Italy’s inability to sort out their bureaucracy really doesn’t help. (Ever tried to sell/buy a house in Italy, compared to, say Sweden? It is absurd.) Not that it is their only problem. But when rational people vote for Berlouisconi as prime minister, then you know you have a problem at multiple levels, imho.
This. The problem wasn’t too much austerity, it was that the pendulum seemed to always swing to extremes. Banking policy was always painted as a binary choice of excessive welfare financing or heartless spending cuts.
Handed down but up to countries to follow them. As the article states, Italy appears to have followed them to the letter, more so than Germany or France, but hasn't ended up in a great place.
Handed down. The austerity has been a condition of the bailouts from the ECB & IMF. The Greeks even voted against the terms in a referendum which was immediately overturned. In Italy the EU even went to the lengths of appointing their own man to oversee the terms: https://en.wikipedia.org/wiki/Mario_Monti#Prime_Minister_of_...
I thought it was going to be about Britain. They have been drivning towards the abyss in the last decades. I used to live in London. The difference in public infrastructure and company facilities between the UK and Northern Europe is quite staggering. Now, add the “Ever shrinking Britain” (Scotland leaving after Brexit…, Northern Ireland more part of EU/Ireland than Britain in the future?) to the events and it makes the British Brexiteers really looking like want to cut off their nose to spite the face, except the face is the EU’s and the nose belongs to Britain.
This started long before the Conservatives came into power and actually made an attempt to right the budgetary wrongs of the previous Labour government.
Yes, but the gap has been around since the 50s and was mostly born from Britain squandering their Marshall Plan aid playing at empire (instead of reconstruction) between 1948 and the Suez Crisis.
I think today it has more to do with the UK having low tax as a percentage of GDP, and therefore has less money to spend on infrastructure. Here's how the UK ranks compared to other European countries:
Norway 54.8%, Finland 54.2%, Denmark 50.8%, Sweden 49.8%, Belgium 47.9%, France 47.9%, Germany 44.5%, Italy 43.5%, Austria 42.7%, Bosnia and Herzegovina 41.2%, Iceland 40.4%, Netherlands 39.8%, Slovenia 39.3%, Cyprus 39.2%, Hungary 39.1%, Greece 39.0%, Spain 37.3%, Portugal 37.0%, Croatia 36.7%, Luxembourg 36.5%, Czech Republic 36.3%, Malta 35.2%, UK 34.4%.
abyss? the UK is one of the best examples of capitalism and free trade in the world.
London is the world capital of finance, with NYC and Tokyo on 2nd place. the UK is ahead of the RoW when it comes to finance by at least 2 years.
northern Europe is too small to matter on the world stage. the Tokyo metropolis is larger than the whole of northern Europe in terms of population and wealth.
Only Yorkshire, North East and North West have been "left behind" (and that's only when compared to the rest of the UK, not the rest of Europe). The rest of the regions (SW, SE, E, both Midlands) have seen increases in wealth of about 30% in the last 20 years.
The Eurozone was never intended to do the damage it has done to PIGS economies but it has. What is worse, is that it has unquestionably been of benefit to Germany, which has one of the strongest hands in shaping the future of the EU.
If a macroeconomist had sat down to devise a currency that suffocated Italy, Portugal, Greece and Spain - export driven economies (remember that tourism is an export as you have to buy the local currency to obtain the 'goods'), and benefited Germany (an economy with an export sector that would normally be severely impacted by a strong services sector's drive to increase the value of the currency) - they couldn't have done much better than the current Eurozone setup.
Arguably we need more currencies in the world, not fewer. Economic homogeneity across an entire nation state can only reasonably expected with small countries (and remember that the Italian Republic is a very new country cobbled together out of provinces, often with significantly different economies.)
Left to float independently, the Deutschmark would not be as low as the Euro is today and the Lira would never be as high.
I am not sure the Euro in itself was the problem, but countries where included before they where ready and not enough mechanisms across the union to help those regions/countries that where struggling. But,hey, I am but an armchair economist.
That's a common argument you see a lot for years, they weren't ready, they cooked their books etc.
But for example Greece, that "cheat" they did to get in eurozone couple years earlier, wasn't a cheat back then and EU was totally informed, also the debt that swapped was insignificant compared with the amount of debt created due to systemic problems of eurozone and EU.
Too bad there are fake news only for the stronger, the weaker and smaller countries can do nothing but get crashed under the propaganda.
But they were not "included". Nobody forced them or made the decision for them. The countries (peoples, governments) made their choice. I think that some of them, if not all, even had referendums on joining the euro.
Countries get recessions when they pile double-digit deficits and triple-digit sovereign debts hidden from the world with years of accounting fraud, and suddenly banks cease lending them the money they need to keep burning through the cash they don't have.
Greek debt crisis begun when they had 160% of GDP debt, after years of recession, "bailing" packets and the heroic efforts by EU/IMF they now are at 190% of debt. Great success.
You're somehow leaving out the fact that Greece's debt/GDP ratio went up in good part because the true extent of Greece's sovereign debt and structural deficit was uncovered after the inception of thr bailout program, which by itself led to a higher debt ratio.
Also, having to reign in a double-digit deficit by cutiting the state's chronic overspending also lowered the GDP that was kept artificially high by injecting into the greek economy all that borrowed cash.
So, it's disgenuous to insinuate that Greece's bailout program caused any problem when you're actually referring to the natural consequences of:
1) finding out the true extent of Greece's overspending by fixing their accounting incoherences
2) the impossibility of continuing overspending well over 10% of the nation's GDP.
But they did pass ever higher, unsustainable debts to the next generation, which eventually forced them to face reality and stop paying for the corruption with seed corn.
The problem is the lack of free float. Nobody in Europe is as productive as the Germans, therefore they become uncompetitive while being tied to the same currency.
The corruption narrative is just a diversion from the fact that the whole Euro concept was a bad idea to begin with.
Improperly conceived is more accurate. A strong political union is important for a common currency. They should have stuck with free trade and visa free movement ( not permanent relocation) for the level of political union they have.
Austerity didn't help. The R&R paper that they based the austerity on turned out to not be properly peer reviewed, and surprise, had a some arthmetic errors that when fixed contradict the original result.
Nope, I think corruption is more of an easy scapegoat. The corrupts are always the entrpreneurs and the politicians, which means the rich and powerful, which means someone else different from the people. Of course corruption is nothing positive and doesn't help, but it doesn't explain the huge amount of missing wealth.
No it wasn't. The point of the euro was mainly political - a step towards a single European state. Economically the benefits are reduced transaction costs and reduced currency risk between countries within the single market.
I always liked the idea of a two tier Euro, like 1:3, and I feel like that could have helped Southern Europe and nudged their fiscal policies closer inline with the ECB.
They also could have just pulled the bandaid off of Greece in 08, booted them from the union, took a loss on the debt, threw aid, and laid it out as an example for Spain and Italy to get their shit in order.
In my opinion the long term goal is to transition the EU (over the course of multiple human generations) into a single nation, similar to the way the United States operates. In that case, the conditions you described are an expected part of the process. In the US the states and local municipalities have different economic situations, different taxes, etc. And if our states broke off into 50 currencies, some would benefit while others would crumble.
Your thoughts are on point imo. One must never forget the context of how the EU and it’s main political objective came to be: the culmination of centuries of small scale wars and two world wars within 30 years of each other.
Juncker - who is the only European politician who signed the Maastricht treaty in ‘92 still active today - reiterated at a 20 year commemoration mid January this year that for him, the European Fiscal Union remains an unconventional measure of politics for common peace.
Closer political union has been on the cards for a long time. Churchill post-WW2 (1948) said "Mutual aid in the economic field and joint military defence must inevitably be accompanied step by step with a parallel policy of closer political unity", and referred to a United States of Europe ("I was anxious at first lest the United States of America should view with hostility the idea of a United States of Europe"), with it being presented as a force for peace ("the German problem is to restore the economic life of Germany and revive the ancient fame of the German race without thereby exposing their neighbours and ourselves to any rebuilding or reassertion of their military power of which we still bear the scars. United Europe provides the only solution to this two-sided problem"). It's pre-EU, but clearly the ideas come from a similar place.
The EU already has a version of this. Some countries in the Eurozone are net recipients of EU money. Just like California is a net contributor and Mississippi a net recipient.
It can be argued that the Euro has certain structural issues, or that the wealth transfer is too big/small, but the EU demonstrates that you don't need to become one nation just to have wealth transfers.
But is the size of these wealth transfers comparable? I have the impression, maybe wrong (absolutely no data to confirm it, in fact) that wealth transfers within the EU are much lower than those that would take place between the regions of a single nation.
You're right. The wealth transfers are fairly small. The EU had a budget of €118 billion for 2016. There's only so much you can do with that money for 500 million people. Note that a large chunk of it goes back into the big countries as agricultural subsidies.
No, but does it matter? I'm pointing out that you structurally don't need a nation-state to do this. The EU isn't going to have some natural or legal tipping-point where the wealth transfer moves up or down by 0.1% and suddenly it structurally doesn't work.
You said that you don't need to be a nation state to have wealth transfers. And I agree, an in fact the EU has them.
