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Originally Answered: Which ones are the main economical consequences of coronavirus and why is that?
First of all I will consentrate on Europe but much of what is here also relates to America as well.
Is Europe or rather the EU in trouble?? . First Europhiles will say it isn’t BUT Lets have a look.
The UK has left – the only thing under discussion is the future relationship.
The EU wants even more money than when the UK was paying into the EU. The European economies were already heading into recession BEFORE the Coronavirus hit.
Italy is in very real trouble. Fiat have closed their factories in Italy as have Ferrari not only because of a lack of parts from China but in response to the virus. Italy’s has closed all shops except food shops and pharmacies. Both will suffer losses and layoff’s which will result in those people not paying taxes but claiming whatever unemployment benefits Italy pays out. This also now applies to Spain and France.
The European tourist economy is finished now that the countries are in Lock down people are cancelling trips as many of the places they would normally visit have the Virus. That business worth to the Italian economy alone is about 4 to 5 % of its annual GDP. The Peak of the Italian Tourist and other Tourist season is in June and July which isn’t far away is it. There will be Millions of people laid off from the Tourism Industry and they will go from paying taxes to collecting whatever unemployment benefits their State provides and add the the costs to the Countries economy.
The Italian economy was already heading for its FOURTH Recession in 10 years and now the fall in the economy and rise in Unemployment will be even bigger. Italy’s debt to GDP (The value of what it produces in a year) is 130%. and could rise to 160%. That makes it difficult to borrow money. You will need to look this up – Italian Sovereign Debt crisis. I am not writing all that out yet again. That also could cause the Italian Banking system which is already on life support to fail which wil in turn collapse Deutsche Bank to whom they owe masses of money. See Below.
Germany is no better – Volkswagen which also owns Audi, Seat, Skoda, Lamnorgini, Porsche all of which is closing down is already in trouble over Diesel gate and buying itself back from Porsche (You may want to look that up) VW shares are currently almost in free fall. (Try looking it up) The German economy was already at a standstill so it will join Italy in as Recession. German sells 20% of its exports to China or rather it did. Exports to other places are also dropping. One third of its exports are no longer there which is going to have a huge impact on its economy.
Germany has now also shut its borders – so much for Schengen.
Because Spain, Italy, France and Germany’s economies are in a bad way, then all the rest of Europe is in a problem as well.
Europe is now almost at shut down. They cannot fly to America and most of the Airlines have almost stopped flying which will see some of them go bust.
The EU Commission is trying to Bully the UK and the UK may well just end the discussions and walk which will make the EU lose what business they have with the UK and go even deeper into recession.
So Recession for the EU is inevitable and the longer the Coronavirus stays around the worse it will get with more and more job losses.
Now back to that issue that the EU Commission wants more money. Do you think that the Member States are going to want to or be able to pay when their economies are sinking?
Now lets look at a couple of things I have avoided so far – Deutsche Bank which is on the brink of collapse and if it goes every bank in Europe will go with it plus the EURo Currency. Again you can look this up and it is too complicated to explain here. The likeliest cause may be that Italian Banks start to fail and Deutsche Bank is owed Billions by them. That will start a Domino Effect which will close all European Banks. Few will be revived.
So the EU economies are going into Recession and the value of the EURo continues to fall. What can the European Central Bank do? Its main interest rate is ZERO/NIL/NADA and has been for ages. How can it stimulate the European economies when it has nothing left in the Barrel to do that with? It has already printed an Extra FIVE POINT FOUR MILLION MILLION Euros which is growing by TWENTY THOUSAND MILLION A MONTH without anything extra at this time for Italy or Germany. Now that has to tell anyone that the entire Eurozone is living on the Credit Card and the Bank they use has no real money just invented money. How long can that last – REALLY…
It has used that money to buy the Bonds of the EU Countries to keep their economies going. Now, if you say that the output of Europe was 100 Items nominally and each Item was worth 1000 Euro’s what is the effect of doubling the money? The output is still only 100 units but they now being chased by 2,000 Euro’s so the cost is now 2000 Euro’s so in reality the Euro has shrunk by half. Now there is a Recession and the 100 units has dropped to just 80 units. So 80 units are still 2000 Euro’s but that makes them 2,500 Euro’s each WITHOUT Printing more Money .
Can you see where I am going??? Printing Money causes Inflation and History shows us that soon becomes Hyper Inflation. The EURo ends up buying less and less and it costs more. A perfect example of this is Zimbabwe where they had runaway inflation and kept printing more and more money and ended up with a loaf of Bread costing One Trillion Zimbabwean Dollars in an economy that has 90% Unemployment.
In the UK we have the Pound which is controlled by the Bank of England stimulate the economy as required. Currently the UK’s debt to GDP ratio os just 79.6% which is very good.
The Fed has now cut the interest rate to Zero and Europe as a whole is closed. All are printing money like mad. This will not end well.
Now for the KILLER – LACK OF CONFIDENCE. In 2008 Banks stopped loaning each other money as they had their customers money. They could not afford to loan that to another bank and not pay it back. If that happened there would be a run on the bank and they would be Bankrupt.
Now there is a Marketplace in Banking called the REPO Market (Look it UP) where bank loan each other eye-watering sums of money overnight and get paid back the following morning with interest. It is like a HUGE Financial engine running around the world EXCEPT it keeps stalling and the American Fed pays in TRILLIONS of Dollars to keep it going. The American Banks do not want to loan money to European Banks in Particular. If that engine stops then WE are all back in the crisis of 2008. I believe that the Fed is going to double the amount it is putting in to boost the engine.
Economics is a difficult subject and very complicated. I have tried explain it as simply as possible and much has been omitted for brevity but al in all, YES the UK is going to be far better off away from the forthcoming disaster which instead of a recession could be a Depression as bad if not worse that 1928.
I expect to see all European Banks go bust along with the EURO. I expect to see a lot of American Banks go bust as well. Europe will swing hard right and the Muslims will be chased out.
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