Germany’s policies in Europe could spark the Eurozone to collapse, as government debt and bailout regulations put the euro and those countries who use it on the brink of a total economic meltdown.
A special advisor to the German government, Professor Peter Bofinger, has predicted that Spain and Italy will be forced to leave the euro in the immediate future because of Germany’s new rules.
Under the proposed scheme, investors who hold Eurozone government-issued debts through bonds would have to accept write-offs on the value of their investment before the group steps in to offer bailout cash.
Professor Bofinger believes the move could cause a “bond crisis” where investors dump debts in countries such as Italy, Spain and Portugal, for fears that they could have to accept the write downs, sending the cost of borrowing sky-high.
He told the Telegraph: “It is the fastest way to break up the eurozone.
“A speculative attack could come very fast. If I were a politician in Italy and I was confronted by this sort of insolvency risk I would want to go back to my own currency as fast as possible, because that is the only way to avoid going bankrupt.”
The scheme would potentially halt the need for billions of German cash to bail-out countries with huge debts in the future, and the German Council of Economic Advisors is largely in favour of the policy.
It comes as debts in Italy, Portugal and Spain look ever more worrying.
Portugal government borrowing costs have recently jumped back to increasingly high levels, triggering worries it could soon need another eurozone bailout.
Professor Bofinger also believes that the eurozone is more crisis-prone because of the way it was set up.
He recently wrote: “The hybrid nature of the EZ is a major source for its dismal economic performance.
“It exposes its members to an insolvency risk which is absent for comparable countries.”
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