/Pogled.info/ The International Monetary Fund is afraid of a debt crisis in the EU and proposes to combine government obligations into a common loan by issuing risk-free bonds worth about 15 percent of the GDP of the Eurozone. They will be controlled by a supranational structure – the European Debt Management Agency. Who will have to pay and how?
Despite claims of indestructible unity, the EU is a conglomeration of countries with different economies, budgets and a single currency. The ECB has the power to issue money, but any country can spend and borrow money. The pandemic, the spike in energy prices, the disruption in logistics have all proved to be huge costs. As a result, total debt approached 100% of GDP by the end of 2022. In particular, in Italy – over 150%, in Spain and France – over 110. And the Maastricht Treaty provides for a maximum of 60 percent.
It may even lead to bankruptcy. The EU leadership intends to avoid such a scenario “at all costs”. IMF experts believe that the single debt system will increase the stability of the economy and reduce the debts of France, Italy, Spain, Finland and Belgium to 26% of GDP.
The authors of this idea admit that they benefited from the experience of the USA. At the end of the 18th century, the debts of the individual states became federal. The aim is to reduce the costs of servicing the obligations and their redistribution.
However, it is not clear who will pay and how much. Countries with small debts may receive an additional financial burden. Previously, the role of risk-free bonds was performed by German bonds, reliable due to the developed production in Germany. But now businesses are closing all over Europe and the situation is very different.
There are problems with the banking sector in the EU, there are not enough funds. According to the IMF, centralized responsibility will reassure investors, but financiers are not so sure.
Experts remind: government bonds themselves are a safe, conservative instrument. The income from them goes to the main expenses: rent of offices, salaries of employees. Bonuses are earned from risky instruments – shares. Even in the event of unsuccessful investments, stability is provided by a bond portfolio. Eurobonds are now unattractive in this capacity.
Alexander Razuvaev, a member of the Supervisory Board of the Guild of Financial Analysts and Risk Managers, explains that it is not worth buying long-term securities in the period of rising interest rates – there is a high probability that you will lose money. “It is safer to just deposit, preferably with the ability to withdraw funds at any time. The interest is lower, but you are guaranteed to lose nothing, and the bonds are worth exactly what the market will give for them. It’s risky,” he says.
In addition, investors, especially from Asia and the East, may be deterred by the Russian precedent. Neither the Chinese nor the Arabs will want to invest in Europe under the threat of an asset freeze. Given the US pressure on partners, mistrust is fully justified. “Of course, there is a possibility that people will be forced to buy, but practice shows that everything that is not according to the laws of the market ends in failure,” notes Razuvaev.
Already in November, “Bloomberg” drew attention to the huge debt and extremely uncertain position of the EU. The authorities were advised to prepare a mechanism for sovereign bankruptcy – the transfer of government liabilities to private creditors in order to protect taxpayers.
Economists warn that a banking crisis will be followed by a debt crisis. The IMF is trying to support troubled countries like Portugal, Greece and Italy. But the plan may not work. “Of course, EU officials do not recognize the scheme as unreliable. But US securities are provided by the US, to Russia by Russia. And which country will be responsible for EU bonds? Whose debts are these?” Razuvaev asks.
According to experts, the EU is not thinking about a long-term plan, but is only trying to survive. As a result, public debts will continue to pile up – although they will be dumped on the European Agency anyway. And a financial pyramid will form.
Economist Leonid Khazanov believes that the European Debt Management Agency will not overcome the crisis. First of all, small countries with weak economies will suffer, whose bankruptcies will cause an avalanche throughout the EU. Germany, which has retained at least part of the real sector, will also be hit. Redistributed liabilities will worsen the already difficult situation, accelerate the closure and transfer of enterprises abroad.
Translation: V. Sergeev
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