Europe of solidarity and understanding that we wanted and expected proved an illusion. As an example was the way Cyprus was treated in 2013, and the punishing and hard Memoranda that were imposed since 2010 on Greece. Within this whole environment we saw the burden of the refugee crisis to be distributed disproportionately to Greece and Italy, while other European countries turned their backs to this humanitarian issue and some of them even decided to close their borders. Solidarity and understanding gave way to populism which in turn fostered the uprising of nationalist tendencies. As a result of these was saw the BREXIT and the strengthening of nationalist parties such as the one of Mrs. Marie Le Pen in France, while the same holds true in the USA, Greece, Italy, Holland, Germany and in Austria.
Although the participation in the Euro zone is beneficial for all countries, on the other hand we cannot overlook the weaknesses in its structure. We have a common currency between 19 countries but with 19 different financial ratings. For example Germany, a net exporting country, benefits from the euro because it is undervalued if compared to its previous currency, the Deutche Mark. The reason is that the euro reflects the value of all the eurozone economies and therefore is cheaper than the mark. The Euro adoption is positive for Germany since it can benefit from its cheaper exports and as a result the country has a trade surplus. This is not the case with the borrowing costs since each country is assessed separately. Germany therefore pays less when borrowing while Greece, Italy and other countries of the South, pay much more, and yet they share the same currency. Additionally because of the risk difference in each country we see the deposits of the southern countries to flee to those in the north. This cannot be considered as healthy competition but an exploitation of the economic model of the euro. What should be done then? But of course, Europe needs to follow the path to understanding and solidarity. Greece and Italy should receive better treatment in the refugee problem (financially and with technical personnel). Also another recommendation is to issue European wide bonds, the Eurobond, which would allow countries such as Greece, Italy, Spain, Portugal to borrow at lower interest rates. This suggestion is opposed by Germany because it considers that it will lose its AAA rating that it has today and the lower cost of borrowing.
As a conclusion, the adherence to the above policy indicates that Europe is not ready to take collective decisions on very important issues and allows the situation to get out of control before it takes any action. The euro is not yet shielded and passes through the most difficult phase of its life. Germany should take the necessary decisions and understand that a single European path is preferred rather than distancing itself from the problems Europe faces. In case it continues to follow its own interest policy it may endanger even itself from a probable economic collapse of Europe. Germany must set the tone, as the biggest economy in Europe and convince the rest of the EU members that now we can look forward to a new and better Europe. A Europe with greater economic and political cohesion and more integrated fiscal and investment strategy, with more understanding and solidarity with the southern countries. Before we face any negative repercussions from any new USA tax regime we should proceed with an inner economic and not only transformation which will allow the European Union more capable in dealing with any exogenous threats.
Haris Stavrinides MBA Distinction, MSc Finance
Founder and Partner at OSYS Global Corporate Consultants (www.osysglobal.com), a corporate advisory firm to international business companies with specialization on Financial Services structures
Email: haris@osysglobal.com
