German girl

A path forward for Europe

August 29, 2012 — 452 Comments

– Longvie.ws Editor (August 29, 2012)

We’ve had a nice nap over the summer, forgetting about the crises Europe still faces. And the European Union itself seems completely paralyzed. While the trouble is real, remember that Europe is still rich [1] and more than capable of doing the right thing.

I won’t claim to answer the EU’s problems (declining birthrate, massive immigration, economic competition from Asia being my top three). However, my ignorance demands a clear and rational first step to settling the stability question (will Greece, Spain, …, leave the European Union?).

Let’s take as given two facts: 1) there is sufficient will and reason [2] to keep the EU together, and 2) what’s been done as of yet hasn’t worked and won’t work.

So far, austerity and economic bandaids have been the solution.

Uncle! Uncle!!

German girl

Praying for the Greeks to pay their taxes

Michael Lewis’s book on the lead-up to the world financial crises is a fun, though short, read. During the chapter on Greece, you just might come to the conclusion that the Greek’s deserve austerity. They certainly deserve something! But, austerity doesn’t work. This should be unsurprising, as austerity is cruel, stupidly short-sighted, and most importantly, unsustainable. Austerity is of such morbid stupidity that it makes me suspect the worst – that the powerful are using this crises to get what they want (in the US too [3]).

When confronted with massive free money, many societies didn’t live up to their best nature (or the truth came out, depending on your point of view). Maybe the Greek’s have been the worst, but don’t forget, they were no different when welcomed in to the EU [4]. And no one behaved well.

The most nauseating statistic I’ve seen is that an estimated two-thirds of Greek doctors reported incomes under 12,000 euros a year—so as not to have to pay any taxes [5]. The only people who pay taxes in Greece are those who have no choice but to do so – because they are salaried employees of corporations. That’s a hard statement to swallow if you are German and are asked to cut yet another check. There exists this inherent human problem of people not wanting to be members of society, not wanting to pay their fair share, conditioned to do so – in some case led on by the few, or by culture [6]. But there are structural issues as well. The edge states of the EU cannot stimulate their economies because they can’t devalue their currencies [7]. Germany doesn’t want to pay for Greece’s mistakes. So what to do?

A grand bargain is needed to save the EU as it is now. And it goes something like this:

Step 0 – Accept where the current problems in Europe come from.

  • Too much easy money led to massive inflation in Spain, Greece, and so on.
  • Some countries were accepted into the EU too soon, e.g., Greece was always a mess.
  • The unwillingness of some to pay their fair share or bad cultures has led to dysfunctional societies. The corollary: sorry you need to pay your taxes
  • Inherent problems not due to bad actors due exist (immigration, bad luck, birth rate).
  • Austerity is unsustainable: no country’s people will vote against their own interests for very long.

Step 1 – Massively stimulate Greece, Spain, Italy, Ireland, and the rest of the periphery, either by banking choices, direct investment, or both. In other words, good old Keynesianism.

BUT ONLY ON CONDITION OF

Step 2 – Only due this in exchange for reform in the edge states.

  • Reform DOES NOT mean austerity.
  • Taxes must be honestly prescribed and collected.
  • Rule of law is paramount; corruption must be dealt with.

There will be pain. Germany will spend more, much more. (Get used to it: some states in the US still subsidize others [8].) The edge states have to change their very cultures – no more under the table cash deals to avoid taxes, no more “selp-employed” BS to artificially lower one’s yearly income. No more running red lights. In other words, collectively, grow up all at once. It may be impossible. But damn, it’s much easier with jobs. This is how a EU politician sells this course of action to her constituency.

Can they do it? I don’t know. More interestingly, can they do it without USA-style central government and true representation (Senate and House [9]). In any case, I think it’s time to wake up.

Please tell us what you think in a critical but productive way.

A Longvie.ws essay.

 

Footnotes:

[1] The European Union has a population of over 500 Million people and a GDP US$17 trillion dollars. Compare that to 300 Million / $15 Trillion for the good ol’ USA.

[2] As an American who’s worked and lived in Europe, it is my observation that European’s (from different countries) generally don’t like each other. But I can’t say the peoples of the 13 states liked each other either – but they shared a common, eventual, hatred of the British.

[3] Why not get rid of Medicare, Social Security, the Department of Education?(dreams of some)

[4] Everyone looked the other way when Greece “qualified” to enter the EU.

[5] Lewis, Michael (2011-09-28). Boomerang: Travels in the New Third World (p. 51).

[6] If everyone cheats, how can you not cheat? That’s culture. Greeks aren’t alone in skirting their taxes, the Spanish are guilty too, as are others.

[7] Read anything by Paul Krugman.

[8] http://www.economist.com/blogs/dailychart/2011/08/americas-fiscal-union

[9] True representation = chosen by the people & real power to enact laws. This is not what the EU is.

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