Can we have less Europe? Or do we need more Europe?
How to respond to the ensuing crisis?
What institutional changes do we need to make in order to reduce the likelihood of such a crisis or its wider impact happening again?
“Since the crisis characterized by too much government debt, a Mediterranean lack of competitiveness, and fears about the sustainability of the Euro erupted in May 2010, European political leaders seem determined to overcome the crisis by ever more centralization. They rely on illusions, perverse incentives, and a lack of transparency. Current policies endanger the rule of law, capitalism, prosperity, and democracy instead of promoting cordial relations between Europeans.” (Prof. Dr. Erich Weede, May 9 2013. Speaker at the Free Market Road Show):https://www.austriancenter.com/fmrs2013/
“There should be a fiscal conversation at the EU level and perhaps a converging framework, tax code, and instruments, but there should also be space for countercyclical fiscal policy. There should also be a facility to address the dislocation of sudden stops – a stabilisation fund for governments that can be accessed for a long enough time to deal with liquidity issues but a short enough time to avoid procrastination, perhaps 12 months. During this time, the cost of funds should rise to indicate that this is not a long-term solution. It would need to be sized to cover the rollover of debt of half of the Eurozone for over 12 months and some additional borrowing. That would make it around $2 trillion, or twice of what we currently have. And the central bank needs to be a lender of last resort for banks facing liquidity problems, with national governments taking over and where appropriate closing down in an orderly manner those with solvency problems”, wrote Avinash D. Persaud on April 25th 2013. He is Chairman of Intelligence Capital Ltd.;
“The point is that governments cannot amass an unlimited amount of liabilities without economic consequences. Numerous studies besides Reinhart and Rogoff’s have shown this, including ones by the European Central Bank, the IMF, and the Bank for International Settlements. No doubt knaves and fools all. More important, however, debt has never been the most important measure of government’s burden on the economy. As Milton Friedman pointed out, the real burden of government is spending, regardless of whether that spending is financed through debt or taxes. Too much debt is clearly bad, but substituting taxes for the debt does not make the problem substantially better. Which brings us to the question of European ´Austerity´. Krugman continues to insist that European countries’ austerity has been devastating, and that spending cuts must therefore be resisted. The “case for keeping [the U.K] on the path of harsh austerity isn’t just empirically implausible, it appears to be a complete conceptual muddle,” he wrote this week, and “austerity policies have greatly deepened economic slumps almost everywhere they have been tried.” But there have actually been few spending cuts in Europe, so it makes little sense to blame them for poor performance.
A new study by Constantin Gurdgiev of Trinity College in Dublin compared government spending as a percentage of GDP in 2012 with the average level of pre-recession spending (2003–2007). Only three EU countries had actually seen a reduction: Germany, Malta, and Sweden. Not surprisingly, two of those three, Germany and Sweden, are among those countries that have best weathered the economic crisis. Those countries that have suffered most, Greece, Italy, Spain, and Portugal, have all seen spending increases.” (Written by Michael D. Tanner. He is is a senior fellow at the Cato Institute. This article appeared in National Review (Online) on May 8, 2013).
“The course to higher growth leads through structural change and deeper economic integration. All of this is easier said than done, of course. Governance reform to deepen integration can be grueling work. But in light of recurring sovereign debt troubles, it will be crucial to improve collective fiscal discipline. This will require:
* A stronger Stability and Growth Pact
* National fiscal institutions with more say
* Completing the budding European financial stability framework
Stronger economic governance will support confidence in the euro area and help calm down volatile markets that threaten to deter investment and lower growth.Yet, the even bigger worry is that the euro area could fail to lift growth. Higher growth is crucial, not only because it would make for a stronger currency union, but also because the potential for improvement is large. Research conducted as part of the IMF’s regular euro area surveillancesuggests that the right reforms could lift annual growth by about ½ -1¼ percentage points depending on a country’s starting condition—no small feat.
The key will be to make labor and capital more productive through better technological progress, with the help of deregulation and investment in workers’ skills. Growth also tends to be much higher where market integration is deeper, likely reflecting the beneficial impact of competition on investment and Innovation”, wrote Antonio Borges, July 19, 2011; iMF direct, The International Monetary Fund´s global ecconomy forum.
The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.
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