but not before it did serious damage to the democratic process in our country, condemned us to a protracted period of uncertainty and divided our nation.
One of the other consequences of Project Fear was that it forced the peoples of the UK, our political class and our media to focus relentlessly on the weaknesses of our own economy and constitution. That in turn tremendously weakened our hand in negotiations with the EU. It also all but removed scrutiny of the EU itself. There has been close to no light shone on the malignant sickness in the Eurozone's economy. There may be a general awareness that things are not particularly well in the Eurozone but the size of the problem is not appreciated. Indeed it is so sick that Covid-19 does not only present a threat to life on the mainland, it may also be the EU's death knell.
In a sense the ills of the zone can be assessed by one metric: the fact that interest rates are firmly in negative territory and have been for almost a decade. Interest rates are a bit like the heart rate of a person. Very high rates suggest an impending heart attack; and very low rates suggest impending heart failure. The Eurozone's economy is at risk of failing.
But if this metric does not paint a clear enough picture consider the following:
In an attempt to combat the ill effects of the credit crunch, the ECB has undertaken more quantitative easing by way of bond purchases than any other central bank in the World, including the Federal Reserve. In absolute monetary terms it owns some $5.5 trillion worth of debt, representing 40% of the GDP of the Eurozone vs. $5 trillion owned by the Fed, representing some 25% of the GDP of the USA.
The ECB has in effect come to the end of its ability to impart any further monetary stimulus for the real economies of the zone. That is why it has been unable to cut interest rates to ward off the ill economic impact of Covid-19. The Fed last week cut interest rates by 1% and the Bank of England cut interest rates by 0.5% but all the ECB could do is commit to printing even more money, €750 billion of it, to continue buying Eurozone bonds (both government and corporate bonds). This will not assist the real economy and like QE before it will largely serve to keep the banks afloat who will likely hoard the cash. In the meantime the ECB will continue to maintain the dubious honour of being the most leveraged central bank in the World.
Coupled with this, is the already huge amount of debt carried by the governments of member states of the Eurozone. In the case of Greece government debt is at 180% of GDP; Italy is 130%; Spain and France are at 100%; with Germany at 65% - all in breach of the Growth and Stability Pact which provides for a maximum debt level of 60% of GDP. Forced to respond to Covid-19 member state governments are now undertaking significant fiscal stimulus. This is going to jack up debt to levels never before experienced in the developed world.
To make matters worse, before the onset of Covid-19, GDP growth rates across the zone were flat lining with France and Germany close to recession. The measures taken to isolate their countries in order to fight Covid-19 has no doubt pushed them into recession, probably deep ones. Without monetary headroom and with the fiscal stimulus now being imparted, there can be no outcome other than to render these countries technically and probably actually bankrupt. EU member states are fast heading for a credit crunch unparalleled in history. The only way out is likely to be an ejection of the Euro and the end of the EU project. Covid-19 would go down in history for more than just its huge epidemiological effects.