But from a political and social point of view, while it's somehow easy to convince the citizens of a nation that they have to contribute from their own pockets to the common good, the situation is much harder in Europe. We are not a nation, we are culturally and linguistically different, we consider ourselves as separate entities. The euro is actually increasing reciprocal distrust. The whole EU political system is overly complicated (and, ironically, undemocratic) because it includes both a parliamentary democracy and a council of heads of states- because no European nation would trust decisions made by a shared parliament without having them vetted by their own national governments.
There should have been a major push in education to form citizens that would be at least able to understand each others- there wasn't, at least in part of the EU. Damn, we have major EU members that decide to wage wars on their own, it's inconceivable.
So how do you convince the citizens of rich, disciplined countries, to get money out of their pockets to heavily subsidize the citizens of other countries, speaking a different language, with autonomous armies, different legal systems, completely separate political class, very limited transfers of people across borders (and mainly in one direction, north)?
Most of your skepticism of inter-EU wealth transfers applies equally to intra-EU wealth transfers from metropolitan to rural areas.
I live in one of the wealthiest NUTS3[1] regions in the EU. Why should I be paying higher taxes to send someone's kid living in the boonies in my country to school? Let's just form a city-state instead. We even have a handy historical defensive wall we could resurrect for that purpose.
Of course most people would think that's absurd, but it's worth mentioning since this notion that you should subsidize your "countrymen" was once just as novel as the idea that the Dutch should subsidize the Greeks is to some today.
You're only taking this for granted for nation states because you grew up in the era of nation states. There's no intrinsic reason for why someone born in the EU area in 2100 wouldn't find the idea that you shouldn't engage in wealth transfers within that area as quaint as the idea that we should being going back to city-states is today.
I think if anything what the WTO, NAFTA, EU etc. show is that in the future the idea that you need to sign up for some "package deal" of a nation state for everything from tariffs to defense will be viewed as too monolithic.
> Most of your skepticism of inter-EU wealth transfers applies equally to intra-EU wealth transfers
I know very well the issue because it's been at the center of a bitter north- south dispute in Italy for decades. (the rich, productive north complains that too much money has been given to the south without appreciable results).
But in the national case the transfers are decided at national level, the regions have no say in it; if there are protests, a national police keeps order. The tax money is collected by state entities, and then redistributed to the regions. There have been pushes to partly change this, but there is also a strong cultural resistance because there is a sense of national unity, of shared history, cultural and family ties, and a historical foundational myth.
All this stuff is weak or non-existent for the EU as a community. It's not impossible in principle, it's simply not there now, and given all the differences- especially linguistic- it seems that it's going to take a long time and a lot of effort to create, provided that there is even the will to do so.
I don't think we fundamentally disagree. I agree that it's possible, it's just that there is going to be a lot of resistance along the way and that the national governments, which still hold the majority of the power in the EU and are still the intermediaries between their citizens and EU institutions, will be extremely cautious in implementing such a system without a complete support from their citizens.
Ah, 2100 is very, very far away. I'm not sure we can wait that long.
The motto is „a ever closer union“, although that does not necessarily see a nation state at the end, and it has become somewhat outdated...
What the US has, and the EU would need, are some mechanisms to level economic differences between the constituent states. Any federal US program effectively works as such, even though that is rarely acknowledged in the public discourse. As but one example: military spending is financed primarily by the economically strong and populous states, and disproportionately favors poorer states with defense contacts or military bases.
The EU has a few such mechanisms, some explicit (regional development funds), some less so (agriculture). But the total E.U. budget is rather tiny compared to the economy. Something like a common unemployment insurance would be best, mechanistically. Because it would automatically adjust to changing fortunes at the very local level without requiring constant political intervention and the accompanying bargaining. At present, such a policy is unlikely to find approval because of pervasive remaining mistrust („lazy Greeks taking our money“).
We should have two currencies, one slowly sinking in value and one slowly rising. Then a country should be able to choose internally to align itself with the Euro or the Orue, for internal trade, external trade and money value.
The problem is that EU bureaucrats are too impatient to wait multiple generations, therefore they try to speed up the process by schemes like inviting few millions immigrants from Africa and Middle East and then forcing member states to take them, to undermine their national identity. Or try to enforce the same EU wide standards regarding controversial topics such as LGBT rights, abortion, etc. Which of course causes backlash, effectively being counterproductive.
Oh no, come on. And by the way, if things keep going like they have, we can't wait multiple generations. We have at most one decade to fix things before they explode.
I think that's an overly conspiratorial view. I agree with your analysis in part but I don't think the EU is doing these things deliberately to undermine, it's more that it's their philosophy (which IMO is counter to the interests of the average european).
Even with Spanish and English, the US has a few issues. The EU has 23. Out of interest, after these 'multiple human generations' how many languages do you think the single nation will be speaking? You have an opinion. Fair enough but will it be a democratic decision to make the transition? One thinks of 2005, when on a turnout of 69% of French votes, 55% rejected the EU Treaty. It was accepted nevertheless.
Floating currency is just a way to automatically renegotiate all of a country's contracts. It will not magically create more wealth or lower the costs of materials. In the end, if you're importing something for $1 and you earn $100/yr or it costs $3 because of your devalued currency but you earn $300/yr, nothing has changed.
What sucks is the most productive people left and the already massive state obligations fell on those left. It wasn't the currency that did that.
> It will not magically create more wealth or lower the costs of materials
No, but it will lower the cost of labour. If you have low productivity, you need to pay your workers less. If you can't devalue the currency, you have to lower wages. If you lower wages, you create deflation: your money will be more valuable tomorrow than it is today. And so you stop spending and start saving, and consumption falls.
That automatic renegotiation is useful for poorer countries though. If a country exports a lot more than it imports then the valuation of their currency increases, meaning that buying from that country becomes more expensive (because you buy with their currency and there's more demand for the currency). This enables poorer countries to step in and offer to export similar goods for cheaper. It also means that poorer countries, where their imports exceed their exports will get more investments, because their currency is worth less.
A simplified example of the above:
Let's say that Germany kept the Deutsche Mark (DM) and Italy kept the Lira. Let's assume in this case that Germany's exports exceed their imports (trade surplus) and Italy's imports exceed exports (trade deficit).
In the case of Germany, because their exports exceed imports, the value of the DM would go up, because there's more demand for the DM. This would make goods from Germany more expensive (your dollars can buy fewer DMs) and it would slightly diminish the exports of Germany. Due to the DM being more expensive it also means that foreign investment in Germany is more expensive, because your dollars can buy you fewer DMs.
In the case of Italy, because their imports exceed their exports, the value of the Lira would fall, because there's less demand for it. This means that goods from Italy become cheaper (your dollars can buy more Lira) and it would increase Italy's exports. Due to the Lira being less expensive it's cheaper for foreign investors to invest on Italy, because you dollars can buy you more Lira.
When both of these countries adopt the euro, you will have to add up their exports and their imports to find out whether there's a trade surplus or deficit. Let's say that when you add them up and compare you find that you have neither a trade surplus or deficit. This means that goods exported by Germany won't increase in price and the goods exported by Italy won't decrease in price. This is advantageous to Germany and disadvantageous to Italy. It also means that Italy won't gain an advantage in attracting foreign investments compared to Germany either (based on the currency).
In reality, the topic is much more complex, but different currencies seem to have a balancing effect on exports, imports, and foreign investments. Strong exporters in the eurozone benefit from the countries that import a lot.
I think your last point needs more investigation and I don’t think the EU really wants to examine it in detail. Freedom of movement means that really productive and educated people can go wherever they want. I encounter groups of Italian and Spanish students everyday here in Germany. I’ve met a really bright Greek politics and law student that has now a job here. At one conference an Italian guy working in Switzerland told me at the company in England he was before the office was dominated by Greek and Italian developers. All of these anecdotes point to the same thing young successful people from these countries try to start a life elsewhere in the EU. It’s obvious that this is a huge benefit to Germany and the UK (which the Brexit supporters failed to recognize)
>> At one conference an Italian guy working in Switzerland told me at the company in England he was before the office was dominated by Greek and Italian developers.
Yeah, but it doesn't mean they are brighter than British ones. It just means it's cheaper to hire a Greek or Italian developer (that and culture differences that British people would also need to deal with).
Saying this as a developer from Lithuania working in the UK.
Which is crazy.... in the US, a developer from Nebraska is just as expensive as one from California for any given company.
The location of the company dictates the wages ( costs of living), not the source of the developer.... (unless we’re talking an H1B visa sham hire which isn’t the same as your situation)
If the developer from Nebraska plans to go back home after a period of time working in CA, they may be more likely to be content with lower salaries though. I wonder where these talented people in the EU plan to raise their kids/ retire.
Generally, freedom of movement is a good thing, allowing the most productive people to go to places that enable them to produce the most. The issue appears to be that the EU isn't a real country. Taxing winners and transferring resources to losers of the open borders/single currency zone turns out to be really important.
Good thing for the overall economy, so in this case for the EU as a whole. Increasing productive capacity overall is good because it means a society can afford more of the things it values. But again, the EU is in a difficult place because it's not a cohesive country. If you can't convince a German to value the well being of an Italian in the same way he values that of another German, then increasing the productive capacity of the EU as a whole doesn't help Italy at all.
The logical conclusion of most of these arguments seems to be that the US should have floating currencies between the states, to stop unfairly benefiting the few net productive export states?
