The Costs of the Euro Voters will finally see what they’ll pay for a European fiscal union.
https://www.wsj.com/articles/the-costs-of-the-euro-1543016358
The euro celebrates its 20th birthday in January, and as if on cue the fiscal costs of the common European currency finally are coming into view for voters. That’s the best reading of the budget principles French President Emmanuel Macron and German Chancellor Angela Merkel agreed to this month.
The bilateral deal, part of the pan-EU negotiation about the European Union’s budget, for the first time contemplates a special fund solely for the 19 countries that use the euro. A pot of money would be created within the EU’s existing budget exclusively for public works or other “investment” projects in euro members. The goal is to create fiscal stabilizers that can moderate economic swings and encourage “convergence” in productivity to avoid future crises.
Most critics have seized on the economics, which aren’t impressive. The size of the budget and funding sources remain up for debate. Keynesians fret that this budget will be too small, reckoning that a budget would need to amount to several percentage points of eurozone GDP to do any good. Their answer to every problem is more public spending.
The real concern should be that a eurozone budget misdiagnoses the eurozone’s ills. The big problem, as European Central Bank President Mario Draghi keeps noting, is the failure to implement supply-side reforms to boost growth and productivity. The Macron-Merkel deal would supposedly condition spending on good policy choices. But if that means abiding by EU budget rules that make tax cuts all but impossible, this exercise will be a flop.
The real motive behind all this is political. Mr. Macron is determined to put the eurozone on course for much closer economic and political integration, perhaps one day including a eurozone finance minister in Brussels and EU power to impose taxes directly instead of relying on contributions from countries.
His boldest dreams remain out of reach for now, but he has won Mrs. Merkel’s assent for a degree of fiscal transfer within the eurozone that Germans have resisted for years. Perhaps Berlin realizes after a decade of bailouts that German taxpayers are on the hook for the euro anyway.
The larger meaning is how far the eurozone has drifted from its original design. The euro was sold to voters as a form of gold standard with a commitment that no member would receive a bailout for its bad debts. Rules capping fiscal deficits at 3% of GDP and total debt at 60% of GDP were supposed to keep countries on the straight and narrow. Those promises would have produced a stronger eurozone if they’d been kept.
But these commitments were honored in the breach in the years before the financial panic of 2008, and then ignored entirely with fiscal transfers to keep Greece and others inside the eurozone. If leaders won’t run the euro in a way that profligate productivity laggards can drop out, then taxpayers in healthier states will inevitably have to open their checkbooks.
The Macron-Merkel plan carries risks of further fiscal waste and higher taxes imposed by distant capitals. But at least it begins to put numbers on the fiscal commitment of the eurozone as it has evolved through its crises. Voters deserve to see this and to decide what they’re prepared to pay. Because they will pay.
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