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Posts Tagged ‘European Union’

I wrote earlier this month about coronavirus becoming an excuse for more bad public policy.

American politicians certainly have been pushing all sorts of proposals for bigger government, showing that they have embraced the notion that you don’t want to let a “crisis go to waste.”

But nothing that’s happening in the United States is as monumentally misguided as the effort to create a new method of centralized redistribution in the European Union.

Kai Weiss of the Vienna-based Austrian Economic Center explains what is happening in a column for CapX.

…‘never let a good crisis go to waste’ seems to have become the mantra of both the European Commission a number of national leaders. The coronavirus has become a justification for…‘more Europe’ (which tends to actually mean more EU, to the detriment of Europe). The clearest sign of this renewed Euro-fervour is the plan cooked up by Angela Merkel and Emmanuel Macron earlier this week… Seasoned Brussels observers will be shocked to learn that their proposals have very little to do with the pandemic, and everything to do with deepening the centralisation of EU power and top-down policymaking. While Germany has traditionally…opposed the idea of eurobonds or similar debt collectivisation instruments, it is now advocating for precisely those policies. A €500 billion Recovery Fund… the initial plan is for the European Commission to raise the money on the financial markets. It would subsequently be paid back by the member states and through increased “own resources” – i.e., new taxes levied directly by Brussels… The good news is that none of these policy proposals are yet set in stone. There are some big legal questions, particularly on the Recovery Fund, and national parliaments would need to agree to this expansion of Brussels’ writ. Already countries like the Netherlands, Austria, Denmark, and Sweden have voiced criticism… But for all these obstacles, the direction of travel looks alarmingly clear. The consensus among the EU’s power brokers, as with pretty much any major world event, is that the answer is ‘more Europe’. ..For Macron  Merkel and their allies, this is far too good a crisis to pass up.

A story in the New York Times has additional details, including a discussion of potential obstacles.

Ms. Merkel this week agreed to break with two longstanding taboos in German policy. Along with the French president, Emmanuel Macron, Ms. Merkel proposed a 500 billion euro fund… It would allow the transfer of funds from richer countries… And it would do so with money borrowed collectively by the European Union as a whole. …Whatever emerges from the European Commission will be followed by tough negotiations… Chancellor Sebastian Kurz of Austria has raised objections to the idea of grants rather than loans, saying that he has been in contact with the leaders of Sweden, the Netherlands and Denmark. “Our position remains unchanged,’’ he said. …opposition may also come from member states in Central and Eastern Europe. …Those countries are going to be reluctant…to see so much European aid — for which they will in the end have to help pay — skewed to southern countries that are richer than they are. …in northern countries, moves for collective debt to bail out poorer southern countries may feed far-right, anti-European populists like the Alternative for Germany or the Sweden Democrats. They are angry at the idea of subsidizing southerners who, they believe, work less hard and retire much earlier.

What’s depressing about this report is that it appears the battle will revolve around whether the €500 billion will be distributed as grants or loans.

The real fight should be whether there should be any expansion of intra-E.U. redistribution.

For what it’s worth, Germany used to oppose such ideas, especially if funded by borrowing. But Angela Merkel has decided to throw German taxpayers under the bus.

Let’s close with some analysis from Matthew Lynn of the Spectator.

Die-hard European Union federalists have plotted for it for years. …The Greeks and Italians have pleaded for it. And French presidents have made no end of grand speeches, full of references to solidarity and common visions, proposing it. The Germans have finally relented and agreed, at least in part, to share debt within the EU and the euro-zone, and bail-out the weaker members of the club. …The money will be borrowed, based on income from the EU’s future budgets, but it will in effect be guaranteed by the member states, based on the EU’s ‘capital key’. …the rescue plan is completely unfair on all the EU countries outside the euro-zone. …why should they pay for it? Poland…will still be expected to pay in five per cent (or 25bn euros (£22bn)) to bail-out of far richer Italy (Polish GDP per capital is $15,000 (£12,000) compared with $34,000 (£27,000) for Italy).

