>>20655336
Wars are expensive
Canada #55 >>20641999
==Expect A Financial Crisis In Europe With France At The Epicenter
by Tyler Durden Thursday, Mar 28, 2024 Authored by Mike Shedlock via MishTalk.com
The EU never enforced its Growth and Stability Pact or Maastricht Treaty rules. The crisis is coming to a head with France and Italy in the spotlight. The first casualty will be Green policy.
'''Compliance Rules
1) Deficit rule: a country is compliant if (i) the budget balance of general government is equal or larger than -3% of GDP or, (ii) in case the -3% of GDP threshold is breached, the deviation remains small (max 0.5% of GDP) and limited to one year.
2) Debt rule: a country is compliant if the general government debt-to-GDP ratio is below 60% of GDP or if the excess above 60% of GDP has been declining by 1/20 on average over the past three years.
3) Structural balance rule: a country is compliant if (i) the structural budget balance of general government is at or above the medium-term objective (MTO) or, (ii) in case the MTO has not been reached yet, the annual improvement of the structural balance is equal or higher than 0.5% of GDP, or the remaining distance to the MTO is smaller than 0.5% of GDP.
4) Expenditure rule: a country is complaint if the annual rate of growth of primary government expenditure, net of discretionary revenue measures and one-offs, is at or below the 10-year average of the nominal rate of potential output growth minus the convergence margin necessary to ensure an adjustment of the structural budget deficit in line with the structural balance rule.
'''Deficit Disaster Zones
France and Italy are major disasters right now on the budget deficit rule. France has a budget deficit of 7 percent and Italy 5 percent.
France needs to reduce its deficit by a whopping 4 percent of GDP!
Neither Italy nor Greece should never have been allowed in the EMU (European Monetary Union – Eurozone) in the first place.
Greece has a debt-to-GDP ratio of 170 percent. The target is 60 percent.
But the lead chart tells the picture. Only the Scandinavian countries are in compliance.
'''Looser Rules Postpone the Crisis
On February 10, the EU agreed to Looser Fiscal Rules to Cut Debt, Boost Investments.
The latest revamp of two-decades-old rules known as the Stability and Growth Pact came after some EU countries racked up record high debt as they increased spending to help their economies recover from the pandemic, and as the bloc announced ambitious green, industrial and defense goals.
The revised rules allow countries with excessive borrowing to reduce their debt on average by 1% per year if it is above 90% of gross domestic product (GDP), and by 0.5% per year on average if the debt pile is between 60% and 90% of GDP.
Countries with a deficit above 3% of GDP are required to halve this to 1.5% during periods of growth, creating a safety buffer for tough times ahead.
Defense spending will be taken into account when the Commission assesses a country’s high deficit, a consideration triggered by Russia’s invasion of Ukraine.
The new rules give countries seven years, up from four previously, to cut debt and deficit starting from 2025.
Note that the EU can tweak enforcement but not the baseline Stability and Growth Pact targets themselves without unanimous agreement, and a new treaty.
'''Spotlight France
France has a budget deficit of 7 percent but wants to fund a European army to fight Russia.
How is that supposed to work?
'''Spotlight Green Fantasies
The EU has adopted ambitious Green policies that will cost much more money than has been budgeted.
How is that supposed to work?
'''Targets Won’t Be Met
You can take those Green targets and throw then into the ashcan of ideas that never should have been set in the first place.
Even if you give France 7 years to be deficit compliant, how is France supposed to cut back a whopping 4 percent of GDP?
'''What’s the Basic Problem?
Eurointelligence says “Technology is the main cause of the decline. Geopolitics is what accelerated it.”
Technology is not the problem. The Maastricht treaty that created the Eurozone is flawed. And it cannot be fixed without unanimous agreement.
Given productivity and work rule differences, one interest rate set by the ECB cannot serve Italy, France, Greece, and Germany.
Add to that, EU nannycrat rules. The EU is more interested in cracking down on Google (Now Alphabet GOOG), Apple (AAPL), Facebook (now Meta Platforms META), and Microsoft (MSFT) for alleged monopolies than developing anything.
The EU Is Dysfunctional
In a single word, the EU is dysfunctional. That’s the problem, not technology. The Maastricht treaty itself is a big part of the reason the EU is dysfunctional. The Euro itself, with one common interest rate, is fundamentally flawed.
Companies like Alphabet, Meta, Microsoft, and Apple could not exist in the EU because in the name of competition and diversity, the EU would kill them before they ever got big enough to matter.
EU rules make it impossible to fix the basic problem. So the EU has resorted to nannycrat rules to regulate US and Chinese companies instead of fixing anything.
Technology, including AI, and geopolitics is now accelerating the basic problem, the EU is dysfunctional by treaty. It’s showing up in polls everywhere.
More:
https://www.zerohedge.com/markets/expect-financial-crisis-europe-france-epicenter