Why we need to save the southern countries

There are certainly a whole host of reasons why countries such as Italy, Spain and France have been hit so hard by the coronavirus crisis. The austerity measures, which also affected healthcare systems as a result of the 2008 financial crisis, are certainly one of these reasons.

Irrespective of this, politicians and civil society have been grappling for months with the question of how the economies of these countries can be brought back on track in the near future. And not just when the corona crisis is over at some point. After all, it is in our own interest that these countries do not suffocate under their debt burden. France is the world’s second largest partner for goods exports from Germany, with Italy in sixth place and Spain in twelfth. In terms of imports, these three countries are also among the top twelve. A permanent recession in these countries would therefore have an incalculable impact on the German economy.

The nature of this bailout, on the other hand, is open to debate. After all, the heads of state did nothing else at this week’s EU summit. The agreement reached in Brussels takes into account many of the wishes of fiscally conservative countries such as Austria, Sweden, Denmark and the Netherlands. However, the heads of government of Italy and Spain are also satisfied with the result. A classic compromise. But not a great success. I openly admit: I didn’t expect more in this situation. After all, a quick arrangement had to be reached in order to cushion the effects of the global recession. The ability to act shown by the negotiating groups is to be praised first of all. However, the various privileges with which this agreement was bought will have to be discussed in the future.

No matter how you look at it: The fact that the EU is taking on debt for the loan-financed subsidies of 390 billion euros for economically ailing states is a turning point for the Community. As the EU takes out these loans, in the absolute extreme case of a state insolvency, no member state has to bear the full cost of the default. Each member state only bears the risk up to the amount it contributes to the EU budget. This type of common debt could serve as a model.

Equally noteworthy is the fact that the money from the reconstruction fund will only flow if the affected countries submit concrete plans on how they intend to use the money and the EU Commission approves these proposals. Governments must also achieve defined interim targets in order to receive the next tranche of payments. Incidentally, climate protection and digitalization projects are mandatory!

I think that these signals will also take the wind out of the sails of financial speculators, who have probably already bet on the further decline of the southern countries.

One radical measure could not be implemented in this compromise: a haircut. For the lenders, this sounds dramatic at first. But let’s be honest: who really expects highly indebted countries to be able to repay their loans at some point? Zeroing their debts, on the other hand, would give these countries financial leeway to get their severely ailing economies back on track – and thus secure important trading partners for Germany.