Tuesday, March 10, 2015

Thomas Piketty on the Euro Zone – 'We Have Created a Monster' — Spiegel Interview by Julia Amalia Heyer and Christoph Pauly

We may have a common currency for 19 countries, but each of these countries has a different tax system, and fiscal policy was never harmonized in Europe. It can't work. In creating the euro zone, we have created a monster. Before there was a common currency, the countries could simply devalue their currencies to become more competitive. As a member of the euro zone, Greece was barred from using this established and effective concept....
Piketty's prescription? Varoufakis's prescription: democracy and federalization. Basically imitate the US with European nations like US states, but with European characteristics.
In the long run, we need a fiscal union in Europe that is democratically legitimized [by a eurozone parliament]....
Spiegel Online International
Thomas Piketty on the Euro Zone: 'We Have Created a Monster'
Interview by Julia Amalia Heyer and Christoph Pauly
ht Mark Thoma at Economist's View

15 comments:

Ralph Musgrave said...

Under fiscal union there’d still be limits to the amount that German taxpayers would be willing to donate to Greeks. Fiscal union is not a panacea.

Tom Hickey said...

Right. Fiscal union is confederation, not federalization.

Really depends on the amount of sovereignty.

In the US the states are "sovereign" but their sovereignty is limited constitutionally within the federation. States run their own budgets and have the power to tax but they don't have the money power. The federal government has the money power, the power to tax, and the power to budget as the federal government decides through representatives elected from the various states.

Is Europe ready for full federalization? What would a Constitution of the United States of Europe look like?

Kristjan said...

There is not going to be a fiscal union. It's time for these dreamers to fuck off. You need referendums in member states to change their constitutions for that. ESM was already on border line with constitutions in many member states. Courts ruled that it was ok, many legal experts argue till now that it is not ok.

French European Constitution referendum, 2005 http://en.wikipedia.org/wiki/French_European_Constitution_referendum,_2005

The French referendum on the Treaty establishing a Constitution for Europe was held on 29 May 2005 to decide whether France should ratify the proposed Constitution of the European Union. The result was a victory for the "No" campaign, with 55% of voters rejecting the treaty on a turnout of 69%.


The federalisation proccess has stopped, they cannot go ahead. I am not just saying this because I don't like United States of Europe, there is not going to be USE any time in the near future. Politicians might dream of everyting but they cannot trash constitutions without the people agreeing to It.

No Ralph, if it was fiscal union, the Germans wouldn't have any say in this. Just like New Yorkers can't complain that New Mexico is net receiver and New York is net payer.

Anonymous said...

…. and remember, the main reason why they wanted union in the first place was because they were tired of fighting with each other, and laying waste the landscape and human lives; they wanted a peaceful Europe and easier trade with each other. All they had to do was stop fighting! And stop letting idiots lead them into more and more trouble.

Obvious solution would be to put the leaders in a boxing ring and let them sort themselves out – then it would be just good Friday night entertainment instead of suffering and fiasco.

Paulo Garrido said...

"What would a Constitution of the United States of Europe look like?"

The most ridicule text ever written.

Matt Franko said...

"the countries could simply devalue their currencies to become more competitive...."

I would take issue with this in that is not what happens in terms of govt policy...

Iow you dont see govt typically do this as stated policy.... but agree this result does often happen in the observed exchange rates. ..

Greek olive oil exporters would become more competitive by lowering the price per litre of their oil in deutschmark terms .... rsp

Tom Hickey said...

"What would a Constitution of the United States of Europe look like?"

The most ridicule text ever written.


That's what I was suggesting. Any constitution that would pass in the national referenda required for adoption would be quite a hodgepodge of qualifiers.

Anonymous said...
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Anonymous said...

I doubt a movement for a more integrated Europe would start with a constitution. It would first involve a series of ad hoc fiscal treaties.

Anyway, the status quo can't survive. There are only two directions: greater integration or movement toward dissolution. It's up to the next generation. If they want integration it is going to have to be driven by a (somewhat chaotic) mass movement. If they want to go the other way, then they should get started. Otherwise they are choosing stagnation and dysfuction as a way of life.

Tom Hickey said...

I doubt a movement for a more integrated Europe would start with a constitution. It would first involve a series of ad hoc fiscal treaties.

That's why talking about federation or federalism is blowing smoke.