Pro-centralization politicians are claiming this fund is needed to deal with the consequences of the coronavirus, but that’s largely a smokescreen. It will take many months for this proposal to get up and running – assuming, of course, that Merkel and Macron succeed in bullying nations such as Austria and the Netherlands into submission.

By that time, even the worst-hit countries already will have absorbed temporary health-related costs.

The bottom line is that this initiative is really about the long-held desire by the left to turn the E.U. into a transfer union.

The immediate losers will be taxpayers in Germany, as well as those in Austria, Sweden, the Netherlands, Finland, and a few other nations.

But all of Europe will suffer in the long run because of an increase in the continent’s overall fiscal burden.

And keep in mind that this is just the camel’s nose under the tent. It’s just a matter of time before this supposedly limited step becomes a template for further expansions in the size and scope of government.

Yet another reason why E.U. membership is increasingly an anchor for nations that want more prosperity.

P.S. As suggested by Mr. Lynn’s column, countries in Eastern Europe should fight this scheme. After all, these countries are relatively poor (a legacy of communist enslavement) and presumably don’t want to subsidize their better-off cousins in places like Spain and Italy. But that argument also implies that they should have resisted the Greek bailout about ten years ago, yet they didn’t. Sadly, Eastern European governments acquiesce to bad ideas because their politicians are bribed with “structural adjustment funds” from the European Union.

P.P.S. The luckiest Europeans are the British. They wisely opted for Brexit so they presumably won’t be on the hook for this costly new type of E.U.-wide redistribution (indeed, my main argument for Brexit, which now appears very prescient, was that the E.U. would morph into a transfer union).

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Libertarians and other supporters of limited government historically have mixed feelings about the European Union (and its various governmental manifestations).

On the plus side, there are no trade barriers between nations that belong to the EU, and membership also makes it difficult for countries to impose regulatory burdens that hinder trade. The EU also has helped to improve the rule of law in some nations, particularly for newer members from the former Soviet Bloc.

On the minus side, the EU imposes trade barriers against the rest of the world. There is also continuous pressure for tax harmonization policies and regulatory harmonization policies that increase the burden of government – compounded by efforts to export those bad polices to non-member nations.

Given these good and bad features, it’s understandable that proponents of economic liberty don’t have a consensus position on the European Union.

But views may become more universally hostile since some European politicians now want to use the coronavirus crisis as an excuse to expand redistribution and enable bailouts by changing existing EU rules.

Currently, there is very limited scope for bad European-wide fiscal policy because Article 125 of the Treaty on the Functioning of the European Union ostensibly prohibits cross-country redistribution or bailouts.

For what it’s worth, there is another provision for nations that use the euro currency. Article 136 of the Treaty allows for a “stability mechanism” to “safeguard the stability of the euro,” but also states that “the mechanism will be made subject to strict conditionality.”

Now let’s apply this background knowledge to the current situation.

As I wrote last month, the coronavirus-triggered economic mess is wreaking havoc with the finances of EU nations, especially for “Club Med” nations.

For example, Desmond Lachman of the American Enterprise Institute writes for the Hill about the potential consequences for Italy.

The Eurozone’s moment of truth has arrived with the coronavirus pandemic. …a supply side-shock of unprecedented size to Europe in general and to a highly indebted Italy in particular. Indeed, Italy, the Eurozone’s third-largest member country, is now at the epicenter of the pandemic and is being subject to an economic shock of biblical proportions. …That is all too likely to cause the country’s public debt to skyrocket to over 160 percent of GDP by year-end. It is also likely to put enormous strain on the country’s rickety banking system…it would seem to be only a matter of time before markets…became increasingly reluctant to buy Italian government bonds for fear of an eventual default. They would also…chose to move their deposits out of the Italian banks to safer havens abroad. …we should brace ourselves for an Italian exit from the euro that would almost certainly roil the world’s financial markets.

None of this should be a surprise. Italy is a fiscal mess and I’ve been making that point with tiresome regularity.