No, IANA Economist, but I'd wager that states in the US are much more homogeneous than are countries in the EU, both in terms of laws + regulations and in labor productivity. Plus, there is a (more or less) democratically elected government that is (nominally) responsive to all of its citizens. Much more so than the various EU branches are, at least.
I'd argue that taxing the rich more and funding non-broken-window public infrastructure is a better policy for growth.
Including investment in education, transport of all kinds, 'going green' (maybe even large new-generation clean-nukes), and also dangling carrots in front of RnD / upgrades likely to produce positive economic impacts.
Not mentioned, since the focus on European governments probably means universal healthcare, is universal healthcare as public infrastructure. That too would be a useful structural improvement and serve to reduce economic friction while improving worker productivity.
While there are no EU direct taxes, there are redistribution schemes in the EU. I don't know how their magnitude compares to that of American interstate redistribution though.
Not true. There are a number of important differences. The US gradually merged into a single currency over a long period of time. As a nation the states have a sufficiently integrated fiscal policy such that budget redistribution is possible. Furthermore the US has a common language and genuinely frictionless trade between states developed over many years. The Eurozone is a bunch of homogeneous economies glued together without fiscal integration or adequate redistribution mechanisms.
So... is there some way to have both the benefits of multiple currencies and a single one? The convenience of a single currency in terms of cash is becoming less relevant as cash itself is used less, but my understanding is that the main theoretical benefit is that it strengthens the single market. Basically allows EU companies to have suppliers and customers in any EU state, without having to incur currency risks. How great is that benefit? Could some of it be achieved while allowing individual EU members to control their own monetary policy? Or on the other side, could the Euro be kept, but the negative effects somehow mitigated, perhaps via changes to transfer payments, maybe based on the difference between what would be the domestic currency value and the Euro?
I’d say that has more to do with the regulations in place that ease the movement of goods and people. In that framework having the same currency and wildly different economies actually goes against the interests of your workers too, because it allows companies to outsource labour to other EU countries where the cost of living is radically less, with basically no drawbacks.
The solution to this should be a consistent effort to strengthen the weaker economies, but more than anything impose similar taxation policies throughout the EU.
>but more than anything impose similar taxation policies throughout the EU.
But this would massively hurt the weaker and smaller economies though. Businesses congregate where other businesses are. Workers follow. Brain drain has been a big problem in the EU. If EU countries all have to adopt similar taxation schemes then why would you start a business in Romania if you could just start it in Germany instead?
> So... is there some way to have both the benefits of multiple currencies and a single one?
Look at the USA as an example. The difference with the EU is that the USA are vastly more homogeneous and I believe there is very little opposition to redistribute wealth from richer to poorer states. The EU is fragmented, almost nobody wants a tight political and fiscal integration. What would be of the USA if state governors were much more powerful than the federal president, to the point that few people would know who the president is and what he can do? This is the state of the EU.
Armchair economist here. Is it correct to say that a country like Italy, with its low productivity, constantly needs to devalue its currency to keep its production competitive; and that while doing so would effectively lower the wealth of the country, it could still keep an apparent growth of the salaries, so that there would be an incentive to internal consumption? And that what happens in Italy instead is that the wages need to shrink, which causes (a state close to) deflation, which causes even more saving and depresses internal consumption?
- Economic homogeneity across an entire nation state can only reasonably expected with small countries
Well, that is not true and probably not an issue. Every country has automatic mechanisms of wealth redistribution across its regions: California feeds most of the central US states. But the EU is a monetary unit without a proper redistribution mechanism between its regions: it's hard to convince the Germans that their tax money should subsidize Italy because it's part of a national unity.
Yes devaluing currency is much less painful. But it creates risk for traders which the monetary union removes. Removing that risk may not be a great idea since one region is bound by a different political structure that is bound to play a role.
No it hurts Germany too, just not nearly as much as the rest of the eurozone. The only ones who were helped here were Russia an China from the ECB putting their main rivals in shambles.
Any gains Germany gets from overly tight money are temporary and transient. Running a disastrous monetary policy to indirectly improve Germany's loan terms is an insanely destructive thing to do both to the indebted countries and to the weaker parts of Germany's own economy.
Not allowing people to work and destroying their countries' economies greatly increases the chance these countries are going to default or restructure parts of their debt. This is not to Germany's advantage.
Having neighbors with poor economies is bad for your exports and your own businesses.
In the long run Germany would have had much to gain if people of Europe had functional investment markets and funding was available to buy the tools necessary for people to work and produce instead of strangulated markets.
Having a single currency could have worked (as it works in the US) if it was not managed like they were trying to destroy the west.
A fiscal union would necessitate creating an even stronger political European Union. So far there hasn’t been a call for that and it remains unpopular to most citizens. And the current divisions only make it harder to even suggest one.
A fiscal union would be economically better but politically it is dead.
Yes, and Germany explicitly rejected all attempts and proposals: no Eurobonds, no Green Fund, no fiscal union, no transfers, no nothing. They'll stick to their guns until the whole thing come apart (real soon now: you liked the Brexit? Wait for Italexit. Or Frexit. Sooner than you think).
You also see that leaving the EU is not a clear benefit despite "evil" Germany is on its throne...
That's why "Brexit" is taking almost 3 years now and still there is no ultimate progress. Other countries will surely be interested in how this experiment turns out before doing the same..
From what I have gathered, EU's strategy with Brexit has been pretty straightforward: do not even try to impose any further "penalties" on UK on top of what is already taking place without assistance. Just stay put.
The EU can't be seen to dictate internal UK matters - that would only create further animosity (if such a thing is possible, given the rabid UK press). Instead, let the UK repeatedly shoot themselves in the head while going through their cooked-up contortions.
There will be no better deterrent for others in the EU27 than observing Brexit from a relatively safe distance. "Leave, and that will be you. We don't even need to do anything."
And as for watching Brexit unfold at a close distance? It's like looking at a sword swallower trying out a new trick. With a chainsaw.
Let me guess: you're a EU citizen living in _London_. Not exactly the same thing as anywhere else in UK.
For me, watching Brexit from a distance is more akin to seeing people not wanting to leave the Titanic pushed into the lifeboats, dropping from the main deck: sure it's ugly, but wait for the iceberg, and see who are the smart guys afterwards.
It may be worthwhile to note that the Euro never had support of the German people and it’s very difficult what the long term impact will be for them. My impression is that they borrow other countries money (through ECB and TARGET) to buy their goods that get produced while creating very little wealth for the average worker (in terms of net purchasing power per productivity).
Whilst I agree with your analysis I would prefer fewer currencies and better redistribution instead. Though there are significant risks the EU could really benefit in terms of cohesion from federalisation.
Perhaps what the EU needed wasn’t a common primary currency but a common secondary currency that was used as a medium to convert currency between members.
Instead of a "Single" currency, there should be a "Common" currency (with notes and coins) available to be used in all EU states and whose value was not allowed to devalue against any of its constituent basket of EU currencies, i.e. the inflation rate of the "Common" currency would always be equal to the lowest inflation rate of the currencies that made it up. That would encourage people to hold and use it and over time people would migrate to it. It would also allow businesses to only concern themselves with a single exchange rate, namely that between their national currency and the Euro Common currency.
The UK suggestion was, of course, rejected out of hand.
The EU is about a forcing the creation of a single state.
It is a political project rather than a practical one.
Another major factor was the debt of each members after joining the euro:
"All members past debts were in their home currency, including Germany. Upon joining the Euro, the past debts were also converted to the Euro because their old currencies were abandoned. What I mean by international value is if you look at the debts of all member states, when the euro doubled in value from 80 cents to the US dollar to $1.60, from a US investor, he doubled his money holding Greek debt or any member’s debt. We can see that the dollar rose sharply against the drachma between 1995 going into 1999 demonstrating that the drachma declined 47% going into the formation of the euro. The cost of servicing the past debt rises in real terms and when they had to pay off the debt and roll into new debt, they were paying in international value more than it was worth upon joining the euro.Back during the Reagan Administration, I met with the U.S. Treasury and warned that Volcker raising rates to 14% meant he was suppressing inflation immediately, but causing it to exponentially rise by the end of the decade. Why? Because central banks cannot stimulate or suppress and economy with interest rates when the government is the biggest borrower. Whatever they think they are doing by raising rates to stop people from borrowing has no impact upon government for they will always spend other people’s money freely. In that meeting, I was flatly told it was OK because the government would be paying back with cheaper dollars. In this case, the rise in the euro to $1.60 meant the opposite – member states would be contracting and had to pay out huge sums beyond what they originally owed. This was no different from people who took out Swiss loans and then the Swiss franc/euro peg broke. Suddenly the borrowers owed a lot more in their home currency when the Swiss rallied.
Consequently, the past debt of Greece was in drachma and the decline in the currency meant that its debt in terms of dollars (international value terms) fell almost by 50%. Upon joining the euro, the past debt was then converted to euro – not before. Therefore, in international terms of value, the debts effectively doubled in real terms. This would NOT have been a problem had all the debt of member states been consolidated into a federal debt for Europe. Thereafter, any new borrowing would have been purely state debt NOT acceptable for reserves in the banking system.
