Future Freakonomics – The North-South Europe Divide Will Grow Ever Faster

European Commission President Jean-Claude Juncker often blurts out what comes to mind first when posed a question by reporters. This week that rang particularly true when he was asked what the Italians (at that moment in the midst of a political crisis) should do to stay in the Eurozone.

Mr Juncker responded: “Italians have to take care of the poor regions of Italy. That means more work; less corruption; seriousness.” The Italians staggered at the insult and Mr Juncker later apologized for his harshness.

But all jokes aside, the former prime minister of Luxembourg explained in that very moment how many Northern Europeans feel about the South (aka, the Mediterranean countries Spain, Italy, Greece and Cyprus) and how some even believe that the Eurozone would be better off without the ‘Club Med’ as the foursome is called.

The North thinks of itself as hard-working, punctual, productive and honest and sees the South as corrupt, lazy and late. France is mostly absent from these discussions as it knows it is pretty much on the intersection of this ‘clash of cultures’. Paris is seen as hard-working, the Cote d’Azur as lazy.

Related coverage: https://thegoldwater.com/news/27173-Future-Freakonomics-Europe-s-Inevitable-Real-Estate-Crash

The difference became apparent at first when back in 2012-2013, when the Eurozone faced another debt crisis over Greece, the same foursome that is once again in trouble now (Spain will probably launch a very left-wing government with lots of spending, Greece had never really been out of trouble and Cyprus saw its banks being blocked from allowing withdrawals in 2013) was being called upon by the northern European members of the Eurozone (Germany, Austria, Belgium, the Netherlands, Finland and Norway) to do something about their excessive spending and to reform their economies.

<blockquote class="twitter-tweet" data-lang="en"><p lang="en" dir="ltr">Banking crisis, bail-ins and money holdings: Lessons from Cyprus <a href="https://t.co/OvmfTF2CFG">https://t.co/OvmfTF2CFG</a></p>&mdash; Fabrizio Goria (@FGoria) <a href="https://twitter.com/FGoria/status/958883191607218176?ref_src=twsrc%5Etfw">February 1, 2018</a></blockquote>

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Greece was bailed out on multiple occasions, much to the discontent of Northern European voters who felt that they footed the bill.

As the Northern European countries know they cannot ask for another massive stimulus package for the Southern European states again this time round, it was immediately made clear to the Italians this week that excessive spending and tax cuts could not be allowed with a 130% debt level. The populists didn’t mind, and will probably find ways to get round it.

<blockquote class="twitter-tweet" data-lang="en"><p lang="en" dir="ltr">What is currently happening in Italy is the scariest thing I have seen in the Eurozone since the third bailout package of Greece in 2015. /1</p>&mdash; Bas Jacobs (@_basjacobs) <a href="https://twitter.com/_basjacobs/status/1001436135611125761?ref_src=twsrc%5Etfw">May 29, 2018</a></blockquote>

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And thus, the underlying effort of the North to get the South to walk the line has proven futile ever since the introduction of the Euro.

Whereas before countries like Greece or Italy would simply devaluate their currencies whenever economic problems presented itself, as from the moment that the ‘Club Med’ countries undersigned to the Euro and entered the ‘free-market’ zone and all the stimuli that come with it, they also let go of their own rescue package.

<blockquote class="twitter-tweet" data-lang="en"><p lang="en" dir="ltr">Thousands of Greek workers went on strike today to protest years of austerity measures and the government&#39;s plan to extend them for at least 2 more years. <br><br> The country’s third international bailout expires in August. <a href="https://t.co/Q7Tnou1D48">pic.twitter.com/Q7Tnou1D48</a></p>&mdash; AJ+ (@ajplus) <a href="https://twitter.com/ajplus/status/1001843245343703040?ref_src=twsrc%5Etfw">May 30, 2018</a></blockquote>

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Now, traders in Germany, the Benelux (Belgium, Netherlands and Luxembourg) and the other economies behaving according to what they feel are the rules, are talking ever louder about the ultimate rescue effort: a Euro in two speeds.

A Northern European Euro for the countries that stick to the rules, and a Southern European Euro for those that do not, complete with a possibility of devaluation.

This chatter was limited to day-trading forums back in 2012-2013. By 2018 it hits news commenters and social media. One can only wonder when it will hit lawmakers.