The coronavirus and the concomitant economic shutdown are merely a final (and very big) straw on the camel’s back.

So is Italy going to default? And maybe crash out of the euro? Or, alternatively, actually impose some long-overdue spending restraint?

Well, why make any tough decision if there’s a potential new source of money – i.e., cash from taxpayers in Germany, Finland, Austria, the Netherlands, Sweden, and other EU nations in Northern Europe.

Needless to say, that’s a very controversial concept. British newspapers have been writing about this issue.

Here are some passages from a report in the left-leaning Guardian.

The European Union has weathered the storms of eurozone bailouts, the migration crisis and Brexit, but some fear coronavirus could be even more destructive. …Jacques Delors, the former European commission president who helped build the modern EU, broke his silence last weekend to warn that lack of solidarity posed “a mortal danger to the European Union”. …The pandemic has reopened the wounds of the eurozone crisis, resurrecting stereotypes about “profligate” southern Europeans and “hard-hearted” northerners. …The Dutch finance minister, Wopke Hoekstra,…infuriat[ed] his neighbours by asking why other governments didn’t have fiscal buffers to deal with the financial shock of the coronavirus. His comments were described as “repugnant”, “small-minded” and “a threat to the EU’s future” by Portugal’s prime minister, António Costa.

Here are excerpts from a piece in the right-leaning Telegraph.

Italian politicians took out a full-page advertisement in one of Germany’s most prestigious newspapers…, urging parsimonious northern Europe to do more to help the south… They urged Berlin to drop its opposition to a proposed EU scheme to issue so-called “coronabonds” to raise funds to fight the crisis. And they accused the Netherlands, which has led opposition to the scheme, of operating as a tax haven and diverting revenue from other member states. …Several EU members – led by France, Italy, Spain and Belgium – have called for EU-wide “coronabonds” to help poorer member states borrow as they struggle with the economic impact of the crisis. But a rival faction of northern members, led by the Netherlands, Finland, Austria and Germany, has opposed what it sees as an attempt to saddle the countries with the debts of their more feckless neighbours.

An article in the Express highlighted divisions between Portugal and the Netherlands.

Portugal’s Prime Minister Antonio Costa has stunned fellow EU leaders after raising the idea…that the Netherlands could be kicked out of the European Union… The Netherlands held up the talks after blocking demands from Italy, Spain and France for so-called ‘corona-bonds’ where the EU would issue joint shared debt to help finance a recovery. …The Portuguese leader said: “If under these conditions it’s not possible for Europe to ensure a common response to this challenge, this is a sign of great concern for those who believe in Europe.” Mr Costa went on to question whether “there is anyone who wants to be left out” of the EU or eurozone. He added: “Naturally, I’m referring to the Netherlands. “There is at least one country in the euro zone that resists understanding that sharing a common currency implies sharing a common effort.”

The rest of this column is going to explain why it’s a very bad idea to have intra-EU redistribution and bailouts.

But I first want to debunk the claim from the Portuguese Prime Minister that a common currency requires a common fiscal policy.

Indeed, he’s not the only one to make this mistake. In a column for the U.K.-based Times, Iain Martin also asserts that a common currency somehow necessitates cross-country redistribution.

European finance ministers and leaders have spent the week arguing over desperate pleas from countries such as Italy…who want the European Central Bank and the EU to underpin common debt that will cover the epic bills being faced by national governments. …The fiscally conservative northern nations see no reason why they should take on the “pooled” debt of weaker southern European economies. …The core problem is what it has always been: the elementary design flaw of the euro. Currency blocs that work depend on that notion of common endeavour and “pooling” debt and risk, and ideally must function as one political organisation. …the euro needed an institutional structure that would operate roughly as the United States does. …This escalating economic emergency is a tragedy…a currency and monetary and fiscal construction that is not capable of swiftly transferring resources to the weak.

Both Costa and Martin are wrong.

Panama does very well using the dollar as its currency, yet there’s obviously no common fiscal policy with the United States. Other nations also have “dollarized” without any adverse impact.

