Watch Italy and France overturn in EU austerity for aid relief deal against coronaviruses

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Big day on Thursday in the capital of the European Union, as EU leaders discuss the creation of a roughly 800 billion dollar Eurobond, christened for the first time “coronabonds” by Italians, to save the southern European countries hardest hit by the pandemic.

Relief will come. This is not the question. This will take the form of austerity for aid. Italy and France will renew and will have to accept it.

Tomorrow marks the second round of funding to finance a rescue plan for the euro zone. Former Greek finance minister Yanis Varoufakis recently hit the headlines when he said Italy and France should ask for a trillion dollars.

There is no enthusiasm for this in Germany and the Netherlands, whose elected officials do not wish to help finance the seaside days of the Côte d’Azur while their inhabitants toil in the factories.

Whispers from the market for months have been whether a failed deal would mean the end of the EU. This view has changed considerably. The EU will survive this.

This will only harm the EU if Italy does not count, and it will depend on whether the populist Northern League party of Matteo Salvini obtains a majority, then becomes Hungary in its own right, like Viktor Orban.

But there is no real background wave for this. The government is led by a coalition of former League partners, Five Star and the Democrats. They’re a strange couple. Democrats are mostly politicians from the left establishment. Five Star says it’s a national populist movement, much like former friends of the League.

This coalition has limited popular support. The EU can be viewed more favorably than these two. They have no conviction. No real plan other than declaring victim status. Italy will collapse in Brussels in austerity for aid. Taxes are going up. Take it or leave it, Roma.

Meanwhile, French President Emmanuel Macron said last week that the rescue plan was necessary. But that’s all. It is necessary, and it will happen, but it will come at a price. France, which seemed likely to support Italy, knows where its bread is buttered. They will go with Angela Merkel from Germany every day of the week.

The relationship between Germany and southern Europeans is like the parable of the ant and the grasshopper, says Sébastien Galy, chief macro strategist of Nordea Asset Management in Luxembourg.

“Why would the ant, who had worked all summer, help the grasshopper because it freezes in winter because it danced all summer? Just like the ant said, “So dance,” says Galy. “One side sees him as cruel, the other as rash. “

The southern states, led by Italy and France, are known for their social programs that allow people to get paid for doing nothing.

For them, if “we’re all in the same boat” – the new theme song for the coronavirus pandemic – then we all have to do our part. They have to reform their economies, which for the Germans means more like the northern Europeans.

The question becomes how to fundamentally transform old-school economies like Italy without allowing bad behavior.

“This is all EU political and reassuring. The important part for Italy is that the European Central Bank is currently a safety net, “said Galy, predicting that Italy’s growth after the pandemic will be between 0% and 1%.

Barclays said last week that Italy’s GDP is expected to contract by around 8% this year, the worst performance of any country suffering from the COVID-19 crisis.

That being the European Union, the Germans and the Netherlands will have to show that they care a little, so some sort of moderate positive action is expected by the market tomorrow.

Austerity for aid will prevail.

For the most part, the EU is poised to become a failed economy, with weaker growth expected in the recovery year 2021 than in the United States.

Over the past five years, the Vanguard FTSE Europe (VGK) exchange traded fund has lost 21.8% of its value while the Dow Jones Industrial Average has increased 27.3%.

As one investor recently told me about the EU relief litigation, “At this point, the British are all going to look back and say ‘Thank goodness we are out'”.

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