In this manner, the past debt, which does not stimulate the immediate economic position, doubled in real terms and increased the cost of servicing the past debt. This is how the economy was strip-mined. Had the debt been consolidated into one federal debt, that burden would have been relieved upon by member states. This would have allowed the euro to then actually compete against the dollar."
This was the genius (or good luck) of Hamilton. Taking on the debts of the US states at the federal level prevented this problem when switching to a common currency at the formation of the US.
Extending the same principle to provinces/states within, and then to cities, and then to individuals, you finally get to Hayek's "no state currency" proposal.
I wish we had a political version of Mr. Rogers. We need better role models for how to talk about politics in ways that are measured, reasonable, and respectful.
The difficulty is that the two "basic" schools of politics/economics, Capitalism and Socialism are so diametrically opposed in terms of assumptions and methods that objectivity itself becomes subjective. Socalists tend to look at the world differently to capitalists.
These are not "the basic schools" of economics. If I had to pick two camps, I would pick Keynesianism and Neoclassical economics. Politically, Keynesianism has won over both sides of the spectrum.
There is no "diametric opposition", virtually all socialists of today agree that markets are to be favored over central planning. That part is settled by history.
What socialists and non-socialists disagree over is generally the degree of state intervention in the markets and who should pay for what, that is who pays taxes and who gets the benefits.
I deliberately wrote basic and political/economics, in the sense that political debate regarding economics is divided into those basic catagories at least in Britain. Economic policy, the yes practically the decision is between some form of Keynesianism or something vaguely monetarist (Laissez-Faire)
The point I was making is that in my experience, many socialists (as defined above, type of socialists) do not believe or understand how behaviour emerges from markets and how this is efficient where competition is possible: It's all government this, government that.
Good point. I would suggest that a better model for discussing politics is even more important than a better role model. Current political discourse is so full of emotionally laden words, shibboleths, and moralizing that discussions inevitably go down the same paths over and over again. So tedious and unproductive. This indicates to me that the current model is broken and it is time to look elsewhere.
What if, for instance, we used software systems engineering as model and thought about political systems in terms of high-availability, reliability, and security? Too-big-to-fail can be thought of as a Single Point of Failure, a system attribute we know works against availability and security. We might further think of corruption as an attack on the system, and hence, plan mechanisms to minimize the "blast radius". And so on.
Other models might work too, for example, physics. My point is that the current model of political discourse is weirdly self-limiting. Something very odd seems to happen as soon as one adopts it. It's as if people immediately forget the knowledge they have outside politics. I have seen this many times in the political writing of otherwise very intelligent scientists and engineers--their technical ideas are creative and rigorous but their political ideas banal and trite.
We're now in the age of careless public expenditure (a weird form of UBI that actually is an unemployment benefit, early retirements, and so on) and tax cuts that only benefit the upper class.
Or so I've heard, since the government has yet to find the money to do any of these things. Meanwhile, the weak economic growth we were having until last year is gone.
Italian here:
- unfortunately most of the people in Italy (with the highest amount of votes) are low-wage populists, so politics are going in that direction (see five star movement)
- there is a permeating sense of social envy against "the rich", the problem is what is considered "rich" in Italy are people that earn more than 1500 euros a month,net...almost all new laws are being created to take wealth from "the rich" (which really means the ones that are "not poor") and redistribute it to populists that don't work or produce minimal wealth
-add to that the extreme ignorance of politicians and population alike (we have a flat tax that isn't flat, a universal basic income that is neither basic nor universal, but most people don't even know what the names mean)...a recipe for disaster
As a result, productive people live in a constant state of psychological stress because you never know how the government is going to screw you next year (forced withdrawal from your bank account? raising capital gains taxes? raising taxes on income?) and are constantly bombarded by newspapers with headlines like "we're going to tax 'the rich' in order to give "universal basic income" to the unemployed)
As someone who comes from a normal low-middle class family and has been clawing his way up the social ladder for the past 10 years, the situation is almost unbearable as you constantly feel the entire country is against you and is fathoming new ways to rob you of your hard earned money, almost all the productive youngsters I know are considering moving elsewhere because you can't really live in a constant state of frustration and anger
I would also add the situation with illegal immigration in the past few years...
Imagine earning 1200 usd/month, then after struggling for several years you manage to claw your way to a salary that pays 5000/month, only to find out you're being taxed at 2-3x the rate you were before, and you're really just netting 2000/mo
Then you go to work every morning and see a local hotel with 15 illegal immigrants sunbathing (government structures were overflowing so they started using normal hotels to host immigrants), and you're fully aware these hotels are paid for by receiving government subsides (funded with the aforementioned huge taxes).
That's just one of the several dozens of annoying situations you live with every day
While one hand was trying to balance the budget cutting in investment (education that makes people happier and more productive, healthcare that keeps people healthy, ...) the other hand has been increasing the expenses and decreasing revenue (giving bailouts to bankers, allowing tax havens).
How was austerity supposed to balance the economy when money was given away to the rich and taxes reduced? For each euro that was removed from schools, more than that was given to banks. Each time public health benefits were reduced there was a new company moving to Ireland, Malta, etc.
So, now we have the same or more unbalanced budgets but citizens are poorer, less educated and do not see a future for themselves.
> Continued stagnation will feed the resentment and anti-establishment, anti-euro forces in Italy.
The Eurozone countries need to increase revenues and start investing that money into education to prepare its citizens for the new economy. The alternative is disenfranchised citizens stuck in poverty that will fall in the hands of populism.
You have to spend money to make money. Austerity misses the point.
What's the point of investing the money into education if the people study in poor countries and then move to the rich countries? Brain drain is a real problem and there has been no solution for it. I'm being facetious about the education part, but you can't deny that those countries are paying for the education of many people who end up going to western Europe.
> What's the point of investing the money into education if the people study in poor countries and then move to the rich countries?
The point is to make people happy. That people that emigrates has an opportunity that would have never had. Some of them will come back bringing other countries knowledge.
That doesn't mean that you are wrong. "Brain draining" is a real problem.
I like the logic of "What if we train our employees and they leave? What if we don't and they stay?"
So the largest problem here is the lack of competitiveness of Italian exports on the global market. That's creating a vicious cycle, where poorly performing exports depress wages and internal demand, leading the country to depend further on capricious foreign markets. This trend will continue, as lower-wage countries continue to intrude on traditional Italian products.
The solution should be to improve the competitiveness of Italian exports on the global market, which will serve as the foundation for economic growth. The article states this fairly plainly, and I agree. However, I don't think a government-led technological push, which the article advocates, is the solution to this.
Instead, the government should increase its spending on public infrastructure, while continuing to make structural reforms that allow businesses to organically diversify into more profitable areas. For all this article's talk about Italian labor deregulation, it's still very expensive to both grow and reduce labor in Italy. This is worsened by high corporate and individual taxes, which both depress demand and discourage business expansion. A middle class tax-cut, which worked well in Germany's "economic miracle," would help alleviate this.
And finally, Italy has major regional differences in wealth and productivity. The south of Italy is much poorer and much less productive, the result of years of subsidies that have prevented industry from sustaining private growth. Infrastructure improvements there, along with a reduction of crime, and the ever-present bogeyman of political corruption, would help tremendously, along with an overhaul of the redistributive system to encourage productivity and economic growth.
I am Italian. And I am happy to find out it was indeed the fault of EU.
Wow, what a relief! I thought we Italian were the problem!
I mean, we voted Democrazia Cristiana for decades, just because it had Cristiana in the name, and which party will do any effort to be re-elected when they know in advance they will be re-elected anyway?
I mean, I always heard bad things about corruption, but the corrupted politicians were elected by us, and corrupted by us as well!
I heard about "voto di scambio" (litteraly: exchange vote) many many times, but I never got it completely: you are granted anonimity in the voting booth, and you vote for a mafioso because you made a promise to him... You have the possibility to counter mafia's power and you vote for him! Are you an idiot or what?
And heroic judges payed with their life the effort to grant us a better country, and in the end they got to subvert that corrupted mess that the First Repubblica was, and we did end up voting for Berlusconi?!? A disgusting divorced guy, mingling with young prostitutes, and calling himself "Anointed of the Lord"?
It's true that the rest of the political class didn't make any effort to attract votes from non extremists. The few times Berlusconi was not governing, the only top priority was about homosexual rights. Nothing personally against it, but in such a catholic nation like Italy you cannot expect it to pass smoothly, and don't you think the whole nation would need some thought about economy and legality?
I don't like the two current top clowns, but I understand they are the "least worse".
I’ve lived enough in Italy to see how generally Italians have absolutely no idea what’s going on in the global economy and why now the country is in regression now.
They are like “distracted” by a telenovela-like politics (you cite Berlusconi) that doesn’t explain anything about the state of the italian economy and why it goes this way down. And when they try, the political discussion is eaten by a calcio-style debate, at the paradox where socially worth maneuvers are now a fascist thing, while no left parties are there to embrace the economical revolution your country requires.
Politics has no role here, whatever the RAI is screaming in the news, whatever the party is at the government, Italians just accept whatever Europe or industrial lobbies want, and now here are the results. Yet still they continue to debate about useless political dramas.
It's worth adding to the discussion that Berlusconi's influence has begun way earlier that many people would think .