Or consider the fiscal history of the United States. For much of American history, the federal government was trivially small. Most spending happened at the state and local level.

Needless to say, having a common currency in this decentralized system wasn’t a hindrance to U.S. economic development.

With this topic out of the way, let’s now deal with whether the coronavirus crisis should be used as an excuse to open the floodgates for intra-EU redistribution and bailouts.

Politicians from nations on the receiving end obviously approve.

But some Americans also like the idea.

Max Bergmann, a former Obama appointee at the State Department, likes the idea. He argues in the Washington Post for more centralization and more redistribution in the EU.

…this is in fact a fight over the future of Europe. The common European bond proposal hits at the core of what Europe’s union is for. It is an act of unity… A common E.U. bond would take the debt that individual European states accrue to fight this crisis and make it a collective European responsibility. …Moving ahead with it would entail a sweeping increase in the power of the federal union. …The move by…nine countries for a common E.U. bond was in fact a revolt against Europe’s status quo. It was at its core therefore a revolt against Merkel and the past decade of austerity in Europe. …Merkel is also the architect of a decade of devastating austerity that has caused economic devastation and deprivation… The crisis revealed that Europe’s new currency (the euro) had a design flaw. While the E.U. had a common monetary policy with its own central bank, it lacked a common fiscal policy. …Merkel could have pushed for that. …Merkel lectured southern European countries about profligacy. She turned what was a manageable crisis into a systemic shock to Europe’s economies. …As the coronavirus crisis hit, …Merkel has stuck to her guns.

The New York Times, unsurprisingly, has editorialized for centralization and redistribution.

…the European Union is…an alliance of sovereign countries, not a central government, and Brussels has control only over external trade and competition. For the rest, its executive branch, the European Commission, can only seek cooperation, not order it. The states that share the euro do not have true fiscal union, under which wealthier parts of the bloc would prop up the poorer. …Europe could do better. Much better. …Italians or Spaniards confronted with death and economic catastrophe…aren’t in a bind due to profligate spending; they’re in the throes of a plague… The question to ask is what’s the point of any union if it cannot find unity when it is needed most…true leadership requires knowing that we’re all in this together and can only conquer it together.

Is this correct? Would it be a good idea to have “a sweeping increase in the power of the federal union”? Would that be “true leadership”?

Gideon Rachman warns in the Financial Times that such policies will cause political fallout.

…northern Europeans will…feel exploited by the south. …The longer-term fears of the northern Europeans are also legitimate. …The northerners are alert to any sign that they are being sucked into permanent, large transfers of cash to heavily indebted EU partners. They are justifiably concerned that the current anguish is being used to push forward ideas that they have already rejected, many times over. …if political leaders renege on longstanding promises…, they should not be particularly surprised if voters then turn to populist, anti-European parties. …Anti-EU parties have already made strong gains across northern Europe in recent years.

That’s very sensible political analysis.

But the bigger problem, at least from my perspective, is that a common fiscal policy would be very bad economics.

It means more redistribution, with all the unfortunate incentives that creates for both those paying and those receiving (as illustrated by this cartoon).

And it means more overall government spending. The “Club Med” countries obviously would spend any money they got (whether from so-called coronabonds, a common-EU budget, or any other mechanism), and there’s no reason to think the nations in Northern Europe would reduce spending as their taxpayers started to underwrite the budgets of other nations.

This is a problem since government already is far too large in every EU country. Here’s the most-recent data from the European Commission. If you focus on the left, you’ll see the average fiscal burden in the EU is about 45 percent of GDP (and slightly higher in the subset of eurozone countries).

The bottom line is that countries such as Italy, Spain, Greece, and Portugal are in trouble because their governments have been spending too much.

Sadly, I fear it is just a matter of time before Article 125 is somehow sidelined and the profligacy of those “Club Med” nations is rewarded.

And if/when that happens, what’s good about the EU (open trade and the remnants of mutual recognition) definitely will be dwarfed by bad policy (bailouts, transfers, and others form of redistribution).

