Ten years after the financial crisis, Europe’s economy achieved a recovery, but not a revival. Low inflation, low interest rates and low growth were the new normal across the continent. Then, the coronavirus pandemic hit, causing incredible damage to the economies of numerous countries.
Covid-19 plunged the eurozone into its deepest recession for a generation and the economy is expected to shrink again at the start of this year.
Analysts at banks including JPMorgan Chase & Co. and UBS Group AG are downgrading forecasts to account for renewed lockdowns and the prospect that the new coronavirus variant ravaging the UK will do the same on the continent.
Add vaccination delays to trade disruptions because of Brexit, and the scene is set for a second quarter of falling gross domestic product.
That would echo the downturn at the start of 2020, even if less severe, and increase pressure on indebted governments and the European Central Bank, which meets to set policy next week, to provide more financial support.
The outbreak is expected to push debt as a percentage of GDP up to 200 percent in Greece – the second highest in the world – 158 percent in Italy and 120 percent in Spain.
Amid fears the eurozone might not be able to survive, a speech by former Greek Finance minister Yanis Varoufakis has resurfaced.
The economist and former politician argued that the Bundesbank, the German Federal Bank, already has a plan for when the debt of other eurozone countries will become too much.
In a 2018 debate at the Oxford Union, the ex-Greek minister said: “The euro will break up, if it breaks up, I am not wishing that it does, I am simply describing the future as I see it.
“The way it will happen is that Germany will leave the euro once the Berlin political class has had enough of the riff raff, asking the Greeks, the Italians, the French, the Portuguese and so on.
“The moment they start sniffing in the wind that possibility they might have to bail out 2.7 trillion euros of Italian debt, believe you me, the Bundesbank already has a plan in the drawer for printing Deutsche Marks.”
Mr Varoufakis then explained what will happen after is that all German accounts will be redenominated from euros to Deutsche Marks immediately, as Germany has a “gigantic account surplus”.