It is a know fact for example that in early 90ies when journalist Marco Travaglio was strongly criticising Berlusconi, Berlusconi was effectively able to get him fired via his control of the advertising company Publitalia 80.
Advertising was already at the time one of the major source of revenew for newspapers, and Publitalia 80 straight up refused to buy advertising space from newspapers that employed Marco Travaglio.
In the end, Marco Travaglio had to create his own newspaper in order to be able to continue do his job.
This was early 90ies. Immagine what more than twentym (thirty?) years of this have made of public information (both public and private).
That's a gross oversimplification of the history and structural problems of the Italian Republic.
1. "just because it had Cristiana in the name" that was not the only reason... It was more of a complex clientelism-based system (e.g. I hire people in public industries/companies so that they'll vote for me, and stuff like that)
2. "You have the possibility to counter mafia's power" Man, you don't seem to understand what mafia is. Mafia is not just crime: it's an organization that seeks to replace local power structures in all but name. People that (knowingly) vote for mafia associates are already disenchanted with the idea of elected representatives.
3. Berlusconi was still mostly "clean" by 1994. Sure, he had been a P2 member, but who wasn't? He was divorced, and so what? (So were lots of christian democrats and right-wing politicians before him). The nasty stuff only began to surface years later.
4. "The only top priority was about homosexual rights" Come on, that's right-wing propaganda plain and simple. Stuff like liberalization and reforms of the school and the jobs market were also in the agenda of the last three/four governments not endorsed by Berlusconi. By the way, ethical themes are about the only thing a political party shouldn't negotiate upon to get votes (IMO).
> I heard about "voto di scambio" (litteraly: exchange vote) many many times, but I never got it completely: you are granted anonimity in the voting booth, and you vote for a mafioso because you made a promise to him... You have the possibility to counter mafia's power and you vote for him! Are you an idiot or what?
There are mechanisms to implement "voto di scambio". All a mafioso has to do to implement it is to to gain a blank vote card and apply a vote of his preference. Then when you come along the mafioso will give his voted card for you to submit as a valid vote and will expect you to give him the blank card that you were given before entering the voting booth.
In this way he the mafioso is assured that the pre-voted vote card has been submitted and will also have a new blank card to give to the next person selling his vote.
You can, at most, invalidate the mafioso's vote by applying more votes (thus making the vote card void) but you still won't be able to supply your own vote (and thus, making a difference).
In the end, it's always easy to think people are stupid and that bad actors didn't actually think trough stuff, ran tests and improved the processes as any organization of a sufficient size would do.
* high public debt and as a consequence high percentage [over 3%] of GDP going for public debt servicing. [Just stop and think about it - Italy is spending on debt servicing the same percentage of GDP that US is spending on military]
* failure at attracting foreign greenfield investments
* one of lowest percentage of youths with university degree [below 30% - 44% OECD average]
* poor education system [2015 OECD PISA lower then US which means very bottom]
* low productivity at Italy's many small enterprises.
Italy failed at adapting it's economy to globalization age. And the blame should go to Italy's political class not EU.
We are not at odds. My point is since 1992 we have era of rapid globalization and many economies adapted (usually at the expense of ordinary folk ie. economy is doing great and people not so much). Debt, currency etc. is just technicality.
The rules have changed, the world is playing brutal Texas Holdem now and Italy is still trying to play chess.
> low productivity at Italy's many small enterprises.
Just as an example the Italian white-goods industry used to be world class but it got almost obliterated first by Turkish competition and then by the Chinese and the Koreans (which probably also manufacture most of their stuff in China).
I’ll also whant to add a mention about Italy’s car industry (which was not small, I agree). The Germans somehow managed to keep their brands and most of their car manufacture going while the car industry in Italy is about to dissapear completely. I’m not exactly sure of the reasons of why that happened (as late as the 1990s the Fiat Punto was still the best sold model in Europe) but this has also had a very adverse effect on Italy’s lack of growth. Afaik the German car industry is responsible for almost 10% of its GDP, Italy wouldn’t have been in a as dire a situation as the current one if it still had a well-established car industry on its own.
Italy used to be export powerhouse in 60-ties, 70-ties - scooters[1], computers, textiles, everything. If they have stayed on track Italy would be 2nd economy in EU now, right after Germany.
No country in Europe had it easy in last 30 years. Germany, Netherlands had to fight tooth and nail to keep their position as export powerhouses against competition from Asia. But they did. Sweden, Finland have invested heavily in education to keep their small economies relevant in the game. Poland, Romania, Czech had to rebuilt their economies from ashes of communist central planning. Not to mention other countries like UK, France, Spain.
Somehow Italy didn't choose that path and just drifted. I disagree with narrative that there is a cabal of European countries conspiring against Italy's growth.
[1] In Thailand or Indonesia you can still find hundreds of old Vespas which dominated scooter market in Asia before Hondas and Suzukis came.
Oh yes it is. The Eurozone has exactly ZERO transfers. What is the proposed, officially sanctioned solution? Lower salaries. Austerity. Impoverishment. Then what happens? Fascism. Slow clap...
We've tried this shit before, it was the gold standard in the 20s. Remember how it ended? Yeah, it was a heck of a good job!
The whole Euro project is brain-dead, and it's killing the EU, fast. Wait to see the results of the coming European elections...
Strictly speaking, there are some transfers, however they're minuscule compared to EU GDP. The simple fact is that rich California pays for poor Montana, but rich Bavaria doesn't pay for poor Greece, doesn't want to and politically can't be forced to do it. IIRC the volume of transfers necessary to reach equilibrium would be around 8% of GDP.
California doesn’t exactly pay for Montana... they do pay for some federal services for which everyone has voted for. In theory though poor management can cause a state to default on its debt.
I don't think the two explanations are mutually exclusive. Yes, given the limitations of Italy's society and economy, the euro is probably causing damages (not in a absolute terms, it has also positive sides, but let's pretend it's a net negative).
At the same time, Italy's economy and society are losing the pace with the rest of the world. This might be also a consequence of long economic stagnation due to the euro, but it's definitely a cultural trait: people are angry, distrustful, poorly educated, incapable of finding common ground even on the basics. The political crises of the last thirty years have left a deep mark on the public opinion, which is now suspicious of every public project, every politician, every successful entrepreneur, and addicted to news of political scandals.
There is nothing that Italians seem to enjoy more than seeing a politician or entrepreneur indicted for corruption; the widespread idea is that someone stole the money, and the most approved government measures are those that redistribute public money and punish this or that perceived offender.
You have described the political landscape in Spain to a T.
I fear than in the upcoming general elections we will see the rise of the populist far right, and with it further polarization of the political landscape.
Sorry to hear that. I also wonder how much this depends on local, contingent events, and how much can be attributed to internet and social media, where the outrage is the driver of clicks and attention, and uninformed conversations thrive.
Populists are on the rise everywhere. On the side, the bursts of social justice outrage in the US might be just a different, leftwing expression of the same mechanisms that produced Trump on the right. We urgently need cultural tools to deal with the consequences of social media.
Populist are on the rise because oligarchy has stolen money and power everywhere. Don't look for pseudo "cultural" reasons (bordering on xenophobia, racism or classism) where a basic Marxist analysis works marvels. Do you really think that Italians are angry and lazy, and Brits too, and Greeks, and Spaniards, and French, and Trump voters? Because of Facebook? Really? Come on. This is silly.
I think that yes, a lack of economic growth (in some cases) and an increasing disparity in wealth (in others) makes people angry, and distrustful, on the long term. I also think that "oligarchies stole the money" is an incredibly simplistic explanation for the lack of growth- there are at least two factors, the competition from emerging countries and software, that have removed low skilled and low added value jobs from the West. But still the countries who kept up with their industry and education managed to thrive.
On the other hand, the people's anger doesn't come with an understanding of the issues and their causes; it's more of a general bad mood that disrupts everything, what is wrong and what is right in the same way. So that people fight against the problems and the solutions alike.
And yes, I think social media act as a multiplier of this unproductive anger, because they give a voice and an audience to those who lack the minimal educational standards that have been traditionally required to those who wrote for the public. It's classist? Fair. But it's true.
Information used to flow from an educated elite (think of the incredibly ponderous and boring articles of Marxist newspapers, if you want) to the masses, who tried to absorb and follow (with all the risks that this entailed, as well). In Italy the single voice of the communist party, through its press, could reach every peasant and set the line. While now the communication is horizontal and universal, and angry, uninformed opinions spread and reinforce each other. It's clear since a long time (think of tabloid covers) that indignation, outrage, scandal are extremely successful memes. They survive and spread replacing everything else. We need to learn how to deal with this, not with censorship, but culturally.
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[ 3.0 ms ] story [ 196 ms ] threadA lot of people are skeptical of the raw employment rate - an uber driver who does 1 hour a week counts as "employed".
The underemployment rate has been falling steadily alongside unemployment.
Norway 54.8%, Finland 54.2%, Denmark 50.8%, Sweden 49.8%, Belgium 47.9%, France 47.9%, Germany 44.5%, Italy 43.5%, Austria 42.7%, Bosnia and Herzegovina 41.2%, Iceland 40.4%, Netherlands 39.8%, Slovenia 39.3%, Cyprus 39.2%, Hungary 39.1%, Greece 39.0%, Spain 37.3%, Portugal 37.0%, Croatia 36.7%, Luxembourg 36.5%, Czech Republic 36.3%, Malta 35.2%, UK 34.4%.