P.S. One of the strongest arguments for Brexit was that the EU inevitably would morph into a transfer union – and thus accelerate the economic decline of Europe. Given what’s now happening, the British were very wise to escape.

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Motivated in part by a sensible desire for free trade, six nations from Western Europe signed the Treaty of Rome in 1957, thus creating the European Economic Community (EEC). Sort of a European version of the North American Free Trade Agreement (now known as USMCA).

Some supporters of the EEC also were motivated by a desire for some form of political unification and their efforts eventually led to the 1992 Maastricht Treaty, which created the European Union – along with increased powers for a Brussels-based bureaucracy (the European Commission).

There are significant reasons to think that this evolution – from a Europe based on free trade and mutual recognition to a Europe based on supranational governance – was an unfortunate development.

Back in 2015, I warned that this system would “morph over time into a transfer union. And that means more handouts, more subsidies, more harmonization, more bailouts, more centralization, and more bureaucracy.”

A few years earlier, when many of Europe’s welfare states were dealing with a fiscal crisis, I specifically explained why it would be a very bad idea to have “eurobonds,” which would mean – for all intents and purposes – that reasonably well governed nations such as Germany and Sweden would be co-signing loans for poorly governed countries such as Italy and Greece.

Well, this bad idea has resurfaced. Politicians from several European nations are using the coronavirus as an excuse (“never let a crisis go to waste“) to push for a so-called common debt instrument.

Here are the relevant parts of the letter.

…we need to work on a common debt instrument issued by a European institution to raise funds on the market on the same basis and to the benefits of all Member States, thus ensuring stable long term financing… The case for such a common instrument is strong, since we are all facing a symmetric external shock, for which no country bears responsibility, but whose negative consequences are endured by all. And we are collectively accountable for an effective and united European response. This common debt instrument should have sufficient size and long maturity to be fully efficient… The funds collected will be targeted to finance in all Member States the necessary investments in the healthcare system and temporary policies to protect our economies and social model.

Lots of aspirational language, of course, but no flowery words change the fact that “collectively accountable” means European-wide debt and “social model” means welfare state.

I wrote last year that globalization is good whereas global governance is bad. Well, this is the European version.

The Wall Street Journal opined against the concept. Here’s some background information.

Bad crises tend to produce worse policy… We speak of proposals for “corona bonds,” an idea floated as a fiscal solution to Europe’s deepening pandemic. Italian Prime Minister Giuseppe Conte launched the effort, and French President Emmanuel Macron this week joined Mr. Conte and seven other leaders in backing such a bond issue for health-care expenditures and economic recovery. Some 400 economists have joined the chorus. …The bonds would be backed collectively by member governments. The proceeds could be allocated to members such as Italy that otherwise couldn’t borrow from private markets. …Calls for euro bonds last hit a crescendo during the debt crises of 2010-12, when they were pitched to fund bailouts of Greece and others. But the idea has never gone anywhere because it would transform the eurozone into something voters didn’t approve when the currency was created in the 1990s.

And here’s the editorial’s explanation of why eurobonds would be a very bad idea.

Europeans were promised the euro would not become an excuse or vehicle for large fiscal transfers between member states. …Proponents say corona bonds are a special case due to the unfolding economic emergency. But the Italian government that now can’t finance its own recovery was also one of the worst fiscal offenders before Covid-19… Claims that the corona bond would be temporary aren’t credible because European elites have wanted such a facility for years… Voters can assume that if they get these bonds in a crisis, they’ll be stuck with this facility forever. …euro bonds would create profound governance problems. …With corona bonds, German and Dutch taxpayers for the first time are being asked to write a blank check to Italy and perhaps others.

Amen.

Once the camel’s nose is under the tent, it would simply be a matter of time before eurobonds would become a vehicle for bigger government in general and more country-to-country transfers in particular.

Hopefully this terrible idea will be blocked by nations such as Germany, Sweden, and the Netherlands (this satirical video will give you an idea of the tension between the European nations that foot the bills and the ones looking for handouts).