The problem with fiscal treaties is that the perception is that unless the structure of the EZ were altered fundamentally, taxpayers in one country would be paying for other countries in the union. This is the basic stumbling bloc now. Talking about fiscal union, or even steps to it, without addressing who pays is also blowing smoke.

Kristjan said...

Breaking up EZ is not even an opion in anyones mind (including Piketty). This thing can only end in a catastrophy. If there is something apriori given in European politicians minds then that's euro. If you think about It, there is a lot on scale. i can't imagine how European agricultural policy could be managed without euro. It could be done probably without each state going into protectionism (like IMF's SDR-s for example). And let's face it, every state adopting its own currency would probably create chaose. You are not being taken seriously in European politics if you talk about abandoning euro. Only radicals do that. They are mostly exluded from politics right now but is is changing.

Kristjan said...

"I doubt a movement for a more integrated Europe would start with a constitution. It would first involve a series of ad hoc fiscal treaties"

It cannot be done without member states altering their constitutions. US government cannot join a union that has a superior legal entity to Congress and that can demand payments from US. You need people's consent for that, the politicians can't do It without it.

Anonymous said...

"It cannot be done without member states altering their constitutions. US government cannot join a union that has a superior legal entity to Congress and that can demand payments from US. You need people's consent for that, the politicians can't do It without it."

You don't need to alter constitutions. You just need to make foreign treaties. The US government has made many such treaties, and the constitution provides a mechanism for their rectification - after which point they become binding US law. Europeans all possess similar mechanisms. They can make fiscal treaties without changing their constitutions.

Kristjan, if you are representative of most Europeans, then I think Europe is lost in hopeless and escapist double-thing. Breaking up the EZ is unthinkable, but so is strengthening the EZ with increased fiscal union. Well, then, enjoy your double digit unemployment and flat growth.

Kristjan said...

"Kristjan, if you are representative of most Europeans, then I think Europe is lost in hopeless and escapist double-thing. Breaking up the EZ is unthinkable, but so is strengthening the EZ with increased fiscal union. Well, then, enjoy your double digit unemployment and flat growth."

This is exactly how it is unfortunately. If I was a politician, I could not change much if breaking up the union was not an option. That's why you see these left governments taking a blame (Hollande, Tsipras etc), they cannot do nothing really within the euro. Fiscal union without federation creates enormous moral hazard. I have talked to politicians who I can elect, sovereign governmernt and European Parliament. They say in European Parliament they cannot do nothing to end austerity, they are just rubber stamp of the commission. In state government they can do as much as Greece government is doing right now.

Now let's say the opinion changes and miracle happens. Troika, "the institutions" are encouraging member states to deficit spend and under current set up, there is no federal union. There are going to be enormous imbalances in between member states, and sure technically the euros are never going to end. I don't know if this is what the europhiles have in mind? If this is what what they have in mind then Mario draghi is right, Europe is not like America, there is no alternative to structural reforms and structural adjustments. Yes you could change Germany's policy a little by letting it deficit spend a little more but it is not a solution. Minimum wages differ about ten times in EZ!

Tom Hickey said...

The problem in Europe is not the euro, which can be made to work quite simply if there would be a will to do so.

The problem is not economic as much as social and political and it can be summed up in one word — nationalism.

The US had the same problem leading up to the American Revolution when people associated themselves with former colonies before they were states in a confederation under the Articles of Confederation and then federation as the United States of America. This is something that the US did eventually largely overcome, but only after a bloody civil war and an ugly aftermath lasting over a hundred years, which is not completely healed yet.

The US had the advantage of a single predominant language and the colonies were organized and administered on the British model.

IN Europe, the introduction of a common market and then common economic system and currency was supposed to provide what Europe lacked in other commonality and to overcome the differences that had previously led to conflict — nationalism, culture, religion and language. It also avoided the economic asymmetries that could be expected to present problems unless everything went smoothly according to plan.

Now Europe finds itself in a dilemma of not being able to continue on the present course without increasing the conflicts that the EZ was supposed to eliminate by either going forward, which seems impossible because of those conflicts, or going back to the status quo ante, which presents unpalatable consequences, too.

So what we see is economic duress rising and social unrest increasing, leading to the same kind of conflicts that Europe has been faced with historically.

And now the US is forcing a new level of conflict on Europe by stirring up its old nemesis, Russia.

These folks need to wake up and realize that this is not really about economic issues but social and political ones, and they had better get busy facing them pronto.