The biggest policy issue of the moment is the Euro, which it can be said without much controversy needs some form of fiscal integrationism, or federalism, to stabilise it. That means Eurobank bonds and a stronger Eurobank. There is no chance of the UK being part of the setup without a very big change in attitude, which is not likely to come before the end of a period to be measured in decades. Something similar applies to Denmark and Sweden. Germany is clearly not eager to be in the position, as the major payer for the European Uni0n, where it is bearing the responsibility for debt in less prudent or less fortunate countries, so some major changes are necessary to make the liabilities acceptable. Of course it is already implicitly liable and has acted accordingly, but there needs to be structural changes and more explicit policies to create a situation acceptable to all.
The European Union should take a relaxed attitude and welcome currency competition within its borders. Despite the debt crisis, and the predictions of most EU sceptics, the Euro is still around and is likely to be around for a long time to come. The Euro can exist with other currencies within the EU and there is nothing wrong with waiting to see if the currencies, other than the Euro, continue to be used much in the long term. Currency competition within the EU may bring some advantages in making the Euro more robust, and it is enough for now that the Euro survives.
The Euro hitched together relatively robust northern European economies and relatively non-robust southern European economies, in the expectation that the weaker economies would respond to the impossibility of competing through currency deflation by making reforms to become more competitive. This did not work out before the crisis and the crisis itself was intensified by that failure. Clearly those EU countries not yet in the Euro should not be pressed to join, in general, for political reasons, and with regard to the poorer countries, because clearly there should be no more experiments in using a single currency as the main instrument for bringing about reform.
Internal reforms are evidently necessary for those countries which have already suffered from falling market confidence, and have undergone painful restructuring, in order to avoid such difficulties in future. If we compare poorer and richer countries within Europe, and indeed globally, we can see how bad policies and poorly functioning institutions hold back development In short policies and institutions serve coalitions of narrow interests rather than universal welfare and public interests. What the key difference are is a matter of some controversy, but for the EU it should be possible to work with reformists forces in poorer countries to build political coalitions against the most blatant vote buying forms of public spending, and those forms of regulation that serve the most flagrant insider group and crony capitalist interests.
This is not just about imposing 'austerity' or 'neoliberalism' on southern Europe. We can argues about whether some austerity measures are necessary or effective, but there must be some limit to how far imbalances between tax and spending are allowed, how far taxes can go up on any one income or economic sector without some negative consequences for economic incentives and therefore for everyone's welfare, and some limits to how much debt is acquired. High debt transfers resources to the holders of government bonds from all tax payers, which does not seem to match any norms of social justice, and at some point self-destructs when lenders stop believing that debt will be repaid.
To a large degree it is saying that 'northern' welfare statism and universal public services are preferable to 'southern' clientelism and favouritism (these broad north-south comparisons may cause irritation, but everyone can recognise they have some truth in them), or a relatively free market plus welfarism is preferable to a relatively statist economy plus vote buying favouritism. This is in some senses a 'neoliberal' thing to say, or at least the 'northern' model is preferable to the 'southern' model from a neoliberal point of view, which is also to say one can have a kind of left neo-liberalism where markets are very open while taxes and benefits are high, along with the provision of public services. I have not noticed that statist economics plus politicised delivery of public services and benefits have been a great boon to the poor (except maybe for a few years before the downside emerges) or to democracy anywhere.
Anyway, if the Euro is to work it will require economic convergence between the economies, and the centrist 'neoliberal' model of northern Europe is the available model for convergence. I can only suggest to those who think welfare, taxes and public spending are too low in the north, too argue to raise them rather than move towards a 'southern' model of protectionism and favouritism as forms of social justice.
The debt crisis, financial markets, and Euro crisis, also bring up issues of public deficits, public debt, regulations and laws concerning financial institutions, along with the economic fundamentals of the Euro. Issues of public debt and deficit spending are further complicated by issues of implicit obligations, eg, future pensions. I have no specific proposals, but policy should be made with regard to the long term and to implicit obligations, and to the likelihood of things going wrong, rather than the assumption that disaster is too improbable to be worth considering.
The Euro project was undertaken with too little regard for manipulation and evasion with regard to its apparent constraints, and the 'north' particularly Germany must share the blame there. With regard to Germany it could also be argued that the Euro before the crisis was overvalued for the south, but not for highly productive German export industries competing on the basis of claims to premium quality, and this complaint is coming back since it has become clear that the Euro survives despite all. It is however clear that Germany and the 'north' will not act so as to devalue the Euro and that the 'south' does not wish to leave the Euro because it perceives crippling problems from lack of confidence if it does leave.
Either reforms are going in the right direction and will continue to do so, or there will be another crisis. I am moderately hopeful that the second scenario is at work, and that the EU is gradually moving towards the kind of mix of strong centralised measures, such as selling EU bonds, flexibility about which countries join some of the grander EU projects (maybe new projects can be launched with a super-majority participating, but not all states), and decentralisation of activity in some areas, which can make the EU a robust project, working in ways consistent with public hopes and expectations. Constitutional changes are necessary sooner or later to entrench all of this, and that could be difficult. Anyway, I have already addressed what I believe would be best in that area. Next and finally, political theory.
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