Some advocates for eurobonds say there’s nothing to worry about since the European Commission and related pan-European bureaucracies currently don’t spend much money, at least when measured as a share of overall economic output.

Which is why I sometimes warn my European friends that the United States is an example of why they should be vigilant.

For much of American history, the central government in Washington was very small, as envisioned by the Founders. But beginning with the so-called Progressive Era and then dramatically accelerating under the failed policies of Hoover and Roosevelt, the federal government has expanded dramatically in both size and scope.

The lesson to be learned is that more centralization is a very bad idea, particularly if that centralized form of government gains fiscal power.

That’s especially true for Europe since the burden of government spending at the national level already is excessive. Eurobonds would exacerbate the damage by creating a new European-wide method of spending money.

P.S. While eurobonds are a very bad idea, it would be even worse (akin to the U.S. approving the 16th Amendment) if the European Union somehow got the authority to directly impose taxes.

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Today is Brexit Day. As of 6:00 P.M. EST (Midnight in Brussels), the United Kingdom no longer will be a member of the European Union.

This is definitely good news in the long run since the U.K. will now be somewhat insulated from inevitable economic crises caused by the European’s Union’s dirigiste economic model and grim demographic outlook.

Whether it’s also good news in the short run depends mostly on decisions in London, such as whether Prime Minister Boris Johnson and his Tory government expand economic freedom (which should be the case, but there are worrisome signs that the spending burden will increase).

But Washington and Brussels also will play a role since the U.K. wants to sign free-trade agreements. This could be a problem since the E.U. will be tempted to behave in a spiteful manner and Trump and his trade team are protectionists.

But let’s set that aside for the moment and look at the big picture.

The Wall Street Journal nicely summarized the key takeaways in yesterday’s editorial about Brexit.

The EU was founded on the notion that only an ever-deeper economic union—with an ever-closer political union close on its heels—could secure peace and prosperity… Most continental political leaders, if not their voters, still believe this. …British voters think otherwise. Their 2016 vote to leave the EU, ratified in December’s general election, was not a vote for war and poverty. …voters had the temerity to assert themselves despite resistance from a political and bureaucratic class invested in the status quo. …One feature of this new politics is how immune voters have become to economic scaremongering… Britons instead have heard European anxiety that Brexit will trigger a “race to the bottom” on economic policy. What this really means is that EU politicians are aware that a freer economy more open to commerce at home and trade outside the EU would deliver more prosperity to more people than continental social democracy. British voters may not embrace this open vision in the end, but they’ve given themselves the choice. …All of this frightens so-called good Europeans…because it’s a direct challenge to…their “European project.” Central to this worldview is a distrust of…markets… A Britain with greater political independence and deep trading ties to Europe without all the useless red tape and hopeless centralizing could be a model. …Britain’s voters in 2016, and again in 2019, chose peaceful and prosperous coexistence with their neighbors rather than mindless but relentless integration. It’s the most consequential choice any European electorate has made in at least a generation.

Amen.

Brexit is very good news (December’s election in the U.K., which ensured Brexit, was the best policy-related development of 2019).

It means more jurisdictional competition, which is good news for those of us who want some sort of restraint on government greed.

And it means less power for the E.U. bureaucracy, which has a nasty habit of trying to export bad tax policy and bad regulatory policy.

Brexit also is a victory for Nigel Farage. Here are his final remarks to the European Parliament.

Farage has been called the “most consequential political figure in a generation in Europe, perhaps the whole of the West.”

This actually may be true. Brexit almost surely happened because of Farage’s efforts.

And to achieve that goal in the face of unified establishment opposition is truly remarkable.

Speaking of establishment opposition, let’s close today with an updated version of a PG-13 song about how the British people responded to the practitioners of “Project Fear.”

P.S. You can enjoy other Farage speeches by clicking here, here, and here.

P.P.S. And you can enjoy more Brexit-themed humor by clicking here, here, and here.

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The Department of Agriculture should be abolished. Yesterday, if possible.

