The mess in Europe has been rather frustrating, largely because almost everybody is on the wrong side.
Some folks say they want “austerity,” but that’s largely a code word for higher taxes. They’re fighting against the people who say they want “growth,” but that’s generally a code word for more Keynesian spending.
So you can understand how this debate between higher taxes and higher spending is like nails on a chalkboard for someone who wants smaller government.
And then, to get me even more irritated, lots of people support bailouts because they supposedly are needed to save the euro currency.
When I ask these people why a default in, say, Greece threatens the euro, they look at me as if it’s the year 1491 and I’ve declared the earth isn’t flat.
So I’m delighted that the Wall Street Journal has published some wise observations by a leading French economist (an intellectual heir to Bastiat!), who shares my disdain for the current discussion. Here are some excerpts from Prof. Salin’s column, starting with his common-sense hypothesis.
…there is no “euro crisis.” The single currency doesn’t have to be “saved” or else explode. The present crisis is not a European monetary problem at all, but rather a debt problem in some countries—Greece, Spain and some others—that happen to be members of the euro zone. Specifically, these are public-debt problems, stemming from bad budget management by their governments. But there is no logical link between these countries’ fiscal situations and the functioning of the euro system.
Salin then looks at how the artificial link was created between the euro currency and the fiscal crisis, and he makes a very good analogy (and I think it’s good because I’ve made the same point) to a potential state-level bankruptcy in America.
The public-debt problem becomes a euro problem only insofar as governments arbitrarily decide that there must be some “European solidarity” inside the euro zone. But how does mutual participation in the same currency logically imply that spendthrift governments should get help from the others? When a state in the U.S. has a debt problem, one never hears that there is a “dollar crisis.” There is simply a problem of budget management in that state.
He then says a euro crisis is being created, but only because the European Central Bank has surrendered its independence and is conducting backdoor bailouts.
Because European politicians have decided to create an artificial link between national budget problems and the functioning of the euro system, they have now effectively created a “euro crisis.” To help out badly managed governments, the European Central Bank is now buying public bonds issued by these governments or supplying liquidity to support their failing banks. In so doing, the ECB is violating its own principles and introducing harmful distortions.
Last but not least, Salin warns that politicians are using the crisis as an excuse for more bad policy – sort of the European version of Mitchell’s Law, with one bad policy (excessive spending) being the precursor of additional bad policy (centralization).
Politicians now argue that “saving the euro” will require not only propping up Europe’s irresponsible governments, but also centralizing decision-making. This is now the dominant opinion of politicians in Europe, France in particular. There are a few reasons why politicians in Paris might take that view. They might see themselves being in a similar situation as Greece in the near future, so all the schemes to “save the euro” could also be helpful to them shortly. They might also be looking to shift public attention away from France’s internal problems and toward the rest of Europe instead. It’s easier to complain about what one’s neighbors are doing than to tackle problems at home. France needs drastic tax cuts and far-reaching deregulation and labor-market liberalization. Much simpler to get the media worked up about the next “euro crisis” meeting with Angela Merkel.
This is a bit of a dry topic, but it has enormous implications since Europe already is a mess and the fiscal crisis sooner or later will spread to the supposedly prudent nations such as Germany and the Netherlands. And, thanks to entitlement programs, the United States isn’t that far behind.
So may as well enjoy some humor before the world falls apart, including this cartoon about bailouts to Europe from America, the parody video about Germany and downgrades, this cartoon about Greece deciding to stay in the euro, this “how the Greeks see Europe” map, and this cartoon about Obama’s approach to the European model.
P.S. Here’s a video narrated by a former Cato intern about the five lessons America should learn from the European fiscal crisis.
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I don’t understand this stuff very well, but I’m not convinced. A more productive Eurozone country results in more money being created. This results in inflation for a less productive country – even if both areas have zero debt.
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I hope we wake up in the USA before it is too late.
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Nice to see some push-back against centralization in Europe.
A little off topic, but I say you start a trend by always putting scare quotes around “entitlement” in your articles when referring to “entitlement” programs.
This has been one of the very few great articles that I have seen over the last couple of weeks. So I am glad to see you sharing it on your blog.
I did so as well and highlighted what I regard as the most important sentence:
>>The “euro crisis” is a pure political construction without any economic content. It could even be said that the crisis is a splendid opportunity for many politicians to impose some of their longstanding goals on everyone else.<<
This describes precisely the big picture of what is going on in Europe: power-hungry people want to have a centrally organized United States of Europe in order to control the lives of more than half a billion people.
This is not what the people want. Almost every referendum about larger European integration was rejected. But that has not stopped the process.
I am more and more worried about this development.
But as it seems the United States of America are facing similar problems as more and more power is shifted to Washington, right?
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Reblogged this on kapitalcon and commented:
The key idea here for me is the snowball mentality of government, namely that government grows out of its misconstrued notion of a savior. The paradox of this is quite clear if one agrees with “Mitchell’s Law.”