During the long crisis that devastated the European Union since 2007, the acronym PIGS was coined to designate the southern European countries that suffered the most in that period. Who could imagine then that, a few years later, these economies would be leading, or almost, the growth of the EU (also Poland) while the two great colossi – Germany and France – were going to have a tough time…!
This is, apparently, the current reality. Portugalhas been well managed by even socialist governments, has greatly reduced its debt, is growing, and has been well regarded in the markets for some time. Greece It survived an explosive risk premium to now appear only a little (about 2 tenths) above the Spanish one. Italy It has been showing good growth for a few years (although later we will see that it is deceptive). AND Spain It is the large country in the EU with the highest current economic growth. All of these countries have benefited greatly from tourism and Next Generation funds.
On the contrary, we see how Germany languishes. With a recession that may not be able to leave in 2024 either. This country He lived off the cheap energy he got from Russia and its industry that was capable of exporting enormously to China. Now he suffers from both sides. Apart from the fact that his political instability does not help him at all. For its part, France It is suffering the consequences of its enormous level of public spending – a record above 50% of GDP – and the inability of its governments to implement an adequate economic policy. Your new prime minister Michel Barnier speaks of “colossal debt that puts them on the edge of the precipice” and has led to the risk premium reaching, and even at times exceeding, the Spanish one….
Something perhaps as surprising as this can also be found in the structure of the European banking system. Because, if we look at what they are the five EU banks with the highest market valuewe find that there are two Spaniards and two Italians among them. Who would have thought during the crisis! There are no Germans (the Deutsche Bankthe largest, is worth less than half of the Santander) and only one French. In other words, we could say that the PIGS also lead the banking sector. Beyond this circumstance, EU banks are less valued on the stock market than North American banks and are listed at low stock market ratios. And among the twenty largest global banks by market value there is no European one. This defines what we Europeans really are.
A union of capital markets, as proposed by the Draghi report, would be enormously positive to improve financing in Europe with a common European supervisor in the style of the ECB.
On the other hand, if someone had told us years ago that the most serious attempt at a pan-European bank would be carried out by an Italian entity attempting to acquire the second German bank, perhaps we would not have believed it either. The truth is that it would be good (although difficult) for this operation to succeed now and begin the path towards a true European banking union. Although it does not seem that such an idea will come to fruition soon due to the opposition of frugal countries, which do not want a common guarantee fund. A union of the capital markets, as proposed in the report, would also be enormously positive. Draghito improve financing in Europe with a common European supervisor in the style of the ECB. I would not be very optimistic that it will be carried out. The same occurs with other proposals in that study such as investing an additional 800,000 million annually. In this case, its financing, at least in part, with Eurobonds would imply a huge increase in common debt, which makes the Nordic countries turn their noses up (although it pleases the bigots like our government).
Neither in Italy nor in Spain can we expect much sustainability in growth. The current leadership of these countries seems rather ephemeral
The truth is that Europe does not inspire much confidence in me if its two main economies are side by side. If the countries of the North prevent the application of initiatives that could be very positive to improve innovation, productivity and competitiveness. If we do not seek private investment, based on less regulation, less coercion from Brussels and more economic freedom.
Furthermore, we cannot expect too much from Italy and Spain, which, in reality, are only disguising their real state and applying remedies that do not have much potential beyond the short term. Apart from that tourism cannot continue to grow unlimitedly. And, in reality, Italy has a public debt that is close to 140% of GDP and a fiscal deficit driven by the “superbono” (energy and façade reforms in buildings with enormous tax deductions), which will have to be reduced quickly. And, in Spain, the Government boasts that we are going like a rocket. But it is laughable to call that a growth that the Executive fuels based on public spendingwhich shows a level of public debt similar to what the French call a “precipice”, which fails to increase per capita income (there are more immigrants) and which keeps us at the top of the European misery index. Neither in Italy nor in Spain can we expect much sustainability in growth.
So the current leadership of these countries seems rather ephemeral. And, of course, we cannot be very optimistic about the European economy if other countries do not improve and the structures of the EU do not change significantly, in line with the reports. Letta and Draghi.
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