It’s basically a welfare scam for politically connected farmers and it undermines the efficiency of America’s agriculture sector.

Some of the specific handouts – such as those for milk, corn, sugar, and even cranberries – are unbelievably wasteful.

But the European Union’s system of subsidies may be even worse. As reported by the New York Times, it is a toxic brew of waste, fraud, sleaze, and corruption.

…children toil for new overlords, a group of oligarchs and political patrons…a feudal system…financed and emboldened by the European Union. Every year, the 28-country bloc pays out $65 billion in farm subsidies… But across…much of Central and Eastern Europe, the bulk goes to a connected and powerful few. The prime minister of the Czech Republic collected tens of millions of dollars in subsidies just last year. Subsidies have underwritten Mafia-style land grabs in Slovakia and Bulgaria. …a subsidy system that is deliberately opaque, grossly undermines the European Union’s environmental goals and is warped by corruption and self-dealing. …The program is the biggest item in the European Union’s central budget, accounting for 40 percent of expenditures. It’s one of the largest subsidy programs in the world. …The European Union spends three times as much as the United States on farm subsidies each year, but as the system has expanded, accountability has not kept up. …Even as the European Union champions the subsidy program as an essential safety net for hardworking farmers, studies have repeatedly shown that 80 percent of the money goes to the biggest 20 percent of recipients. …It is a type of modern feudalism, where small farmers live in the shadows of huge, politically powerful interests — and European Union subsidies help finance it.

Is anyone surprised that big government leads to big corruption?

By the way, the article focused on the sleaze in Eastern Europe.

The problem, however, is not regional. Here’s a nice visual showing how there’s also plenty of graft lining pockets in Western Europe.

P.S. I imagine British politicians will concoct their own system of foolish subsidies, but the CAP handouts are another reason why voters were smart to vote for Brexit.

P.P.S. The CAP subsidies are one of many reasons why the European Union has been a net negative for national economies.

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I’m a big fan of globalization, so does that make me a globalist?

That depends on what is meant by that term. If it means free trade and peaceful interaction with other nations, the answer is yes.

But if it means global governance by anti-market bureaucracies such as the United Nations, International Monetary Fund, and Organization for Economic Cooperation and Development, the answer is a resounding no.

So I have mixed feelings about this video from Dalibor Rohac of the American Enterprise Institute.

I can’t resist nit-picking on some of his points.

While I have disagreements with Dalibor, that definitely doesn’t put me in the same camp as Donald Trump.

The President is an incoherent mix. He combines odious protectionism with mostly-empty rhetoric about globalism. And he does all that without understanding issues – and, in some cases, his actions are contrary to his rhetoric.

Dan Henninger wrote about these issues two days ago for the Wall Street Journal.

He wisely warns that failures by national governments (most notably unaffordable welfare states and incompetent administrative states) are creating openings for unpalatable alternatives.

Global governance is one distressing possibility. Henninger worries about Chinese-style administrative authoritarianism.

President Trump at the United Nations this week elaborated on his long-running antagonism toward globalism. …There is merit to these concerns, but I think the critics of “globalism,” including most prominently Mr. Trump, underestimate the near-term danger of the serious difficulties appearing today in national democratic governance. Democracies maintain their legitimacy in the public’s eye only if they demonstrate a reasonable capacity to address society’s inevitably complex challenges. …it’s clear that many of the 21st century’s independent nations are having a remarkably difficult time executing their sovereign responsibilities. …Mr. Trump’s concerns about undemocratic governance by remote international bureaucracies are plausible, but the greater threat is more imminent. If the expansion of an increasingly dysfunctional administrative state inside the world’s sovereign democracies is inexorable and unreformable, the future will belong to China’s brand of administrative authoritarianism. …Elizabeth Warren and her multiple plans—heavily dependent on criminal prosecutions and intense oversight—is flirting with a milder version of this future.

Henninger is certainly correct that nations mostly get in trouble because of their own mistakes.

For instance, I’ve pointed out that the fiscal crisis in Europe should not be blamed on the euro.

