EU ON BRINK: Eurozone faces repeat of 2011 meltdown and THIS is why
THE European Union faces a repeat of the 2011 eurozone crisis, thanks to the looming EU trade war with the US and new government in Italy, with current conditions nearly mirroring the events leading up to the financial meltdown, a leading economist has warned.
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The bloc focused on immigration and Brexit at the most recent EU summit, but Europe’s real threat stands somewhere else, according to Lorenzo Codogno, macroeconomist and former general director at the Treasury Department of the Italian Ministry of Economy.
Mr Codogno said the eurozone is facing three factors similar to those that triggered a sharp acceleration of the government bond crisis in Europe during the summer of 2011, causing the European debt crisis.
In the run-up to the crackdown of several financial institutions within the EU during that year, the bloc saw private investors actively involved with Greece’s economy to lighten the country’s debt burden, a process that became known as Private Sector Involvement (PSI).
During the same year, Italy’s government led by Silvio Berlusconi wanted to introduce a hefty reform of the pension system.
All ingredients seem to be present this time around as well
In July 2011 expectations about global financial growth were not met after the US issued non-farm payroll figures, blasted as “awful” by Mr Codogno.
Seven years later, Mr Codogno says similar issues have arisen within the eurozone during the last months.
Mr Codogno said: “All ingredients seem to be present this time around as well.”
Speaking about the situation in Greece, he said: “Instead of the PSI, there is the idea of preliminary restructuring before any European Stability Mechanism (ESM) assistance if the debt is deemed as not sustainable.”
The ESM is an intergovernmental organisation which covers financial bailouts.
Speaking about the month-old Italian government, Mr Codogno warned: “There are plenty of bad policies potentially about to be introduced in Italy.”
Among the reforms announced by Rome are the costly flat tax and the institution of a basic income.
Mr Codogno fears the trade war between the US and the EU may lead to a catastrophic outcome.
He said: “The global economic outlook still looks fine, but ongoing trade tensions and the US over-extended economic expansion combined with rising interest rates may well soon project a turn in global growth.”
The European debt crisis had its root in the global crisis that started in the US in 2008.
In 2011 the crisis peaked, when five of the bloc's countries - Italy, Greece, Spain, Ireland and Portugal - failed to generate enough economic growth, risking an economic default.
And in October 2011, the then-head of the Bank of England Sir Mervyn King referred to it as "the most serious financial crisis at least since the 1930s, if not ever".