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Warning about the "new eurozone crisis"


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Media captionA senior adviser to the German government fears that another European crisis will occur.

A senior adviser to the German government fears that another European financial crisis could be brewing.

Dr. Lars Peled, one of the German Council of Economic Experts, was one of the first in the last year to warn of a slowdown in the largest economy in Europe.

The German government expects expansion of only 0.5% this year, compared to 1.8% just a few months ago as production struggled with a number of challenges.

Now Dr. Peled tells the BBC that he is looking further, especially to Italy.

The country is struggling to stay out of recession and face higher government debt than the banking crisis – which Dr. Peled thinks could leave him vulnerable.

"Potential Paste"

Expenses spending on taxes of the Italian government there means its deficit and debt swells, and set the violation of rules set by the European Commission, further undermine the financial credibility of the country.

The euroceptic government has over 2 trillion worth of debts. Concerns about these can put additional pressure on the financial system.

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Dr. Peled told the BBC: "The banking system in Italy is not as safe as we might hope, there is potential for contagion, in particular, from the Italian banking system to other banking systems.

"And in the first place from the Italian government to the entire banking system."

He concludes that "it may seem like a new euro crisis."

The seven Italian lenders had already been required to be released in the last three years.

Chinese demand is slower

Dr. Peled also remained suspicious of risks to his economy.

The tougher emissions standards have hit the sales of the automotive industry underprepared in the second half of last year. In the meantime, the drought caused a severe disruption in the transport of goods on the Rhine.

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Image caption

The Rhine's water level was hit in the hot summer

These obstacles were temporary. But production, which accounts for about a fifth of Germany's annual income, continues to be weighed by slower demand in China and disruption caused by the US commercial war.

Beyond these challenges, Germany faces a long-term challenge – how to cling to the front against fierce global competition.

Elections in Europe

The government is trying to support the industry.

But Prof. Peled does not feel that he is able to equip Germany with the digital age – and says there are other ways to make the country more competitive, such as tax cuts.

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His comments come as voters in 28 countries prepare to take part in European elections.

Issues affecting Germany and Italy have recently prompted the European Commission to reduce its growth forecast across the EU to 1.4 percent this year – just a touch above what it expects Britain to.

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