- A tumbler has automatic stabilizers – the eurozone has not.
It is one
of the well known problems of the eurozone that it is hardly
possible for the European Central Bank to determine an appropriate
base interest rate, given the different
economic situations of the various member states. In
a time of cyclical recession, inflation rates usually decrease, so
that the central bank lowers the interest rates, which makes credits cheaper, stimulates
the economy, and raises inflation. In
a time of economic boom, by contrast, inflation usually goes up, to what a
central bank responds with heigher rates, which make loans more expensive, cool down the economy, and reduce inflation. However,
if a central bank has to establish a common interest rate for several
countries, some of which are in recession while others are on the upswing,
it faces a virtually impossible task.
This could be observed especially well on the two interest rate hikes in April and
July this year: During this period, Germany experienced an economic
boom that led to a rapid rise in prices here, while the Southern
European countries were still grappling with recession and unemployment.
Therefore, the
latter needed rate cuts in order to revive the
economy, whereas Germany was haunted by inflation fears and called for higher
interest rates. In the end, the
ECB based its strategy on the inflation average of the eurozone as a whole, where, due to its sheer size, the German economy counts most, and
decided to raise the interest rates –
although this led to an aggravation of the economic crisis in southern Europe and ultimately to the loss of tax
revenues, one of the reasons why Greece later missed its savings targets. The fact that since early November the ECB has been lowering its key rate, although the European inflation is
still well above the formal target "below but close to two percent,"
seems to imply that it finally has understood this problem. (In
any case, economists like Paul Krugman have been demanding for a long while a
temporary increase in this inflation target in order to facilitate the
relative lowering of the wage levels of the Southern States against
Germany. Actually, due to the special history of the euro crisis, at the
present time it would be rather desirable if inflation in Germany were higher than in the periphery of the eurozone, but that's another
story which does not address the structural problem that is
the issue of this post).
Counter-cyclical policies
So if now eliminated the central bank as a stabilizing factor in the euro zone, the government would actually asked. One
could respond to the different economic situations and with
counter-cyclical economic policy: If increases during an economic
upturn, the taxes and government spending be reduced, so the brakes also
reduces the boom and inflation. Be
in a recession, however, the increased taxes and reduced government
expenditure, then driven to the inflation and the economy. Would
all members of the euro zone follow this model, the ECB would work much
easier: The states would then self-care that is that their inflation
rates converge strongly, and the concentration of the central bank on
the average would again make sense.Unfortunately
this purpose but it hooks at two points: First, would mean an
anti-cyclical economic policy at the present time, it was Germany that
raises taxes, while the Southern European countries would just increase
their spending. This,
however, the debt crisis in the euro zone would be further aggravated:
an ultimately unsustainable situation that only through a kind of
revenue sharing between the Member States, namely, the dreaded "transfer
union" could be solved. On
the other countercyclical measures are often politically difficult to
enforce: In view of the recession, governments under pressure to
compensate for the revenue loss due to saving in order to present to the
public budget deficits must not be too large. If
it goes the other hand, economically upward, spreading demands for tax
cuts, and the citizens, it is often in Germany, "to participate in the
upturn." (Or,
in the version of Angela Merkel in today's evening news: they wanted to
"thank the citizens for the losses in the economic and financial
crisis.")
Automatic Stabilizers
This being so, have proven themselves in the national economies for decades, the so-called "automatic stabilizers". These include in particular the progressive income tax and social system, especially the unemployment benefits. In
an economic crisis in which unemployment is increasing, and increasing
government spending for unemployment assistance, which has a positive
effect on the demand and the economy and increase inflation. During
the boom, however, the rise in the incomes of the people and
unemployment is falling, the automatic stabilizers lead to increasing
revenues and decreasing government spending, which slows growth and
inflation. Even
if the government itself does not conduct counter-cyclical policy,
developing tax and social system, a counter-cyclical effect.Such a system of automatic stabilizers is lacking on the European level so far. It
would have an EU unemployment assistance, funded by an EU income tax,
equal to a double benefit: you could not only contribute to European
economic fluctuations balance things out - it would also help against
the regional imbalances. For
if in one part of the EU is booming, the economy, while it dies down in
another straight, then would the citizens of this booming part of
increased deposit in the European social system, while the inhabitants
of the region during the recession from unemployment benefits would be
received, this will increase their economic . The economic situation (and inflation) would then be adjusted throughout Europe, the Euro zone would gain stability.The
difference between such a pan-European system of automatic stabilizers
and a transfer union qua countries financial compensation would be to
bypass the national level. States
would not show solidarity with each other, but citizens: Deposit would
not "the Germans", but the Europeans will benefit high-income, and would
not "Greeks" and "Portuguese", but European unemployed, of use to the
public acceptance of the measure without a doubt would. It
would also be of macroeconomic management much easier to coordinate the
economic policies instead of 17 or 27 sovereign member states, could
the level of European income tax and unemployment assistance from the
European Parliament and the Council shall be established by majority
decisions. And
as opposed to a inter-governmental financial compensation agreed
country (whether the EFSF now, Euro Bonds or otherwise) is called a
European social welfare system would be subject to such by the European
Parliament and of the direct control of a democratically elected body.Sure,
but it would take only once a reform of Article 153 TFEU (for EU
unemployment assistance), a new own resources decision (for the EU
income tax) and a new German constitution (the Lisbon decision of the
Federal Constitutional Court). But
that should not deter us, to give the European Economic and Monetary
Union, the transfer mechanisms, it needs to be a true "Union Stability."
No comments:
Post a Comment