You've been told a thousand times something to
the effect that “Europe’s mistake was to implement monetary union without
fiscal union”. And you believed it, didn’t you?
And 99% of
Europe believes it, because wishful thinking is less effort than real thinking.
By real thinking, I mean thinking through exactly how fiscal union will work
and hopefully so as to avoid “Greek tragedies”.
So how
would fiscal union deal with a country, like Greece, that awards itself
excessive pay increases and or allowed prices to rise too far with the result
that the country becomes uncompetitive?
Well for a
while the problem could be masked by employment subsidies or investment
subsidies for firms in uncompetitive regions / countries. Britain (a “fiscal
union”) dealt with high unemployment areas in the UK since WWII via those sorts
of subsidies (amongst other things). Same goes for various other countries.
But there
would inevitably be limits to the generosity of Euro countries funding such
subsidies. If excessive pay / price increases in uncompetitive countries
continued, then the Euro authorities would have to impose public spending cuts
and/or tax increases on uncompetitive countries. Unemployment would rise,
followed by protests and riots. Sound familiar?
Of course
the above sort of subsidies could smooth the transition from uncompetitiveness
to competitiveness. But had the recent banking crisis not intervened, the
EXISTING SYSTEM for dealing with lack of competitiveness (deflation designed to
bring internal devaluation) would not have been thust down the throats of
periphery countries in such a sudden and brutal manner.
So would
fiscal union be a big improvement on the existing system? I’m not betting on
it.
Yes, the fiscal union is not going to happen and if It would, It would not work. There is not enough political willingnes now for sure to have the political integratation necessary. There probably would have never been either even if they knew all the tricks in monetary economics. So the project is doomed. There is no ather way of saying It.
ReplyDeleteWhat happens next? Might be that for long time we will see It continuing like It is. There is really nothing operationally that would demand an imminent catastrophe.
Positive side is, It's a monetary suspension movie for monetary nerds. The biggest monetary experiment in human history.
Negative side? All the stuff that MMTers complain about.
I do hope unemployment will decrease annually. Unemployment for me is the root cause of many problems such as crimes and malnourishment. Having a safety net such as bill protection insurance is good but what's important is that unemployment should be eradicated.
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