Angela Merkel and Germany have realized that the imbalance between the north and south of Europe threatens the existence of the euro and have made a U-turn on approving the French ideas and a joint European debt issuance.
It is the beginning of the political and economic union – brought to us through the back door, while most of Europe only had eyes for COVID-19.
In the short term, this is good news for the stability of financial markets in Europe but longer term, the question is whether joint debt issuance might become the new platform for populist parties in the North.
These are interesting times for Europe. The next six months will be a milestone for whether COVID-19 will accelerate the fragmentation of the EU or the virus will make the federalists’ dream of a common fiscal union come true.
COVID-19 threatens to break the monetary union. The pandemic has, with surgical precision, highlighted the euro area’s biggest problem, namely the imbalance between the north and south of Europe and the lack of a fiscal superstructure of the monetary union, which has been the Achilles heel of all EU cooperation since the beginning of the euro 20 years ago.