‘German eurozone exit what Berlin and bloc needs’
The ECB’s move to cut refinancing rates to a new record low will not solve the eurozone’s problems, believes Robert Oulds, chairman of the Bruges Group. A radical change of policy within the EU is needed to bring about economic growth, he told RT.
The European Central Bank (ECB) cut its refinancing interest
rate to 0.50 per cent on Thursday, in a bid to kick-start the
bloc’s sluggish economy.
The anticipated cut from 0.75% was the first since July last year,
and came on the back of a raft of poor economic news in the
17-member eurozone. Figures released earlier this week showed
unemployment in the area at an all-time high, inflation at a
three-year low, and manufacturing declining in April.
RT:What does this interest rate cut actually mean for
the Eurozone? Who does it help?
Robert Oulds: It won’t really make much difference at all. Of
course we’re seeing the limitations of monetary policy which has
been pushed as far as it possibly can, by having interest rates at
0.5%. What it will help is German exports to outside of the
Eurozone, particularly to China because there will be some
depreciation of the Euro. But of course within the Eurozone there
won’t be any change because they have one currency. So it won’t
actually help the economies of southern Europe, particularly Spain,
Portugal, Ireland, Italy, and Greece, which we can all pound
together as countries that are struggling as a result of being in
the EU single currency. France is also suffering economically and
has, unemployment rising. And we’re seeing a separation between the
French and German economies. So cutting interest rates by this
small amount won’t actually make much difference. We need a radical
change of policy within the EU to bring about economic growth.
RT:You’ve been saying that for a long time. It’s not
happening though, is it?
RO: Well, eventually it will be forced to happen and the
euro will collapse. There’s only so much money that can be
continually lent to countries like Spain or countries like Italy,
which is in a deep recession as well. Of course those countries are
too big to be bailed out and of course there will be a capital
flight as difficulties continue because investors will be afraid
there will be another Cyprus situation happening in other countries
and because we’ve already been told that’s going to be the template
for future financial rescues of banks and other financial
institutions within the Eurozone so eventually, there will have to
be a breakup of the euro. That’s the only way to restore economic
growth. It’s the only way to get people back to work…if the
Deutsche Mark were to be returned, that would increase in value and
that would help the disparities within the Eurozone which has been
created largely by the currency so there needs to be a radical
change. Otherwise, unemployment will just keep on going up.
RT:The ECB chief warned indebted countries against
'unraveling' their austerity policies. But no one said it was going
to be easy. Don't they have to take the medicine they signed up
to?
RO: There is beginning a bit of a revolt within the EU
against austerity. It doesn’t actually help. It’s actually creating
a worse situation where the economies can’t grow and they can’t
deal with the long-term debts that they have because there isn’t
the tax revenue coming in – it’s actually declining.
RT:Does the ECB chief's comment mean that some countries
are getting ready to jump?
RO: I think Italy is one to watch. That is a domino that
will eventually fall. They’re in a recession and of course the
Italians are beginning to get very fed up. There’s mutterings, and
as we’ve seen in the recent elections, people are willing to take
radical measures and vote for new parties because they’re fed up
with the same old establishment parties that have one answer to the
problem: austerity. But that of course just creates unemployment.
So Spain and Italy are really the ones to watch and perhaps even
France in the long-term.
RT:Manufacturing shrank across the EU in April - even in
Germany, the bloc's biggest and strongest economy, it contracted
for the second month. Why is the EU's most-powerful member now
having trouble?
RO: Potentially, because the German economy has relied a lot
on exports to other Eurozone states. It’s benefited in the short
term from the single currency. But as countries’ economies dry up,
the purchasing power in them will of course cease and they won’t be
able to afford the German exports any longer. So in the long run,
it will damage the German economy because there will be no one in
Europe who will be able to buy their cars and their manufactured
items. Some Germans are already beginning to recognize this.
Professor Bernd Lucke in Germany who has established a political
party is saying that Germany should leave the euro because it’s
unbalancing the whole single currency. A strong economy like
Germany being at the center of the Eurozone and of course in the
long run it will actually help the German economy by exiting,
because it will allow the other countries in the Eurozone to grow
again, and then they’ll be able to afford to buy the German
exports. So in the long run, it will actually be in Germany’s
interest to exit the single currency because at the moment it’s
just destroying everybody else.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.