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The European Commission said in its summer economic forecast, released in July, that the EU economy was expected to contract by 8.7 percent in 2020 as a result of the coronavirus pandemic, plunging the bloc into “a deep recession”. The worrying prediction came after the bloc reached an agreement for a recovery fund. Commission President Ursula von der Leyen presided over a deadlock regarding the bloc’s economic response to the coronavirus pandemic. The bloc only managed to reach an agreement two days later than anticipated after arduous negotiations.
Leaders reached a historic agreement for a £675billion coronavirus pandemic recovery fund on the summit’s fifth day after tense disagreement.
Dutch Prime Minister Mark Rutte had provided the strongest opposition to the plans on the table — which were said to have argued for a cap of £316billion worth of grants — preferring loans of strict conditions.
While the member states eventually reached a compromise, further economic challenges pose two potential outcomes according to historian David Marsh.
He told Express.co.uk: “Sometimes crises lead to people coming together more – there’s the old adage that Europe is ‘forged in crises’.
“But of course you can have a crisis too far, and some crises end in the whole thing – in this case monetary union – blowing up.
“I think both of these possibilities are out there, and it’s difficult to tell which one is more likely.
“There is a chance the whole thing will come to an end, because the legitimate demands of the southern states won’t be possible for the northern states to meet, which could conceivably lead to a southern state leaving.
“The Northern States could even depart as a bloc.”
However, Mr Marsh, author of ‘The Euro: The Politics of the New Global Currency’, believes it is more likely the bloc forms a “transfer union” which would see wealthier nations support the less economically stable neighbours.
However, the way in which this measure is implemented could have huge repercussions for the monetary union, he warned.
Mr Marsh continued: “I think this is slightly less likely though than the other option which is the bloc forms a transfer union.
“Of the two extreme options – a euro break up or a transfer union – both of those become more likely.
“The transfer union would be an expression of solidarity between the north and the south.
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“The big question however would be whether this transfer union comes in in a fully legitimate way, authorised by Parliament, and by treaty changes which would need referendums in some countries – or through the back door.
“At the moment, it looks as though it would come in through the back door – including through the massive bond buying programmes of the European Central Bank – which would not be good news for the long term solidarity within the monetary union.”
David Marsh is Chairman of the Official Monetary and Financial Institutions Forum, an independent think tank focused on banking, economic policy and public investment.
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