Is It the End of the Euro? Countries Deadlocked Over Bailout Fund

The split is as old as the European Union.  Rich northern countries aren’t keen on bailing out spendthrift southern countries.  Only now the stakes are incredibly high.  With economies reeling because of the pandemic, Mediterranean countries like Italy and Greece are running on economic fumes with little tax revenue and an all-but-lost tourist season.  They need the northern nations to pony up for bailout funds to help them through, but northern nations don’t want to just give cash away.

As negotiations over a $2 trillion aid package entered the third day on Sunday, the two sides seemed as far apart as ever.

German leader Angela Merkel said:

“There is a lot of goodwill, but also many positions. I will make every effort but it is possible there is no result.”

France and Germany want aid to ailing countries to be at least 400 billion euros., while Austria, Sweden, Denmark and others want the aid to be capped at 150 billion euros.

Late on Saturday, she and French President Emmanuel Macron left the day’s final stretch of informal talks early, refusing to accept that the level of free grants to ailing economies in the package fall below 400 billion euros.

Part of the problem is that Britain left the group.  While the country wasn’t part of the euro area, it was part of the European Union, and would have participated in the bailout as a funder, not a receiver.  Now other countries have to bear more of the burden.

While this issue won’t cause the death of the euro, it could be the issue that eventually breaks up the currency union.  If countries like Italy can’t get relief, they can go back to their own currency and inflate away government debt.  It would be painful, but is it any worse than what they’re living through today?

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