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JP Floru is the Director of Programmes at the Adam Smith Institute.
The age of irresponsibility is here to stay, it appears. One person makes a mistake, and another person is supposed to foot the bill. Or bail out, as the new terminology goes.
The Greek government lives above its means? European politicians want the German taxpayers to pay up.
European bankers stupidly bought Greek and Italian debt? They want the Eurozone to guarantee it.
Germany stupidly allowed Greece into the Euro? Angela Merkel wants the UK to pay up through a Financial Transaction Tax.
British politicians stupidly transferred powers to Brussels and are now on the hook for Euro mistakes? Our ministers tell Merkel to print money to solve the problem.
Apart from the buck-passing, there is another pattern. The consequences are tackled; never the root cause. The root cause of the Euro problem is governments spending beyond their means. We speak about contagion, but it’s unclear who infected whom with this disease. Superficially, the Club Med countries seem most affected. In reality, virtually all EU governments are guilty of this.
24 of the 27 EU countries increased their state spending in the last decade. But “the voices” tell us that Club Med countries are unlikely to be able to make their economies grow sufficiently to ever be able to pay it all back.
Bundesbank Chief Jens Weidmann is absolutely right when he states that Italy must sort out its own problems. Chancellor Angela Merkel is right on the ball when she rules out Eurobonds, debt-pooling or any form of fiscal transfers. Neither the German taxpayer, nor any other EU taxpayers, should have to foot the bill for banana republic economics. In fact, perhaps Germany should insist on doing absolutely nothing: spendthrift countries will simply go down the drain unless they come to their senses. The market will force the Club Med countries to finally behave responsibly. Would the other Eurozone countries suffer as well? I am not sure. I think a persistent German “Nein” would make it clear to world markets that some countries have not lost their fiscal and economic sense. A clear “Nein” to bailing out irresponsible governments would send exactly the right signal. As a result, the Euro as a whole might not unduly suffer.
For Germany, and others, it would be hypocritical to suddenly appear holier than holy. The EU has encouraged failure for decades. The European Structural Funds and Cohesion Fund are going to throw 347 billion Euros at failing regions between 2007 and 2013 alone. Why introduce more economically responsible government, if the EU throws money at you when you don’t? Demanding cash from German taxpayers is nothing new.
In addition, Germany has of course already caved in on the Europeanisation of Club Med debt, through the mechanism of the European Financial Stability Facility. The EFSF can raise its capital through the issuance of bonds, guaranteed by all. Fortunately, the EFSF’s capital is limited – not open-ended, as the spendthrift governments and irresponsible bankers would have liked it.
On the Irresponsibility Scale, printing money surely tops it all. Short of cash? Print it! Our own Ministers have apparently told Angela Merkel to do precisely that. I am in favour of free schools, but I must admit that the President Mugabe School of Economics was not precisely what I was thinking of. With money printing and resulting inflation all pay for the mistakes of some. How 2011.