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Sunday, October 2, 2011

The European Mess (Berlin Journal #2)

More than a week of speaking with people, reading the press, and watching the nightly news in Berlin has brought home what a mess Europe is in.  The European Union now consists of 27 member states. Nine more are lined up to join, the most contentious being the “non-European” Turkey.  Seventeen countries have the Euro as their common currency. EU member countries range from small and desperately poor (Albania), to South Mediterranean spendthrifts (Greece), to large, wealthy, and thrifty (Germany). Each night’s TV news headlines leads with the latest attempt to save Greece from default.

The European Union has a parliament chosen in elections that attract little attention. It has a Council of Ministers, and a proliferation of high-paid Euro-bureaucrats. It operates ad hoc on the basis of a series of treaties. Its one attempt to draft a constitution failed. Key decisions require unanimity; others do not.

No one appears to understand what power the EU concoction has – in what cases it can trump national decision making.

If we think we have a mess sorting out federal-state issues, we have it easy compared to Europe. Let me take just one news item from the Frankfurter Allgemeine, September 29  to illustrate. The article is entitled “EU Parliament Approves Reform of Stability Pact,” and here is my reaction to it.

In its wisdom, the EU parliament approved “sanctions with teeth” for those countries like Greece and Portugal that run large deficits. Those who break the stability pact rule (deficit no more than three percent of GDP) will have to pay large fines. (They were already supposed to pay fines, but now the EU is really serious, I guess). The minority socialists, greens and leftists voted against this “blind savings fever.” The Christian democrats countered against torpedoing the stability pact “with worn ideas from the socialist mothball chest.” No one ventured to ask how countries that are broke are going to actually pay these fines.

Then things get even wackier. The EU parliament ruled that it could impose sanctions against countries with “excessive imbalances in their trade accounts.”  A green delegate argued that countries with export surpluses (like Germany) should make “fair wage agreements and future investments” to correct their imbalances.” In other words, Germany should take measures to reduce its competitiveness and efficiency so that inefficient spendthrift countries can sell to Germany!

I assume that such talk was just hot air. How can anyone force a country to become more or less efficient?

What I see generally is an endless struggle between Europeanists and nationalists. The EU will increasingly seek independent taxing authority so as to have its own sources of revenue. The EU proposal of a tax on financial transactions is a case in point. The poor countries will favor EU wide rules and taxes, and the richer countries will resist. In a United States of Europe, the poor countries know they can count on a steady stream of transfers from the rich countries. There are many more of them than rich countries.

The rich countries realize that they are being set up, but they have been conditioned to be “good Europeans.” On the Sunday (October 2) political talk shows, the head of the conservative CSU (part of the ruling Merkel coalition) explained that he voted for the German bailout of Greece because “we must all be good European neighbors.” He warned, however, that there were limits to neighborliness. He would not vote for any more money for Greece. If he did, his Bavarian base would throw him out of office.

1 comment:

  1. Albania, which ranks 95th out of 180 (countries) in corruption, is not a member of EU, but a potential candidate Country. This, however, shows the quality of neighborhood. A regression towards the mean concept would clearly show where Europe is heading.

    Milton Friedman's earlier views (1999): "...I am very negative about the euro and I am very doubtful about how it will work out."

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