As the Prime minister of Poland Mr Donald Tusk has stated, “ we must believe we are global power and achieve defense independence”. He continued saying that we are a Union of 27 states with 450 million citizens asking for military protection from the USA with a population of 250 million from the threat of Russia with a population of 130 million. He pointed out that, together with Ukraine, Europe has 2.6 million soldiers compared to 1.3 million in the US and 1.1 million in Russia, as well as more fighter jets, according to data from the International Institute for Strategic Studies. Indeed, more investments need to be made and here is where the REARM program announced from Mrs Ursula Von der Lien comes.
The second Trump administration from an expected nightmare may well serve as a wake-up call for EU, calling for a faster pace towards its actual unification, both in terms of defense and also the economy. When these two pillars come into place then the foreign policy unification will become a better and faster outcome in the slow decision making process of Brussels.
On the economy side, today we face in Europe the following paradox, a common currency on the one side but with 20 different sovereign ratings on the other. If we take Germany as an example, a clearly export oriented country, takes advantage of the current Euro valuation since it is weaker than its previous currency the German Mark. The reason is that the Euro reflects in its value all the economies of the Eurozone and therefore is valued at a lower (cheaper) level than the German mark itself. That has as a result for Germany to benefit in its exports since these have become cheaper and more attractive than in the German mark era which has as a result this country to observe budget surpluses and economic growth. On the other hand this does not hold true to the cost of borrowing since every Euro zone member country is rated on its own. Germany therefore pays less when it borrows while Greece, Cyprus, Spain and Italy pay much more and yet they both share a common currency. A true financial paradox! Now with Trump threatening tariff policy it may be a perfect time where Germany may well think more in a common economic policy rather than exploiting the benefits of the weaker Europe.
What must be done then? One solution would be to issue a common bond, the Eurobond, which would allow all Eurozone countries to borrow on a lower interest rate. This suggestion is, at the moment, rejected by Germany because it considers that in such a scenario it will lose its AAA rating that it enjoys along with low borrowing rates. A second solution would be to transfer surpluses from Germany to other weaker countries in forms of direct investment, in order to stimulate growth and create jobs. This of course is not an immediate action since the rest of weaker nations need to put on the right track their public finances and offer a stable economic and political environment to foreign investors. The best formula needs to be agreed upon for both the short and long term environment.
Germany even now at the latest stage, must take the necessary decisions and accept that the common path into the future is preferred than that of standalone stance by demanding now or never the amendment of treaties rather than dealing immediately with the real problems that the Eurozone is facing. In case Germany chooses not to take a more active and decisive position then it will also endanger itself from a possible collapse of the Eurozone and even the EU. They must give their real stigma on this crisis management and convince us all that we are looking into a better and fitter new European Union, a union with more financial and political cohesion, but also having in place a more unified fiscal and investment strategy. All of these of course need time to come into reality and the EU and especially Germany must act now!
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
