It is very possible that the eurozone may have to dissolve if there is no solution to the public debt crisis that may widen and deepen. The principal reason for this is that the German government, followed by France and a few others, insist on keeping a tight monetary policy and containing the debt crisis by imposing fiscal and credit discipline on debtor members, but without bothering to address the structural inequalities in the tax systems that account for increased socioeconomic polarization. The road map out of this crisis is not more austerity that includes bailouts adding to existing public debt, policies that have failed across Europe in the last two years, but a policy mix of:
a) MONETARY EXPANSION by at least one-third from current levels in the course of the next three years. This move that would entail a thirty percent drop in the currency's current value, putting it at par with the dollar - on-to-one - depending on how the US and eurozone economies perform in the next three years.
b) PROGRESSIVE INCOME TAX system across the eurozone designed to raise taxes on the upper 20% of income earners. This should be accompanied by strict laws and enforcement intended to seek out tax evaders, end tax shelters and bank accounts overseas intended to evade taxation.
c) CURTAIL PARASITIC INVESTMENT by introducing new laws that punish parasitic investment activity and reward productive investment. Using money to make money on the back of productive investment that someone else has made only absorbs much needed capital and dries up credit for both the public and private sectors. One of the major reasons for the crisis of the credit system is related to parasitic activity that absorbed capital away from productive activity and left the Western economies much weaker. Using capital for mergers and acquisitions, for 'hedge fund activity', for SAWPS (derivatives), for massive corporate executive bonuses and perks, for worthless consultants to validate what the corporate board has already decided, etc. must be discouraged, and the only way to do it is to impose very heavy tax levies on such activities.
d) EUROZONE EXPANSION geographically must proceed to include both Russia and Israel, and toward full membership of associate members, including Turkey that has made remarkable economic progress in the past ten years.While geographic expansion will take some time, as it should, just the announcement of such a move will send a strong optimistic signal to the eurozone and world markets.
e) RESTORE LABOR VALUES by raising minimum wage across the eurozone, and restoring weakened social programs, especially education and health care, while cutting waste - surplus or unproductive elements - in the public sector that are related to political clientism. While the argument is that China, India, Brazil, and Russia have dumped a cheap commodity in the world market, namely a labor force that accounts about on-third of the world's labor force, cheap labor in the BRIC countries does not mean that the way for the eurozone to become competitive is to lower wage values - wages, benefits, etc. On the contrary, the goal is to raise the BRIC countries labor values to eurozone levels.
As stated above, the combination of a fiscal policy that rewards productivity and punishes parasitic activity, combined with an expanding monetary policy and broadening the eurozone market is a very plausible solution. That such a mix would entail monetary and price inflation is inevitable, but the current contracting cycle in the eurozone and global economy need a stimulus of this type. Besides, there cannot be economic growth in the absence of inflation accompanying it.
The end of the eurozone is not inevitable, because it is up to governments, mainly Germany and France, to decide what kind of future it wants. I believe there is only a very slight chance that the eurozone will adopt any of the above suggestions, largely because the parasitic finance capitalism's hold on the political class make such Keynesian policies almost impossible. I am equally convinced that politicians act at the last minute when it is too late to adopt desperate measures, owing to pressure from large segments of the population expressed in various methods from social protests to revolts. The EU's disintegration may not be inevitable or take place any time soon, but all the signs indicate that the parasitic nature of finance capitalism are slowly pushing it over the cliff.
a) MONETARY EXPANSION by at least one-third from current levels in the course of the next three years. This move that would entail a thirty percent drop in the currency's current value, putting it at par with the dollar - on-to-one - depending on how the US and eurozone economies perform in the next three years.
b) PROGRESSIVE INCOME TAX system across the eurozone designed to raise taxes on the upper 20% of income earners. This should be accompanied by strict laws and enforcement intended to seek out tax evaders, end tax shelters and bank accounts overseas intended to evade taxation.
c) CURTAIL PARASITIC INVESTMENT by introducing new laws that punish parasitic investment activity and reward productive investment. Using money to make money on the back of productive investment that someone else has made only absorbs much needed capital and dries up credit for both the public and private sectors. One of the major reasons for the crisis of the credit system is related to parasitic activity that absorbed capital away from productive activity and left the Western economies much weaker. Using capital for mergers and acquisitions, for 'hedge fund activity', for SAWPS (derivatives), for massive corporate executive bonuses and perks, for worthless consultants to validate what the corporate board has already decided, etc. must be discouraged, and the only way to do it is to impose very heavy tax levies on such activities.
d) EUROZONE EXPANSION geographically must proceed to include both Russia and Israel, and toward full membership of associate members, including Turkey that has made remarkable economic progress in the past ten years.While geographic expansion will take some time, as it should, just the announcement of such a move will send a strong optimistic signal to the eurozone and world markets.
e) RESTORE LABOR VALUES by raising minimum wage across the eurozone, and restoring weakened social programs, especially education and health care, while cutting waste - surplus or unproductive elements - in the public sector that are related to political clientism. While the argument is that China, India, Brazil, and Russia have dumped a cheap commodity in the world market, namely a labor force that accounts about on-third of the world's labor force, cheap labor in the BRIC countries does not mean that the way for the eurozone to become competitive is to lower wage values - wages, benefits, etc. On the contrary, the goal is to raise the BRIC countries labor values to eurozone levels.
As stated above, the combination of a fiscal policy that rewards productivity and punishes parasitic activity, combined with an expanding monetary policy and broadening the eurozone market is a very plausible solution. That such a mix would entail monetary and price inflation is inevitable, but the current contracting cycle in the eurozone and global economy need a stimulus of this type. Besides, there cannot be economic growth in the absence of inflation accompanying it.
The end of the eurozone is not inevitable, because it is up to governments, mainly Germany and France, to decide what kind of future it wants. I believe there is only a very slight chance that the eurozone will adopt any of the above suggestions, largely because the parasitic finance capitalism's hold on the political class make such Keynesian policies almost impossible. I am equally convinced that politicians act at the last minute when it is too late to adopt desperate measures, owing to pressure from large segments of the population expressed in various methods from social protests to revolts. The EU's disintegration may not be inevitable or take place any time soon, but all the signs indicate that the parasitic nature of finance capitalism are slowly pushing it over the cliff.
1 comment:
Dear Jon,
While I agree on most of your analysis, I guess there is one fundamental point missing: the institution of a EU unified, democratically elected political authority.
As of now, the European Union institutional structure looks like to me as an unfinished building with no roof and an uncompleted basement.
The fact is, in the debate of what the EU should be and how this should be achieved, intergovernmentalists got their way over federalists.
The underlying idea was that the
integration of the Euopean economies, achieved through common regulations, the common market and one shared currency would have inevitably led to a unified political entity.
Unfortunately, as the irrelevance of the EU High Representaive for Foreign Policy and European Coucil inaction (or late and inconclusive action) towards the debt crisi showed, this is far from being achieved.
The lack of substantive, timely and coordinated action regarding global and pressing issues is one of the biggest EU weaknesses.
This go along with the lack of a real European Central Bank (with
last resort lending powers) and the fundamental unaccountability of the EU institutions towards its governed people.
As long as these issues will not be dealt with, none of the actions you envisioned will be possible, as the Member States interests (and those of their politicians), will always prevail over the European citizens as a whole.
Post a Comment