Michael Hewson, senior market analyst at CMC Markets UK, feels that German Finance Minister Wolfgang Schaüble was mistaken when he wrote that Europe was being fixed and pointed out that there are certain points of comparison between the Eurozone and UK as far as working towards a tighter financial integration.
Schaüble had written in September 16th Financial Times opinion piece that Europe was being fixed and that the doomsayers were wrong, but Hewson rebutted this argument in a presentation of CMC Market's New Generation platform for CFD trading that Digital Look attended on Thursday in Madrid. "While I'd like to believe him the only way that I can see Europe is being fixed is in the sense that economic stagnation is the new normal," Hewson said.
This expert pointed out the paradox in Germany demanding that other Eurozone countries implement German-type reforms precisely at a time of sluggish global growth and an overvalued exchange rate
and questioned the country's commitment to a true integration while it categorically rules out discussion on the banking union, debt pooling and unlimited fiscal transfers.
Hewson also finds it unlikely that countries such as Spain would cede control over taxes and spending in the current economic environment. In Spain's case, he remarked that the country's "Prime Minister Mariano Rajoy can't even control his own regions, with Catalonia pushing for a referendum on secession as well as demanding more control over its own finances.
Hewson also emphasised that Germany's reluctance to discuss the aforementioned issues is based on the need to protect their banking system with the Landesbanks being particularly opposed to the banking union due to the higher levels of oversight and loss of independence that would bring.
In this context, Hewson suggested that, to get an idea of what would constitue a final solution in order to make the euro work, one might look to the UK.
"We have a two speed recovery in the UK with the northern parts of the UK recovering on a much slower basis than the south, a point which Bank of England Governor Mark Carney made last week.
"These significant imbalances between London and the South East and the rest of the country need to be offset by a transfer of taxation revenues created from the more profitable parts of the UK to cushion the less well-off parts of the UK," he said.
Hewson then went on to explain that a euro area would have to work "in the same way to be workable. You would also need a common tax and spending policy for all governments."
Hewson joked on the viability of such a proposal: "Try getting that past your electorates by way of a referendum."
In his conclusion, Hewson didn't pull any punches on European politicians, clearly remaining skeptical of the possibility of cohesion in the Eurozone and noting the risk of fragmentation for the euro.
"If politicians can't deliver proper democratically accountable fiscal money management, then the euro won't work and will eventually place further strains on social cohesion with the result that there is a real risk of fragmentation and the euro will start to come apart as the misguided European politicians look at ways to extricate themselves from the mess they have got their countries into," Hewson concluded.