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Last week, France and Germany announced they are backing the creation of an EU bond to raise €500billion (£447billion) to boost the European economy, severely weakened by the COVID-19 pandemic. The two leaders, Emmanuel Macron and Angela Merkel, unveiled their proposal in a joint video press conference, but the measure has already raised objections in several member states. The Netherlands, Austria, Denmark and Sweden, known as the “Frugal Four” say they support the establishment of a one-off emergency fund but do not back debt sharing or a significant increase in the EU’s next seven-year budget.
The Netherlands, which has been at the forefront of a campaign not to “give gifts” to southern European countries, regards “mutualised debt” as a mortal danger because it would open the door to the dreaded Eurobonds – meaning Dutch taxpayers could become liable for Italian debt.
As tensions are set to rise in the incoming days, unearthed reports shed light on Mrs Merkel’s view on austerity measures.
The eurozone debt crisis was one of the world’s greatest threats in 2011, and in 2012, things arguably got worse.
The crisis started in 2009 when the world first realised that Greece could default on its debt.
In three years, it escalated into the potential for sovereign debt defaults from Portugal, Italy, Ireland, and Spain.
The EU, led by Germany, demanded or directly imposed austerity measures on several of its debt-ridden member states.
In 2013, though, Mrs Merkel found herself under fire from European partners and the centre-left opposition at home for continuing to insist that euro members had to “do their homework”.
Her frustration came to light when several European allies broke ranks and effectively declared the era of deficit reduction in Europe was over.
When asked whether southern European countries could take much more German-ordered austerity, the German Chancellor told her audience at a book presentation: “I call it balancing the budget.
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“Everyone else is using this term austerity.
“That makes it sound like something truly evil.”
Mrs Merkel’s comments came a few days after former European Commission President Jose Manuel Barroso said austerity had “reached its limits”.
Former German Foreign Minister Guido Westerwelle, speaking in Brussels, criticised the EU chief for making such comments and said: “We are convinced that if we give up on budget consolidation in Europe and return to the old approach of more and more debt, then we would cement mass-unemployment over a period of many years.”
In their defence, German officials pointed to data released by Eurostat, the EU statistical office, showing that government debt in the eurozone actually rose to 90.6 percent of gross domestic product (GDP) in 2012 from 87.3pc the year before.
However, the same report showed that the bloc-wide deficit as a percentage of GDP fell back to 3.7 percent last year, from 4.2 percent in 2011 and 6.2 percent in 2010.
The German government’s critics saw these figures, and the unrelenting downward spiral in southern Europe, as proof that consolidation had gone far enough.
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Despite many people arguing that austerity has ended, leading economist and former Greek Financial Minister Yanis Varoufakis argued it never has.
In a video posted on his YouTube channel DiEM25 in March, he said: “Don’t let anyone tell you that the 2008 crisis ended and that now you have a new one.
“That crisis never ended. It just moved in different forms, travelled from one continent to another.
“But nevertheless it has always been with us.
“The world never went back to some kind of equilibrium after 2008.
“What coronavirus has done, it has deepened and accelerated this never-ending non-stop crisis that began in 2008.”
Mr Varoufakis explained that the only reason why there has been a resemblance of recovery after 2011 is because central banks and governments took it upon themselves to reflect the financial markets.
He added: “They printed trillions and trillions of notes and threw them at the 0.1 percent at corporations that were already full of money. For example, Apple, Google and so on.
“They boosted inequality massively and stabilised financial markets. But at the same time, they depleted all serious investments in good quality jobs in labour, health, education.”
The expert noted: “This is why there has been so much discontent even before COVID-19 arrived on the scene.
“When coronavirus arrived on the scene it found a global capitalism that was sitting on a gigantic bubble of private debt that had been minted by central banks on behalf of financial capital.
“COVID-19 has pricked the bubble on which financial capitalism was sitting up until now.
“So even if the financial markets are eroded once more, the level of investment is going to be even lower than it was.”
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