Source: https://en.wikipedia.org/wiki/List_of_countries_by_tax_reven...
London is the world capital of finance, with NYC and Tokyo on 2nd place. the UK is ahead of the RoW when it comes to finance by at least 2 years.
northern Europe is too small to matter on the world stage. the Tokyo metropolis is larger than the whole of northern Europe in terms of population and wealth.
Successful capitalism in my mind is measured in more ways than a finance industry or stock market.
If a macroeconomist had sat down to devise a currency that suffocated Italy, Portugal, Greece and Spain - export driven economies (remember that tourism is an export as you have to buy the local currency to obtain the 'goods'), and benefited Germany (an economy with an export sector that would normally be severely impacted by a strong services sector's drive to increase the value of the currency) - they couldn't have done much better than the current Eurozone setup.
Arguably we need more currencies in the world, not fewer. Economic homogeneity across an entire nation state can only reasonably expected with small countries (and remember that the Italian Republic is a very new country cobbled together out of provinces, often with significantly different economies.)
Left to float independently, the Deutschmark would not be as low as the Euro is today and the Lira would never be as high.
But for example Greece, that "cheat" they did to get in eurozone couple years earlier, wasn't a cheat back then and EU was totally informed, also the debt that swapped was insignificant compared with the amount of debt created due to systemic problems of eurozone and EU.
Too bad there are fake news only for the stronger, the weaker and smaller countries can do nothing but get crashed under the propaganda.
Also, having to reign in a double-digit deficit by cutiting the state's chronic overspending also lowered the GDP that was kept artificially high by injecting into the greek economy all that borrowed cash.
So, it's disgenuous to insinuate that Greece's bailout program caused any problem when you're actually referring to the natural consequences of:
1) finding out the true extent of Greece's overspending by fixing their accounting incoherences
2) the impossibility of continuing overspending well over 10% of the nation's GDP.
The corruption narrative is just a diversion from the fact that the whole Euro concept was a bad idea to begin with.
That seems to be very stupid "mistake" from some very important economists.
But wasn't that the whole point?
They also could have just pulled the bandaid off of Greece in 08, booted them from the union, took a loss on the debt, threw aid, and laid it out as an example for Spain and Italy to get their shit in order.
Juncker - who is the only European politician who signed the Maastricht treaty in ‘92 still active today - reiterated at a 20 year commemoration mid January this year that for him, the European Fiscal Union remains an unconventional measure of politics for common peace.
http://www.churchill-society-london.org.uk/WSCHague.html
Then again, it's also just a logical extension of the same process through which the most powerful European states today have formed themselves.
It can be argued that the Euro has certain structural issues, or that the wealth transfer is too big/small, but the EU demonstrates that you don't need to become one nation just to have wealth transfers.
But from a political and social point of view, while it's somehow easy to convince the citizens of a nation that they have to contribute from their own pockets to the common good, the situation is much harder in Europe. We are not a nation, we are culturally and linguistically different, we consider ourselves as separate entities. The euro is actually increasing reciprocal distrust. The whole EU political system is overly complicated (and, ironically, undemocratic) because it includes both a parliamentary democracy and a council of heads of states- because no European nation would trust decisions made by a shared parliament without having them vetted by their own national governments.
There should have been a major push in education to form citizens that would be at least able to understand each others- there wasn't, at least in part of the EU. Damn, we have major EU members that decide to wage wars on their own, it's inconceivable.
So how do you convince the citizens of rich, disciplined countries, to get money out of their pockets to heavily subsidize the citizens of other countries, speaking a different language, with autonomous armies, different legal systems, completely separate political class, very limited transfers of people across borders (and mainly in one direction, north)?
/rant :)
I live in one of the wealthiest NUTS3[1] regions in the EU. Why should I be paying higher taxes to send someone's kid living in the boonies in my country to school? Let's just form a city-state instead. We even have a handy historical defensive wall we could resurrect for that purpose.
Of course most people would think that's absurd, but it's worth mentioning since this notion that you should subsidize your "countrymen" was once just as novel as the idea that the Dutch should subsidize the Greeks is to some today.
You're only taking this for granted for nation states because you grew up in the era of nation states. There's no intrinsic reason for why someone born in the EU area in 2100 wouldn't find the idea that you shouldn't engage in wealth transfers within that area as quaint as the idea that we should being going back to city-states is today.
I think if anything what the WTO, NAFTA, EU etc. show is that in the future the idea that you need to sign up for some "package deal" of a nation state for everything from tariffs to defense will be viewed as too monolithic.
1. https://upload.wikimedia.org/wikipedia/commons/9/90/Map_of_G...
I know very well the issue because it's been at the center of a bitter north- south dispute in Italy for decades. (the rich, productive north complains that too much money has been given to the south without appreciable results).
But in the national case the transfers are decided at national level, the regions have no say in it; if there are protests, a national police keeps order. The tax money is collected by state entities, and then redistributed to the regions. There have been pushes to partly change this, but there is also a strong cultural resistance because there is a sense of national unity, of shared history, cultural and family ties, and a historical foundational myth.
All this stuff is weak or non-existent for the EU as a community. It's not impossible in principle, it's simply not there now, and given all the differences- especially linguistic- it seems that it's going to take a long time and a lot of effort to create, provided that there is even the will to do so.
I don't think we fundamentally disagree. I agree that it's possible, it's just that there is going to be a lot of resistance along the way and that the national governments, which still hold the majority of the power in the EU and are still the intermediaries between their citizens and EU institutions, will be extremely cautious in implementing such a system without a complete support from their citizens.
Ah, 2100 is very, very far away. I'm not sure we can wait that long.
What the US has, and the EU would need, are some mechanisms to level economic differences between the constituent states. Any federal US program effectively works as such, even though that is rarely acknowledged in the public discourse. As but one example: military spending is financed primarily by the economically strong and populous states, and disproportionately favors poorer states with defense contacts or military bases.
The EU has a few such mechanisms, some explicit (regional development funds), some less so (agriculture). But the total E.U. budget is rather tiny compared to the economy. Something like a common unemployment insurance would be best, mechanistically. Because it would automatically adjust to changing fortunes at the very local level without requiring constant political intervention and the accompanying bargaining. At present, such a policy is unlikely to find approval because of pervasive remaining mistrust („lazy Greeks taking our money“).
What sucks is the most productive people left and the already massive state obligations fell on those left. It wasn't the currency that did that.
No, but it will lower the cost of labour. If you have low productivity, you need to pay your workers less. If you can't devalue the currency, you have to lower wages. If you lower wages, you create deflation: your money will be more valuable tomorrow than it is today. And so you stop spending and start saving, and consumption falls.
This is what the ECB did.
A simplified example of the above:
Let's say that Germany kept the Deutsche Mark (DM) and Italy kept the Lira. Let's assume in this case that Germany's exports exceed their imports (trade surplus) and Italy's imports exceed exports (trade deficit).
In the case of Germany, because their exports exceed imports, the value of the DM would go up, because there's more demand for the DM. This would make goods from Germany more expensive (your dollars can buy fewer DMs) and it would slightly diminish the exports of Germany. Due to the DM being more expensive it also means that foreign investment in Germany is more expensive, because your dollars can buy you fewer DMs.
In the case of Italy, because their imports exceed their exports, the value of the Lira would fall, because there's less demand for it. This means that goods from Italy become cheaper (your dollars can buy more Lira) and it would increase Italy's exports. Due to the Lira being less expensive it's cheaper for foreign investors to invest on Italy, because you dollars can buy you more Lira.
When both of these countries adopt the euro, you will have to add up their exports and their imports to find out whether there's a trade surplus or deficit. Let's say that when you add them up and compare you find that you have neither a trade surplus or deficit. This means that goods exported by Germany won't increase in price and the goods exported by Italy won't decrease in price. This is advantageous to Germany and disadvantageous to Italy. It also means that Italy won't gain an advantage in attracting foreign investments compared to Germany either (based on the currency).
In reality, the topic is much more complex, but different currencies seem to have a balancing effect on exports, imports, and foreign investments. Strong exporters in the eurozone benefit from the countries that import a lot.
Yeah, but it doesn't mean they are brighter than British ones. It just means it's cheaper to hire a Greek or Italian developer (that and culture differences that British people would also need to deal with).
Saying this as a developer from Lithuania working in the UK.
The location of the company dictates the wages ( costs of living), not the source of the developer.... (unless we’re talking an H1B visa sham hire which isn’t the same as your situation)
Including investment in education, transport of all kinds, 'going green' (maybe even large new-generation clean-nukes), and also dangling carrots in front of RnD / upgrades likely to produce positive economic impacts.
Not mentioned, since the focus on European governments probably means universal healthcare, is universal healthcare as public infrastructure. That too would be a useful structural improvement and serve to reduce economic friction while improving worker productivity.
But this would massively hurt the weaker and smaller economies though. Businesses congregate where other businesses are. Workers follow. Brain drain has been a big problem in the EU. If EU countries all have to adopt similar taxation schemes then why would you start a business in Romania if you could just start it in Germany instead?
