Government Controls: A European Example

I’ve been posting about the European debacle for some time; here’s another.  I stay on this subject because there are lessons here for us, lessons that are especially urgent given that our political class sees Europe as a valuable model for governance.

Here are the current moves, just completed or in progress.  Six central banks have gotten together to make acquisition of dollars for Europe, paid for with euros, a whole lot easier.  This move just buys some time, maybe, but it doesn’t address the underlying problem of too much government spending and too much unserviceable sovereign debt.  And it ignores the risks to us should sovereign default in the euro zone become widespread.

The move in progress is an attempt to more tightly integrate the euro zone nations’ budgets—to put them more under the control of the EU central “government” in Brussels, and less under the control of the sovereign nations responsible for them.  Indeed, as proposed by French President Nicolas Sarkozy, this is a three-part move: morphing the Treaty of Maastricht (which created the EU and the euro) into a new treaty incorporating greatly increased budget discipline imposed from Brussels; creating a European Monetary Fund, nominally to support “countries in difficulty;” and euro zone moves made by majority vote rather than requiring unanimity.

The arguments made for tighter integration, singling out Sarkozy (he’s by no means the only one making these arguments; he’s just the loudest and most articulate) include the following.  “All economies became totally under the mechanism of finance, the speculative logic. We’ve seen how it’s affected industry. Also how it’s degraded the value of work.”  And “There can be no common currency without economic convergence without which the euro will be too strong for some, too weak for others, and the euro zone will break up.”

Taking the three steps to tighter integration in turn, here are some problems.  The various sovereign governments [sic] have, with their central planning to their varying degrees, already been over-managing their national economies, and the result is too much spending and too much borrowing, and so we have the present economic strait.  It’s illogical to expect that even more centralized control will improve on the track record—correcting the failure of central control by increasing the degree of central control makes no sense.

Second, a European Monetary Fund “support” facility will only be used to bail out those nations that find themselves in economic trouble.  Nations will have no incentive to apply discipline, or to do more than pay lip service to budgetary diktats from Brussels.  Knowing—or merely believing—that a bailout will be in the offing completely undoes any hope of greater national responsibility.  Feeding this is the fact that now the nations involved can blame their troubles on Brussels’ requirements and so demand that Brussels fix them.  Through the EMF.

Third, the majority vote capacity just means that the profligate many can demand that the responsible—and so sound—few make up the shortfalls of the many’s failures.  This means that Germany will reduced to the euro zone’s piggy bank.  Some argue, though, that this is only just.  It’s what reparations are for.

But at bottom, the argument for tighter integration—no matter the mechanism—ignores some fundamental problems that must be solved before the euro zone’s sovereign debt problems (note that: the problems are those of the individual sovereign nations, not of the euro zone as a whole) can be solved.  For instance, to take a narrow case for illustration, “the mechanism of finance” is not what has cheapened labor.  Things like 35-hour work weeks; labor laws that functionally guarantee a job for life, regardless of the performance of the employee; and retirement in middle age have done that.

But more importantly, tighter integration is doomed to fail when the polities involved don’t agree on the relationship between citizen and government, the role of government, or the purpose of money.  It is this too-great heterogeneity of social philosophy that drives the single euro to be too strong for some and too weak for others.

The parallels with our own situation are apparent.  We have an increasingly intrusive central government that seeks to increase its control over our own economy in order to correct the failures of its prior controls.  We have an increasingly profligate central government that spends too much by ever-increasing margins, and so that borrows ever increasing amounts.  We have a central government that insists on bailing out every one and every thing, thereby attempting to ban failure from our own market place.  And the Fed has been turned into the national piggy bank.

The answer for us, as it is for the EU, is less central control and greatly shrunk governments and reduced government roles.  And greater respect for the intelligence and the wisdom of the sovereign citizens, and so greater trust in us to take care of ourselves and of our neighbors without government diktats, without government taking our property to redistribute to others, without government “protecting” us from ourselves and the consequences of our actions—which “protection” also protects us from the consequences of our successes.

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