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French President Emmanuel Macron Alessandra Benedetti - Corbis/Getty Images

The Road to a European Transfer Union

In the decade since the 2008 global financial crisis and the subsequent euro crisis, European policymakers have consistently relied on Northern European countries to foot the bill for the rest of the eurozone. But what will happen in the coming decades when Northern baby boomers retire and the coffers run dry?

MUNICH – Ten years after the Great Recession plumbed economic depths unseen since the Great Depression, it is necessary to step back from quotidian politics to get a glimpse of the bigger picture. Europeans need to ask themselves where they have been, and where they are headed next on their journey.

Twenty years ago, in 1998, exchange rates among many countries in the European Union became irrevocably fixed in preparation for the introduction of the euro. Suddenly, near-bankrupt Southern European countries no longer had to pay huge interest premiums of around 5-20 percentage points relative to Germany. So, awash in cheap loans, Southern Europe experienced a debt-financed economic boom that pushed wages and prices sky-high. Eventually, that boom became a bubble.

Then, a decade ago, the bubble that had simultaneously been developing in the US subprime-mortgage market burst, leading to the global financial crisis and, subsequently, the collapse of the bubble in Southern Europe. In their hour of need, crisis-ridden Southern European countries ran up huge overdrafts with the European payment system, to replace the private loans no longer available to them.

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