Draghi Admits EU May Breakup For First Time by Martin Armstrong
| January 25, 2017
For the first time, the
head of the European Central Bank, Mario Draghi, has conceded
the possibility that the EU may fall apart. Draghi came
out and said that any member leaving the Eurozone would
need to settle its claims or debts with the bloc’s payments
system before severing ties. This statement reveals the
heated discussion at Davos and the rift that is beginning
to spread. This statement, released on Friday, was made
in a letter to two Italian lawmakers in the European Parliament.
Sentiment in Italy is turning very anti-euro
and this view is beginning to emerge in other Eurozone states.
While they are blaming Britain, the real issue is the insane
management of austerity and negative interest rates. This
has created a massive depression in Europe and the unending
Quantitative Easing has destroyed the European bond market.
Whenever the ECB has to give up, interest rates will soar,
for private buyers will not be willing to risk it all when
the EU is clearly doomed.
Based on data to end-November, Draghi is
saying that Italy would have to pay €358.6 billion euro
to leave — an exit tax. What Draghi fails to comprehend
is that such demands will not keep the Eurozone together,
and are more likely to cause it to disintegrate and just
default on the ECB. Up until now, the very threat of defaults
on cross-border debts has tended to keep the Eurozone together
throughout the financial crisis. But pushing this too far
will lead to default.
Southern Europe, which are the weaker economies
including Italy, Spain, and Greece, have accumulated huge
liabilities to keep the euro afloat while Germany stands
out as the biggest creditor with net claims of €754.1 billion
euros. This alone may set off the massive capital flight
to the dollar. We are looking at the complete collapse of
the Quantitative Easing carried out by the ECB since 2008
without any success. This will cause Trump problems with
trade and currency, which he is not likely to understand.