Look at the USA as an example. The difference with the EU is that the USA are vastly more homogeneous and I believe there is very little opposition to redistribute wealth from richer to poorer states. The EU is fragmented, almost nobody wants a tight political and fiscal integration. What would be of the USA if state governors were much more powerful than the federal president, to the point that few people would know who the president is and what he can do? This is the state of the EU.
- Economic homogeneity across an entire nation state can only reasonably expected with small countries
Well, that is not true and probably not an issue. Every country has automatic mechanisms of wealth redistribution across its regions: California feeds most of the central US states. But the EU is a monetary unit without a proper redistribution mechanism between its regions: it's hard to convince the Germans that their tax money should subsidize Italy because it's part of a national unity.
Any gains Germany gets from overly tight money are temporary and transient. Running a disastrous monetary policy to indirectly improve Germany's loan terms is an insanely destructive thing to do both to the indebted countries and to the weaker parts of Germany's own economy.
Not allowing people to work and destroying their countries' economies greatly increases the chance these countries are going to default or restructure parts of their debt. This is not to Germany's advantage.
Having neighbors with poor economies is bad for your exports and your own businesses.
In the long run Germany would have had much to gain if people of Europe had functional investment markets and funding was available to buy the tools necessary for people to work and produce instead of strangulated markets.
Having a single currency could have worked (as it works in the US) if it was not managed like they were trying to destroy the west.
A fiscal union would be economically better but politically it is dead.
That's why "Brexit" is taking almost 3 years now and still there is no ultimate progress. Other countries will surely be interested in how this experiment turns out before doing the same..
From what I have gathered, EU's strategy with Brexit has been pretty straightforward: do not even try to impose any further "penalties" on UK on top of what is already taking place without assistance. Just stay put.
The EU can't be seen to dictate internal UK matters - that would only create further animosity (if such a thing is possible, given the rabid UK press). Instead, let the UK repeatedly shoot themselves in the head while going through their cooked-up contortions.
There will be no better deterrent for others in the EU27 than observing Brexit from a relatively safe distance. "Leave, and that will be you. We don't even need to do anything."
And as for watching Brexit unfold at a close distance? It's like looking at a sword swallower trying out a new trick. With a chainsaw.
For me, watching Brexit from a distance is more akin to seeing people not wanting to leave the Titanic pushed into the lifeboats, dropping from the main deck: sure it's ugly, but wait for the iceberg, and see who are the smart guys afterwards.
As for leaving... uprooting a family is not something you do without a good plan forward.
It was called the ECU[1]
1: https://en.wikipedia.org/wiki/European_Currency_Unit
Instead of a "Single" currency, there should be a "Common" currency (with notes and coins) available to be used in all EU states and whose value was not allowed to devalue against any of its constituent basket of EU currencies, i.e. the inflation rate of the "Common" currency would always be equal to the lowest inflation rate of the currencies that made it up. That would encourage people to hold and use it and over time people would migrate to it. It would also allow businesses to only concern themselves with a single exchange rate, namely that between their national currency and the Euro Common currency.
The UK suggestion was, of course, rejected out of hand.
The EU is about a forcing the creation of a single state.
It is a political project rather than a practical one.
Hence Brexit.
"All members past debts were in their home currency, including Germany. Upon joining the Euro, the past debts were also converted to the Euro because their old currencies were abandoned. What I mean by international value is if you look at the debts of all member states, when the euro doubled in value from 80 cents to the US dollar to $1.60, from a US investor, he doubled his money holding Greek debt or any member’s debt. We can see that the dollar rose sharply against the drachma between 1995 going into 1999 demonstrating that the drachma declined 47% going into the formation of the euro. The cost of servicing the past debt rises in real terms and when they had to pay off the debt and roll into new debt, they were paying in international value more than it was worth upon joining the euro.Back during the Reagan Administration, I met with the U.S. Treasury and warned that Volcker raising rates to 14% meant he was suppressing inflation immediately, but causing it to exponentially rise by the end of the decade. Why? Because central banks cannot stimulate or suppress and economy with interest rates when the government is the biggest borrower. Whatever they think they are doing by raising rates to stop people from borrowing has no impact upon government for they will always spend other people’s money freely. In that meeting, I was flatly told it was OK because the government would be paying back with cheaper dollars. In this case, the rise in the euro to $1.60 meant the opposite – member states would be contracting and had to pay out huge sums beyond what they originally owed. This was no different from people who took out Swiss loans and then the Swiss franc/euro peg broke. Suddenly the borrowers owed a lot more in their home currency when the Swiss rallied.
Consequently, the past debt of Greece was in drachma and the decline in the currency meant that its debt in terms of dollars (international value terms) fell almost by 50%. Upon joining the euro, the past debt was then converted to euro – not before. Therefore, in international terms of value, the debts effectively doubled in real terms. This would NOT have been a problem had all the debt of member states been consolidated into a federal debt for Europe. Thereafter, any new borrowing would have been purely state debt NOT acceptable for reserves in the banking system.
In this manner, the past debt, which does not stimulate the immediate economic position, doubled in real terms and increased the cost of servicing the past debt. This is how the economy was strip-mined. Had the debt been consolidated into one federal debt, that burden would have been relieved upon by member states. This would have allowed the euro to then actually compete against the dollar."
https://www.armstrongeconomics.com/international-news/europe... - see for more detail. I've followed Martin Armstrong for well over a decade now and have found him and his computer Socrates to be incredibly accurate.
There is no "diametric opposition", virtually all socialists of today agree that markets are to be favored over central planning. That part is settled by history.
What socialists and non-socialists disagree over is generally the degree of state intervention in the markets and who should pay for what, that is who pays taxes and who gets the benefits.
How can a socialist (https://en.oxforddictionaries.com/definition/socialism) system have a market?
The point I was making is that in my experience, many socialists (as defined above, type of socialists) do not believe or understand how behaviour emerges from markets and how this is efficient where competition is possible: It's all government this, government that.
May I ask where you are writing from?
What if, for instance, we used software systems engineering as model and thought about political systems in terms of high-availability, reliability, and security? Too-big-to-fail can be thought of as a Single Point of Failure, a system attribute we know works against availability and security. We might further think of corruption as an attack on the system, and hence, plan mechanisms to minimize the "blast radius". And so on.
Other models might work too, for example, physics. My point is that the current model of political discourse is weirdly self-limiting. Something very odd seems to happen as soon as one adopts it. It's as if people immediately forget the knowledge they have outside politics. I have seen this many times in the political writing of otherwise very intelligent scientists and engineers--their technical ideas are creative and rigorous but their political ideas banal and trite.
Or so I've heard, since the government has yet to find the money to do any of these things. Meanwhile, the weak economic growth we were having until last year is gone.
- there is a permeating sense of social envy against "the rich", the problem is what is considered "rich" in Italy are people that earn more than 1500 euros a month,net...almost all new laws are being created to take wealth from "the rich" (which really means the ones that are "not poor") and redistribute it to populists that don't work or produce minimal wealth
-add to that the extreme ignorance of politicians and population alike (we have a flat tax that isn't flat, a universal basic income that is neither basic nor universal, but most people don't even know what the names mean)...a recipe for disaster
As a result, productive people live in a constant state of psychological stress because you never know how the government is going to screw you next year (forced withdrawal from your bank account? raising capital gains taxes? raising taxes on income?) and are constantly bombarded by newspapers with headlines like "we're going to tax 'the rich' in order to give "universal basic income" to the unemployed)
As someone who comes from a normal low-middle class family and has been clawing his way up the social ladder for the past 10 years, the situation is almost unbearable as you constantly feel the entire country is against you and is fathoming new ways to rob you of your hard earned money, almost all the productive youngsters I know are considering moving elsewhere because you can't really live in a constant state of frustration and anger
Then you go to work every morning and see a local hotel with 15 illegal immigrants sunbathing (government structures were overflowing so they started using normal hotels to host immigrants), and you're fully aware these hotels are paid for by receiving government subsides (funded with the aforementioned huge taxes).
That's just one of the several dozens of annoying situations you live with every day
How was austerity supposed to balance the economy when money was given away to the rich and taxes reduced? For each euro that was removed from schools, more than that was given to banks. Each time public health benefits were reduced there was a new company moving to Ireland, Malta, etc.
So, now we have the same or more unbalanced budgets but citizens are poorer, less educated and do not see a future for themselves.
> Continued stagnation will feed the resentment and anti-establishment, anti-euro forces in Italy.
The Eurozone countries need to increase revenues and start investing that money into education to prepare its citizens for the new economy. The alternative is disenfranchised citizens stuck in poverty that will fall in the hands of populism.
You have to spend money to make money. Austerity misses the point.
The point is to make people happy. That people that emigrates has an opportunity that would have never had. Some of them will come back bringing other countries knowledge.
That doesn't mean that you are wrong. "Brain draining" is a real problem.
I like the logic of "What if we train our employees and they leave? What if we don't and they stay?"
The solution should be to improve the competitiveness of Italian exports on the global market, which will serve as the foundation for economic growth. The article states this fairly plainly, and I agree. However, I don't think a government-led technological push, which the article advocates, is the solution to this.
