The European Monetary Union is threatened with monetary disruption

When the EU finance ministers discuss state financial aid in the Corona crisis today, they are faced with a tough choice: either they risk a political collapse of the European Monetary Union (EMU) or they steer directly into a monetary disruption of the Euro system. This is the conclusion reached by the FERI Cognitive Finance Institute. "The Corona crisis is forcing massive increases in government spending. Only the European Central Bank can prevent this from turning into a dangerous crash of European public finances," says Dr. Heinz-Werner Rapp, founder and head of the FERI Cognitive Finance Institute. Previous budget rules for the euro zone are already out of force. From now on, the escalating national debt will be 'monetised' with newly printed money and will end up directly in the balance sheets of the euro central banks, the FERI Institute concludes.

ECB as the 'Bad Bank' of the Euro Area

The ECB has already taken on a new role within the EMU since the great financial crisis and the subsequent euro crisis. By overstretching its mandate, it has purchased euro bonds to an extent of over 2.5 trillion euros since 2008, the majority of which are government bonds of euro member states. As a result of these quantitative easing programmes (QE), the ECB now holds more than a quarter of the total European government debt in its own portfolio. "QE, however, was only a preliminary skirmish for what is to come in the wake of the Corona crisis: The massive financing and assumption of government spending and public debt by the ECB," explains Rapp. According to the FERI Cognitive Finance Institute, the ECB is thus increasingly moving into the area of prohibited monetary public financing and is finally becoming the 'bad bank' of EMU.

Threat of monetary disruption of the Euro System

Parallel to the launch of 'solidarity-based' rescue packages and unconditional loans for the EMU crisis countries, the old call for euro bonds ('Corona bonds') is now being heard again. "Even if support is indispensable in the Corona crisis, all these measures contribute directly to a further erosion of the Eurosystem", warns Rapp. "All the rules have already been broken in EMU. If the last barriers are also falling, the breaking lines of the euro are emerging directly. The risks of the ever more fragile Euro system are now almost entirely borne by the ECB, which has to print ever increasing ammounts of new money. If this goes on unrestrainedly, according to the analysis of the FERI Cognitive Finance Institute the Euro system is threatened to be disrupted in the end. Although this point is still in the future, the consequences of this should not be underestimated.

The FERI Cognitive Finance Institute has already analysed the increasing structural risks of EMU and the euro in a detailed study in 2018. The study is here available (in German).