A debt repayment struggle of 11 trillion euros looms in Europe


The period from the beginning of this year until today was not ideal for the eurozone economy, as the increase in the numbers of Coronavirus infections led to the continuation of the closure policies, or the adoption of new strict policies to confront the epidemic.
The closure weakened economic activity and created expectations that most of its economic indicators will not be positive in the first quarter of this year, so it is likely that the recovery of the eurozone economy will take longer than most experts expected, and the recovery may be delayed until the governments and the 19 countries in the region succeed in controlling the virus or reach Vaccine vaccination rates are safe levels that allow economic activity to resume.
It can be said when evaluating the performance of the economies of the eurozone countries that it is largely a mixed performance. According to the Organization for Economic Cooperation and Development, the Spanish economy was the most affected last year, and the gross domestic product shrank by about 12 percent, while in France and Italy, the rate of economic decline reached 9.1 percent, while Germany saw a contraction of 5.5 percent.
The marked discrepancy is due to several factors. Some countries, such as Spain and Italy, were affected more by the epidemic than other countries, and as a result they entered a longer and more stringent lockdown process in the first wave. Sectoral factors also played an important role, as countries that depend on tourism suffered more. Than others, industrialized countries such as Germany were less affected.Al-Eqtisadiah polled the views of a number of economic experts about the eurozone economy and the most prominent challenges that the region will face in 2021, and can these challenges reshape the eurozone again? Perhaps the point of consensus among the experts whom the Economist met, is based on the fact that whatever the level of economic performance of the eurozone during this year, the debt issue will represent the most prominent challenge for most if not all of the region’s governments without exception.
Albert Scott, a consultant in a number of economic expertise houses, including Capital Economics, believes that the legacy of the Corona virus and its impact on Europe’s public finances will continue for a long time even after the end of the epidemic, noting that the outbreak of the Corona virus and the huge numbers of infections and victims forced the euro countries to abandon spending restrictions And borrowing, which will make it and other advanced economies struggle with a heavy debt crisis during this year and a number of years to come.
Scott says, “The Corona epidemic has increased debts to more than 100 percent of GDP in many eurozone countries, and the region’s total debt is approaching 11 trillion euros, and this situation has prompted the European Commission for the first time to borrow from the markets through the recovery fund at the value of 750 billion euros, to provide grants and loans to member states. “
And Albert Scott promises that once the Corona storm subsides, the eurozone will witness an intense struggle over how to pay off its debts, as raising taxes will put living pressure on the population and may hinder relatively economic recovery, and the financial rules of the European Union, which require governments to keep the fiscal deficit lower. Of 3 percent of GDP and total debt less than 60 percent of GDP, it has been on hold since the outbreak of the pandemic.
It is no longer a realistic goal in light of the current rates of indebtedness, and therefore, activating it as soon as the crisis ends will trigger a crisis between the countries of the European single currency, especially with the change of the political leadership in Germany and the departure of German Chancellor Angela Merkel at the end of the year from her post, and the conflict will center between the Germans and the Dutch on the one hand. , Who will demand strict economic policies, and the French, Italians and Greeks, who will demand gradual and flexible measures to deal with the debt crisis.
Concern over the worsening debt crisis in the euro area was not the only challenge that experts pointed out, as many believe that the situation may be foggy, especially in the last quarter of this year, with the departure of the German chancellor from power after 15 years in which she led the largest economy European.
“The formation of the German government after the departure of Angela Merkel is a decisive matter not only for Germany, but for the eurozone and the European Union, as Germany is expected to move away from the moderate trends adopted by Merkel, and to adopt economic positions,” she told “Economist” Amy Merky, a professor of macroeconomics at the University of Cambridge. More conservative, and this will reflect on Europe as a whole. “
Of course, she added, the German economy will continue to maintain its position as the strongest European economy, and will play the role of locomotive for the European Union and the Eurozone, but it will lose much of its dynamism, as a result of the cumulative pressures during 2020, in addition to that, if the new German leadership is more ambitious towards European integration, it can be witnessed. The European Union and the Eurozone further internal division, in light of the opposition of many Yemeni political currents to strengthening European integration.
Eric Cabaldi, an expert in European economics and a researcher at the Organization for Economic Cooperation and Development, does not deny the importance of political changes in Germany in determining the course of the European economy in general, and in the eurozone specifically this year, and he describes this as a shock in the heart considering that Germany is the beating heart of Europe. The German institutions are well established, and the German economy is capable of absorbing a large amount of shocks, which it may suffer with the least degree of losses. Therefore, he believes that Europe’s crisis does not lie in the heart, but rather in the “periphery.”
“It is the European parties that are already suffering from a severe economic crisis, and the roots of the crisis go back to the stage before the outbreak of the Corona epidemic, and the epidemic exacerbated the crisis and exacerbated it,” Kapaldi added.
He added, “The biggest challenge that the eurozone will face this year and the next three years may lie in the inability of the heart” Germany “to continue pumping more new blood in the form of aid, loans and direct investments to the states parties.
Indeed, the circle of parties is not only in the geographical sense, but also the economic is exacerbating in the eurozone, political volatility in Spain and high levels of debt make Spain tend to join Italy to occupy with it at the bottom of the economic performance tables, as the ruling political coalition is fragile, and the unemployment rate has reached 16 per cent. The outbreak of the epidemic has exacerbated already existing tensions between the central government and the regions.
In fact, the plight of the eurozone is not evident in a country as it was in Greece. Most of the expectations indicated that this year will be a year of economic recovery, especially under a government that defends the business sector. However, the Greek government’s plans to increase the rate of GDP growth through Attracting foreign investment, reducing red tape and cutting taxes, all went unheeded with the Corona epidemic, which dealt a crushing blow to the tourism sector.
The banking situation was complicated and weakened by the rise in non-performing loans, and yet investment expert Liam Smith believes that the challenges of 2021 for the euro area do not deny that there are a set of factors that can change the general direction or at least weaken the severity of these challenges.
He says: Contrary to the gloomy expectations, global trade has recovered very quickly and global supply chains have returned after being stopped in the first wave of infection, and the rapid return of international trade supports the export-oriented eurozone economy, thus increasing its ability to deal with the debt crisis.
According to data released by the European Central Bank, international trade took about two years after the 2007-2008 financial crisis to approach its pre-crisis level, but in the current crisis it took only nine months to recover.
In fact, a number of experts believe that despite the risks posed by the debt crisis in the euro area, economic hardships in the periphery states, and potential shocks in the “heart”, the high consumer savings rates, which reached 19 percent last year compared to 13 Percent of 2019, and the return of the economic recovery to China represents a lifeline to the economies of the European single currency.
Households in the 19 countries in the region also succeeded in saving an estimated $ 450 billion last year, compared to 2019, and it is expected that these savings will be pumped back into national economies during this year with the end of the closure policies, which leads to a significant boost to consumer spending, and thus the growth of GDP this year.


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