Instead, the government should increase its spending on public infrastructure, while continuing to make structural reforms that allow businesses to organically diversify into more profitable areas. For all this article's talk about Italian labor deregulation, it's still very expensive to both grow and reduce labor in Italy. This is worsened by high corporate and individual taxes, which both depress demand and discourage business expansion. A middle class tax-cut, which worked well in Germany's "economic miracle," would help alleviate this.
And finally, Italy has major regional differences in wealth and productivity. The south of Italy is much poorer and much less productive, the result of years of subsidies that have prevented industry from sustaining private growth. Infrastructure improvements there, along with a reduction of crime, and the ever-present bogeyman of political corruption, would help tremendously, along with an overhaul of the redistributive system to encourage productivity and economic growth.
Wow, what a relief! I thought we Italian were the problem!
I mean, we voted Democrazia Cristiana for decades, just because it had Cristiana in the name, and which party will do any effort to be re-elected when they know in advance they will be re-elected anyway?
I mean, I always heard bad things about corruption, but the corrupted politicians were elected by us, and corrupted by us as well!
I heard about "voto di scambio" (litteraly: exchange vote) many many times, but I never got it completely: you are granted anonimity in the voting booth, and you vote for a mafioso because you made a promise to him... You have the possibility to counter mafia's power and you vote for him! Are you an idiot or what?
And heroic judges payed with their life the effort to grant us a better country, and in the end they got to subvert that corrupted mess that the First Repubblica was, and we did end up voting for Berlusconi?!? A disgusting divorced guy, mingling with young prostitutes, and calling himself "Anointed of the Lord"?
It's true that the rest of the political class didn't make any effort to attract votes from non extremists. The few times Berlusconi was not governing, the only top priority was about homosexual rights. Nothing personally against it, but in such a catholic nation like Italy you cannot expect it to pass smoothly, and don't you think the whole nation would need some thought about economy and legality?
I don't like the two current top clowns, but I understand they are the "least worse".
And you want to blame Euro?
I’ve lived enough in Italy to see how generally Italians have absolutely no idea what’s going on in the global economy and why now the country is in regression now.
They are like “distracted” by a telenovela-like politics (you cite Berlusconi) that doesn’t explain anything about the state of the italian economy and why it goes this way down. And when they try, the political discussion is eaten by a calcio-style debate, at the paradox where socially worth maneuvers are now a fascist thing, while no left parties are there to embrace the economical revolution your country requires.
Politics has no role here, whatever the RAI is screaming in the news, whatever the party is at the government, Italians just accept whatever Europe or industrial lobbies want, and now here are the results. Yet still they continue to debate about useless political dramas.
It is a know fact for example that in early 90ies when journalist Marco Travaglio was strongly criticising Berlusconi, Berlusconi was effectively able to get him fired via his control of the advertising company Publitalia 80.
Advertising was already at the time one of the major source of revenew for newspapers, and Publitalia 80 straight up refused to buy advertising space from newspapers that employed Marco Travaglio.
In the end, Marco Travaglio had to create his own newspaper in order to be able to continue do his job.
This was early 90ies. Immagine what more than twentym (thirty?) years of this have made of public information (both public and private).
1. "just because it had Cristiana in the name" that was not the only reason... It was more of a complex clientelism-based system (e.g. I hire people in public industries/companies so that they'll vote for me, and stuff like that)
2. "You have the possibility to counter mafia's power" Man, you don't seem to understand what mafia is. Mafia is not just crime: it's an organization that seeks to replace local power structures in all but name. People that (knowingly) vote for mafia associates are already disenchanted with the idea of elected representatives.
3. Berlusconi was still mostly "clean" by 1994. Sure, he had been a P2 member, but who wasn't? He was divorced, and so what? (So were lots of christian democrats and right-wing politicians before him). The nasty stuff only began to surface years later.
4. "The only top priority was about homosexual rights" Come on, that's right-wing propaganda plain and simple. Stuff like liberalization and reforms of the school and the jobs market were also in the agenda of the last three/four governments not endorsed by Berlusconi. By the way, ethical themes are about the only thing a political party shouldn't negotiate upon to get votes (IMO).
There are mechanisms to implement "voto di scambio". All a mafioso has to do to implement it is to to gain a blank vote card and apply a vote of his preference. Then when you come along the mafioso will give his voted card for you to submit as a valid vote and will expect you to give him the blank card that you were given before entering the voting booth.
In this way he the mafioso is assured that the pre-voted vote card has been submitted and will also have a new blank card to give to the next person selling his vote.
You can, at most, invalidate the mafioso's vote by applying more votes (thus making the vote card void) but you still won't be able to supply your own vote (and thus, making a difference).
In the end, it's always easy to think people are stupid and that bad actors didn't actually think trough stuff, ran tests and improved the processes as any organization of a sufficient size would do.
Please don't blame the victims. Stronzo/a.
Bollocks. Th y aren't locked, they choose to be locked.
GTFO of the EU and take care of yourselves.
You should rather look at poor governance:
* high public debt and as a consequence high percentage [over 3%] of GDP going for public debt servicing. [Just stop and think about it - Italy is spending on debt servicing the same percentage of GDP that US is spending on military]
* failure at attracting foreign greenfield investments
* one of lowest percentage of youths with university degree [below 30% - 44% OECD average]
* poor education system [2015 OECD PISA lower then US which means very bottom]
* low productivity at Italy's many small enterprises.
Italy failed at adapting it's economy to globalization age. And the blame should go to Italy's political class not EU.
[1] - https://www.ft.com/content/b3c85b34-e10a-11e8-a6e5-792428919...
The rules have changed, the world is playing brutal Texas Holdem now and Italy is still trying to play chess.
Just as an example the Italian white-goods industry used to be world class but it got almost obliterated first by Turkish competition and then by the Chinese and the Koreans (which probably also manufacture most of their stuff in China).
I’ll also whant to add a mention about Italy’s car industry (which was not small, I agree). The Germans somehow managed to keep their brands and most of their car manufacture going while the car industry in Italy is about to dissapear completely. I’m not exactly sure of the reasons of why that happened (as late as the 1990s the Fiat Punto was still the best sold model in Europe) but this has also had a very adverse effect on Italy’s lack of growth. Afaik the German car industry is responsible for almost 10% of its GDP, Italy wouldn’t have been in a as dire a situation as the current one if it still had a well-established car industry on its own.
No country in Europe had it easy in last 30 years. Germany, Netherlands had to fight tooth and nail to keep their position as export powerhouses against competition from Asia. But they did. Sweden, Finland have invested heavily in education to keep their small economies relevant in the game. Poland, Romania, Czech had to rebuilt their economies from ashes of communist central planning. Not to mention other countries like UK, France, Spain.
Somehow Italy didn't choose that path and just drifted. I disagree with narrative that there is a cabal of European countries conspiring against Italy's growth.
[1] In Thailand or Indonesia you can still find hundreds of old Vespas which dominated scooter market in Asia before Hondas and Suzukis came.
We've tried this shit before, it was the gold standard in the 20s. Remember how it ended? Yeah, it was a heck of a good job!
The whole Euro project is brain-dead, and it's killing the EU, fast. Wait to see the results of the coming European elections...
At the same time, Italy's economy and society are losing the pace with the rest of the world. This might be also a consequence of long economic stagnation due to the euro, but it's definitely a cultural trait: people are angry, distrustful, poorly educated, incapable of finding common ground even on the basics. The political crises of the last thirty years have left a deep mark on the public opinion, which is now suspicious of every public project, every politician, every successful entrepreneur, and addicted to news of political scandals.
There is nothing that Italians seem to enjoy more than seeing a politician or entrepreneur indicted for corruption; the widespread idea is that someone stole the money, and the most approved government measures are those that redistribute public money and punish this or that perceived offender.
Source: I'm Italian.
I fear than in the upcoming general elections we will see the rise of the populist far right, and with it further polarization of the political landscape.
Source: am Spaniard.
Populists are on the rise everywhere. On the side, the bursts of social justice outrage in the US might be just a different, leftwing expression of the same mechanisms that produced Trump on the right. We urgently need cultural tools to deal with the consequences of social media.
I think that yes, a lack of economic growth (in some cases) and an increasing disparity in wealth (in others) makes people angry, and distrustful, on the long term. I also think that "oligarchies stole the money" is an incredibly simplistic explanation for the lack of growth- there are at least two factors, the competition from emerging countries and software, that have removed low skilled and low added value jobs from the West. But still the countries who kept up with their industry and education managed to thrive.
On the other hand, the people's anger doesn't come with an understanding of the issues and their causes; it's more of a general bad mood that disrupts everything, what is wrong and what is right in the same way. So that people fight against the problems and the solutions alike.
And yes, I think social media act as a multiplier of this unproductive anger, because they give a voice and an audience to those who lack the minimal educational standards that have been traditionally required to those who wrote for the public. It's classist? Fair. But it's true.
Information used to flow from an educated elite (think of the incredibly ponderous and boring articles of Marxist newspapers, if you want) to the masses, who tried to absorb and follow (with all the risks that this entailed, as well). In Italy the single voice of the communist party, through its press, could reach every peasant and set the line. While now the communication is horizontal and universal, and angry, uninformed opinions spread and reinforce each other. It's clear since a long time (think of tabloid covers) that indignation, outrage, scandal are extremely successful memes. They survive and spread replacing everything else. We need to learn how to deal with this, not with censorship, but culturally.