#Eurozone crisis: #EuropeanUnion needs full political union 'or its currency ...

EUROZONE weakness is such that the EU's single currency could fall apart if a "full fiscal and political union" is not adopted, a UK economist has warned.

PUBLISHED: 07:30, Mon, Jan 11, 2021 | UPDATED: 07:35, Mon, Jan 11, 2021

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Professor David Blake, Professor of Economics at City, University of London, said the monetary union’s problems were such that it was crucial for Prime Minister Boris Johnson to forge trade alliances within what the academic called the “Anglosphere” - while pushing for membership of the Trans-Pacific Partnership spearheaded by Japan. In total, 19 of the EU27 countries are members of the eurozone, referring to the area in which the euro is used.


Since its inception 22 years ago, Prof Blake said the currency had been buffeted by a series of crises, in particular the Global Financial Crisis in 2007-08, the eurozone banking and sovereign debt crisis which began at the end of 2009, and the global coronavirus pandemic.

Ultimately this has left eurozone economies in permanent recession, he claimed, especially those in the south of the bloc, such as and Spain, which had a built-in trade deficit with those in the north, such as Germany.

Prof Blake told Express.co.uk: “There are only two realistic outcomes. The first is full fiscal and political union – which has long been the objective of Europe’s political establishment, but is clearly not supported by the majority of Europe’s peoples. The second is that the eurozone breaks up.”

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The European Central Bank (ECB) in Frankfurt makes use of a little-known mechanism known as Target2, which it defines as “the real-time gross settlement (RTGS) system owned and operated by the Eurosystem”.

Eurozone Ursula von der LeyenEurozone: Ursula von der Leyen's European Union needs political union to stop the eurozone imploding (Image: GETTY)

Angela Merkel Emmanuel MacronAngela Merke's Germany and Emmanuel Macron's France are at the heart of the eurozone (Image: GETTY)

The theory is that despite being private sector obligations, all deficits are treated as sovereign loans ‘guaranteed’ by one member state government to another. However, Prof Blake said in practice, Target2 was treated by countries in the south as a “giant credit card”.

As a result, and Spain currently owe €495bn (£446bn) and €457bn (£412bn) respectively in Target2 debts which they can never pay, while Germany was owed €1,060bn (£955bn) in money which will never be repaid, he said.

Britain has never adopted the euro, which was introduced to world financial markets on January 1, 1999. However, Prof Blake said it would be a mistake to assume the UK could not, therefore, be damaged.

He explained: “Despite having left the EU and never having been a member of the eurozone, the UK is not immune from what is happening in Target2 or the eurozone.

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Boris JohnsonBoris Johnson, the UK's Prime Minister, has been warned the UK remains at risk (Image: GETTY)

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