The news sometimes has a strange sense of irony. Thursday, July 21, the resignation of the Italian chairman of the board, Mario Draghi, revived the painful memory of the sovereign debt crisis in the euro zone. The one that, ten years earlier, almost to the day, this same Mario Draghi, then President of the European Central Bank (ECB), had helped to extinguish.
During a speech in London that had made an impression on the financial world, on July 26, 2012, the Italian had promised that he would do “whatever it takes” (“whatever it takes”, in English) to save the euro, cutting short the speculation then unleashed on the debts of the most fragile countries.
Hit by new major difficulties – inflation, shortages, war in Ukraine – is the monetary union today more solid than it was then? Is it in danger of sinking once again into a speculative and self-fulfilling spiral against the Member States considered to be its weak links, starting with Italy? “The current turmoil is once again highlighting structural weaknesses in the eurozone, complicating ECB action”summarizes Eric Dor, economist at Iéseg, a business school.
In fact, the level of public debt is significantly higher than before the previous crisis. At the start of 2022, that of the euro zone peaked on average at 95.6% of gross domestic product (GDP), against 66.7% in 2007, according to Eurostat. It now exceeds 150% of GDP in Italy (103.9% in 2007), 114.4% in France (64.5%), 117.7% in Spain (35.8%) and 190% in Greece (103%). Problem: the increase in key rates initiated by the ECB on Thursday, July 21, in an attempt to curb inflation will increase the rates at which governments borrow. This will limit their room for manoeuvre, while the protection of purchasing power in the face of soaring prices, like the necessary ecological transition, will require new public spending and investment in the coming months.
“More pragmatic and responsive”
But in many other respects, the eurozone is doing better. Employment has picked up. Its banking system is healthier. Household indebtedness has decreased in most States, in particular due to better supervision of mortgage loans. Also according to Eurostat, the debt of Spanish households has fallen from 81.6% to 58.4% of GDP since 2012, that of the Portuguese from 90.5% to 68.1% and that of the Irish, from 98.3%. at 35.9%. France is an exception, with an increase of 55.1% to 67% of GDP.
You have 38.11% of this article left to read. The following is for subscribers only.