That being said, global governance often creates moral hazard, which tends to exacerbate and encourage bad policy by national governments.

Let’s now look at an interesting column that John Bolton (Trump’s former National Security Advisor) wrote on global governance for the U.K.-based Times back in 2016. Here are some of the key passages.

He makes the should-be-obvious point that not all international bureaucracies are alike.

…international organisations sometimes act as if they are governments rather than associations of governments and sprout bureaucracies with pretensions beyond those of cosseted elites in national capitals. …International bodies take many different forms, and it serves no analytical purpose to treat them interchangeably. Nato, for example, is not equivalent to the United Nations. Neither is equivalent to the European Union. Each has different objectives, and different implications for constitutional and democratic sovereignty. …Nato is America’s kind of international partnership: a classic politico-military alliance of nation states. It has never purported to assume sovereign functions, and is as distant as is imaginable from the EU paradigm.

He explains that some of them – most notably the IMF – are counterproductive and should be shut down.

Proposals to reform the UN and its affiliated bodies such as the World Bank and the IMF are almost endless. The real question is whether serious, sweeping reform of these organisations…is ever possible. …In 1998, during the Asian financial crisis, the former secretaries of the Treasury William Simon and George Shultz, and Walter Wriston, a former chairman of Citibank, wrote in The Wall Street Journal: “The IMF is ineffective, unnecessary, and obsolete. We do not need another IMF, as Mr. [George] Soros recommends. Once the Asian crisis is over, we should abolish the one we have.” …We should consider privatising all the development banks… We should ask why US taxpayers are compelled to provide subsidised interest rates for loans by international development banks.

Amen.

He also opines about Brexit.

…the Brexit referendum was, above all else, a reassertion of British sovereignty, a declaration of independence from would-be rulers who, while geographically close, were remote from the peasantry they sought to rule. …The Brexit decision was deplored by British and American elites alike… It does not surprise Americans that British elites have not reconciled themselves to losing… London and Washington can fashion a new economic relationship, perhaps involving Canada, with the potential for significant economic growth. Let the EU wallow in strangling economic regulation, and the euro albatross that Britain wisely never joined.

He’s right, especially the final sentence of that excerpt.

I’ll conclude by reiterating my observation that we should distinguish between good globalization and bad globalization.

The good kind involves trade, peaceful interaction, and jurisdictional competition, all of which are consistent with sovereignty.

The bad kind of globalism involves international bureaucracies acting as supranational governments – almost always (as Nobel laureate Edward Prescott observed) with the goal of enabling and facilitating a larger burden of government.

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I’ve written over and over again about how European-sized welfare states require big tax burdens on poor and middle-income taxpayers.

Simply stated, there aren’t enough rich people to finance big government. Especially since they generally have the ability to avoid confiscatory tax burdens.

As a general rule, this means ordinary European taxpayers are suffocated with high payroll tax burdens, onerous value-added taxes on consumption, and income taxes that impose high rates on modest incomes.

But let’s also not forget that politicians in Europe also pillage motorists.

The Tax Foundation recently released a survey showing gas taxes in various European nations.

…the European Union requires EU countries to levy a minimum excise duty of €0.36 per liter (US $1.61 per gallon) on gas. …The Netherlands has the highest gas tax in the European Union, at €0.79 per liter ($3.53 per gallon). …All EU countries also levy a value-added tax (VAT) on gas and diesel.

Wow, this is like the perfect storm of bad European policy, with tax harmonization (minimum-tax requirement) and a version of double taxation (motorist pay both VAT and gas tax when they fill up).

No wonder French motorists launched a yellow vest protest after Macron proposed another tax hike.

Here’s the map, which should have shown the prices in dollars. Just keep in mind that the average European pays almost $2.50 in tax on every gallon of gas.

I’ll close by noting that Europeans don’t get better roads for all that money.

For all the sturm and drang about supposed problems with infrastructure in the United States, it’s worth noting that our gas taxes are much lower and we consistently get above-average scores in various infrastructure rankings.

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