Europe’s €1trn debt ‘volcano’ likely to erupt and impact German economy, analyst warns

There is increasing pressure on the euro, whose weakness is causing severe and widening imbalances among its 19 members, including Germany, France, Italy, and Greece, Batstone-Carr said.

Under the euro, financially stable Germany backs debt issued by less wealthy southern states.

The more fragile economies of Italy, Spain, Greece, and others can now benefit from Germany`s debt rating, which is effectively a subsidy, the analyst noted.


According to the most recent data by ECB, i.e., European Central Bank, these subsidies are increasing, and the cross-border TARGET 2 eurozone transfers are experiencing enormous imbalances that are growing with every day that passes.

While Italy has a deficit of €670 billion and Spain has a deficit of €484 billion, Germany is by far the largest creditor, owing a staggering €1.23 trillion.



The Bundesbank would lose billions of euros in debt it has with other national central banks and the ECB, as well as an extra $400 billion in net losses due to current imbalances if the system collapsed. Moreover, the issues faced by heavy debt countries like Italy and Greece will worsen as the lengthy period of very low-interest rates ends.

Jessop said that high-debt nations like Italy and Greece are under increasing strain due to rising interest rates.

This circumstance is hazardous for the entire of Europe as it may cripple the continent’s economy as a whole.

FAQs:

1. How much deficit does Italy have?
   Italy has a deficit of €670 billion.
2. Who is Julian Jessop?
   Julian Jessop is an economics researcher at the Institute of Economic Affairs.
3. Which country is the biggest creditor in Europe?
   Germany is the biggest creditor in Europe.