Steven Rattner stormed the pages of the New York Times today to give the conventional wisdom on how to save the Euro: The initial misstep by European leaders, of course, was lashing their nations to a common currency without integrating other critical policies, such as government borrowing and regulation.
And further, Rattner says, Europe’s labour markets should be as liquid as the United States.
Impeded by language, cultural traditions and other barriers, Europeans don’t relocate as readily.
In other words, for Europe to have one monetary policy – it needs one fiscal policy too. It needs to act like one nation
The problem with this should be obvious: there is no such thing as a European. There are Germans, Frenchmen, and Greeks. You can impose the same taxes and borrowing policy on Greeks and Germans but you will get very different results in practice.
What kind of character would Rattner’s ideal European have, if he could be created through a fiscal policy?Predictably he looks rather German:
Visit Germany and be struck by the palpable energy and drive within the business community. In part because of a “grand bargain” nearly seven years ago that blended deregulation, job security and wage restraint, German productivity and economic output both grew by almost 10 per cent between 2000 and 2010.
The great wish of every trader is that every Greek and Spaniard can be turned into tight-fisted German industrialist. Unfortunately, not all European nations are scarred by the memory of hyper-inflation as Germans. They don’t have a smoothly-run government like Germany. Some member states don’t even have a reliable system for tax-collection.
And, wouldn’t you know it? People like living and working with other people who share their “language” and “cultural traditions.” They like having a shared history with their neighbours, and shared national heroes.
Unifying fiscal policies might sustain the illusion that Italians can be transformed into Germans through simple bureaucratic management. But inevitably there will be another financial crisis. To fix this, we’ll be told that nation states themselves must be dissolved and the new European unitary state should be modelled on Germany’s.
Perhaps after that, European people’s could be forcibly redistributed to achieve an equal number of French, Germans, Irish, and Greeks per square kilometer across the continent.
The game is over. Either Germany accepts that the cost of having a Euro is subsidizing the lifestyle of other nations, or it comes to its senses and unwinds the whole thing.
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