How to introduce solidarity in the European Union and € ?

Picture of Mikael Hertig

Mikael Hertig is  Master of Politcal Science

A better paradigm for a single European Currency

The current EURO is a rose with a worm inside.  The self destructive  mechanism of a single currency union with unadjusted finance policies has demonstrated  it’s sovereignty over  decisions and governmental powers.  Left unchanged instability will grow. The famous song “Ten green bottles”  tells us what it is all about. The fear og being kicked out as a sinful nation  is nor solely reserved to Greece.  France, Italy, Spain, Belgium? Who is next?

‘EQUALIZING BALANCES OF PAYMENTS IN THE LONG RUN’ PARADIGM

The European Union has a negligible surplus in it’s Balance of Payment. Thus, if EU did not consist of separate nations, the challenge of interior inequalities looks just like the development in Germany after 1999. Since the question of local eastern and western balances of payments has vanished there is nothing to adjust. Federal planning has to dedicate policies to equalize investments and underlying ineqalities in the long run.  As we do know, the separate European countries in EU compete with each other.  Some economists still believe that “the invisible hand” might equalize inequlities itself. However, this article builds on the point of view that this is not the case. Market failures are one type of reasons why this theory just serve as a cover up in maintaining interests of huge international private actors.

What seems to be a zero sum game in a shorter term is in a changing world the opposite. Succesful adjustment needs time.

EU consists of rather well-to-do countries and poor countries. If EU solely should have been characterized by solidarity in economics, it would have been a separate goal to concentrate growth in the poorer countries. As growth in a rich country is more difficult to establish than in a poor one, one might argue that the idea of the single market for labour works in that direction while the single currency until now has been contra productive. However, the stabilization proces is difficult to adress as long as it  seems to turn out as a zero sum game.

THE BALANCE OF PAYMENTS APPROACH TO COMMON CURRENCY

After all, it seems to me to be a good idea to have a look at the development in Balance of Payments.  Have a look here. It is obvious that countries with great foreign debts should be given options to reduce it until the common foreign debts were gathered in one single pool.

Surplus countries as Germany and Denmark are characterized by highly skilled logistics and organization of taxes. They have effectively introduced the new technique in developing competetional strength: “The internal devaluation” .

The cental critique of the Euro Union construction goes as follows. Take a country with stable balance of payments and establish a single currency union with a country with an esay way country as Greece. If we compare the new currency with the original currencies, the single currency (SC) will be rated between the original countris. It will work as a devaluation of the German currency and a revaluation of the greek currency. This will sharpen the German competitiveness and weaken the Greek competitiveness. As time goes by, this mechanism will reinforce the inequalites from the beginning. Among other mechanisms, the centrifugal power of the balance of payments effect on the participating countries seems to have been the real winner. Instead of solidarity in the Union the effect has demonstrated to work destructively.

This is the reason why ordoliberalists and German neurotic thinking austeritarians now must realize the tragic results of their believes. The invisible hand was the dead hand. If some of them really relied in a faith that some mechanism would regulate inequlities automatically they now must wake up and understand how wrong they were.

The question “Who is next?” must be substituted by a “What is next?”.

Living in a world of many challenges inequality is just one of them. However, if Germany and Poland should give up using coal, if education and public efficiency  should be strengthenedn in Greece, the ways are allowing these changes to happen through political decisions in the public sector.

The principle of the new paradigm

1) Instead of  restrictions on public spending, focus must be moved towards each countries balance of payment in the long run. The Union should develop policies to minimize surplus or deficits in each countrys BoP.
2) In short term, fiscal and economical policies should adress cental social phenomena as unemployment, public and private investment and allow kickstarts if convinced that this will result in restoring healthy conditions.
3) Privatization of central infrastructure as water supply, power supply roads and trains has to be decided by each country and not by ECB or self established spokesmen from the rich against the poor countries’ representatives.
4) Credit riscs in tough situations have to be negotiated in terms that allow a democratic government to survive.

 

 

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