Even so this is not a reassuring argument for the future of the Euro:
The fundamental problem of the euro is the lack of a fiscal dimension. Successful currency unions, such as the US, have mechanisms for fiscal transfers from members that are thriving to those that are struggling.This is completely true, but whereas people are willing to allow their money to be taxed in order to subsidise their compatriots, they are unlikely to be satisifed with transfering billions of Euros a year, for decades to come, to give to foreign countries. Every time a country that is a net recipient of fiscal transfers institutes some kind of benefit for their citizens that a net contributer does not provide, tensions will be inflamed.
Given that the theory behind currency unions was already well known in the 1990s, there is a reason why the architects of the single currency were unwilling to take that necessary step to ensure the project's stability.
It seems like a recipe for promoting nationalistic hostility between nations.
7 comments:
"Every time a country that is a net recipient of fiscal transfers institutes some kind of benefit for their citizens that a net contributer does not provide, tensions will be inflamed."
Sounds like Alec Salmond's policy to the tee. So when is England going to be allowed a referendum on staying in the Union?
This is completely true
No it's not.
It's long been acknowledged that certain members are net contributors and others are net recipients. Eg. Germany is a net contributor. Ireland and Greece are net recipients. In other words there are mechanisms for fiscal transfers from members that are thriving to those that are struggling.
TDK- The current levels of fiscal transfers are not on the scale that a currency union requires.
New York State for example gives away $50 billion a year to other states whereas the largest net contributor to the EU- Germany- only gives $17 billion Euros a year away to other EU members despite having 4 times the population of NY.
The current mechanisms for raising money within the EU- VAT, import duties & direct transfers from governments (capped at a certain level) are inadequate for the levels needed for fiscal transfers on the scale that occur in the USA.
Wildgoose- I was thinking of Scotland as I wrote the post.
Kamm's comment was not about the level it was an absolute statement. Whether the amount is sufficient is another issue. I think we both agree that whatever monies are proposed to be transferred to Greece to save them, it will be in the medium term prove insufficient.
Kamm's mistake is that this is not about the existence of a mechanism for transfers but in the control of the spending. ie. There are other differences between the US and the EU.
The UK, apparently, is a nett contributer to the EU, seeing as how the UK is broke ie the Government spends more money that it receives from taxes so has to borrow to keep paying the bills, why hasn't some fiscal adept said "whoa", if you carry on spending, like there's no tomorrow, saddling future generations with debts that will be impossible to repay then you're heading for a crash. Sorry, did I say fiscal adept - I of course meant anyone with an ounce of common sense.
Like the Russians, there are nations like Greece who are, were and always will be cavalier. You bail out at your own risk.
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