Inflation in the Eurozone has broken out of its 30 years slump (see chart) and it is signalling trouble ahead. C19 continues to hamstring the economy and further weakening of the euro and/or sustained rising of food and energy prices will tip the Eurozone into stagflation. Fighting the latter would typically require an increase of interest rates combined with an expansive fiscal policy. A cure the EZ can hardly afford as the fiscal survival of some member states’ debt levels require structural ultra-low rates. The moment of truth for the EZ is getting closer: it is either going to be a fiscal union with significant transfer of resources among members or the restructuring of the common currency area. History and context suggest the latter. In the face of worsening economic conditions, Brussel’s glacial pace of decision will not do and some member states, typically the strongest, may decide to decouple and proceed as they see fit for the benefit of their constituencies. 

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